Financial Results (3rd quarter FY2024/12)

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 original shall prevail.

November 8, 2024

[Delayed] Non-consolidated Financial Results for the Nine Months Ended September 30, 2024 (Under Japanese GAAP)

(Yen amounts are rounded down to millions, unless otherwise noted.)

1. Non-consolidated financial results for the nine months ended September 30, 2024 (from January 1, 2024 to September 30, 2024)

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2. Cash dividends

Note: Revisions to the forecast of cash dividends most recently announced: None

3. Financial Forecasts for the Fiscal Year Ending December 31, 2024 (January 1, 2024-December 31, 2024)

(Percentage figures indicate year-on-year changes.)

Note: Revisions to financial forecasts disclosed most recently: Yes

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Contents of Attachment

1. Qualitative Information Concerning Financial Results for the Period Under Review……………………………………5
2. 1. Explanation Regarding Operating Results…………………………………………………………………………5
   2. Explanation Regarding Financial Position…………………………………………………………………………6
   3. Notes on Financial Forecasts and Other Forward-looking Statements………………………………………………8
3. Quarterly Financial Statements and Primary Notes……………………………………………………………………10
4. 1. Quarterly Balance Sheet………………………………………………….….……………………………………10
   2. Quarterly Income Statement………………………………………………………………………………………12
   3. Notes to Quarterly Financial Statements……………………………………………………………………………13

(Notes on Going Concern Assumption)……………………………………………………………………………13

(Notes on Significant Changes in Amount of Shareholders' Equity)………………………………………………13

(Segment Information, Etc.)…………………………………………………………………………………………13

(Notes on Cash Flow Statement)……………………………………………………………………………………13

(Additional Information)……………………………………………………………………………………………13

(Important Subsequent Events)………………………………………………………………………………………13

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1. Qualitative Information Concerning Financial Results for the Period Under Review

(1) Explanation Regarding Operating Results

During the cumulative third quarter period (from January 1, 2024, to September 30, 2024), the Japanese economy has continued to recover at a moderate pace, despite some stagnation, due to improvements in the employment and income environment and the effects of various policies. However, risks such as the continued high interest rates in Europe and the United States, the ongoing stagnation of China's real estate market affecting the global economy, and concerns about inflation, the situation in the Middle East, and fluctuations in the financial capital markets are pressing down on Japan's economic outlook.

In the architecture and housing industry, to which our company belongs, the "Law Partially Amending the Law on Improving the Energy Consumption Performance of Buildings for the Realization of a Decarbonized Society" was promulgated in June 2022. Furthermore, from April 2024, it has become a duty of effort for businesses selling or renting houses and buildings to display energy-saving performance labels. As a result, there is an expectation that the supply of houses and buildings with high energy-saving and insulation performance will be promoted due to the growing interest among buyers and tenants in energy-saving and insulation performance. On the other hand, the number of new housing starts continues to show weak trends, and the environment surrounding the housing industry remains challenging.

However, in terms of corporate capital investment, large investments in semiconductors and automotive-related areas are progressing, and investment plans are at a high level, with large-scale manufacturing facilities, commercial facilities, and high-rise condominiums being actively constructed nationwide. Under such circumstances, our company has been actively engaging in order-taking activities in each division while increasing the allocation of management resources to the rapidly growing buildings division, utilizing the strengths of the "AQUA FOAM series," which achieves high insulation performance and airtightness, and our nationwide construction network.

In the Single-family Homes Division, we have taken advantage of the spread of unique local government energy- saving measures that require high airtightness performance, differentiating ourselves by adding airtightness measurement services to insulation construction, and have worked to expand our market share based on an increase in the number of constructions. However, while orders from large builders with a wide area of operation have remained firm, orders from local contractors have been sluggish. Particularly, the construction of new large-scale projects expected to begin in earnest after September has been delayed until after December, and the number of constructions is expected to remain at about 94% of the forecast.

As a result, net sales in this division were 9,683 million yen compared to the forecast of 10,100 million yen. Although the concentration of starts later in the fall is greater than initially expected compared to previous years, affecting the performance in the fourth quarter (from October 1, 2024, to December 31, 2024), challenges remain in achieving the full-year forecast.

In the Buildings Division, the acquisition of new demand for manufacturing facilities represented by semiconductor factories and data centers, as well as commercial facilities and high-rise condominiums, is progressing smoothly. However, during the cumulative second quarter period, due to the "2024 problem in the construction industry," including the upper limit regulation on overtime work, delays in the start of construction occurred in some projects due to delays in previous processes due to circumstances of other companies and shortages of raw materials, resulting in so- called waiting times, and net sales in this division were 6,454 million yen compared to the forecast of 7,198 million yen. Although the waiting times have been gradually resolved since the third quarter, it is difficult to completely recover from the delays in construction so far.

In the Waterproofing Division, net sales amounted to 435 million yen, sales of urethane raw materials were 1,432 million yen, and in the Other Divisions, which include auxiliary supplies, machinery, and others, net sales were 2,811 million yen. It is anticipated that the full-year net sales for the Waterproofing Division and Other Divisions will exceed the forecast (695 million yen for the Waterproofing Division and 3,271 million yen for Other Divisions), while sales of urethane raw materials are expected to land around the forecasted 2,235 million yen. From the fiscal year ending December 2023, sales of urethane raw materials will be separated from the Other Divisions due to a focus on future growth, hence the table below has been reorganized accordingly.

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As a result, net sales for the third quarter cumulative period amounted to 20,817 million yen, marking a 3.2% increase compared to the same period last year. However, compared to the forecast, a shortfall of 963 million yen was recorded overall, due to the total of the main Single-family Homes Division and Buildings Division falling short by 1,151 million yen.

Gross profit was 4,672 million yen, with a gross profit margin of 22.4%, a decrease of 1.6 percentage points from the same period last year. The primary reasons are as follows: In the Single-family Homes Division, the gross profit margin decreased by 3.1 percentage points from the same period last year due to the promotion of market share expansion measures amidst a slump in the number of new housing starts. In the Buildings Division, the gross profit margin improved by 0.1 percentage point from the same period last year due to the effects of price revisions. Additionally, since 2023, both divisions have increased the number of external installation work personnel, building a robust construction system, which led to an increase in the cost of sales. However, the failure of both divisions to meet sales forecasts also contributed to the decrease in the gross profit margin.

Operating profit was 1,521 million yen, a 30.8% decrease from the same period last year, with an operating profit margin of 7.3%, down 3.6 percentage points from the same period last year. This was due to a 1.6 percentage point decrease in the gross profit margin and an increase in selling, general and administrative expenses to 3,151 million yen, up 492 million yen from the same period last year, with the ratio of selling, general and administrative expenses rising

2.0 percentage points to 15.1%. The main components of this increase were a 320 million yen increase in personnel expenses and a 99 million yen increase in trainee-related expenses, which are considered essential human capital investments for future growth, including the expansion of the construction system implemented in the fiscal year ending December 2023. Furthermore, ordinary profit was 1,548 million yen, a 30.4% decrease from the same period last year, and net profit for the quarter was 1,043 million yen, a 30.9% decrease from the same period last year.

1. Explanation Regarding Financial Position

(Total Assets)

Total assets at the end of the third quarter of the fiscal year amounted to 20,479 million yen (an increase of 0.4% from the end of the previous fiscal year), marking an increase of 87 million yen from the end of the previous fiscal year.

(Current Assets)

Current assets at the end of the third quarter of the fiscal year were 15,513 million yen (an increase of 0.3% from the end of the previous fiscal year), an increase of 40 million yen from the end of the previous fiscal year. This was primarily due to an increase of 241 million yen in notes and accounts receivable - trade, and contract assets, and an increase of 20 million yen in accounts receivable - other, against a decrease of 138 million yen in electronic recorded monetary claims, and a decrease of 104 million yen in inventories.

(Non-current Assets)

Non-current assets at the end of the third quarter of the fiscal year were 4,965 million yen (an increase of 0.9% from the end of the previous fiscal year), an increase of 46 million yen from the end of the previous fiscal year.

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This was primarily due to an increase of 163 million yen in buildings upon completion of the Miyazaki sales office, an increase of 17 million yen in software acquisition, and an increase of 94 million yen in insurance reserve funds included in investments and other assets, against a decrease of 181 million yen due to depreciation, a decrease of 55 million yen in construction in progress included in tangible fixed assets due to the completion of the Miyazaki sales office, a decrease of 38 million yen in deferred tax assets, and a decrease of 67 million yen in allowance for doubtful accounts included in investments and other assets.

(Total Liabilities)

Total liabilities at the end of the third quarter of the fiscal year were 11,135 million yen (an increase of 0.4% from the end of the previous fiscal year), an increase of 48 million yen from the end of the previous fiscal year. (Current Liabilities)

Current liabilities at the end of the third quarter of the fiscal year were 11,028 million yen (an increase of 0.9% from the end of the previous fiscal year), an increase of 100 million yen from the end of the previous fiscal year. This was primarily due to an increase of 1,700 million yen in short-term borrowings, an increase of 94 million yen in provision for bonuses, against a decrease of 320 million yen in accounts payable - trade, a decrease of 507 million yen in income taxes payable, and a decrease of 488 million yen in accrued expenses and other payables, and a decrease of 441 million yen in consumption taxes payable included in other.

(Non-current Liabilities)

Non-current liabilities at the end of the third quarter of the fiscal year were 107 million yen (a decrease of 32.6% from the end of the previous fiscal year), a decrease of 51 million yen from the end of the previous fiscal year. This was primarily due to a decrease of 41 million yen in long-term payables included in other.

(Net Assets)

Net assets at the end of the third quarter of the fiscal year were 9,343 million yen (an increase of 0.4% from the end of the previous fiscal year), an increase of 38 million yen from the end of the previous fiscal year. This was primarily due to net profit for the quarter of 1,043 million yen, against a decrease of 1,005 million yen in retained earnings due to dividend payments.

(Equity Ratio)

The equity ratio at the end of the third quarter of the fiscal year was 45.6% (the same rate as the end of the previous fiscal year).

(Research and Development Activities)

The total amount of research and development expenses incurred by the company during the third quarter cumulative period was 15 million yen. There were no significant changes in the status of research and development activities during the third quarter cumulative period.

(3) Notes on Financial Forecasts and Other Forward-looking Statements

Regarding our outlook for the future, we are focusing on the recovery of the current economy, revisions to the legal system related to housing and buildings, subsidies and preferential tax treatment for energy saving, and support measures such as low-interest financing. In response to the increasing demand for insulation materials, we are undertaking the following initiatives to achieve sustainable development of our company.

1. Companywide Measures

1) About the Medium-Term Management Plan

Our company has formulated the Medium-Term Management Plan for the three fiscal years from 2024 to 2026, titled "3 Pillars of Stability," on February 14, 2024. We have set the following management indicators as our targets: a sustainable growth rate of 10%, an operating profit margin of 10%, ROE of 20%, and a dividend payout ratio of 50%.

Regarding financial forecasts, as stated in the " Notice Concerning Revisions to Full-Year Financial Results Forecasts" published today (November 8, 2024), the full-year forecast for the fiscal year ending December 2024 has been revised. Consequently, the sales target for the fiscal year ending December 2025 has been revised to over 33,000 million yen,

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and for the fiscal year ending December 2026, to over 37,000 million yen, based on the initial figures announced. A report on the revised plan will be provided at the time of the announcement of the fiscal year ending December 2024 results, scheduled for February 2025.

Furthermore, as detailed in the " Notice Concerning the Change to Medium-Term Management Plan [Change in Dividend Policy (Introduction of Progressive Dividends)]" published today, while the Medium-Term Management Plan sets a target dividend payout ratio of 50%, a progressive dividend system will be introduced from the fiscal year ending December 2025 to achieve more stable dividends (maintenance or increase) through profit growth. Therefore, the dividend per share for the fiscal years ending December 2025 and December 2026 will be considered with a minimum of 34yen.

However, statements regarding future prospects are based on assumptions and judgments of our management team based on information currently available, and they inherently contain known or unknown risks and uncertainties. Furthermore, changes in the business environment surrounding our company, market trends, and various other factors may cause these statements or assumptions not to materialize in the future. Potential risks and uncertainties that could affect future prospects are described in the "Risk Factors" section of the securities report. Please note that potential risks and uncertainties are not limited to those mentioned.

2) Sustainability strategies

Based on our management philosophy of "Contributing to society by creating a housing environment that is friendly to people and the earth," we will contribute to the realization of a sustainable society by reducing CO2 emissions from homes and buildings through the AQUA FOAM series of products and a focus on recycling urethane insulation materials.

3) Increase in external installation work personnel and establishment of a robust construction system

For our company to maintain sustainable growth and competitiveness, it is essential to increase the number of external installation work personnel and establish a robust construction system. To provide high-quality construction and enhance customer satisfaction, it is necessary to have external installation work personnel who have acquired appropriate skills. Our company recognizes the importance of human capital investment and is implementing the following measures to improve the skills and motivation of our external installation work personnel:

1. 1. Improving the life-work balance, including Saturdays and Sundays holidays
   2. Wage increases accompanying the revision of the salary system and the expansion of various allowances
   3. Promotion of local employment and the creation of attractive work environments through the establishment of new sales offices and warehouses and the maintenance of a network of bases, including proximity of work and residence
   4. Construction of career paths tailored to management, specialists, and those with an independent mindset
   5. Thorough safety management through training provided by specialized departments and the implementation of safety conventions
   6. Regarding the maintenance of listing on the Prime Market and Action to Implement Management that is Conscious of Cost of Capital and Stock Price
2. Regarding the maintenance of listing on the Prime Market and Action to Implement Management that is Conscious of Cost of Capital and Stock Price
   On December 20, 2021, we disclosed the "Plan to Meet the Continued Listing Criteria for New Market Segments," and in order to meet the listing maintenance standards of the prime market by the end of December 2023, we are working to increase corporate value and contribute to sustainability, as well as to acquire appropriate valuations in the stock market and improve the liquidity of our shares. Our company disclosed the "Plan to Meet the Continued Listing Criteria for New Market Segments," on December 20, 2021, and the " Progress based on the plan for compliance with the continued Listing Criteria and updates to the plan (changes in the plan period)" on March 14, 2024. We are working to meet the listing maintenance criteria of the Prime Market by the end of December 2024, striving to achieve an

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appropriate evaluation in the stock market and improve the liquidity of our company's shares. Furthermore, through regular understanding of capital costs and conducting evaluations and analyses in the stock market, and through continuous dialogue with shareholders and investors, we will feedback the opinions and concerns of shareholders captured during dialogues to the management and Board of Directors, and strive to improve our evaluation in the stock market.

2. Financial Forecasts for the Fiscal Year Ending December 31, 2024

The full-year performance forecast for the fiscal year ending December 2024, announced on February 14, 2024, has been revised based on the performance for the third quarter cumulative period, as well as the order status within the fiscal year and sales recognition prospects for the Single-family Homes Division and Buildings Division.

For details on the revision of the financial forecasts, please refer to the " Notice Concerning Revisions to Full-Year Financial Results Forecasts" published today (November 8, 2024).

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2. Quarterly Financial Statements and Primary Notes

(1) Quarterly Balance Sheet

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