Hirose Electric : Q&A Summary of Financial Results Briefing for the 2nd Quarter of the Fiscal Year Ending March 2026

Ａ１

Regarding the temporary costs incurred in the first quarter, although the temporary cost increase caused by the restart of idle production lines for industrial machinery segment has been largely resolved, the utilization rate of the industrial machinery segment is not yet sufficient, so inefficient costs still continue in some areas.

Regarding raw material prices, the big impacts this time were the rise in gold prices and the rise in copper, but this time we include parts that were not visible at the beginning of the fiscal year on the cost factor. Speaking of the segments, gold is mainly used in micro connectors for consumer segment and for General industrial segment, which is a factor that worsens costs. The action plan is to revise the price of micro connectors at the stage of replacing them with new products in the product life cycle. However, since industrial machinery market is a long-life cycle, we have started negotiations to raise the price of gold for the price increase. We have already started taking action on the standard price for distributors, and we have also started individual negotiations. We have begun negotiations with several customers to transition to contracts tied to the gold market. Regarding the impact on performance, there is a time lag between negotiations and improvement in cost performance in actual sales. We believe it will become apparent in the sales of the second half of the year to FY2026. At this point, we plan to implement about 50% to 70% of the action plan within this fiscal year, depending on the level of negotiation difficulty. At present, customers vary in their business resilience depending on the industry. Considering competitors' negotiation status, we are negotiating price increases while ensuring customer satisfaction.

Ａ２

At the beginning of the fiscal year, we had already entered negotiations with customers. However, since we had not yet reached an agreement, we factored the full-year budget into the estimate and adopted a more conservative approach to profit targets. This time it includes cases where figures have been finalized. In response to this special request, we strategically responded to the request for this price reduction with a view to strengthening business cooperation in the future. Even if it means sacrificing some immediate profits, we took on the challenge with the awareness that we will prioritize future growth and obtain alliances in this field in the medium term. Going forward, new products are released every year for micro connectors. By introducing new products with revised pricing, we anticipate that the new prices will be agreed. Since the volume is growing at this stage, I would like to draw up a scenario in which profits will increase again when this volume is replaced by a new product.

Regarding continuity estimates, some products adopted in 2025 will continue to be delivered in 2026. As a result, 2026 will see a mix of existing and new products. By FY2027, we plan to focus primarily on new products.

Ａ３

The BB ratio by segment is 1 for General industrial and slightly more than 1 for automobiles. For smartphones, it is slightly above 1.05. For consumers, it is below 1. Automobiles and general industrial continue to perform well. As for automobiles, orders for EVs, including hybrids, and for ADAS continue to drive. Antenna-related orders from Japanese customers are also increasing with the increase in their production volume. In the General industrial, the BB ratio in Q2 was slightly lower than in Q1, but orders continued to be at a high level in the FA-related sub-segment, and the upward trend continued for large customers. On the other hand, the situation is that there has been a slight adjustment in the "other" sub-segment except FA.

Ａ４

Compared to the initial plan and operating profit of 38.5 billion yen, the foreign exchange impact on the positive side was 4.5 billion yen, and the volume increase was about 3.5 billion yen. Material costs are minus 2 billion yen to 3 billion yen, and the rest is affected by price fluctuations.

Ａ５

In the chart on page 19, it is included in the approximately 13 billion yen of "volume increase". We are currently focused on explaining to customers, in detail, how the price increase and its impact will be reflected in the selling price. There is a time lag where the effect can be seen. As a forecast, we explained that it was double-digit billion yen last time, but we expect it to be close to that in the second half of the year. I am monitoring and following up on the situation.

In addition, although personnel costs are considered as expenses, we would like to proceed with securing the human resources necessary for growth. On the other hand, to increase productivity, it is necessary to review operations and improve productivity by introducing AI. After that, we will focus on steady initiatives such as streamlining operations with fewer staff and revitalizing the workforce by placing the right people in the right roles. Essentially, this means we will implement these measures thoroughly.

One supplement. In addition to the current rise in gold prices, we have been researching and developing gold-saving production and alternative metals for a long time, so we are thinking of accelerating this year. It is difficult to assume that the price of gold will return to normal suddenly, so we are currently planning to reduce the amount of gold or to introduce new materials other than gold.

Ａ６

As an assumption, we assume that this quarter level of about 14.5 billion yen will continue after the third quarter. On the other hand, orders continue to be on an upward trend, especially for FAsub-

segment. Orders from large customers are also on the rise, and we expect that this will increase after the first quarter of fiscal 2026.

Ａ７

At present, I honestly feel the strength of the US connector manufacturers. Although such discussions with customers are limited, we are seeing opportunities to supply AI-related and semiconductor-related connectors from 2026 to 2028 to address future customer needs. The R&D team is evaluating our capability to meet these demands.

Ａ８

We are still in the process of entering the plan for the next term, and we believe it is too early to talk about it at this timing.

Ａ９

It is a bit difficult, but we will try to restore profitability, especially in general industrial and automobiles, through efforts to reduce costs and raise prices for profit increases. There is a high possibility that it will be part of the new product reshuffle, but we would like to improve profitability by aiming for sales growth in segments such as smartphones and consumers.

Automobiles segment has been growing in double digits or close to double digits for the past few years, but we want to firmly grasp the trend for the next and next fiscal years. In the industrial machinery segment, we still anticipate a full-fledged recovery in FY2026. While some of the customers we work with may change significantly, we aim to regain the momentum we achieved in previous general

industrial during 2026.

As for consumer and smartphone segments, the specifications of smartphones in 2026 are almost visible, so I think that the composition ratio per unit should not be dropped, and we are talking to customers now about new projects which have momentum like that our composition ratio will increase slightly. Such as wearable devices and mobile PCs, I believe that demand for Edge AI and terminals will continue in 2025 and 2026, so we would like to maintain stable shipment volumes that meet customer requirements.

Regarding the three pillars we are focusing on in the medium term, General industrial and automotive segments currently account for the largest share of growth. However, we will maintain the consumer segment growth while aiming to increase all areas, with higher growth share in automotive and General industrial segments. We will share specific figures and plans once they are finalized.

Ａ10

For example, when it comes to hiring people, we will give priority to hiring people who will lead to co-creation. In addition, we will make use of the back-office staff as much as possible, or replace what people are currently doing with AI etc. We aim to allocate people-hours to higher-value tasks.

Ａ11

We believe that additional share buybacks may be possible at this stage. To do that, I think we will first discuss whether to advance the share buybacks within the amount that we have already announced for four years, and then finally raise the total amount. Second, we are planning to update the use of capital at the end of the fiscal year. At this point, we would like to invest a little more in new technologies and products, including M&A, and I would like to report it once it is revised. I think it is a little early to talk about specific quantitative figures, and I would like you to wait at this point.

This document contains statements based on Hirose Electric's current forecasts. These forward-looking statements involve known and unknown risks and uncertainties and other factors that may differ from the Company's actual results. Please note.