Financial Results for FY2024/12 2nd Quarter

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.

August 9, 2024

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

1. Non-consolidated financial results for the six months ended June 30, 2024 (from January 1, 2024 to June 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: No

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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. Interim Financial Statements and Primary Notes………………………………………………………………………10
4. 1. Interim Balance Sheet…………………………………………………….….……………………………………10
   2. Interim Income Statement…………………………………………………………………………………………12
   3. Interim Cash Flow Statement………………………………………………………………………………………13
   4. Notes to Interim Financial Statements……………………………………………………………………………15

(Notes on Going Concern Assumption)……………………………………………………………………………15

(Notes on Significant Changes in Amount of Shareholders' Equity)………………………………………………15

(Segment Information, Etc.)…………………………………………………………………………………………15

(Additional Information)……………………………………………………………………………………………15

(Important Subsequent Events)………………………………………………………………………………………15

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

(1) Explanation Regarding Operating Results

During the interim accounting period from January 1, 2024, to June 30, 2024, Japan's economy has continued to recover at a moderate pace, despite some stagnation, under the improvement of the employment and income environment and the effects of various policies. On the other hand, concerns have been raised about the risks of pushing down Japan's economy due to the continuation of high interest rates in Europe and the United States and the downturn in overseas economies, as well as price increases, situations in the Middle East, and fluctuations in the financial capital markets.

In the construction and housing industry to which our company belongs, the " Act Partially Revising the Act on the Improvement of the Energy Consumption Performance of Buildings in Order to Contribute to the Realization of a Carbon Neutral Society" was promulgated in June 2022, and furthermore, from April 2024, it has become an obligation of effort for businesses selling or renting houses and buildings to display energy-saving performance labels. There is an expectation that the supply of houses and buildings with high energy-saving and insulation performance will be promoted as a result of the growing interest in energy-saving and insulation performance among purchasers and renters of homes and offices.

On the other hand, the number of new housing starts has continued to show a weak trend, and the environment surrounding the housing industry is in a severe situation. However, in terms of corporate capital investment, large-scale investments in semiconductors and automobiles are progressing, and investment plans are at a high level, with large- scale construction of manufacturing facilities, commercial facilities, and high-rise condominiums being actively carried out 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 building division, utilizing the strengths of the "AQUA FOAM series," which achieves high insulation performance and high airtightness, and our nationwide construction network.

In the Single-family Homes Division, we have taken advantage of the spread of unique housing energy-saving measures defined by each municipality as an opportunity, differentiated ourselves by adding airtightness measurement services to insulation construction, and worked to increase market share based on the increase in the number of constructions. On the other hand, the spread of top-grade constructions such as insulation performance grade 6 was more gradual than expected, but the number of constructions and the construction unit price were almost as expected, resulting in sales of 6,261 million yen compared to the expected 6,255 million yen in the same division.

In the Buildings Division, we have been successful in acquiring new demand for manufacturing facilities represented by semiconductor factories and data centers, as well as commercial facilities and high-rise condominiums. However, construction delays due to the shortage of construction materials and the impact of the "2024 problem in the construction industry," including the regulation of overtime work limits, have shifted sales recording to the second half of the year. As a result, sales in this division were 3,993 million yen compared to the expected 4,376 million yen. Additionally, sales in the Waterproofing Division were 261 million yen, sales of urethane raw materials were 921 million yen, and sales in the Other divisions, including auxiliary supplies, machinery, and others, were 1,674 million yen. Note that from the end of December 2023, urethane raw material sales, which are considered important for future growth, have been separated from the Other divisions, and the table below has been rearranged accordingly.

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As a result, net sales for the current interim accounting period amounted to 13,112 million yen, a decrease of 0.3% compared to the same period of the previous year. Gross profit was 2,906 million yen, with a gross profit margin of 22.2%, a decrease of 1.5 percentage points compared to the same period of the previous year. The main reasons are as follows:

Due to the aggressive hiring of internal installation work personnel aimed at building a robust construction system from the fiscal year 2023, the company's labor costs have increased. In the Single-family Homes Division, efforts to expand market share while keeping construction prices low led to a 2.7 percentage point decrease in the gross profit margin for the division compared to the same period of the previous year. In the Buildings Division, while the effect of price revisions contributed, discrepancies in the timing of revenue recognition for construction projects impacted profit reduction, limiting the increase in the gross profit margin to 1.4 percentage points.

Operating profit was 849 million yen, a 38.5% decrease compared to the same period of the previous year, with an operating profit margin of 6.5%, a decrease of 4.0 percentage points compared to the same period of the previous year. This is attributed to a 1.5 percentage point decrease in the gross profit margin and an increase in selling, general and administrative expenses to 2,057 million yen, up 314 million yen from the same period of the previous year, with the ratio of selling and administrative expenses rising by 2.4 percentage points to 15.7%. The main components of this increase were a 221 million yen increase in personnel expenses and a 47 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 868 million yen, a 38.0% decrease compared to the same period of the previous year, and interim net profit was 579 million yen, a 38.8% decrease compared to the same period of the previous year.

1. Explanation Regarding Financial Position
   (Total Assets)
   Total assets at the end of the current interim accounting period amounted to 19,407 million yen, a decrease of 4.8% or 985 million yen compared to the end of the previous fiscal year.
   (Current Assets)
   Current assets at the end of the current interim accounting period amounted to 14,462 million yen, a decrease of 6.5% or 1,010 million yen compared to the end of the previous fiscal year. This was primarily due to a decrease in accounts receivable - other by 430 million yen, notes and accounts receivable - trade, and contract assets by 397 million yen, electronic recorded monetary claims by 68 million yen due to collection, and inventories by 110 million yen.
   (Non-current Assets)
   Non-current assets at the end of the current interim accounting period amounted to 4,944 million yen, an increase of 0.5% or 25 million yen compared to the end of the previous fiscal year. This was mainly due to an increase in buildings by 163 million yen due to the completion of the Miyazaki sales office, an increase in software acquisition by 17 million yen, and an increase in insurance reserve funds included in investments and other assets by 94 million yen, offset by a decrease in assets due to depreciation by 122 million yen, construction in progress included in property, plant and equipment by 55 million yen due to the completion of the Miyazaki sales office, and deferred tax assets included in investments and other assets by 74 million yen.

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(Total Liabilities)

Total liabilities at the end of the current interim accounting period amounted to 10,527 million yen, a decrease of 5.1% or 560 million yen compared to the end of the previous fiscal year.

(Current Liabilities)

Current liabilities at the end of the current interim accounting period amounted to 10,411 million yen, a decrease of 4.7% or 516 million yen compared to the end of the previous fiscal year. This was primarily due to a decrease in accounts payable - trade by 1,301 million yen, income taxes payable by 283 million yen, other payables and accrued expenses by 339 million yen, and unpaid consumption taxes, etc. by 424 million yen, offset by an increase in short-term borrowings by 1,800 million yen.

(Non-current Liabilities)

Non-current liabilities at the end of the current interim accounting period amounted to 115 million yen, a decrease of 27.5% or 43 million yen compared to the end of the previous fiscal year. This was mainly due to a decrease in other long-term payables by 37 million yen.

(Net Assets)

Net assets at the end of the current interim accounting period amounted to 8,879 million yen, a decrease of 4.6% or 425 million yen compared to the end of the previous fiscal year. This was primarily due to interim net profit of 579 million yen, offset by a decrease in retained earnings by 1,005 million yen due to dividend payments.

(Equity Ratio)

The equity ratio at the end of the current interim accounting period was 45.8%, an increase of 0.2% compared to 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 current interim accounting period was 10 million yen. There were no significant changes in the status of research and development activities during the current interim accounting period.

Cash Flow Situation

Cash and cash equivalents (hereinafter referred to as "funds") during the current interim accounting period decreased by 43 million yen compared to the end of the previous fiscal year, amounting to 1,989 million yen (2,112 million yen in the previous interim accounting period).

(Cash Flows from Operating Activities)

The decrease in funds from operating activities during the current interim accounting period was 574 million yen (an increase of 2,177 million yen in the previous interim accounting period). This primarily consists of an increase in funds due to pre-tax interim net profit of 864 million yen, depreciation of 122 million yen, a decrease in trade receivables of 383 million yen, a decrease in accounts receivable - other of 391 million yen, and a decrease in inventories of 137 million yen, while on the other hand, a decrease in funds due to a decrease in trade payables of 1,230 million yen, a decrease in accrued expenses of 325 million yen, payment of consumption tax of 424 million yen, and payment of corporate taxes etc. of 483 million yen.

(Cash flows from investing activities)

The decrease in funds due to investing activities during the current interim accounting period was 237 million yen (a decrease of 197 million yen in the previous interim accounting period). This was primarily due to the acquisition of property, plant, and equipment of 128 million yen, acquisition of intangible assets of 14 million yen, and accumulation of insurance reserve funds of 94 million yen.

(Cash flows from financing activities)

The increase in funds due to financing activities during the current interim accounting period was 767 million yen (a decrease of 2,544 million yen in the previous interim accounting period). This was primarily due to a net increase in short-term borrowings of 1,800 million yen, and expenditures due to dividend payments of 1,005 million yen.

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(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%. As for the financial forecasts, they are as follows. 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

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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 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

There are no changes to the financial forecasts announced on February 14, 2024. Furthermore, regarding the construction delays in the Buildings Division during the interim period, work has been sequentially commencing since the third quarter, and it is expected that sales will be recorded as planned.

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2. Interim Financial Statements and Primary Notes

(1) Interim Balance Sheet

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