Hirose Electric : Transcript of Financial Results Briefing for FY2025 1st Quarter

Q1 Financial Results Briefing for the Fiscal Year Ending March 2026 August 5, 2025

(Total: 68 minutes, Presentation: 27 minutes, Q&A: 41 minutes)

Shin Kamagata President and Representative Director Kosei Matsunaga Director, Group President, Administration

Group

Tatsuya Arai Business Fellow Head of 510 Strategy Office

Rie Yamada Manager, Corporate Communication &Investor Relations Office

Hideaki Shimizu Corporate Communication & Investor Relations Office

On our side, in addition to Mr. Kamagata, President, and Mr. Matsunaga, Group President, Administration Group, Mr. Arai, who was appointed as Head of 510 Strategy Office and President of S.E.R. Corporation in connection with the recent M&A, also attended the meeting.

Yamada and Shimizu, from the Corporate Communication & Investor Relations Office, will be facilitating the discussion. The event will again be held online.

I would like to begin by explaining this presentation. Please download the PDF file of today's financial results presentation from the link on the screen of your participation and read it at hand. Similarly, there is a link to the financial results disclosed on the TSE on August 4. Other disclosure materials can be viewed by moving to the IR page of our website.

First, I would like to present our financial results for Q1 of the fiscal year ending March 31, 2026, based on the documents. In the latter half of the presentation, Mr. Kamagata and Arai will explain the acquisition of S.E.R. Corporation as a subsidiary, which was disclosed on July 28. We will be happy to take your questions in the remaining time.

Now, please turn to page three of the financial results presentation materials. Performance summary.

Q1 of FY2025 saw an increasing sense of recovery in the general industrial machinery market, good performance in the consumer mobile equipment and smartphone markets, and solid performance in the automotive and mobility-related market, resulting in sales growth of 9.1% YoY.

On the other hand, operating profit was negative 4.2%. Operating margin was 20.1%. Orders in Q1 were JPY52.01 billion, up 7.3% from the same period last year and 8.9% from the previous quarter.

Graphs of quarterly sales and profits.

In Q1 of FY2025, sales grew to JPY48.97 billion, operating profit to JPY9.83 billion, and operating margin to 20.1%, indicating that while sales grew, operating profit was lacking in comparison.

Financial summary.

Although there are some repetitive parts, sales for Q1 of FY2025 were JPY48.97 billion, up 9.1% from the same period last year; operating profit was JPY9.83 billion, down 4.2%; operating margin was 20.1%; profit before income taxes was JPY10.24 billion; net profit was JPY7.23 billion; equity ratio was 89%; and earnings per share was JPY213.58.

The exchange rate results were JPY144.59 against the US dollar, JPY163.80 against the euro, and JPY10.34 against 100 won. The yen appreciated against all major currencies compared to the same period last year, and this was the main reason for the decrease in profit.

The specific impact will be explained in the later slides of the variation analysis.

The table above summarizes the major changes from the same period of the previous year.

Of the JPY4.1 billion increase in sales, JPY3 billion was for general industrial machinery, JPY0.5 billion was for smartphones and mobile terminals, JPY0.2 billion was for consumer mobile devices, and JPY0.4 billion was for automobiles and mobility-related products.

The cost of sales ratio is 57.6%, a 2.6 percentage point deterioration from last year's 55%. Mainly, the variable ratio rose from 37.6% to 40.8%, the result of factors such as the impact of higher raw material costs.

We plan for the cost of sales ratio to rise this fiscal year, and although we are in a difficult phase, we believe that the cost of sales ratio will gradually settle down as inventory adjustments in the industrial machinery market begin to ease and production picks up.

SG&A expenses increased JPY920 million from JPY10.01 billion to JPY10.93 billion, mainly due to an increase in personnel expenses, but the ratio remained unchanged at 22.3%.

The financial account balance was a result of a total decrease of JPY1.18 billion, from a positive JPY0.32 billion in foreign exchange gains/losses to a negative JPY0.65 billion, due to the effect of the strong yen and a slight decrease in interest income.

This is an analysis of YoY changes.

Foreign exchange effects were down JPY2.65 billion in sales and down JPY1.36 billion in operating profit.

While there was a labor cost increase of minus JPY1.15 billion and depreciation cost increase of minus JPY250 million, an increase in the product resulted in an increase of JPY2.33 billion.

Operating profit was down JPY430 million to JPY9.83 billion.

B/S assets.

While accounts receivable increased due to higher sales, cash decreased due to capital investment including buildings, dividend payments, and corporate tax payments.

Inventories increased slightly, but were essentially unchanged excluding foreign exchange. Property, plant, and equipment increased by JPY1.86 billion due to the expansion of production facilities.

Liabilities and shareholder's equity.

Since sales are firm, payables saw an increase of JPY2.61 billion due to an increase in accounts payable from increased production and purchases, and other translation adjustments of JPY5.0 billion due to the effect of yen appreciation.

Capital investment and depreciation.

Capital investment in Q1 of FY2025 totaled JPY5.0 billion, and depreciation was JPY3.8 billion.

There is no change in the forecast for FY2025. Although not stated in the document, the actual R&D expenses for Q1 were JPY3.3 billion. There is no change in the FY2025 forecast of JPY14 billion for R&D expenses.

Distribution of shareholders.

Foreign corporations have increased slightly, and securities firms have decreased.

Here are the results by application. The first is the sales trend for general industrial machinery.

Sales for Q1 of FY2025 totaled JPY14.1 billion, up 27% from the same period last year and up 17% from the previous quarter, indicating a more enhanced sales recovery, which we view as the result of further progress in eliminating customer inventories.

For smartphones and mobile devices.

Sales for Q1 of FY2025 were JPY10.4 billion, an increase of 5% over the same period last year. The start was strong, but within our expectations.

Consumer and mobile equipment.

Sales were JPY8.6 billion, up 2% from the same period last year - a solid start.

Automotive and mobility-related applications.

Q1 sales were JPY12.8 billion, up 3% from the same period last year and up 8% from the previous quarter. We are forecasting 7% growth for the current fiscal year, which I believe is a solid in-line result.

Sales trends for telecommunication infrastructure equipment and OA equipment. This one has nothing to comment on.

After considering these results, these are our forecasts for FY2025.

Although sales progress is strong, it is still Q1 of the year, so we are leaving it unchanged at this time.

This is regarding the Share Buyback program, which was resolved yesterday.

In May, we reported on our decision to acquire treasury shares up to JPY60 billion over the four-year period from FY2025 to FY2028, of which up to JPY15 billion or 1.05 million shares will be repurchased starting from August 5, 2025. The aim is to enhance shareholder returns and improve capital efficiency.

The above is an explanation of our business performance.

From here, Mr. Kamagata, President, and Mr. Arai, Head of HIROSE ELECTRIC 510 Strategy Office, who has been appointed as President of S.E.R. Corporation, will now provide an explanation of the acquisition of all shares of S.E.R. Corporation and its conversion into a subsidiary, as announced on July 28.

President Kamagata would like to start.

I am President Kamagata. I would like to add a few words to the explanation of business performance given by Yamada earlier.

Smartphones. This field Q1 is at 1.08 as a BB ratio, and Q1 usually starts low, so in that sense, we are looking forward to Q2 and Q3. In terms of the market, flagship models in North America are growing, but sales in the China area are not as high as planned. Considering this situation, this is the kind of growth we are seeing this time.

Orders for consumer mobiles are also strong, with a BB ratio of 1.02, but the biggest growth is in mobile PCs, which are growing by double digits.

Automotive, with a BB ratio of about 1.09, is growing steadily, primarily in the areas of EVs and ADAS. In terms of markets, there is a sense that sales to the Korean market are growing faster than planned, while other markets are a bit more wait-and-see. But in general, sales are growing faster than planned in these markets.

In the industrial machinery sector, we are sensing that, overall, there is a stronger sense of recovery compared to last year. In the case of Hirose, distributors account for 50% and direct sales for about 50%, neither of which is biased one way or the other.

However, there are differences for each customer. Some companies have made considerable progress in clearing inventories in their supply chains, and some have made a solid recovery based on their forecasts. We will continue to monitor them for orders. Incidentally, the BB ratio for industrial machinery is 1.05, and orders are strong here as well.

On the other hand, assuming that profits will grow from the industrial machinery segment, there is some upfront preparation to run various lines of items that have not been run to this point. I believe that if the occupancy rate increases steadily, it will contribute to profits.

At the same time, we are conscious of the need to raise the cost of raw materials and labor to an appropriate level, so we are planning to raise the selling price to our customers accordingly. We have also set operational efficiency in various internal processes as a management issue for FY2025, which is going well.

Although we have announced our share buyback plan for FY2025, we see the improvement of capital efficiency as an ongoing issue and intend to discuss this information internally.

Now I would like to move on to S.E.R.

We have said many times that we will explore new growth drivers in addition to hedging risks by maintaining a solid portfolio based on our three pillars.

This includes not only M&A, but also investments in R&D, including new materials. The purpose of this search for new growth drivers is to see if there are any new growth areas we can add to our "connecting business" domain, while continuing to evolve our business for the next 5 to 10 years.

The other thing is to further strengthen our growth potential, and in some cases, we have done this by incorporating outside knowledge to accelerate the speed of our evolution.

As a result, we are pleased to report that on July 28, we acquired connection technology related to semiconductor inspection as a seed for a new field.

Details will be reported by Arai.

I would like to explain the significance of our entry into the semiconductor inspection-related business. First, as a market, the semiconductor market is expected to accelerate its growth over the long term.

Secondly, since semiconductors are important components that drive the evolution of society, we aim to better grasp technological evolution and market trends more quickly by entering this business. In this way, we will strengthen our ability to propose leading, advanced, and differentiated solutions as the Hirose Group.

Third, probes offered by the newly acquired company are electrical contacts with excellent high-frequency characteristics and durability. They are expected to be applied not only to semiconductor inspection but also to the high-performance connectors that we are aiming for.

The significance of this is to further strengthen our connecting business and continue to ensure long-term company growth.

Briefly, I would like to introduce S.E.R. Corporation and its subsidiary, Kunohe Seimitsu.

On the left, S.E.R. Corporation is located in Shinagawa, Tokyo. The company was established in 1984 to manufacture and sell sockets and probes for semiconductor inspection.

The photo on the left shows a semiconductor test socket on the top and a multi-pole coaxial connector on the bottom, and we believe we have a very high affinity with Hirose Electric in this area.

On the right, Kunohe Seimitsu. This company became a wholly owned subsidiary of S.E.R. in 2017. Until then, as you can see the picture of probes, they were a supplier of probes for S.E.R. .

Originally, this company was an affiliate of the Citizen Fine Devices Group, and when Citizen exited that business, S.E.R. acquired the company.

This company is headquartered in Kunohe, Iwate Prefecture, and also has a Morioka Plant in Morioka City, Iwate Prefecture. It was previously a Citizen company, so it has very fine processing technology related to the watch industry, and they use that technology to manufacture fine probes, or the cutting work that is underneath of probes on the picture.

S.E.R. has strengths in sockets and ultra-compact probes, which are indispensable for testing semiconductors that are becoming denser and faster. In fact, the company provides its technology and products to leading domestic and international companies in the semiconductor testing industry.

Here is an example of the world's most advanced ultra-compact probe offered by this company.

The white shadow on the left is a grain of rice with two probes on it. The middle one is called ultra-fine, and the one to its right is called ultra-short, which is very short.

If you look at the contents, this illustration on the right shows that this is not just a rod but a cylinder with a spring inside. When the contact points on the top and bottom slide together, the friction generates contact force and allows electricity to be transmitted, making the connection secure even though it is a very small part.

These components are used to inspect semiconductors - i.e., a semiconductor on the top and an inspection board on the bottom - which function to electrically connect the semiconductors.

It is compact, has excellent electrical characteristics, is durable, and can be produced in large quantities with stable quality. That is what will speed up semiconductor development and start-up speed, improve inspection accuracy, and contribute to customer profits.

This is the executive structure of the subsidiary.

S.E.R. has become an independent subsidiary of Hirose Electric, and furthermore, Kunohe Seimitsu is now a sub-subsidiary.

I was appointed as president and CEO. And there is another director, Kazunori Ishii, who also serves as chairman of the board of Hirose Electric. Then, Serizawa, former representative director of S.E.R., was appointed as chairman of the board. Hara, general manager of the Finance Department of Hirose Electric was appointed as auditor.

In addition, members who were in Hirose Electric 's 510 Strategy Office will participate in management as the Corporate Planning Office and will proceed with a system to support the growth of this company.

Hirose Electric and S.E.R. will leverage the strengths of both companies to the maximum, accelerate business expansion and technological innovation, and provide high-quality, high-value-added solutions.

That is all.

In this material, there are descriptions based on current estimation by Hirose Electric. Hirose cautions you that a number of important risks, uncertainties and others could cause actual results to differ materially from those discussed in the *forward ‐ looking statements. Thank you for your understanding. *Forward-looking statements include, but are not limited to, those statements using words such as "believe," "expect," "plans," "strategy," "prospects," "forecast," "estimate," "project," "anticipate," "aim," "may" or "might" and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. These statements are based on management's assumptions and beliefs in light of the information currently available to it.