Explanatory Materials for
Financial Results
Second Quarter of the fiscal year
Ending March 31, 2023
IWATSU ELECTRIC CO., LTD. | November 21, 2022

Table of Contents

1

Results for Second Quarter of Fiscal Year Ending March 31, 2023

2

Forecast for the Fiscal Year Ending March 31, 2023

3

Progress of Medium-term Management Plan

4

Supplementary Materials© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

2

1

Results for Second
Quarter of Fiscal YearEnding March 31, 2023

Second Quarter of the Fiscal Year Ending March 31, 2023: Review of External Environment
The external environment surrounding the Group and the major impacts on the Company’s business are as follows⚫ The global economy is experiencing high inflation mainly due to soaring resource and energy prices stemming from Russia's invasionof Ukraine.

External
Environment⚫ Raw material procurement costs soared (but are currently on a high level) due to a supply shortage of semiconductor parts, risinglogistics costs, and a sharp depreciation of the yen against a backdrop of widening interest rate differentials between Japan and theU.S.

⚫ While there remains a risk of re-spread of COVID-19, both prevention of infection and economic activities have been progressing, andconsumer spending and corporate capital investment are recovering.

Business communication
systems

While sales of some merchandise and finished goods that had been stagnant since the previous fiscal year due toparts procurement difficulties have been completed, the supply-demand balance remains tight, and risks such as
sales delays and increased procurement costs remain.

Printing systems

The Company has struggled due to the stagnation of the printing market as a whole, impacted by work style reforms
and other factors accelerated by the pandemic.

Test and measurement
equipment

Sales of power electronics-related products and electronic components increased due to supply shortages ofsemiconductors and other components.

Major Impacts on
Business

Property leasing© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

Due to improved occupancy rates, income-producing properties have generally been operating at a steady pace.

4

Financial Highlights for the Second Quarter of the Fiscal Year Ending March 31, 2023
While there were signs of economic recovery, the sharp rise in raw material prices due to supply shortages of manufacturingcomponents, especially semiconductors, and the rapid depreciation of the yen resulted in a year-on-year increase in revenue, but adeterioration in the cost rate led to a decrease in profit.

Results for 2Q ofthe fiscal year
ended March 31,
2022

Results for 2Q ofthe fiscal year
ending March 31,
2023

Revenue

108.2

110.2

Operating profit

(2.8)

(4.7)

Ordinary profit

(2.2)

(4.3)

Profit attributableto owners ofparent

(1.4)

(4.2)

(0.6%)(1.7%)(¥100 million)

ROE

Year-on-year+2.0[+1.8%]

(1.8)
[-]

(2.1)
[-]

(2.8)
[-]

(1.1%)

Company plan for
2Q of the fiscal
year ending March
31, 2023*

109.2
(6.9)
(6.6)
(6.2)
(2.5%)

Contrast with plan

+0.9[+0.9%]

+2.3
[-]

+2.3
[-]

+1.9
[-]

+0.8%

※ Planned figures for the second quarter of the fiscal year ending March 31, 2023 (cumulative) have not been disclosed at the beginning of the fiscal year.
© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

5

Analysis of Changes in Consolidated Operating Profit for the Second Quarter of
the Fiscal Year Ending March 31, 2023(¥100 million)

Main causes of change⚫ Increase in revenue: +¥190 million
Operating profit increased in line with the increase
in revenue⚫ Foreign exchange impact and increase in raw
material prices: -¥190 million
Cost of sales deteriorated due to the sharp
depreciation of the yen and price hikes caused byshortages in the supply of manufacturingcomponents

1.9

(1.9)

(2.8)

2Q of FY ended
March 31, 2022

(1.3)

Increase inrevenue© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

Foreign exchange
impact and increase in
raw material prices

Increase in loss
from inventory
valuation(0.5)

Increase in selling,
general andadministrative
expenses, etc.

(4.7)

2Q of FY ending
March 31, 2023

⚫ Increase in loss from inventory valuation: -¥130
millionLoss from inventory valuation increased and costof sales deteriorated as a result of advancearrangements made in preparation for difficulties in
obtaining raw materials⚫ Increase in selling, general and administrative
expenses, etc.: -¥50 million
Decreased by ¥80 million due to lower personnel
costs and expenses containment, but increased by¥130 million due to expenses related to themedium-term management plan measures6

Segment Overview: Business Communication Systems● Revenue, Segment Profit/Loss(¥100 million)(¥100 million)

120

6Reference

Main causes of change

5.2

85.2
80

10.0
11.6
6.3

85.8
11.7

84.9
3.9

7.7
7.7

11.6

4

11.3
6.0

Segment profit/loss (right axis)

2.6
40

2
57.3

58.7

Revenue (left axis)
Other

56.0

Contract production
Cloud
solution00

2Q of FY ended
March 31, 2022

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

2Q of FY ending
March 31, 2023

⚫ Revenue
Revenue was ¥8.58 billion, an increase of
0.7% year on year, due to increase inbusiness phone and contact center
solution sales, despite decrease incontract production at a manufacturingsubsidiary due to parts procurement
difficulties⚫ Segment profit/loss
Although revenue increased, segment
profit was ¥390 million, decrease of ¥130
million year on year, due to a worsening
cost rate caused by higher raw material
costs, etc.

Business phone

2Q of FY ending
March 31, 2023
(Company Plan)

7

Segment Overview: Printing Systems● Revenue, Segment Profit/Loss(¥100 million)(¥100 million)

10

Reference

7.8

7.3

Main causes of change

2⚫ Revenue
Revenue was ¥730 million, a decrease of
6.4% year on year, mainly due to adecrease in consumables sales due to alast-minute rush of demand before the pricerevision at the end of the previous fiscal
year

7.2

1

Segment profit/loss (right axis)00
2Q of FY ended
March 31, 2022

2Q of FY ending
March 31, 2023

2Q of FY ending March 31,
2023 (Company Plan)

△1.2
-1.2

△1.2
-1.2

△0.8
-0.8

△10
-10

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

Revenue (left axis)△1-1⚫ Segment profit/loss
Although revenue decreased, segment
profit remained unchanged year on year ata loss of ¥120 million due to a decrease in
selling, general and administrative
expenses△2-2

8

Segment Overview: Test and Measurement Equipment● Revenue, Segment Profit/Loss(¥100 million)(¥100 million)

20

Reference

14.4

Main causes of change

2⚫ Revenue
Revenue was ¥1.44 billion, an increaseof 10.0% year on year, mainly due to anincrease in electronic components

14.5

13.1

10

6.0

7.0

6.0
1
8.5

7.0

0.1

Segment profit/loss (right axis)

7.4

0.4

Revenue (left axis)

0.5Electronic components

00
2Q of FY ended
March 31, 2022

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

⚫ Segment profit/loss
With the increase in revenue, segment
profit was ¥40 million, an increase of¥30 million year on year

2Q of FY ending
March 31, 2023

Test and measurement equipment

2Q of FY ending
March 31, 2023
(Company Plan)

9

Segment Overview: Property Leasing● Revenue, Segment Profit/Loss(¥100 million)(¥100 million)

5

Reference2⚫ Revenue
Mainly due to improved occupancy
rates in properties for lease, revenue
was ¥270 million, an increase of 26.8%
year on year

4

2.7

3

2.1
2

Main causes of change

2.8
1⚫ Segment profit/loss
Mainly due to the increase in revenue,
segment profit was ¥70 million, an
increase of 143.2% year on year

0.7
0.6
Segment profit/loss (right axis)

1

0.3
Revenue (left axis)00
2Q of FY ended
March 31, 2022

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

2Q of FY ending
March 31, 2023

2Q of FY ending
March 31, 2023
(Company Plan)

10

Consolidated Balance Sheet for the Second Quarter of the Fiscal Year Ending
March 31, 2023

As of March 31, 2022

As of September 30, 2022(¥100 million)

Change fromprevious year

Current assets

172.3

167.2

(5.1)

Non-current
assets

192.1

187.2

(4.8)

364.4

354.5

(9.9)

Current
liabilities

42.7

37.0

(5.7)

Non-current
liabilities

68.0

68.5

+0.5

Total assets

Total liabilities

110.8

105.6

(5.3)

Net assets

253.5

248.9

(4.7)

Total liabilities andnet assets

364.4

354.5

(9.9)

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

Main causes of change⚫ Current assets: -¥510 million
Cash and deposits: -430
Accounts receivable-trade: -890
Raw materials and supplies: +490
Work in process: +290
Other +30 etc.
⚫ Non-current assets: -¥480 million
Property, plant and equipment: -110
Intangible assets: -190
Investments and other assets: -180
⚫ Current liabilities: -¥570 million
Notes and accounts payable-trade: -260
Other: -310, etc.
⚫ Non-current liabilities: +¥50 million
Retirement benefit liability: +80
Other: -30, etc.
⚫ Net assets: -¥470 million
Retained earnings: -670
Foreign currency translation adjustment:+260, etc

11Consolidated Statement of Cash Flows for the Second Quarter of Fiscal Year Ending
March 31, 2023
Cash and cash equivalents as of September 30, 2022 were ¥5.32 billion, down ¥430 million from the end of theprevious fiscal year
Major breakdown items
Six months ended
September 30, 2021

Six months ended
September 30, 2022

Year-on-year(¥100 million)

Cash flows fromoperating activities

10.1

(0.5)

(10.7)Cash flows frominvesting activities

(3.9)

(1.8)

+2.1

6.3

(2.3)

(8.6)

Free cash flows

Cash flows fromfinancing activities

(4.0)

(2.5)

+1.5

Cash and cash
equivalents

55.9

53.2

(2.7)

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

⚫ Cash flows from operating activities:-¥50 million
Loss before income taxes: -410
Depreciation: +530
Decrease in trade receivables: +940
Increase in inventories: -700
Decrease in trade payables: -300 etc.
⚫ Cash flows from investment activities:-¥180 million
Purchase of property, plant and equipment:-120 etc.
⚫ Cash flows from financing activities:-¥250 million
Dividends paid: -250 etc.

122Forecast for the
Fiscal Year Ending
March 31, 2023

Earnings and Dividend Forecast for the Fiscal Year Ending March 31, 2023
No change in earnings and dividend forecast at this time. With respect to the impact of soaring raw material prices and the yen’s
depreciation, the Company intends to strengthen our response, including reviewing our procurement methods and passing on thecost of raw materials to our customers. The progress of this may affect our business performance.

(¥100 million)

Results for the
fiscal year
ended March 31,
2022

Forecast for the
fiscal year
ending March
31, 2023

231.8

237.0

Revenue

Operating profit

5.0

(4.0)

Ordinary profit

5.9

(3.5)

Profit attributableto owners ofparent

6.0

(3.5)

2.4%

(1.5%)

ROE

Changes fromprevious year(%)⚫

The plan will remain unchanged inconsideration of the impact of parts availability
difficulties, etc., despite expectations that the
pandemic will be resolved and economic
activities will return to normal⚫

Deteriorating cost rate is a concern due toincreasing raw material prices caused by the
prolonging of the situation in Ukraine⚫

An operating loss, ordinary loss and loss are
expected due to one-time expenses aimed
towards the future as we promote structuralreforms based on the new medium-term
management plan “REBORN”

Revenue+5.2[+2.2%]

(9.0)
[-]

(9.4)
[-]

(9.5)

Operating profit
Ordinary profit
Profit

[-](3.9%)※ As initially announced, no year-end dividend will be paid for the fiscal year ending March 31, 2023, due to the forecast of planned loss based on the new medium-term management plan.
The Company will continue to make concerted group-wide efforts to further enhance corporate value and strengthen shareholder returns.
© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

14

3

Progress of Mediumterm Management Plan

Progress of Medium-term Management Plan

Tier 1

Thorough reduction of fixed costs

Although we do not expect the amount of profit improvement in tier 1 and tier 2 (next page) to materialize significantly in FY2022, weare generally on track to ensure its realization within the REBORN period.
Theme(Tier 1)

Contents⚫ Reduction of property maintenance costs for

Cost reduction of Kugayama
Headquarters

Kugayama Headquarters, etc.
⚫ Improved efficiency of indirect operations(Review of operations through the introduction of
ERP, etc.)⚫ Improved efficiency of production system withmultiple locations

Improved efficiency of
production⚫ Improvement of product organization andpurchasing methods⚫ Improved production efficiency through factory

DX, etc.

State of progress･ The Company is promoting various
measures to reduce property
maintenance costs.
･ The introduction of a new ERP(contracted) scheduled for the next
fiscal year is progressing asplanned.
･ The Company initiated practicalmeasures to improve the efficiency
and to review the production system.
･ Although there are some delays in
the liquidation of products, otheritems are progressing as planned.

The amount of operating
profit improvement for the
fiscal year ending March 31,
2023 (Plan)¥0 million¥40 million⚫ Reduction of obsolete parts support

Improved efficiency ofdevelopment⚫ Commonization of multiple business phonearchitectures, etc.
⚫ Reduction of outsourcing costs by increasing in-

Each measure to improve
development efficiency has generally
progressed as planned.

¥0 million

As a foothold for reviewing businessprofitability, Iwatsu Chemical Cross
Co., Ltd. was established in Octoberof this year.

¥0 million

house production
Review of businessprofitability© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

⚫ Review of printing business operations

16

Progress of Medium-term Management Plan

Theme
(Tier 2)Tier 2

Contents⚫ Accelerate overseas expansion (China, Europe,

Growth of test andmeasurement equipment

America) with a focus on instrumentation in the
power electronics-related field⚫ Expand lineup of power electronics-related

products⚫ Strengthen subscription business• Strengthen the business of promoting DX in

Growth of business
communication systems

the office• Shift to cloud-based services for contact

center systems⚫ Strengthen contract production business

Promote growth strategies through businessselection and concentration and alliancesState of progress

The Company are preparing foroverseas expansion (started toconsider strengthening Europe andentering North America with ourpartners) and expanding our productlineup online in line with our plan.
The shift to cloud-based services forcontact centers remained steady. To
strengthen the contract production
business, a joint project between thedevelopment and production
divisions was launched to acquire
specific projects.

The amount of operating
profit improvement for the
fiscal year ending March 31,
2023 (Plan)¥30 million¥0 million⚫ Initiatives in advanced technologies such as 5G-

related technologies, energy, healthcare,materials, etc.
New area development⚫ Expansion of IoT business through integration of

information and communication technology andelectronic measurement technology

As for local 5G, we have started verification tests
mainly for plants, and have also started
development of prototypes based on transparent
electrode technology.

⚫ Create new markets by applying chemical

technology cultivated in the printing business© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

17

ESG Initiatives
See business and sustainability as an integral part of the Company, and pursue increased corporate value andsustainable growth through the promotion of ESGmanagement.
Examples of Initiatives

December 2021

Submitted a letter of commitment to “SBTi*” to obtain SBT certification
within two years
To promote GHG emission reductions toward FY2030 in order to specifically address climate change.

August 2022

Endorsement of TCFD (Task Force on Climate-related
Financial Disclosures)
Work on disclosure of information on climate change-related risks and opportunities
identification, scenario analysis, governance, etc., based on the TCFD recommendations.

Published “Sustainability Report FY2022”
October 2022

Taking advantage of the formulation of the medium-term management plan and theacceleration of ESG management, we will advance the disclosure of sustainability policies
and initiatives from an ESG perspective and report on ESG in a unified manner.

*An international initiative jointly established by four organizations: WWF (World Wildlife Fund), CDP, WRI (World Resources Institute), and the United Nations Global Compact.
It is encouraging companies to set science-based reduction targets toward the goal of limiting the increase in average global temperature to 1.5°C above pre-industrial levels.
© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

18

4

Supplementary
Materials

Company Outline● Company Outline
Company NameIWATSU ELECTRIC CO., LTD.

Established

August 14, 1938

Headquarters
Address

1-7-41 Kugayama,Suginami-ku, Tokyo168-8501, Japan

Tel./Fax

Tel: 03-5370-5111 Fax: 03-5370-5115 (main)

Details ofBusiness⚫ Development, manufacture and sale of equipment and service
provision in the business communication systems, printing systems
and test and measurement equipment fields
Property leasing, etc.
⚫ Company Brochure (PDF)

Representative

Shogo Kimura, President

Capital¥6.0 billion (as of March 31, 2022)

Revenue

Consolidated ¥23.1 billion (FY 2021)

Number of
Employees

Non-consolidated 433; Consolidated 1,258 (as of March 31, 2022)

Major Financial
Institutions

MUFG Bank, Ltd.
Mitsubishi UFJ Trust and Banking Corporation
Mizuho Bank, Ltd.
Sumitomo Mitsui Banking Corporation

Construction
License● Domestic Locations
Hokkaido BranchWestern-Japan Branch
Chushikoku Region Office

Tohoku Branch
Kita-Kanto Region Office

Kyushu Branch

Licensed by Minister of Land, Infrastructure, Transport and Tourism(Han-3) No. 26305
Telecommunications work and electrical work

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

Chiba Region Office

Headquarters

Central-Japan Branch

20

History
August 1938

IWATSU ELECTRIC CO., LTD. established in
Yoyogi-Uehara-cho, Shibuya-ku, Tokyo

April 1991

Iwatsu (Malaysia) Sdn. Bhd. (a consolidated subsidiary)established in Malaysia

October 1943

New office building completed in Kugayama,
Suginami-ku, Tokyo
Headquarters moved from Yoyogi-Uehara-cho

July 2009

Acquired shares of Lee. Netsolutions Co., Ltd. (nowgroxi.Inc, a consolidated subsidiary)

October 2009

Acquired shares of Dentsu Service Co., Ltd. (aconsolidated subsidiary)

July 2016⚫ Integration of three subsidiaries: Iwatsu Sales Co., Ltd., Iwatsu

December 1945 Branch office established in Nagoya City (nowCentral-Japan Branch)

December 1952 Branch office established in Osaka City (nowWestern-Japan Branch)

Test Instruments Corporation and Media Comfort Corporation⚫ Merged Fukushima Iwatsu Co., Ltd. with Denshi Kako Co., Ltd.
and changed its name to Iwatsu Manufacturing Co., Ltd.

June 1954

March 1957

April 1970

Branch office established in Fukuoka City (nowKyushu Branch)

Listed on the First Section of the Tokyo Stock
Exchange
Fukushima Iwatsu Co., Ltd. (now Iwatsu Manufacturing Co.,
Ltd., a consolidated subsidiary) established in Fukushima
Prefecture as a production base for business phones© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

October 2019

Lee. Netsolutions Co., Ltd. changed its name to groxi.Inc

July 2021

Iwatsu Network Solution Co., Ltd. (a consolidated subsidiary) wasestablished by spinning off part of IWATSU ELECTRIC CO.,LTD.’s business communication systems business in the Tokyo
metropolitan area and Iwatsu Business Services Co., Ltd.’sbusiness communication systems sales and installation business

October 2022 Iwatsu Chemical Cross Co., Ltd. (consolidated
subsidiary) was established by merging part of theprinting systems operations of IWATSU ELECTRIC CO.,LTD. with Iwatsu Manufacturing Tochigi Plant
21

Business Overview
The Company, founded in 1938, and the Group are mainly engaged as a manufacturer of business communication
systems, printing systems and test and measurement equipment, as well as property leasing.
Revenue composition ratio (FY ended March 31, 2022)

Property leasing
2.0%
Test andmeasurement
equipment¥23.18Business
communication
systems
77.3%

billion

12.7%
Printing systems
8.0%

Test and measurement equipment
For more than 60 years, sinceoscilloscopes
were
first
introduced in Japan, we havepursued higher performanceand multifunctionality in test
and measurement equipmentused not only in industry but Semiconductor Curve
Tracermany other research andCS-8000
Seriesdevelopment and educational
fields.

© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

Business communication systems
The Company was founded
as a telephone manufacturer.
The Company has built up a
history of manufacturing andselling business phones andproviding contact centersystems, and has begun
offering cloud services aswell as IoT products and web
communication services inrecent years.

Example of an officewith the “Frespec”
business phonesystemProperty leasing

Printing systems
Starting with the manufactureand sale of plate makers,
which are machines used tocreate printing plates, theCompany has captured thewave of digitalization in theprinting market in recent
years and has responded to
new needs by introducing
digital label printing machines
to the market.

Group companies

The Company leases andmanages property holdings,
strategically and efficiently
linking its property leasing tobusiness performance andimprovingtheGroup’s
profitability.
Prime Terrace
KAMIYACHO (Exterior)⚫ Iwatsu Manufacturing Co., Ltd.
⚫ Iwatsu Network Solution Co., Ltd.
⚫ Dentsu Service Co., Ltd.
⚫ Iwatsu System & Software Co., Ltd.
⚫ Iwatsu Business Services Co., Ltd.
⚫ Tohtsu Industry Co., Ltd.
⚫ groxi.Inc⚫ Iwatsu (Malaysia) Sdn. Bhd.
⚫ Iwatsu Chemical Cross Co., Ltd.

22

Capital Investment, R&D Expenses and Depreciation Forecast for the
Fiscal Year Ending March 31, 2023

*No revision from the initial
forecast.

● Capital Investment● R&D Expenses● Depreciation(¥100 million)(¥100 million)(¥100 million)

105

Tangible

Intangible, others

20

18.8

102.1

15

16.1

100

15.9
10.8

15
7.8

10

95
15

6.88

10
5

7.3

10

94.3

5.73
1.06

0.43
6.5

4.7
FY ended
March 2022

5
5

0

0

FY ended
March 2021

0
FY ended
March 2021

11.3

FY endingMarch 2023
(forecast)

FY ended
March 2022

FY endingMarch 2023
(forecast)Fiscal year ended March 31, 2022

Fiscal year ended March 31, 2022

⚫ Tangible decreased mainly due to acquisition of new income-⚫ Decreased ¥270 million due to development costs ofproducing properties in the previous fiscal year of ¥8.80 billion

FY ended
March 2021

FY ended
March 2022

FY endingMarch 2023
(forecast)Fiscal year ended March 31, 2022
⚫ Increased ¥350 million due to investment in development of

the successors to the mainstay products in theprevious fiscal year

the successor models to the mainstay products anddepreciation of new income-producing properties

Fiscal year ending March 31, 2023

Fiscal year ending March 31, 2023

⚫ Intangible and others decreased mainly due to the recording ofsoftware for the successor to the mainstay products of theprevious fiscal year

Fiscal year ending March 31, 2023
⚫ Tangible, intangible and others forecast to increase¥110 million compared to the previous fiscal year
© 2022 IWATSU ELECTRIC CO., LTD. All Rights Reserved.

⚫ Forecast to decrease ¥20 million compared to theprevious fiscal year

⚫ Forecast to increase ¥50 million compared to theprevious fiscal year

23

Caution Regarding Forward-Looking Information
Statements in this document regarding future plans, forecasts, strategies and other future information of the Company and the Group are basedon certain assumptions that the Company determines to be reasonable based on information available at the time this document was prepared,
and actual results may differ significantly from these assumptions. These statements regarding forward-looking information involve a variety ofrisks and uncertainties, the principal ones are listed below, but this list is not exhaustive.
⚫ Trends at major customers⚫ Bias towards second-half
performance

partners, etc.
⚫ Litigation and other legal
proceedings⚫ Intensifying market⚫ Natural disasters, etc.
competition with competitors ⚫ Information leaks⚫ Deterioration in business⚫ Spread of infectious disease
performance of business⚫ Procurement risks (e.g.,
supply shortages due to rapidchanges in international
conditions and increasingprocurement prices)⚫ Economic trends

The statements contained herein do not constitute a public offering of securities.