NITTOSEIKO CO.,LTD. Q2 FY2025 earnings call

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

• This is the final year of the current mid-term plan. Sales and operating profit targets are unlikely to be achieved, and labor productivity, ROIC, and ROE targets are also unmet as of the second quarter.
• Environmental strategy progress exceeds target: CO2 emissions and waste reduction are tracking above planned levels, and the company received the top S-class evaluation from Japan's Ministry of Economy, Trade and Industry for energy conservation efforts.
• Human resources strategy: Labor productivity has increased 10% compared to the 2022 fiscal year baseline. The company has implemented an average 4% wage increase (6% for workers under 30), improved specialist compensation, and received multiple external recognitions including being named a 2025 Health & Productivity Stock Selection for the third time, and winning the Regional Revitalization Minister Award from the "Most Cherished Companies in Japan" awards.
• Financial strategy: Growth investments are being implemented as planned, focused on the Indian acquisition, organic solvent recycling, and PFAS-related environmental business. The company is expanding shareholder engagement and plans to hold multiple factory tours for investors this year.

Business Segment Strategic Initiatives

• Fastener Business: Focuses on four growth targets: CASE-related automotive products, ASSY assembled products, sales to non-Japanese companies, and industry expansion. CASE-related products are progressing as planned with proprietary products like "CP Grip" and "Giza Tight" performing well; sales to non-Japanese companies have established a foothold in India, with future expansion focused on Europe; industry expansion is progressing slightly behind plan but ahead of prior year levels, focused on expanding the proprietary dissimilar metal bonding product AKROSE.
• Industrial Machinery Business: Focuses on growth in CASE-related products, overseas sales, non-Japanese customers, and business expansion. It is expanding the product lineup to serve low-cost focused Asian customers with low-cost models, and high-demand customers with contamination-controlled screw fastening systems and ultra-precision screw lift detection options. Growth is concentrated in India, where first half sales already exceed full prior year sales.
• Control Business: Prioritizes environmental business: PFAS screening analyzers are already selling well in Europe, and the company is exploring commercialization of PFAS decomposition through industry-academia-government collaboration; a demo unit for explosion-proof organic solvent recycling equipment developed in partnership with E Sep Co., Ltd. is nearly complete and will be unveiled at Keihanna Expo 2025. Semiconductor market sales are strong and on track with plan, while expansion of overseas ground survey business focused on Thailand has progressed slower than expected.
• Medical Business: The company has obtained ISO 13485 certification for its absorbable high-purity magnesium for medical use, and is building manufacturing capabilities to pursue contract manufacturing opportunities.

Overseas Expansion Strategy

• The company is expanding operations in Europe and India: The German sales subsidiary established two years ago has been profitable since its first year. India sales increased 10x year-over-year after the acquisition of Vulcan Group, and the combined Europe and India sales share grew from 1.9% to 3.1% year-over-year.

1. Fastener Business: Accounts for 74% of total consolidated revenue. It achieved year-over-year revenue and profit growth, driven by contributions from the newly acquired Indian subsidiary Vulcan Group, strong demand for precision screws for game consoles, and growing demand for data center components related to generative AI. 2. Industrial Machinery Business: Accounts for 11% of total consolidated revenue. It experienced year-over-year revenue and profit decline. While sales to the automotive sector remained stable, overall growth was dragged down by slowdown in capital investment in the semiconductor and smartphone assembly industries, and no large special equipment orders comparable to the prior year period. 3. Control Business: Accounts for 13% of total consolidated revenue. It achieved year-over-year revenue growth but profit decline. Revenue growth was supported by strong demand for analytical equipment for chemical/pharmaceutical and domestic battery measurement, but this was offset by the lack of large, one-time periodic renewal orders for petroleum-related elemental analyzers that occurred in the prior year, leading to a return of profit to normal levels and a year-over-year decline. 4. Medical Business: Revenue is too small to have a material impact on total consolidated revenue, but it grew year-over-year due to strategic product portfolio restructuring.

• Full year 2025 fiscal year guidance is maintained unchanged from prior disclosure. The full year contribution from the newly acquired Indian subsidiary is expected to be 0.99 billion yen in revenue and 40 million yen in operating profit, which is already reflected in the guidance. The assumed average foreign exchange rate for the full year is 145 JPY per USD. Order backlog was roughly flat (down 1.8% sequentially from Q1) at the end of Q2.
• For the second half: Fastener business performance is expected to remain strong, driven by game console precision screws and generative AI-related data center components, with continued price pass-through benefits and modest contribution from the Indian subsidiary. Industrial Machinery business expects large energy-related equipment sales to domestic power sector smart meter projects in H2, with India growth remaining strong, and will focus on maintaining margins through high-margin standard screw fastening machines. Control business expects continued strong demand for analytical equipment driven by environmental awareness, and will launch a new product leveraging its existing GeoCarte geosurvey technology in fall 2025. Medical business expects to recognize some revenue from contracted medical product projects, pending NDAs.
• Dividend guidance is maintained: The company plans to pay a full year dividend of 20 yen per share, in line with its progressive dividend policy that sets 18 yen per share as a floor.

• A strengthening yen created foreign exchange losses in the half year, particularly from depreciation of the Indonesian rupiah and negative impacts from currency movements in Greater China. While overall overseas local currency sales increased, yen conversion led to a reported year-over-year decline.
• US tariff increases have reduced North American sales by 227 million yen year-over-year, but the impact is considered modest as North America only accounts for 3.9% of total sales. The company's mitigation strategies include reducing US market dependency by expanding sales in India and Europe, diversifying the product portfolio to spread risk, increasing the proportion of proprietary high value-added products, and continuing cost cutting and operational efficiency efforts.
• The current mid-term management plan is unlikely to meet its original sales, profit, ROE, and ROIC targets. The PBR of the company remains below 1x, with sales scale and profit margin identified as core issues to address.
• Industrial machinery sales are facing headwinds from sluggish market conditions in the US and China, and slowdown in EV sales growth globally that has suppressed capital investment.

Q: What is Nitto Seiko's future strategy for the Indian market? / A: The acquisition of the Vulcan Group completed in the second quarter, after taking longer to negotiate than initially planned. The company will include roughly 10 billion yen in Indian sales in the full year 2025 results. Looking forward, the company will focus on expanding sales to non-Japanese customers (the current customer base is heavily weighted toward Japanese firms). It is currently constructing a new factory in India to expand production capacity, and plans to maintain its commitment to growing in the high-growth Indian market.

Q: What are Nitto Seiko's plans for the next mid-term management plan? / A: The current mid-term plan ends this year, and while some targets have not been met, the company will continue pushing its existing expansion strategy through the end of the year. Starting next year, the company will launch a new 3-year mid-term plan that retains the same four core pillars: business expansion, environmental strategy, human resources strategy, and financial strategy. This new 3-year plan will complete the company's 10-year long-term strategic framework. With the company's PBR currently below 1x, improving sales scale, profit margins, ROE, and ROIC will be heightened priorities in the next mid-term plan. Further details will be disclosed at a later date.