Key Coffee : 2nd Quarter Financial Statements

Consolidated Financial Results for the Six Months

Ended September 30, 2023 [Japanese GAAP]

October 30, 2023

Company name: KEY COFFEE INC

Stock exchange listing: Tokyo Stock Exchange

Code number: 2594

URL: https://www.keycoffee.co.jp/

Representative: Yutaka Shibata, Representative Director and President

Contact: Akihiro Mizutani, General Manager, Finance Department Phone: [phone]

Scheduled date of filing quarterly securities report: November 13, 2023

Scheduled date of commencing dividend payments: November 24, 2023

Availability of supplementary explanatory materials on quarterly financial results: Available

Schedule of quarterly financial results briefing session: Scheduled (for analysts and trade papers)

(Amounts of less than one million yen are rounded down.)

1. Consolidated Financial Results for the Six Months Ended September 30, 2023 (April 1, 2023 - September 30, 2023)

(1) Consolidated Operating Results (Cumulative)	(% indicates changes from the previous corresponding period.)
		Net sales		Operating profit		Ordinary profit	Profit attributable to
				owners of parent
	Six months ended	Million yen	%		Million yen	%		Million yen	%	Million yen	%
	September 30, 2023	37,480	23.7		1,041	102.5		1,121	80.0	786	71.8
	September 30, 2022	30,310	11.3		514	72.8		623	32.3	457	48.2
	(Note) Comprehensive income: Six months ended September 30, 2023: ¥954 million [69.7%]
		Six months ended September 30, 2022: ¥562 million [48.7%]
		Basic earnings per share		Diluted earnings per
			share
	Six months ended		Yen			Yen
	September 30, 2023		36.72			-
	September 30, 2022		21.37			-
(2) Consolidated Financial Position
		Total assets		Net assets		Equity ratio
	As of		Million yen			Million yen			%
	September 30, 2023:		53,948			31,379			57.6
	March 31, 2023:		51,768			30,530			58.4
	(Reference) Equity:	As of September 30, 2023: ¥31,070 million
		As of March 31, 2023: ¥30,250 million

2. Dividends

			Annual dividends
	1st quarter-end	2nd quarter-end	3rd quarter-end	Year-end	Total
	Yen	Yen	Yen	Yen	Yen
Fiscal year ended March 31, 2023	-	5.00	-	5.00	10.00
Fiscal year ending March 31, 2024	-	7.00
Fiscal year ending March 31, 2024			-	5.00	12.00
(Forecast)
(Note) Revision to the forecast for dividends announced most recently: None

3. Consolidated Financial Results Forecast for the Fiscal Year Ending March 31, 2024 (April 1, 2023 - March 31, 2024)

(% indicates changes from the previous corresponding period.)

	Net sales		Operating profit	Ordinary profit	Profit attributable to	Profit per share
		owners of parent
	Million yen	%	Million yen	%	Million yen	%	Million yen	%	Yen
Full year	75,000	18.5	1,000	308.6	1,100	214.9	800	362.3	37.36

(Note) Revision to the financial results forecast announced most recently: Yes

For details, please refer to "Notice regarding the Revisions to Consolidated Forecast for the Fiscal Year Ending March 31, 2024" announced today.

* Notes:

1. Changes in significant subsidiaries during the period under review: None (Changes in specified subsidiaries resulting in changes in scope of consolidation) Newly included: - (Company name: -)
   Excluded: - (Company name: -)
2. Accounting methods adopted particularly for the preparation of quarterly consolidated financial statements: None
3. Changes in accounting policies, changes in accounting estimates and retrospective restatement
4. 1. Changes in accounting policies due to the revision of accounting standards: None
   2. Changes in accounting policies other than 1) above: None
   3. Changes in accounting estimates: None
   4. Retrospective restatement: None
5. Total number of issued and outstanding shares (common shares)
6. 1. Total number of issued and outstanding shares at the end of the period (including treasury shares):

September 30, 2023:	22,689,000 shares
March 31, 2023:	22,689,000 shares
2) Total number of treasury shares at the end of the period:
September 30, 2023:	1,275,856 shares
March 31, 2023:	1,276,656 shares

3) Average number of shares during the period (cumulative from the beginning of the fiscal year):

Six months ended September 30, 2023:	21,413,144 shares
Six months ended September 30, 2022:	21,412,344 shares

(Note) The total number of treasury shares at the end of the period includes the shares of the Company (266,600 shares on September 30, 2023, 267,400 shares on March 31, 2023) held by Custody Bank of Japan, Ltd. (Trust Account E). In addition, shares of the Company held by Custody Bank of Japan, Ltd. (Trust Account E) are included in treasury shares that are subtracted in calculating the average number of shares during the period. (266,600 shares on September 30, 2023, 267,400 shares on September 30, 2022)

• These quarterly consolidated financial results are outside the scope of quarterly review by certified public accountants or an audit firm.
• Explanation of the proper use of financial results forecast and other notes
  Forward-looking statements and other statements about the future that are included in this material are based on information currently available to the Company and certain assumptions deemed reasonable, and the Company does not in any way guarantee the achievement of the projections. Actual results and others may differ significantly due to various factors. For the assumptions for financial results forecast and precautions for using financial results forecasts, please refer to "(3)
  Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information" on page 5 of the attached document.

Table of Contents - Attachments
1. Qualitative Information on Quarterly Financial Results	2
(1)	Explanation of Operating Results	2
(2)	Explanation of Financial Position	5
(3)	Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information	5
2. Quarterly Consolidated Financial Statements and Principal Notes	6
(1)	Quarterly Consolidated Balance Sheets	6
(2)	Quarterly Consolidated Statements of Income and Comprehensive Income	8
(3)	Notes to Quarterly Consolidated Financial Statements	10
	(Notes on going concern assumption)	10
	(Notes in the event of significant changes in the amount of shareholders' equity)	10
	(Segment information, etc.)	11
	(Significant subsequent events)	12

1

1. Qualitative Information on Quarterly Financial Results

1. Explanation of Operating Results
   During the six months ended June 30, 2023 (from April 1, 2023 to September 30, 2023), there were signs of economic recovery, chiefly reflecting the downgrading of COVID-19 in severity classification, an improvement in employment, and wage increases. However, the economic outlook remained uncertain due in part to price hikes associated with persistently high resource prices and the weaker yen, as well as concern over expected slowdowns in U.S. and European economies caused chiefly by policy interest rate hikes.
   In the coffee industry, consumption in the HORECA market continued to grow due to an increase in the movement of people and a rebound of the number of visitors to Japan following the removal of movement restrictions amid the COVID-19 pandemic. Consumption in the Household market was roughly the same as the year-ago level despite rises in retail prices by manufacturers in the fall last year.
   Green beans procurement prices, which have a significant impact on results, remained high due to the continued weaker yen, although the green beans market has stabilized, reflecting a good harvest in Brazil, the largest producing country. Coffee production costs also remained high, chiefly because of rises in resource and energy prices together with increasing materials costs. The business environment remained challenging.
   Under these circumstances, the KEY COFFEE Group established the three pillars of "reforming the business structure," "strengthening profitability," and "reinforcing the comprehensive strengths of the Group," based on our long-held"quality-first principle," and engaged in the creation of new demand, developed products which meets the needs of consumers, and promoted solution-oriented business activities that contribute to the financial results of clients, in order to fulfill our corporate philosophy, to "pursue the ultimate in coffee, focus on our customers, and create a coffee culture which enriches the heart."
   The Company has been environmentally conscious and respects human rights. In the previous fiscal year, we have established "Coffee and KISSA as a Sustainable Company" as our new message for 2030 with the aim of keeping the coffee culture alive and realizing sustainable coffee production. As part of this, we established a new specialized department, "Future of Coffee Department," which promotes a wide range of sustainability activities, including collaboration with coffee-producing countries and the development of new coffee varieties. Moreover, this fiscal year, the Company has established "Sustainability Promotion Office." The office pursues a wide range of sustainability initiatives.
   Net sales of the KEY COFFEE Group for the six months ended September 30, 2023 were 37,480 million yen (a 23.7% increase compared with the same period of the previous fiscal year), operating profit was 1,041 million yen (a 102.5% increase compared with the same period of the previous fiscal year), and ordinary profit was 1,121 million yen (a 80.0% increase compared with the same period of the previous fiscal year) Profit attributable to owners of parent was 786 million yen (a 71.8% increase compared with the same period of the previous fiscal year).

< Consolidated Operating Results>				(Million yen)
	Six months ended	Six months ended	Year-on-year	Year-on-year
	increase	percent increase
	Sept. 30, 2022	Sept. 30, 2023
	(decrease)	(decrease)
Net sales	30,310	37,480	7,170	23.7%
Operating profit	514	1,041	527	102.5%
Ordinary profit	623	1,121	498	80.0%
Profit attributable to owners of parent	457	786	328	71.8%

2

An overview of segment operations is provided below.				(Million yen)
		Net sales		Operating profit (loss)
Business segment	Six months	Year-on-year	Year-on-year	Six months	Year-on-year	Year-on-year
ended Sept.	increase	percent	ended Sept.	increase	percent
	increase	increase
	30, 2023	(decrease)	30, 2023	(decrease)
	(decrease)	(decrease)
Coffee-related businesses	33,209	6,801	25.8	1,095	373	51.7
Restaurant-related businesses	2,104	270	14.7	(15)	116	-
Other	2,166	98	4.7	243	119	96.1
Adjustment	-	-	-	(282)	(81)	-
Total	37,480	7,170	23.7	1,041	527	102.5

(Note) Adjustment amounts are mainly the elimination of internal transactions between segments, adjustment amounts

for inventories, and general and administrative expenses that do not belong to the reportable segments.

(Coffee-related businesses)

In the HORECA market, we worked to strengthen customer management through the introduction of digital tools and to automate order receipt through the use of the Internet, while working to enhance the operating efficiency of collecting accounts receivable. We also promoted sales of highly differentiated coffees such as TOARCO TORAJA and HYO ON Aging Coffee and worked to expand sales by strengthening food items, such as liquors, for HORECA market we handle.

As measures to revitalize our clients, we presented high quality coffees from around the world for a month and held coffee seminars, where coffee instructors played a central role. As seasonal events, we held a "Curry Fair" where we offered specially arranged items and a range of local curries.

In September, we showcased our flagship coffee brand, TOARCO TORAJA, at Asia's largest specialty coffee event, SCAJ2023, and worked to draw attention to the brand's value and background. At our booth, we offered pour-over coffee. We also displayed a video on a big screen that showcased the natural richness and culture of the producing area, the Toraja region on Sulawesi island in Indonesia. In addition, we highlighted our unwavering commitment to quality. Our aim was to provide visitors with an experience that would make them feel as if they were actually visiting the producing area.

Two new cafes were opened, under "KEY'S CAFÉ" (Shop Opening Service), our model cafe package service that supports cafe openings in various location environments. The number of KEY'S CAFÉ cafes became 71.

Sales grew significantly compared to the same period of the previous fiscal year, due to the increased sales volume of coffee and commercial food items to our clients as a result of the downgrading of the severity classification of COVID-19 and an increase in inbound tourism demand.

In the Household market, we fully renewed the TOARCO TORAJA series, which marked its 45th anniversary, selling DRIP ON and Instant Coffee that reflect the opinions of members of "Coffee Fan Club", our online community. In September, to develop our major coffee brand, PREMIUM STAGE, and appeal to the next generation, we launched a new brand named KEY DOORS+ , which includes the DRIP ON series designed to make coffee dripping easy. Our goal is to attract new customers in their 20s and 30s.

For gift items, we have lined up a total of 27 items for the mid-year gift season, including the DRIP ON series as well as standard items, such as "HYO-ON Aging Liquid Coffee Gift" and "Liquid Coffee brewed with natural water in Tetra Prisma", as well as "Liquid Coffee, 100% Juice & Soft Drinks", which is loved by both adults and children.

Sales increased from the same period of the previous fiscal year chiefly due to active sales promotion of the main product, the GRAND TASTE series.

In the ingredient market, sales increased due to a rise in unit sales price, which is linked to the coffee market. Operating profit in the coffee-related businesses increased from the same period of the previous fiscal year due to

significant increases in sales in each market, despite increases in manufacturing costs, including green beans procurement prices and personnel expenses.

3

Consequently, in the six months ended September 30, 2023, net sales for our coffee-related businesses were 33,209 million yen (a 25.8% increase compared with the same period of the previous consolidated fiscal year), and operating profit was 1,095 million yen (a 51.7% increase compared with the same period of the previous consolidated fiscal year).

(Restaurant-related businesses)

Net sales at Italian Tomato Co., Ltd. far exceeded the results for the same period of the previous fiscal year. Factors for this included a rebound in the number of customers visiting our stores as a result of serving new seasonal menu items every month, holding events as the flow of people increased partly due to the downgrading of COVID-19 in severity classification. In terms of profit, we worked to reduce waste loss in addition to assigning personnel and ordering / managing foodstuffs in response to changes in sales conditions, and thus promoted optimization of labor and raw material costs. We also developed new products and revised the prices of items in response to rising costs, including raw materials procurement costs and utility costs. Meanwhile, we continued to launch high value-added products. As a result, profit figures improved significantly, and operating profit moved into positive territory. The number of the Company's shops stood at 145 (49 directly managed shops and 96 franchise stores).

Consequently, in the six months ended September 30, 2023, net sales in the restaurant-related businesses were 2,104 million yen (a 14.7% increase compared with the same period of the previous consolidated fiscal year), while the operating loss was 15 million yen (the operating loss was 131 million yen in the same period of the previous fiscal year), reflecting a weak performance in other restaurant-related businesses.

(Other)

Nic Foods Co., Ltd. reported a year-on-year increase in sales due to a recovery in demand in the food service industry, resulting in a rise in orders received, mainly for beverages for the HORECA industry, due to the downgrading of the severity classification of COVID-19. We recorded an increase in profit as a result of sales growth as well as efforts to control manufacturing costs and optimize SG&A expenses.

At Honu KATO COFFEE Inc., which operates an e-commerce business, sales declined and profit fell significantly as the cost of sales rose sharply from a year ago, although the company took steps to improve sales and profit by raising sales prices and further reducing sales promotion costs.

Consequently, in the six months ended September 30, 2023, net sales for other businesses were 2,166 million yen (a 4.7% increase compared with the same period of the previous consolidated fiscal year) and operating profit was 243 million yen (a 96.1% increase compared with the same period of the previous consolidated fiscal year.

4

240		Trends in Green Coffee Prices and Exchange Rates
220
200
180
160
140
120
100
80
60
40							Green coffee prices (€, lb)
20							Exchange rates (¥-$)
0
2019/4	10	2020/4	10	2021/4	10	2022/4	10	2023/4	10	2024/4

(Green Coffee Price: ICO composite indicator price)

1. Explanation of Financial Position (Assets)
   Total assets increased by 2,179 million yen from the end of the previous consolidated fiscal year to 53,948 million yen. Current assets increased by 1,391 million yen to 35,895 million yen. This was primarily due to increases in cash and deposits (up 448 million yen) and notes and accounts receivable - trade (up 2,155 million yen) and a decrease in
   raw materials and supplies (down 1,269 million yen).
   Non-current assets increased by 788 million yen to 18,052 million yen. Property, plant and equipment decreased 8 million yen, and intangible assets rose 107 million yen. Investments and other assets increased by 689 million yen due primarily to an increase in investment securities (up 805 million yen).
   (Liabilities)
   Liabilities increased by 1,330 million yen from the end of the previous consolidated fiscal year to 22,568 million yen. Current liabilities increased by 1,330 million yen from the end of the previous consolidated fiscal year to 20,715 million yen. This was primarily due to a decrease in notes and accounts payable - trade (down 1,167 million yen) and
   an increase in short-term borrowings (up 2,274 million yen).
   Non-current liabilities decreased by 0 million yen to 1,852 million yen.
   (Net assets)
   Net assets increased by 849 million yen from the end of the previous consolidated fiscal year to 31,379 million yen. This was primarily due to an increase in retained earnings (up 677 million yen).
2. Explanation of Consolidated Financial Results Forecast and Other Forward-looking Information
   For full-year results forecasts, please refer to the "Notice Regarding Revisions to Consolidated Financial Results Forecasts for Fiscal Year Ending December 31, 2024" announced on October 30, 2023.
   For information on dividends, please refer to the Notice on Interim Dividends published on October 30, 2023.

5

2. Quarterly Consolidated Financial Statements and Principal Notes

(1) Quarterly Consolidated Balance Sheets

						(Million yen)
				As of March 31, 2023		As of September 30, 2023
	Assets
	Current assets
	Cash and deposits			4,120		4,568
	Notes and accounts receivable - trade	14,103	16,259
	Merchandise and finished goods			3,437		3,765
	Work in process	261	282
	Raw materials and supplies			11,274		10,004
	Other	1,401	1,124
	Allowance for doubtful accounts			(95)		(109)
	Total current assets		34,503	35,895
	Non-current assets
	Property, plant and equipment
	Buildings and structures, net			4,024		3,967
	Machinery, equipment and vehicles, net	1,346	1,338
	Land			6,570		6,570
	Other, net	568	623
	Total property, plant and equipment			12,509		12,500
	Intangible assets
	Goodwill			137		128
	Other	713	829
	Total intangible assets			851		958
	Investments and other assets
	Investment securities			2,761		3,567
	Long-term loans receivable	32	29
	Deferred tax assets			108		85
	Guarantee deposits	761	740
	Other			390		303
	Allowance for doubtful accounts	(151)	(133)
	Total investments and other assets			3,903		4,593
	Total non-current assets		17,264	18,052
	Total assets			51,768		53,948

6

						(Million yen)
				As of March 31, 2023		As of September 30, 2023
	Liabilities
	Current liabilities
	Notes and accounts payable - trade			12,719		11,551
	Short-term borrowings	3,187	5,461
	Accounts payable - other			2,093		1,644
	Income taxes payable	113	336
	Provision for bonuses			292		409
	Other	978	1,310
	Total current liabilities			19,385		20,715
	Non-current liabilities
	Deferred tax liabilities			156		198
	Deferred tax liabilities for land revaluation	478	478
	Provision for share awards			66		75
	Other provisions	4	4
	Retirement benefit liability			368		329
	Asset retirement obligations	446	438
	Other			332		326
	Total non-current liabilities		1,853	1,852
	Total liabilities			21,238		22,568
	Net assets
	Shareholders' equity
	Share capital	4,628	4,628
	Capital surplus			5,094		5,094
	Retained earnings	25,274	25,952
	Treasury shares			(2,541)		(2,539)
	Total shareholders' equity		32,456	33,136
	Accumulated other comprehensive income
	Valuation difference on available-for-sale securities	424	546
	Revaluation reserve for land			(2,736)		(2,736)
	Foreign currency translation adjustment	0	27
	Remeasurements of defined benefit plans			105		97
	Total accumulated other comprehensive income		(2,206)	(2,065)
	Non-controlling interests			279		308
	Total net assets		30,530	31,379
	Total liabilities and net assets			51,768		53,948

7

1. Quarterly Consolidated Statements of Income and Comprehensive Income Quarterly Consolidated Statements of Income
   Six Months Ended September 30

						(Million yen)
				For the six months ended		For the six months ended
				September 30, 2022		September 30, 2023
	Net sales			30,310		37,480
	Cost of sales	22,707	29,183
	Gross profit			7,602		8,296
	Selling, general and administrative expenses
	Advertising and sample expense			600		651
	Packing and transportation costs	1,222	1,180
	Vehicle expenses			205		206
	Provision of allowance for doubtful accounts	1	14
	Remuneration for directors (and other officers)			133		130
	Salaries and bonuses	2,206	2,239
	Provision for bonuses			275		311
	Retirement benefit expenses	53	31
	Welfare expenses			394		412
	Rent expenses	423	370
	Depreciation			137		141
	Supplies expenses	89	104
	Research and development expenses			85		108
	Other	1,258	1,351
	Total selling, general and administrative expenses			7,087		7,254
	Operating profit	514	1,041
	Non-operating income
	Interest income	0	1
	Dividend income			11		15
	Share of profit of entities accounted for using equity method			-	20
	Foreign exchange gains			2		-
	Rental income from real estate	33	39
	Other			95		35
	Total non-operating income	143	111
	Non-operating expenses
	Interest expenses	3	19
	Share of loss of entities accounted for using equity method			22		-
	Foreign exchange losses			-	0
	Rental expenses on real estate			7		8
	Other	1	4
	Total non-operating expenses			35		32
	Ordinary profit	623	1,121
	Extraordinary losses
	Impairment losses			-	17
	Total extraordinary losses			-		17
	Profit before income taxes	623	1,103
	Income taxes - current			153		271
	Income taxes - deferred	0	18
	Total income taxes			154		290
	Profit	468	813
	Profit attributable to non-controlling interests			11		27
	Profit attributable to owners of parent		457	786

8