NSD : 1Q Financial Results - Year ending March 31, 2024

July 31, 2023

Appendix to "Consolidated Summary Report"

for the First Quarter of the Fiscal Year Ending March 31, 2024 (under Japanese GAAP)

	Table of Contents
1. Results of Operations and Financial Conditions	2
(1)	Operating Results	2
(2)	Financial Conditions	5
(3)	Information on Financial Forecasts	5
2. Quarterly Consolidated Financial Statements and Notes	6
(1)	Quarterly Consolidated Balance Sheets	6
(2)	Quarterly Consolidated Statements of Income and Quarterly Consolidated Statements of
	Comprehensive Income	8
(3)	Notes to Quarterly Consolidated Financial Statements	10
	Notes on Premise of Going Concern	10
	Notes on Substantial Changes in the Amount of Shareholder's Equity	10
	Application of Accounting Methods Specific to Quarterly Consolidated Financial Statements ...	10
	Segment and Other Information	10
	Revenue Recognition	12

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1. Results of Operations and Financial Conditions

(1) Operating Results

【Business Environment】

During the first quarter under review, the Japanese economy remained on a gradual recovery trend, as inbound consumption and other personal consumption recovered along with the normalization of social and economic activities, and corporate performance and employment conditions also showed signs of improvement, despite uncertainty about the future due to inflation and the depreciation of the yen.

Under these circumstances, in the information service industry, where the NSD Group operates, the environment for orders remained favorable, with both IT investment in digital transformation (DX) and needs for core system renewal remaining strong.

【Measures During the First Quarter Under Review】

The NSD Group adopted the five-yearMedium-term Management Plan beginning in the fiscal year ended March 31, 2022, with the aim of becoming a corporate group with consolidated net sales of more than 100 billion yen during the period of the plan.

Given steady progress in business expansion up to the previous fiscal year, the Group has revised its performance targets to increase both net sales and operating income by 10% to 110 billion yen and 16.5 billion yen, respectively, for the fiscal year ending March 31, 2026, the final year of the plan.

To achieve these performance targets, the Group is pursuing the sustainable expansion of the System Development Business, with the development of systems related to new technologies and DX, for which there are ever-increasing social needs, as a growth driver. In addition, to make the Solution Business its second earnings pillar, the Group is creating new solutions and bolstering its sales capabilities.

At the same time, the Group is actively using mergers and acquisitions to address the growing shortage of system engineers and to enhance its lineup of solutions.

In April, during the first quarter, the Group increased the number of system engineers by more than 400 by making ART Holdings Co., Ltd. the Group's subsidiaries, which have strengths in the System Development Business. ART Group, with ART Holdings Co., Ltd. as its holding company, is headquartered in Fukui Prefecture and has a customer base consisting of major blue-chip companies in the insurance, credit card, electrical, electronics, and automotive industries, as well as high-quality human resources as a local blue-chip company.

In May, the Group made NHOSA Corporation, which has strengths in the dental system business, a subsidiary and enhanced its solutions in the medical field, such as receipt computer systems for dentists and dialysis business support systems, to strengthen the Solution Business.

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【Operating Results】

Reflecting the high demands of IT investment, the NSD Group steadily built-up orders and also benefited from the effects of M&A, the operating results become as follows.

			(Unit: Millions of yen)
	First quarter	First quarter
	ended	ended	YoY
	June, 2022	June, 2023
System Development Business	16,652	21,091	4,439		26.7%
Solution Business	1,941	2,915	974		50.2%
Net sales	18,594	24,007	5,413		29.1%
New Core Business	6,413	9,636	3,223		50.3%
Operating income	2,888	3,376	488		16.9%
Ordinary income	2,915	3,377	462		15.9%
Net income attributable to owners	1,794	1,688	(105)		(5.9%)
of the parent
EBITDA	3,064	3,935	870		28.4%
EBITDA margin	16.5%		(0.1%)		－
16.4%

• New Core Business consists of System Development Business related to New Technologies and DX, and Solution Business.
• EBITDA is calculated by operating income + depreciation + amortization of goodwill.

Net sales increased by 29.1% year on year to 24,007 million yen as a result of the steady expansion of System Development Business and Solution Business. Net sales of New Core Business, which the Group focuses on, increased by 50.3% year on year to 9,636 million yen because of a significant increase in the System Development Business related to New Technologies and DX utilizing cloud technologies, and sales of new solutions through M&A.

Operating income increased by 16.9% year on year to 3,376 million yen absorbing the increase in expenses such as pay raise and amortization of goodwill. Ordinary income increased by 15.9% year on year to 3,377 million yen.

Net income attributable to owners of the parent decreased by 5.9% to 1,688 million yen due to the raise of effective tax rate, resulting from the increase of amortization of goodwill, which is not subject to the tax effect.

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【Operating Results by Segment】

Operating Results by Segment are as below.
(Net Sales by Segment)				(Unit: Millions of yen)
		First quarter	First quarter
		ended	ended		YoY
		June, 2022	June, 2023
System	Financial IT	5,896	7,522	1,625		27.6%
Industry &	8,333	10,791	2,458		29.5%
Development
Infrastructure IT
Business
IT Infrastructure	2,472	2,837	365		14.8%
	Construction
Solution Business	1,945	2,918	972		50.0%
Adjustment		(53)	(62)	(8)		－
	Total	18,594	24,007	5,413		29.1%
(Operating Income by Segment)				(Unit: Millions of yen)
		First quarter	First quarter
		ended	ended		YoY
		June, 2022	June, 2023
System	Financial IT	1,053	1,407		354		33.6%
Industry &	1,325	1,476		151		11.4%
Development
Infrastructure IT
Business
IT Infrastructure	421	429		8		2.0%
	Construction
Solution Business	147	153		6		4.5%
Adjustment		(58)	(90)		(31)		－
	Total	2,888	3,376		488		16.9%

• Numbers are written including inter-segment sales and incomes.
• Adjustments are the total of inter-segment sales eliminations and costs of whole company (mainly G&A costs which do not attribute to the segments).

Net sales increased by 27.6% year on year to 7,522 million yen due to a significant increase in orders from major banks, insurance companies, and credit card companies resulting from expansion of existing projects such as system renewal projects, as well as the effects of M&A of ART Group. Operating income increased by 33.6% to 1,407 million yen due to and improvement of profitability.

Net sales increased by 29.5% year on year to 10,791 million yen due to a significant increase in orders from manufacturing, telecommunication, and commerce sectors, as well as the effects of M&A of ART Group and Trigger Inc. Operating income slightly increased by 11.4% year on year to 1,476 million yen due to increase in amortization of goodwill.

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Net sales increased by 14.8% year on year to 2,837 million yen due to a significant increase in orders of infrastructure construction projects from public sector and cloud computing projects from banks and insurance companies. Operating income slightly increased by 2.0% year on year to 429 million yen due to a rise in cost ratio, resulting from M&A.

New solutions through M&A related to medical/healthcare and RFID contributed significantly to business expansion, and existing solutions such as shareholder relation services also expanded steadily, resulting in an increase of net sales by 50.0% year on year to 2,918 million yen. Operating income slightly increased year on year by 4.5% to 153 million yen due to amortization of goodwill and increase in costs of sales.

(2) Financial Conditions

Both total assets and liabilities in the end of this quarter increased due to consolidation of ART Holdings Co., Ltd. and NHOSA Corporation through the acquisition of its shares.

Total assets increased by 2,355 million yen from March 31, 2023 to 70,515 million yen due to 569 million yen increase of inventories, 2,916 million yen increase of land and buildings, 14,599 million yen increase of goodwill, 714 million yen increase of other intangible assets, 611 million yen increase of investments and other assets, while there was 17,897 million yen decrease of cash and deposits.

Liabilities increased by 4,776 million yen to 17,477 million yen due to 626 million yen increase of accounts payable, 1,505 million yen increase of short-term borrowings (including long-term debt which are scheduled to be repaid within one year), 2,157 million yen increase of long-term debt, while there was 1,313 million yen decrease of income taxes payable.

Net assets decreased by 2,420 million yen to 53,037 million yen due to 1,688 million yen increase resulting from net income attributable to owners of the parent company, while there was 4,381 million yen decrease resulting from dividend payout.

(3) Information on Financial Forecasts

No revision to the consolidated financial forecasts announced on May 9, 2023.

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