Hirose Electric : Transcript of Financial Results Briefing for the Fiscal Year Ended March 2026

Financial Results Briefing for the Fiscal Year Ended March 2026 May 12, 2026

(Total: 78 minutes, Presentation: 39 minutes, Q&A: 39 minutes)

Shin Kamagata President and Representative Director, HIROSE ELECTRIC CO., LTD.

Kosei Matsunaga Director, Group President, Administration

Group, HIROSE ELECTRIC CO., LTD.

Tatsuya Arai President and Representative Director, Hirose SER Inc.

Rie Yamada Manager, Corporate Communication & Investor Relations Office, HIROSE ELECTRIC CO., LTD.

Hideaki Shimizu Corporate Communication & Investor Relations Office, HIROSE ELECTRIC CO., LTD.

Thank you all for taking the time out of your busy schedules to join us today. Due to a time conflict with an event of another organization in the same sector, we are starting 15 minutes later than usual today.

Let me introduce today's attendees. Mr. Kamagata, the President and Representative Director of HIROSE Group. Mr. Matsunaga, Director and Group President of the Administration Group. Mr. Arai, President of HIROSE SER, INC. Mr. Yamada and Shimizu from the Public Relations and Investor Relations Office will be facilitating the session. This briefing will be conducted exclusively online. Thank you.

To begin, let me briefly explain how today's session will proceed.

Please download the PDF of today's financial results presentation from the link displayed on your screen and have it ready for reference. You may also find a link to the financial results summary released on the Tokyo Stock Exchange yesterday, May 11. Additional disclosure materials are also available if you access the IR section of our corporate website.

During the presentation, the speaker will indicate the page numbers for your reference, so please advance the pages on your own.

The Q&A session will be held in an interactive format via telephone. If you have questions, please call the dedicated number provided in the invitation email during the Q&A segment later in the session. We will take questions in the order received, and we kindly ask that you speak when your turn is announced.

Now, using the presentation material, I will present an overview of the financial results for the fiscal year ending March 31, 2026. President Kamagata will then present the financial forecast for the fiscal year ending March 31, 2027, and the medium-term management plan. We will spend the remainder of the time on a Q&A session. Mr. Arai and Mr. Matsunaga will also be available to take questions.

This briefing is scheduled to end at approximately 11:45 AM.

Now, please refer to the presentation material. Please turn to page three performance summary.

For the fiscal year ending March 31, 2026, both sales and profits exceeded those of the previous year, although we had expected a decrease in profits at the beginning of the fiscal year.

Overall sales totaled JPY211.26 billion, up 11.5% from the same period last year. Operating profit was JPY42.99 billion, an increase of only 0.8% from the projected decrease at the beginning of the fiscal year, despite the continued burden of increased material costs, such as metal materials. Operating margin was 20.4%.

By segment, sales for the general industrial equipment segment exceeded the annual forecast due to continued growth. Sales to smartphones and consumer mobiles were slightly higher than forecast, with limited downside effects despite seasonality. Sales to the automotive and mobility-related industries remained strong. Orders received totaled JPY224.98 billion, up 16.8% from the same period last year.

Please continue to page four. The graph shows quarterly sales and profit trends.

In Q4 of FY2025, sales were JPY54.72 billion, operating profit was JPY10.49 billion, and operating margin was 19.2%.

Sales usually tend to decline in Q4 due to the seasonality of demand from consumers, but such a factor was limited during the current fiscal period, and sales peaked in Q4 due to strong demand from the industrial equipment market as well.

Although not stated, you can deduce that by subtracting the figures. Orders received reached JPY63.2 billion in Q4, reaching a record high of orders and sales. Therefore, we are currently working to improve maximum capacity by enhancing the production system.

Page five provides a summary of the financial results.

Sales for FY2025 were JPY211.26 billion, an increase of 11.5% over the same period last year, as reported earlier. Operating profit was JPY42.99 billion, up 0.8% from the same period last year; operating margin was 20.4%; profit before profit taxes was JPY46.63 billion, and net profit was JPY33.14 billion.

Equity ratio was 87.7%, and earnings per share were JPY991.91. Actual exchange rates were JPY150.77 to USD1, JPY174.79 to EUR1, and JPY10.59 to KRW100.

The next page six summarizes the major changes from the previous year.

Net sales increased by JPY21.84 billion from the previous year. Here is the breakdown: the general industrial equipment business added JPY15.1 billion. The smartphone/mobile terminals business was negative JPY2.1 billion. The automotive/mobility-related business was positive JPY5.1 billion. The telecommunications infrastructure equipment business was positive JPY1.3 billion.

The cost of sales ratio deteriorated by 3 percentage points to 57.9% from 54.9% in the previous year. The variable cost ratio increased from 37.9% to 41.1%, mainly due to higher material and procurement costs. The depreciation rate was 7.7%, which was virtually unchanged from the previous year. The labor cost ratio increased slightly to 7.9%.

SG&A expenses increased JPY3.24 billion, mainly due to an increase in distribution costs, but the ratio improved by 0.8% to 21.6% due to the effect of increased sales.

The financial account balance was JPY3.63 billion, an increase of JPY0.09 billion from the previous year.

This is followed on page seven by an analysis of changes in operating profit compared to the previous year. To make it easier to understand the factors behind the fluctuation, we have used a waterfall chart.

The first positive factor was a JPY17.8 billion increase in profits due to increased product volume. Negative factors, on the other hand, included a JPY1 billion impact from foreign exchange, a JPY1.4 billion increase in depreciation and amortization, a JPY3.8 billion increase in personnel expenses, and a JPY6.5 billion increase in materials and procurement costs.

In addition, as discussed at the time of Q2 results, price adjustments at specific clients had a negative impact of JPY4 billion. On the other hand, price optimization activities that corresponded to rising material costs resulted in a JPY0.5 billion improvement.

Continued on page eight, the balance sheet of the assets.

Cash increased by an overall positive JPY1.66 billion due to redemption of marketable securities and transfer of time deposits from other financial assets, despite a decrease due to share repurchases and capital expenditures. Trade receivables increased due to higher sales in the current period, resulting in total assets of JPY431.18 billion.

Inventories increased from Q3 due to a strategic increase in work-in-process and raw material inventories at each plant and subsidiary, driven by upside in orders.

Next on page nine are liabilities and net assets.

In liabilities, payables increased due to higher accounts payable for increase in purchases. Treasury stock increased in net assets. The acquisition of one property began in August and was completed in November at a cost of approximately JPY15 billion, while the acquisition of another property began in January and had progressed to approximately JPY5.3 billion in cost by the end of the fiscal year.

Please continue to page 10. Capital expenditures and depreciation.

Capital expenditures for FY2025 were JPY19.9 billion, and amortization was JPY16.1 billion.

For the fiscal year ending March 31, 2027, we believe that we are in a phase of increased volume based on the current demand environment. Therefore, we expect capital expenditures of JPY25 billion and depreciation of JPY17 billion. We will continue to invest in production capacity enhancement and efficiency.

Although not included in the document, the actual R&D expenses for FY2025 were JPY13.5 billion. Our forecast for R&D expenses for FY2026 is JPY14.5 billion.

Next, on page 11, we have included a slide showing the results of overseas production and sales ratios at the end of the fiscal year.

Overseas sales accounted for 83% of total sales in the period under review. The relative domestic sales ratio increased, and the overseas sales ratio declined slightly from the previous year due to an increase in sales to the General Industrial Equipment Business in Japan.

Overseas production accounted for 53% of the total. We will continue to build an optimal production system, taking into account overseas demand trends and production efficiency.

Continuing on to page 12, I will report on the employee headcount.

The increase of 201 employees in the domestic segment is mainly due to the acquisition of HIROSE SER as a subsidiary. The increase in overseas sales is mainly due to the replenishment of personnel on manufacturing lines to increase production.

Page 13 is a slide showing stock distribution trends.

The increase in treasury stock from 4.97% to 8.1% is due to the acquisition of treasury stock.

Continuing on page 14, I will now discuss the results by sector.

First, here are sales trends for the general industrial equipment business.

Sales for Q4 of the fiscal year ending March 31, 2026, were JPY17.3 billion. The full-year cumulative total was JPY62 billion, a significant 32% increase over the same period last year. In Q3, we reported that the industry had moved out of the adjustment phase and was once again in a growth phase, and this trend continued for the overall trend of the Industrial Equipment Business.

As of February, we had expected a 30% growth compared to the previous year, but we have come in a little short of that, at 32%.

The next pages are for the smartphone and mobile terminals business.

Sales for Q4 were JPY10.2 billion. Sales usually tend to decline in Q4 due to seasonality, but the decline was relatively small in the period under review. For the full year, sales amounted to JPY44.3 billion, down 5% from the same period last year.

Although we had initially expected a 7% decline in sales, the final result was a lower-than-expected decline.

Continuing on page 16, this section is for the consumer/mobile devices business.

JPY8.4 billion in Q4 and JPY34.7 billion in total for FY2025. Although some products, such as wearable devices, showed seasonality, consumer products and other products covered the seasonal variations and remained firm. We had assumed a YoY decline of negative 2%, but ended up with a net zero.

Next, on page 17, is for the automotive/mobility-related business.

Q4 was JPY14 billion, and the cumulative total was JPY54.3 billion, a 10% growth over the same period last year. We believe that our diverse client base and wide range of product lineups have enabled us to absorb the fluctuations in the market environment and continue to perform well.

Page 18 covers the telecommunications infrastructure equipment business and the office equipment business.

In Q3, we reported that the BB ratio of the telecommunications infrastructure equipment segment was high at 1.4x, and part of this ratio has materialized as sales. Sales for Q4 totaled JPY2.2 billion, and for the full year totaled JPY6.7 billion, a 24% increase over the same period last year.

This concludes my report on the results by segment.

Continuing with the FY2026 forecast and the FY2026 version of the medium-term growth strategy, President Kamagata will present the FY2026 forecast and the medium-term growth strategy. Thank you.

As for the forecast for FY2026 shown in the center of the slide, as Mr. Yamada mentioned earlier, we have set the sales forecast at JPY230 billion, which is based on further growth by taking advantage of the tailwind trend in FY2025. This is an increase of 8.9% over the previous year.

Our forecast for the operating profit is JPY46 billion, which is an increase of YoY 7%. As for the exchange rate assumptions, as written below on the right, we are projecting JPY150 to USD1, JPY183 to EUR1, and JPY10.5 to KRW100.

We have included some naphtha-related issues, such as solvents, sub-materials for trays used in distribution packages, fuel surcharges, and other logistics costs, but we have taken a slightly firmer view of costs.

I would like to discuss each segment on the 20page.

First, from the left, the 2026 sales forecast for the general industrial equipment business is JPY71 billion. We project growth in our businesses related to semiconductor equipment, AI-enabled robotics, and medical applications.

Both the smartphone/mobile terminals business and consumer/mobile devices business are expected to stay relatively flat. The smartphone/mobile terminals business is expected to generate revenue of JPY43 billion, with a growth rate of negative YoY 3%. The consumer/mobile devices business is expected to generate revenue of JPY34 billion, with a growth rate of negative 2%.

In the smartphone market in particular, demand forecasts for mid-range and low-end clients are weakening. On the other hand, demand forecasts for flagship models from top brands remain strong and are showing a significant upward trend. Therefore, we believe that we will be able to keep our market share in flagship models, which is our forte, this year as we did last year, and almost maintain last year's growth.

In the automobiles and mobility segment, our forecast is JPY60 billion for the current fiscal year. We are under the impression that ADAS and EVs have increased their market share slightly this year too compared to last year; hence, we are projecting continued growth of 10%.

The telecommunications infrastructure equipment business is JPY9 billion in 2026, up 34%. This is a connector to be provided for AI server-related and other applications, and we are also looking at growth here. This is the existing connector business domain.

Please see page 21.

This is the new business domain we have been talking about since last year. Placed in the middle of a grain of rice on the lower right visual is the world's shortest and thinnest probe pin. We believe we are successfully tapping into this market. In 2025, the market was JPY1.8 billion, and we envision significant growth to JPY6 billion in 2026.

However, please see the remarks for the year 2025. The sales recorded here is after consolidation, between August and March. Please note this is not the full 12 months.

In this domain, semiconductor clients obviously account for the majority. The forecast we received indicates that demand is quite high. As semiconductors become denser and faster, the technology applied to inspection tools in the semiconductor inspection process is also evolving, and our products, such as probes and sockets, must be high-density.

Therefore, we are confident that our ultra-thin and ultra-short products, among the smallest in the world, can satisfy the needs of our clients.

Looking back on our history, we have developed numerous cutting-edge products. By combining the HIROSE Group's technological expertise with its stable mass production capabilities, we will be able to continue meeting ever-growing client needs. By charting a course for growth, we are confident we can achieve our goal of business expansion.

Next page, please.

Hirose SER Inc. is projecting sales of JPY60 billion for FY2026. While we anticipate further growth in the mid-term, however, we will refrain from making any specific commitments regarding our medium-term expansion goals at this time.

I believe that if we achieve this figure in FY2026, it will contribute to significant growth beyond that point. Based on the current data, it seems we're looking at a volume of around JPY10 billion by FY2029, but if we aim to double that figure or more, achieving this JPY6 billion target will bring that vision within reach.

We appreciate your recognition of our efforts over this fiscal year, and we expect to be able to report on our mid-term volume by this time next year. We ask for your patience for just a little while longer.

Page 23, please. The forecasted change in operating profit for FY2026.

The positive side of the profit from increased logistics is JPY11 billion. We forecast total operating profit of JPY46 billion. The amortization costs will be negative JPY1 billion, the labor costs will be negative JPY1 billion, the material and purchasing costs will be negative JPY8 billion, and other factors will be negative JPY1 billion. Price optimization will bring JPY3 billion.

Please note that these costs have been estimated on the higher side compared to usual. When discussing our mid-term results, I'd also like to touch on this topic. I believe FY2026 was a year that provided a tailwind for business environment and every sector, and now is the time to make sound investments.

We invested in new plant construction throughout FY2024 and FY2025. We will continue this trend of investment beyond FY2026, and increases in depreciation and personnel expenses will be in line with our plans.

About labor costs, we anticipate an increase in expenses necessary to ensure active recruitment. As for the increase in material and purchase costs, we expect that the soaring gold price and the high raw material prices of last year will continue to some extent, and we have taken these factors into account.

The situation regarding price optimization is slightly different from last year. Last year, we engaged in price negotiations with many clients. Since these contracts are expected to take effect starting in the new fiscal year, we anticipate that they will contribute to a positive impact of JPY3 billion.

These price revisions and optimizations are not limited to a single fiscal year. We are currently discussing internally our plan to conduct thorough research on the external environment from 2026 through 2027 and

to engage in ongoing discussions with clients to offset rising costs. That said, for products with shorter life cycles, we will replace old with new, obviously, and we plan on readjusting the profit margin.

As I talked about some naphtha earlier, we aim to maintain a mutually beneficial relationship by responding to requests from subcontractors and materials suppliers, on the understanding that we will adjust prices downward once conditions return to normal.

Page 24, please.

Regarding shareholder return measures, we have committed to a DOE of 5% since FY24, and our dividends are based on this commitment. The second half of FY2025 was JPY260, for FY2026, we plan interim and year-end dividends of JPY 260 each, for an annual total of JPY 520.

In addition, we are planning to repurchase JPY60 billion in shares from FY2025 to FY2028 as previously planned. JPY20 billion in shares have already been repurchased, and we plan to repurchase the remaining JPY40 billion in shares by FY2028.

Page 25, please.

A total of more than 10,000 engineers visited the triennial technical exhibition. As in previous years, the highlights this time were the new products and concepts. We plan to incorporate feedback on the new concept received from over 10,000 people into our next new product development, conduct verification tests, and then apply the results to new products scheduled for release in fiscal years 2026 and 2027.

We have already incorporated the advice we received in the summer on some of our products. In our next-generation product, we will incorporate the diverse feedback we've received from engineers, with over a 20% increase in trade show attendance.

Page number 26, please.

The appointments of directors and executive officers are as shown. As noted at the bottom of the page, Chairman Mr. Ishii will step down from the Board of Directors as of the general meeting of shareholders on June 25.

I would like to talk about one more medium-term strategy. Please open page two of the "2026 Medium and Long-term Growth strategy.

I spoke earlier of JPY230 billion for FY2026. Please note that we project JPY290 billion for FY2029. In addition to our current strategy for existing business segments, we aim to chart a course for growth based on the premise of responding to expanding demand for new products in each business area. I will discuss more details on the next page.

On three page, in addition to the numerical target of JPY290 billion in net sales for FY2029, we are aiming for an operating margin of at least 23% and ROE of at least 12%. This is in the form of net sales of plus JPY50 billion, an operating margin of minus 2 points, and ROE of plus 2 points, compared to the mid-term targets for FY2028 that we talked about at the same time last year.

As mentioned at the beginning of this presentation, we are benefiting from tailwinds across all business segments, contributing positively to our business. We intend to steadily increase sales based on healthy growth and enhanced top line, even amid rising inflation.

As for the further growth of the three pillars, as you can see in the pie chart on the left, we are planning to raise the ratio of automobiles to 26% in FY2025, and to 31% in FY2029.

The industrial equipment is 29%, and while we will keep the percentage here, the overall volume will increase, so we are determined to keep a firm hold on that portion.

Although the sales ratio of all-consumer segment will decrease slightly due to the growth of the automobile segment, we will aim to maintain a portfolio that is balanced between consumer, automobile, and industrial equipment at approximately 30% each.

New domains the HIROSE SER business, the business for AI servers, and opto-active connectors, or photoelectric conversion connectors. In order to aggressively develop these new domains, we consider these domains-newly written as SER and others in the pie chart-to account for a large 5% of our total sales.

At the same time, we will invest in DX and human resources. For human resources, I hope to make an attractive salary for both new and existing employees as good return, and at the same time, we are using AI to raise productivity in both manufacturing and white-collar workers.

Page number four, please.

These are for your reference, and you may have come across the same topic several times already. To date, we have been investing in expanding our factory's production capacity, providing technical training to build expertise in production equipment, and advancing digitalization throughout FY2023, FY2024, and FY2025. Similarly, we intend to allocate the necessary management resources to raise the top line in FY2026 and beyond.

At this stage, we would like to share with you two matters that we can see. Please open page five. This is the Tohoku Advanced Technology Center in Morioka, which launched in March 2024.

Until now, we have primarily relied on mechanical engineering to control production equipment and boost productivity. We are now incorporating software-based controls and functions into this framework, and we are committed to enhancing productivity through both hardware and software. We are confident that productivity will go up, so we will commit to further enhancement.

At the same time, we will review the upstream plating and mold manufacturing processes. We will expand the floor space and strengthen our capabilities at our technology center by spring 2027, aiming to further refine engineering of tooling and plating processes.

We consider leveraging the technology center as an engineering education center. We conduct training and educational programs for a wide range of employees, including visitors from the headquarters R&D department and trainees assigned from various factories. We are also able to provide long-term training for employees visiting from overseas factories.

Through these efforts, we aim to enhance the technical skills of all our engineers.

Please go to page six. I want to mention one more thing.

It is the establishment of a manufacturing base in India, which we announced in a press release in March. We have been operating a sales base in India for more than 10 years, but this is the first time we have established a manufacturing and production base in the country. This is an entry into the automotive field, but of course, we also plan to expand into consumer and new domains in the future.

We will try to start operations in 2027 and deliver to our clients in 2028 and after, since there is a growing possibility that local production may be included in the terms and conditions of transactions after 2028. We will try to start operations in FY2027 and deliver the products to our clients in FY2028 and beyond.

First and foremost, we are considering entering the Indian motorcycle and automobile markets, and we intend to use this opportunity to take on new challenges. This is 100% funded solely by HIROSE.

Next, page seven, please.

We partially revised our capital policy. On the left graph is the cumulative operating cash flow for 2024 to 2027, and in the center, a slightly updated cumulative version for FY2026 to FY2029.

Strategic investments such as M&A and capital alliances are assumed to be allocated from the currently held cash. As mentioned at the beginning of this presentation, our operating cash flow has been performing well, buoyed by a favorable trend, and we plan to actively pursue the expansion of our production capacity, the enhancement of our technological capabilities, and business investments.

By applying 50% to 60% of the operating cash flow here, we would like to start preparing for a future capacity of JPY290 billion, roughly JPY300 billion. This is in addition to the capacity increase of existing connectors, including photoelectric conversion, active optical connector of AIO core and SER.

In addition, we would like to take this opportunity to report that we are committed to maintaining a DOE ratio of 5%, and that, in line with our commitment to our share repurchase program, we intend to return value to our shareholders.

That is all from me.

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.