Qualitative Information on Quarterly Financial Results

1. Explanation of Operating Results
Japan’s economy showed overall signs of recovery due to increased capital investment driven by favorable corporate earnings and an easing of the depreciation of the yen and soaring energy resource prices, among other factors. However, the economic outlook remains uncertain because of continuing risks exerting downward pressure on the economy, such as global instability and price increases.
Although the business environment surrounding the TOKYO ENERGY & SYSTEMS Group continues to be challenging due to limited capital investment in the electric power industry, we believe that, with the aim of achieving both a carbon-neutral economy and economic growth, the enactment of the “GX (Green Transformation) Promotion Act” and the approval of the “GX Decarbonization Power Supply Bill”, as well as the detailed road map that includes promoting energy-saving, making renewable energy the principal source of electricity, and utilizing nuclear power, present the Group with an opportunity to expand its business domains. We also expect that the progress of specific tender procedures for “Long-Term Decarbonized Power Supply Auctions” targeted at securing power supply capacity from decarbonized power sources, among other things, and additional measures taken in response to the power supply and demand crunch will lead to greater capital investment in decarbonized power sources, including conversion of existing thermal power plants and construction of new LNG-fired power plants.
Given these circumstances, the Group is striving to meet the numerical targets for achieving its top-priority goal of “enhancing corporate value by strengthening core businesses and further expanding into new business areas” in FY2023, the final year of our medium-term management plan (FY2021–FY2023).
Specifically, in addition to our core business including the construction, inspection, and maintenance of thermal and nuclear power plants, decommissioning-related work at the Fukushima Daiichi Nuclear Power Plant, development of safety measures at nuclear power plants, and construction and upgrading of substations, general industrial facilities, and large public facilities, we have made strategic advances in the new business areas of biomass power generation and biomass fuel sales for realizing a carbon-neutral society.
In addition, we have been working diligently to grow our medium- and long-term orders and sales volume and to generate profits. As a comprehensive engineering company that is active across the entire value chain of the energy business, we have provided proposals for one-stop solutions to meet the decarbonization needs of customers and various regions, and have been carrying out robust nationwide sales activities for long-term decarbonized power supply auction projects, projects relating to decarbonization leading areas, and regional resilience projects.

As a result, total orders received were ¥41,269 million (down 18.0% year-on-year) as a result of a decrease in construction work for biomass power plants and solar power plants, among others, despite receiving orders for electrical construction work for large public facilities, new substation construction, construction of electrical instruments for factory facilities, upgrading of receiving substations, and biomass fuel sales, as well as other orders.
Net sales were ¥63,648 million (up 11.3% year-on-year), driven by biomass power plant construction, renovation work at hydroelectric power plants, and decommissioning-related work at the Fukushima Daiichi Nuclear Power Plant, as well as income from sales of electricity generated by the Group’s own biomass power plant, which began operating commercially in October of 2022.
The amount carried forward to the next period was ¥99,597 million (down 18.0% year-on-year).
As for profits, operating income was ¥2,912 million (up 82.4% year-on-year) due to an increase in net sales and an improvement in cost rates due to the transition to the percentage-of-completion method accompanying the determination of the contract amount for construction projects to which the cost recovery method is applied. Ordinary income was ¥3,735 million (up 232.2% year-on-year) due to, for example, the recording of foreign exchange gains and derivative valuations resulting from exchange rate fluctuations. Net income attributable to the owners of the parent company amounted to ¥2,111 million (up 111.3% year-on-year).

Business results by segment were as follows.
(Facilities Construction)
Total orders decreased year-on-year by 23.0% (to ¥37,314 million) due to decreases in the Electric Power Division and the Green Energy Business Division.
Net sales rose by 7.6% (to ¥59,698 million) due to increases in the Nuclear Power Division and the Energy and Industrial Division.

(Other Businesses)
Total orders received were ¥3,953 million (up 111.3% year-on-year).
Net sales were ¥3,949 million (up 128.8% year-on-year).

2. Explanation of Consolidated Earnings Forecast and other Projections
The consolidated earnings forecast for the fiscal year ending March 31, 2024, announced on April 28, 2023, remains unchanged.