3rd Quarter of the Fiscal Year Ending March 31, 2023
Qualitative Information Concerning Quarterly Financial Results

1. Management Performance
In the Japanese economy, against a background of COVID-19 having been accepted as an ongoing phenomenon and attempts being made to balance infection control with social and economic activity, signs of gradual recovery can be seen in corporate earnings and capital investment, yet there are nevertheless downside risks due to rising prices and supply constraints, leaving the outlook for the economy uncertain.

In the business environment in which the Tokyo Energy & Systems Group finds itself, though soaring energy-resource prices continue to reduce profitability in the electric power industry while capital investment in electric power remains subdued, we predict that in conjunction with the worldwide movement toward decarbonization there will be strong capital investment for the purposes of energy conservation and decarbonization.

Against this background, the Group, for the purpose of enhancing corporate value by strengthening core businesses and further expanding into new business areas, as called for in the mid-term management plan (FY2021–FY2023), carried out in July of last year a reorganization, making the green-energy business a new core business in which the Group will work to uncover and solve regional and social problems, and the Group has devoted itself whole-heartedly both to this new core business and to its existing businesses.

Specifically, while consistently carrying out construction, inspection, and maintenance work at thermal, nuclear, and hydroelectric power plants, decommissioning work at the Fukushima Daiichi Nuclear Power Plant along with related reconstruction work in the Fukushima area, and safety-related work at nuclear power plants, the Group, in order to increase sales and generate profit in the medium and long term, worked vigorously to boost new orders nationwide by, among other things, proposing solutions that comprehensively encompass all services — from engineering, procurement, and construction (EPC) through to operation and maintenance (O&M) — both in the field of cogeneration and in the field of renewable energy (e.g., solar, hydroelectric, and biomass energy).

Total orders received by the Group were ¥50,336 million; notwithstanding an increase in construction work on solar and biomass power plants, total orders were down 38.3% year-on-year due to decreases in long-term operation and maintenance contracts for biomass power plants and in decommissioning work at the Fukushima Daiichi Nuclear Power Plant. Net sales, on the other hand, came to ¥57,188 million, up 15.3% year-on-year thanks to progress in repair work and major construction work at thermal power plants, decommissioning work at the Fukushima Daiichi Nuclear Power Plant, and construction work at hydroelectric power plants and power transmission and distribution facilities.

The amount carried forward to the next period was ¥121,470 million, up 4.8% year-on-year.

As for profits, there was a positive contribution from the substantial increase in net sales, yet in the consolidated accounting for the first quarter we had recorded additional costs (¥120 million under cost of sales and ¥85 million under extraordinary losses) for reconstruction work owing to the welding defects in piping welds on fixed fire-extinguishing equipment at Unit 7 of the Kashiwazaki-Kariwa Nuclear Power Plant, and as a result of investigation and inspection of Unit 6, it was determined that reconstruction work was needed on that unit as well, so in the consolidated accounting for the third quarter we again recorded expenses for reconstruction work owing to welding defects, with the result that operating income was ¥1,596 million (up 26.0% year-on-year), while ordinary income was ¥1,124 million (down 14.8% year-on-year) due to recording of a loss on valuation of derivatives, and quarterly net income attributable to owners of the parent company was ¥999 million (up 27.0% year-on-year) due to recording of extraordinary income as described below.

The expenses for reconstruction work at Unit 6 of the Kashiwazaki-Kariwa Nuclear Power Plant were allocated based on the factors involved, with ¥685 million recorded under cost of sales as provisions for losses on construction contracts and ¥1,015 million recorded under extraordinary losses as provisions for losses due to compensation of damages.

However, we reached agreement with some of the partner companies that performed the original work on Units 6 and 7 with regard to bearing the costs involved, with the result that we recorded extraordinary income of ¥1,680 million as a reversal of provisions for losses due to compensation of damages.
With regard to the extraordinary income and losses on expenses for reconstruction work owing to welding defects, in the consolidated income statement through the end of the third quarter, we have entered the net amount, ¥579 million, as a reversal of provisions for losses due to compensation of damages.

In this matter, our top priority is to perform the repair work in a sound manner, but we will also continue talks with the remaining partner companies that performed the original work.

The business results by segment were as follows.

Facilities Construction
Total orders received were ¥48,464 million, down 40.0% year-on-year due to decreases in orders received in the Electric Power Division and the Nuclear Division. Net sales were ¥55,461 million, up 13.1% year-on-year thanks to increased net sales in the Electric Power Division and the Nuclear Division.

Other Businesses
Total orders received were ¥1,870 million, up 124.8% year-on-year.
Net sales were ¥1,726 million, up 201.2% year-on-year.

2. Future Prospects for Consolidated Earnings Forecast
The consolidated earnings forecast that we announced on April 27, 2022, for the fiscal year ending March 31, 2023, remains unchanged.