Sanshin Electronics : Business Report on the 72nd Term

This document has been translated from the original document in Japanese. In the event of any discrepancy between this English translation and the original document in Japanese, the original document in Japanese shall prevail.

[Delivery Document]

Sanshin Electronics Co., Ltd.

Stock Code: 8150

Business Report on the 72nd Term

From April 1, 2022 to March 31, 2023

Contents
Corporate Message	１
Business Report	２
Consolidated Financial Statements	２５
Non-Consolidated Financial Statements	２９
Audit Report	３３

The Sanshin Spirit

Sanshin Electronics contributes to the development of today's electronics-driven society by embracing the challenge of the new and passing on the Sanshin Spirit to new generations.

Electronics products play a formative role in today's society. Electrical appliances connect with each other to provide unprecedented services to consumers, while drivers enjoy greater safety thanks to the spread of operation support systems such as collision avoidance. In the future as well, electronics will contribute to society by delivering greater safety, comfort and convenience.

As a general electronics trading company, Sanshin Electronics has continued to pursue new possibilities in electronics products in liaison with our customers, suppliers and business partners. We always bear in mind that we need to test the limits, unconstrained by prevailing orthodoxies.

Since its establishment, the Company has always cherished Trust (Shin-yo in Japanese), Principles (Shinnen) and Sincerity (Shinjitsu). Each of these components of our corporate code contains the Japanese character 信(Shin), testifying to the origin of the Company name. We believe that we must embrace these three words whenever we conduct our business. Guided by the above corporate code, we at Sanshin Electronics will explore the future of electronics products with the drive to tackle new challenges.

Trust

Business cannot succeed without

trust.

It begins and ends with trust.

Principles

Do not just pursue profit. But act based on principles, which can be realized through self-discipline.

Sincerity

Always act sincerely.

Rise to the challenge head-

on.

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Business Report (From April 1, 2022 to March 31, 2023)

I. Matters Concerning the Current Status of the Corporate Group

(1) Business Progress and Results

During the consolidated fiscal year under review, the global economy experienced normalization of economic activities assuming life with COVID-19 in each country. On the other hand, the economic outlook remained uncertain due to factors including the impact of rising prices for goods on a global scale, high resource prices caused by the Russian invasion of Ukraine, changes in financial policy, and sudden exchange rate fluctuations.

In the electronics industry, a vital area of business for the Sanshin Electronics Group, the supply chain started to regain stability due to factors such as a gradual alleviation from the second half of the fiscal year for the tight supply and demand of semiconductors and electronic components, which had been an increasingly serious issue. In the domestic ICT industry, the transition of systems to the cloud and the use of subscription models spread in conjunction with increased needs to advance DX (Digital Transformation).

Against this background, the Group worked to increase profitability by reforming our business structure and to expand our business in growth markets. Specifically, in the device business, we worked to expand our existing businesses and establish a new profit structure. In the solution business, we strove to grow the business based on service provision, expand our digital technology, and expand our customer platform.

As a result of these efforts, business performance in the consolidated fiscal year under review was as follows: Net sales were ¥161,107 million (up 30.4% year-on-year), operating profit was ¥6,847 million (up 62.7% year-on-year), and ordinary profit was ¥5,511 million (up 54.8% year-on-year). Net profit attributable to shareholders of parent company was ¥3,832 million (up 51.8% year-on-year) and ROE was 11.8% (up from 6.8% in the previous year).

In regard to internal transactions of revenues and expenses between consolidated companies, the parent company's transactions are converted at the exchange rate at the time of the transaction or at the forward exchange rate, and the overseas subsidiary's transactions are converted at the average rate during the period and offset. During the consolidated fiscal year under review, due to the weaker yen, operating profit increased because the offsetting expenses greatly exceeded the corresponding revenues. However, the same amount has been adjusted as a foreign exchange loss in non- operating expenses. Hence, there is no impact on the ordinary profit.

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Device Segment

In the device business segment, our leading products are semiconductors (including system LSIs, microcomputers, power semiconductors, LCD driver ICs and memory) and electronic components (including connectors, capacitors and LCD panels). These products are sold mainly to electronics manufacturers. We also provide technical support such as software development and module development.

In the consolidated fiscal year under review, there were robust sales of electronic components, and net sales of semiconductors manufactured overseas increased due to expansion of commercial sales rights and strong sales of home video game consoles. Other factors in improved results were success in fully utilizing our trading company functions despite tight supply and demand for semiconductors, as well as exchange rates with a weaker yen year-on-year. This resulted in net sales of ¥147,575 million (up 33.5% year-on-year). In terms of profit, although selling, general and administrative expenses increased, segment profit was ¥4,144 million (up 89.4% year-on-year) due to the effect of increased revenue and strong projects with high profitability.

Note: Segment profit is based on ordinary profit.

Solution Segment

In the solution business segment, we provide one-stop services spanning from design and construction to operation and maintenance of network devices and security products that utilize ICT in accordance with our customers' environments. In addition, we provide Line-of-Business systems such as sales and production management, and applications such as personnel, payroll, and accounting in various formats ranging from on premise to the cloud.

For the consolidated fiscal year under review, although sales of major products such as servers and communication devices were sluggish due to supply difficulties caused by tight supply and demand for semiconductors, etc., the supply chain started to normalize from the fourth quarter, and performance was as planned for the full year. This resulted in net sales of ¥13,532 million (up 3.6% year-on-year). In terms of profit, although selling, general and administrative expenses increased, segment profit was nearly the same year-on-year at ¥1,366 million (down 0.4% year-on-year).

Note: Segment profit is based on ordinary profit.

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(2) Capital Investment Activities

For the consolidated fiscal year under review, a total of ¥183 million in investments was conducted for purposes such as updating facilities in the headquarters building and Osaka Branch building, and introducing business support tools.

(3) Financing Activities

For the consolidated fiscal year under review, outside financing was mainly ordinary borrowing from financial institutions. Furthermore, the Company has entered into commitment line contracts totaling ¥6,000 million with three correspondent financial institutions with the aim of securing a flexible and stable funding framework. There is no balance of borrowing based on these contracts at the end of the consolidated fiscal year under review.

1. Future Challenges (Basic management policies)
   The Company's basic policy is to adhere to the corporate philosophy of "Trust, Principles and Sincerity" in order to earn reputation as "the Chosen" among general electronics trading companies to prove its value based on a wide range of solutions it provides to its customers and suppliers.
   In the device business, in order to assist all client companies active in home appliances, automobiles and industrial devices operations in their efforts for globalization, the Company has been striving to establish overseas subsidiaries and provide goods and services, as well as it has been serving as a coordinator for its customers and suppliers through extensive product range and enhanced technological strength for suppliers' product development. Furthermore, in the solution business, the Company has been actively acting as a system integrator with information and communication network at the core of its contributions to clients' business development. Sanshin Electronics will continue to increase the Group's present value proving why customers and suppliers choose us.
   In managing its businesses, the Company will continue to fulfill its mission as a good corporate citizen by developing a system that enables diverse personnel to play an active role in the Company, as well as by continuing to reduce the environmental impact of its operations, just to mention a few actions.

(Target business indicators)

By establishing the return on equity (ROE) and ordinary profit as the Company's important business indicators, we will endeavor to improve earnings.

(Basic policies for profit distribution)

The Company considers profit returns to its shareholders as one of the most important management issues. The Company's basic policy is to determine dividends by comprehensively considering the need to maintain a balance between rewarding of shareholders, investment to gain opportunities for growth, attainment of sufficient retained earnings to enable sustainable growth, and improvement in capital efficiency. Under this policy, the Company has set a target for its dividend payout ratio of around 50% on a consolidated basis.

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