Hirose Electric : Transcript of Financial Results Briefing for the 2nd Quarter of the Fiscal Year Ending March 2024

HIROSE ELECTRIC CO., LTD.

Q2 Financial Results Briefing for the Fiscal Year Ending March 2024

November 2, 2023

Event Summary

[Company Name]	HIROSE ELECTRIC CO., LTD.
[Company ID]	6806-QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Q2 Financial Results Briefing for the Fiscal Year Ending March 2024
[Fiscal Period]	FY2023 Q2
[Date]	November 2, 2023
[Venue]	Webcast
[Number of Speakers]	4
	Kazunori Ishii	President and Representative Director
	Shin Kamagata	Corporate Board Director, Group President,
		Administration Group
	Rie Yamada	Manager, Corporate Communication &
		Investor Relations Office
	Satoshi Ashida	Corporate Communication & Investor
		Relations Office

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Presentation

Yamada: The time has arrived and we will now begin the Hirose Electric financial results briefing.

Thank you for joining us today. On our side, Mr. Ishii, President, Mr. Kamagata, Group President, Administration Group, and I, Yamada and Mr. Ashida from the Corporate Communication and Investor Relations Office, will be facilitating the discussion.

Please note that this event will again be held online.

First of all, let me begin by explaining today's event. Please download the PDF file of today's financial results presentation from the link on the screen of your participation to have it at hand. Similarly, there is a link to the financial results disclosed on the TSE yesterday, November 1.

Other disclosure materials, such as the Notice of Interim Dividends and Revision of Dividend Forecast, and the Notice of Repurchase of Treasury Stock, can be viewed by transferring to the IR page of our website.

We will provide you with the page numbers when we explain the information, so please scroll through the pages on your own.

Next, the question-and-answer session will be conducted in an interactive manner similar to a face-to-face meeting, with participants speaking via dial-in, and our company responding.

We will answer questions in the order they are received, so please wait until your turn.

First, I will explain the financial results for H1 of the fiscal year ending March 31, 2024 based on the materials. In the latter half of the presentation, Mr. Kamagata, Group President, Administration Group, will talk about shareholder returns, and Mr. Ishii, President, will conclude the presentation with a few words. In the time remaining, we will take your questions as previously stated. Closing is scheduled for 11:30 AM. We appreciate the cooperation of all participants.

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Please begin with page three of the document. Performance summary.

In 2Q of FY2023, the market for general industrial equipment and consumer mobile devices continued to be difficult, while the market for automotive and mobility-related applications, and for smartphones and mobile terminals was firm.

The 2Q YTD sales versus the previous year were minus 12.5%, operating income was minus 36.7%, and operating margin was 20.7%. Orders increased from the previous quarter, but were down 17.6% YoY in H1 of the fiscal year. There are shades of recovery in sales by sector, which we will show in the slides below for each sector.

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Continuing on page four, we have a graph showing quarterly sales, and profit trends. In 2Q of FY2023, sales were JPY42.46 billion, operating income was JPY8.13 billion, and operating margin was only 19.2%. An analysis of the factors that contributed to the lower-than-expected operating income will be explained on the following pages.

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And it will be on page five. Financial summary.

Sales for H1 of FY2023 were JPY82.91 billion, down 12.5% from the same period last year. Operating income was JPY17.19 billion, down 36.7% YoY. Operating margin was 20.7%, income before income taxes was JPY19.68 billion, net income was JPY12.6 billion, total assets were JPY411.5 billion, equity ratio was 88.9%, and net income per share was JPY365.87. The actual exchange rate was JPY141 to the US dollar, JPY153.39 to the euro, and JPY10.74 to the won at KRW100.

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Page six summarizes the major changes from the previous year.

Of the JPY11.79 billion decrease in sales, minus JPY6.5 billion came from the general industrial equipment market and minus JPY6.2 billion from the consumer and mobile equipment market.

The cost of sales ratio is 55.6%, down five percentage points from last year's 50.6%. As for the reasons for the deterioration in the cost of sales ratio, depreciation and labor costs remained almost unchanged from the previous fiscal year in terms of value, but as a ratio, each deteriorated by one percentage point. This was due to shortfalls in orders and sales, and the fixed cost ratio worsened due to reduced plant utilization.

Next, the variable expense ratio increased by 1.6 percentage points, despite a tailwind from the yen's depreciation, due to a number of factors, including an increase in procurement costs resulting from the trend toward various price hikes, and a worsening of the capacity utilization ratio due to a decrease in production.

In addition, after an increase in inventories last fiscal year, orders received declined sharply in H2 of the fiscal year, and production also declined sharply toward the end of the fiscal year. This had an impact on the first quarter of the current fiscal year due to accounting for the elimination of unrealized income on inventory.

SG&A expenses decreased by JPY620 million, mainly due to a decrease in distribution costs, but the ratio worsened by 2.2 percentage points to 23.1%.

Net financial income improved by JPY410 million due to an increase in foreign exchange gains, and interest income.

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Please continue to page seven. This is an analysis of changes in the 2Q cumulative total versus the previous year.

Foreign exchange effects were positive JPY3.61 billion in sales, and JPY2.46 billion in operating income. JPY1.16 billion better due to lower packing, and freight costs. Loss on disposal of fixed assets was posted at the end of the fiscal year last year, but this fiscal year it was posted at the 2Q stage in advance, resulting in a valuation loss of JPY550 million. The cost ratio worsened by JPY4.15 billion due to a decrease in capacity utilization, and a decrease of JPY8.78 billion as a result of a decrease sales volume, and others.

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Continued on page eight is the BS assets section.

In the cash area, there was an additional JPY10 billion transferred from time deposits, which resulted in a positive figure. Inventories have entered a declining trend. Since the current fiscal year includes the impact of yen depreciation, we recognize a real decrease of JPY2.1 billion. Other financial assets are time deposits transferred to cash for building payments.

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Next comes page nine, liabilities and net assets.

Payables are temporarily affected by the shortening of domestic payment sites, as we reported in 1Q. This transition was almost completed in H1.

In the net assets, treasury stock section, 970,000 shares of treasury stock were retired in May. In addition, in other areas, there is a foreign currency translation adjustment of plus JPY11.6 billion due to the impact of the yen's depreciation.

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