Hirose Electric : Transcript of Financial Results Briefing for the Fiscal Year Ended March 2024

HIROSE ELECTRIC CO., LTD.

Financial Results Briefing for the Fiscal Year Ended March 2024

May 8, 2024

Event Summary

[Company Name]	HIROSE ELECTRIC CO., LTD.
[Company ID]	6806‐QCODE
[Event Language]	JPN
[Event Type]	Earnings Announcement
[Event Name]	Financial Results Briefing for the Fiscal Year Ended March 2024
[Fiscal Period]	FY2024 Annual
[Date]	May 8, 2024
[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: Welcome everyone to the financial results briefing of HIROSE ELECTRIC CO., LTD. Thank you very much for joining us today. With me today, Mr. Ishii, President, and Mr. Kamagata, Corporate Board Director, Group President of Administration Group are attending the event. And I, Yamada, as well as Mr. Ashida with the Public Relations & Investor Relations Office, will be the facilitators. This is an online meeting and I would appreciate everyone's attention.

First of all, let me begin by listing the agenda. To see today's financial results presentation handouts, please download the PDF file from the link provided on your screen. Please keep them handy for your reference. Similarly, you can also find a link to the financial reports disclosed on the TSE yesterday, May 7. For other disclosure materials, such as the notice of changes in the shareholder return policy, please go to the IR page of our website to view them. Throughout the presentation, we will provide you with the page numbers when we discuss the information, so please take the time to go through the pages yourself.

When the question‐and‐answer session begins, all meeting participants can initiate questions over the phone and our presenters will provide answers. This is quite similar to the face‐to‐face conversation style. It will be a first‐come‐first‐served format. Please wait for your turn to speak up, thank you very much.

First, I would like to discuss the financial results for FY2023, the earnings forecast for FY2024, and the planned personnel changes of directors and executive officers. After that, Mr. Ishii and Kamagata will respectively give a presentation of the updated mid‐ to long‐term growth strategy for FY2024. In the time remaining, we will take your questions.

The meeting is scheduled to close at 11:30 AM, but if questions continue to come in, we can extend the meeting for up to 45 minutes to address all of the questions. We appreciate the cooperation of all participants.

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Let us begin. Please see page three. Performance forecast summary. In FY2023, sales for the automotive and smartphone markets grew steadily while the general industrial machinery and consumer markets continued to face difficult market conditions, resulting in an overall decrease compared to the previous year. Sales were negative by 9.7%, operating profit was also negative by 27.2%, and operating margin came at 20.6%. Orders increased compared to Q3 but were down by 4.8% compared to the same period last year.

Page four shows a graph of quarterly sales and profits. In Q4 of FY2023, sales were JPY40.35 billion, operating profit was JPY6.79 billion, and operating margin was 16.8%, which is low by our standards.

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Next, page five. This is a summary of the financial results. Sales for FY2023 were JPY165.51 billion, down 9.7% from the previous year; operating profit was JPY34.02 billion, down 27.2% from the previous year; operating margin was 20.6%; income before income taxes was JPY38.76 billion; net income was JPY26.48 billion; total assets were JPY403.45 billion; equity ratio was 90.3%; and earnings per share were JPY772.38.

Foreign exchange results are located on the lower right. The results were JPY144.62 for the US dollar, JPY156.8 for the euro, and JPY10.97 for 100 won.

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Page six summarizes the major changes compared to the previous fiscal year. Of the JPY17.71 billion decrease in sales, negative JPY18.6 billion came from the general industrial machinery and negative JPY4.7 billion from the consumer and mobile equipment market.

The cost‐of‐sales ratio was 56.2%, down 4.3 percentage points from 51.9% last year. The variable cost ratio worsened, rising 1.3 percentage points, due in part to cost increases resulting from various price hikes and a decline in capacity utilization due to lower production.

On the fixed cost side, depreciation was flat in value but up 0.9 points in rate, and labor costs also increased slightly, up 1.1 points, a deteriorating factor. SG&A expenses decreased significantly by JPY3.68 billion, mainly due to a decrease in distribution costs, but the ratio worsened by 0.2 percentage points, resulting in a SG&A to sales ratio of 22.5%.

The financial account balance improved by JPY2.9 billion, mainly due to foreign exchange gains from the weaker yen and higher interest profit from higher global interest rates.

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Please continue to page seven. This will be an analysis of year over year changes. The impact of foreign currency exchange amounted to JPY9.16 billion in sales and JPY4.87 billion in operating profit. The decrease in labor costs added JPY1.09 billion, and the decrease in freight and packing costs improved by JPY1.98 billion. Loss on disposal of fixed assets increased by JPY0.51 billion. Operating profit is estimated to be negative JPY16.12 billion due to a JPY4.04 billion deterioration in the cost of sales ratio and a decrease in the volume of goods sold.

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Continued on page eight is the balance sheet assets section. Cash is positive JPY18.7 billion due to transfers from time deposits and negative JPY17.2 billion due to dividends and share buybacks, etc., but the total is positive JPY2.31 billion. Inventories resulted in a negative JPY3.37 billion. The impact of the yen depreciation added JPY1.4 billion. It brought the total net decrease to negative JPY4.8 billion. Tangible fixed assets increased due to building investments in the new Koriyama plant, Tohoku Advanced Technology Center, and Hirose Korea.

Page nine shows liabilities and net assets. Payables and other debt are affected by the shortening of domestic payment terms. Net assets include share repurchases and the cancellation of treasury stock acquired in the

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previous period. In addition, the other category includes a foreign currency translation adjustment of JPY13.7 billion due to the impact of the depreciation of the yen.

Continued on page 10, capital expenditures and depreciation. Capital expenditures for FY2023 totaled JPY18.8 billion, with amortization of JPY14 billion. In our Q3 forecast, we had increased capital investment from JPY18 billion to JPY19 billion in order to strengthen production preparations for the future, but the results fell slightly short of our original forecast.

We had lowered our forecast for amortization from JPY15.5 billion to JPY15 billion, but the final result was even lower, at JPY14 billion.

The forecast for FY2024 places capital investment at JPY20 billion and depreciation at JPY15 billion. Although not shown here, the actual R&D expenses were JPY11.4 billion. Our forecast for R&D expenses for FY2024 is JPY12 billion.

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Please continue to page 11. This is the transition of the overseas sales ratio and overseas production ratio. Overseas sales ratio is 80%, and overseas production ratio is 50%. In FY2023, we expect this to be the result of an increase in the overseas ratio due to the slump in demand for domestic production equipment.

Page 12 shows the number of employees. In FY2023, the loss of 332 employees abroad brought the total headcount of employees to 4,654. Most of these overseas employees are working on the production lines of local factories, and their numbers decreased along with the decline in amount.

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