NITTOSEIKO CO.,LTD. Q4 FY2024 earnings call

• Overall 2024 Consolidated Performance

  • Consolidated revenue: 47.069 billion yen, +5.2% YoY, missed the company's prior revenue guidance by 1.13 billion yen
  • Consolidated operating profit: 3.326 billion yen, +27.3% YoY, exceeded the company's prior profit guidance
  • Consolidated ordinary profit: 3.573 billion yen, +26% YoY
  • Net profit attributable to parent shareholders: 2.199 billion yen, +26.8% YoY
  • Positive 1.045 billion yen impact on revenue from yen depreciation
  • Labor costs increased 3.8% YoY due to wage hikes, but this was offset by other profit growth drivers

• Mid-term Management Plan "Mission G-second" Progress

  • This is the final year of the 3-phase plan, focused on connecting to the next mid-term plan starting 2025
  • Only the environmental strategy met its full-year targets; business expansion strategy missed targets, and human resources and financial strategies narrowly missed targets
  • Completed key strategic initiatives: co-development of organic solvent recycling business with ESEP, launch of environment-focused products, approval to acquire an Indian cold forging manufacturer, opening of a European sales subsidiary, and new global market expansion activities

• Segment-Specific Growth Strategy Progress

  • Fastener Business: Achieved growth targets for CASE-related automotive products, but missed non-Japanese client targets due to slowing North American construction demand; continues to expand into new construction products and composite EV components
  • Industrial Machinery Business: Missed CASE-related growth targets due to stagnant overseas capital investment, despite strong domestic demand for EV/ECU-related equipment; continues to expand into non-automotive automation sectors, and launched low-cost Asian model screw tightening machines in emerging markets
  • Control Business: Exceeded growth targets for environmental and semiconductor/food market segments; secured first overseas geotechnical survey order from a Thai government agency; missed growth targets for EV/LIB inspection sorting devices, which remains a priority
  • Medical Business: Secured Japanese and US patents, on track to obtain ISO 13485 certification in 2025 to establish commercial manufacturing

• Strategic Initiatives

  • Automotive Sector Alignment: Positioning to capture growing demand for CASE-related components, including lightweight fasteners, anti-scatter fastening products, precision screwdriving units, and traceability solutions; will maintain differentiated offerings for non-CASE gasoline vehicle components while growing overseas exposure in emerging markets
  • New Environmental Business: Launched membrane-based organic solvent recycling business, with three revenue streams: explosion-proof recycling device sales to chemical manufacturers, silica separation membrane manufacturing equipment sales to ESEP, and membrane sales to chemical manufacturers; currently building demonstration units, and plans to exhibit at the 2025 Keihanna Expo
  • Global Expansion: Current overseas revenue accounts for 30.2% of total revenue, limited to East/Southeast Asia and North America; plans to expand European and Indian footprints, with the Indian acquisition completed in early 2025 to launch full local operations
  • Human Resources Strategy: Focuses on improving labor productivity and employee engagement, both of which missed 2024 targets; will continue process optimization, IT investment, and internal communication improvements; has received multiple external recognitions for healthy workplace practices
  • Financial Strategy: ROIC and ROE missed 2024 targets; will continue optimizing capital allocation, improving new business profitability, and building a higher-margin product portfolio
  • Capital Cost Awareness: Continues to pursue M&A for segment expansion, new market development, and will launch the new environmental business in 2025, maintaining the four core strategic pillars from the prior mid-term plan

1. Fastener Business: Revenue increased year-over-year, despite headwinds from delayed construction projects. Growth was driven by strong demand for automotive battery fasteners and demand from home appliance/information technology sectors in Southeast Asia. Operating profit saw a slight year-over-year increase, as cost pass-through for raw material, input, and logistics price increases began to take effect in the second half of Q4. It is historically the largest revenue contributor among all segments. 2. Industrial Machinery Business: Revenue increased year-over-year, despite headwinds from slowing global EV sales and stagnant capital investment. Growth came from increased domestic screw tightening machine demand from the automotive sector, as well as rising automation and electrification demand from non-automotive sectors driven by labor shortages. Operating profit increased year-over-year, driven by successful price pass-through and improved cost ratio. It was the second largest revenue contributor prior to 2024. 3. Control Business: Revenue and operating profit both increased year-over-year, with strong performance from analysis devices for chemical, pharmaceutical, and energy sectors. Growth was driven by rising demand for PFAS regulation-compliant analysis devices in Europe, and large orders for automotive component inspection devices. In 2024, this segment overtook Industrial Machinery Business to become the second largest revenue contributor. It has already achieved its planned growth targets under the current mid-term plan. 4. Medical Business: This segment is still in pre-commercial development. It obtained US patent approval for biodegradable high-purity magnesium for medical implants in July 2024, and is pursuing patent approvals in 6 other major countries. It is currently preparing manufacturing infrastructure and pre-clinical trial samples, and expects to obtain ISO 13485 quality certification in H1 2025. No commercial revenue was generated in 2024.

• 2025 December fiscal year consolidated guidance calls for 50.1 billion yen in revenue (+6.4% YoY), 3.6 billion yen in operating profit (+8.2% YoY), 3.7 billion yen in ordinary profit (+3.5% YoY), and 2.3 billion yen in net profit (+4.6% YoY).
• Growth drivers include: expanding domestic automotive CASE-related fastener demand, sustained high precision component order levels, rising demand for automation/inspection devices to address labor shortages, and initial contribution from organic solvent recycling devices and other environmental products.
• All segments except Control Business are guided for revenue and profit growth; Control Business expects a year-over-year profit decline due to lapping 2024's special European demand.
• Fastener Business expects additional order growth from new game console models, in addition to automotive CASE growth. Industrial Machinery Business expects growth from hybrid vehicle-related equipment and ADAS-related automotive orders, offsetting weak EV-related capital equipment demand. Control Business expects sustained demand for PFAS analysis devices from EU/US markets.
• Planned capital expenditure will increase slightly, focused on post-acquisition investment in India. R&D expenditure is budgeted at 1.1 billion yen, including pre-clinical trial costs for the Medical Business. The Tokyo branch will relocate and open a new customer showroom in April 2025 to strengthen customer-facing sales.
• The company maintains a progressive dividend policy with a 18 yen per share lower bound, and plans a 20 yen per share dividend for 2025.

• Slowing global EV adoption and stagnant overseas capital investment have pressured growth for Fastener and Industrial Machinery Business segments, leading to missed growth targets under the current mid-term plan. This slowdown is the primary factor for the overall mid-term plan missing its financial targets.
• Price pass-through for general-purpose fastener and machinery products faces uncertain sustainability due to competition from other manufacturers, which could pressure future profit margins.
• General-purpose products are more exposed to competitive pricing pressure compared to the company's patented proprietary products.
• Weakness in North American residential construction has pressured performance of non-Japanese client expansion for the Fastener Business.
• Global demand volatility for consumer electronics products such as game consoles creates uncertainty around near-term revenue contributions from this segment.

Q: What drove the acceleration of price pass-through in Fastener Business starting in Q4 2024, and how sustainable is this trend? Is it driven by new product launches or pass-through for general-purpose products? / A: The largest contribution to successful price pass-through comes from the company's patented products, which cannot be manufactured by competitors. Price pass-through for these products will be sustained into the future. For general-purpose products that face more competition, the sustainability of recent price hikes is less certain. The company will continue to improve profitability by launching new products to meet customer demand going forward.

Q: What is the expected size of the demand increase for Fastener Business from new game console models in 2025? / A: The company sees clear near-term order increases, but the final impact depends on end product sales trends, so exact numerical guidance is not available at this stage. Core revenue growth will continue to be driven by automotive, construction, and electronics segments, but game console demand is expected to deliver a measurable positive contribution to profit. Nitto Seiko has sufficient production capacity to meet any increased demand if materializes, and will meet all customer orders.

Q: What is the timeline for the Indian subsidiary acquisition, why has it been delayed, and is it included in 2025 guidance? / A: The acquisition timeline remains unchanged, and is now expected to close in Q1 2025, delayed from the prior Q4 2024 target. The delay is purely due to administrative procedural requirements from mandatory Indian stock electronic conversion, which suspended share trading for the target, not from any transaction issues or disputes. The acquisition will be completed by the end of Q1 2025, and the subsidiary's results are already included in the 2025 consolidated guidance.

Q: What is the competitive landscape for the organic solvent recycling business, and when will it contribute to revenue and profit? / A: Existing competitors use distillation or adsorption methods, which have drawbacks of high costs and large, expensive facility requirements. Nitto Seiko's membrane-based approach has not been adopted by other competitors to date, giving it a differentiated competitive position. The business has phased revenue streams starting from demonstration unit production, to equipment and membrane sales, so contribution timing varies. Small contributions to both revenue and profit are expected starting in 2025.

Q: Why did the current mid-term plan miss its overall targets? / A: The primary factor was slower-than-expected growth in overseas markets, and the company's global expansion progress has lagged the original plan. No major domestic issues contributed to the miss.