6140.T

Overall Financial Results

• Consolidated sales: 20.479 billion yen (-1.0% YoY)
• Operating profit: 0.992 billion yen (-YoY decrease)
• Ordinary profit: 1.371 billion yen (-YoY decrease)
• Net profit attributable to parent shareholders: 1.519 billion yen (+YoY increase, driven by a ~0.6 billion yen gain from sale of an old European factory)

Medium-Term Management Plan (2025) Progress

• Focus on Semiconductors: Allocate concentrated management resources to the electronics/semiconductor segment to target niche top industry status and high profitability. Production capacity for face grinding wheels (for SiC power semiconductors) reached 4x 2022 levels by 2024, with a fully prepared response system for future market recovery. Automate production processes and advance digitalization to improve production efficiency, stabilize quality, and strengthen cost competitiveness. Focus on expanding sales of high-margin products and develop new markets/customers via active trade show participation.
  • 5 focus semiconductor products recorded 4.4 billion yen in H1 2025 sales (3.8 billion yen for silicon, 0.6 billion yen for SiC). Full-year 2025 guidance is 9.2 billion yen total (down from the original 13.6 billion yen target due to slower market recovery), with 7.4 billion yen expected for silicon and 1.8 billion yen for SiC.
• Strengthen Management Base: Refresh core IT systems for launch in 2027 to enable real-time visibility of management metrics and improve operational efficiency. Deploy sales SFA systems to speed up information sharing and improve sales efficiency. Optimize organization and staffing at overseas subsidiaries based on business plans, advance global branding via digital marketing and trade shows to increase global awareness, and implement employee-centric training to build an engaging workplace.
• Resource Optimization: Conduct full analysis of the business portfolio, review profitability by product, and advance cost reduction and price adjustments to improve profitability; rebalance product portfolio to concentrate resources in high-growth sectors. Established the AA Diamond Technology joint venture with Tokyo Seimitsu in May 2025, and is advancing development and prototyping of hub blades targeting mass production launch in H2 2027.

Capital Policy & Shareholder Return

• No change to policy: target payout ratio of 50%+ and 3-year average total payout ratio of 120%+. In H1, returned ~2.5 billion yen total to shareholders (0.8 billion yen in interim dividends, 1.7 billion yen in share buybacks), and continues an ongoing program to buy back up to 1.2 billion yen in additional shares. 1.3 billion yen in capital expenditures has been completed, and will continue targeting ROE and PBR improvement to increase corporate value.

• Full-year 2026 March Fiscal Year guidance is maintained unchanged from initial plans. Management forecasts full-year revenue of 42.5 billion yen, operating profit of 2.3 billion yen, ordinary profit of 2.6 billion yen, and net profit attributable to parent shareholders of 2.2 billion yen.
• Industry full-year outlooks are maintained unchanged. Electronics/semiconductors and machinery are performing well centered on Japan and China, and management will continue expanding sales to hit full-year targets.
• Geographic full-year outlooks are maintained unchanged. While progress rates differ across regions, management will continue expanding sales across all markets.
• The original Medium-Term Management Plan 2025 numerical targets are no longer expected to be met due to large changes in market conditions (slowed EV growth leading to stagnant power semiconductor demand, Chinese economic slowdown, impacts from U.S. trade policy), but management will continue advancing all planned initiatives to close the gap with original targets.
• Management expects that the one-time cost increases driving Q2 margin deterioration will not recur in Q3, and that mass production of advanced semiconductor device products could start as early as Q4.

For the 2026 March Fiscal Year Second Quarter cumulative consolidated period, total company revenue was 20.479 billion yen, a 1.0% year-over-year decrease. By product/industry segment:

1. Electronics & Semiconductors (including electrodeposited diamond wire): Total revenue was down ~2% YoY. Advanced semiconductor tools saw sales growth, but SiC semiconductor sales declines dragged overall segment performance down; FPD and wire drawing were flat with a slight increase; electrodeposited diamond wire grew on semiconductor demand.
2. Transportation Equipment: Total revenue was down 4% YoY. Automotive sales declined due to stagnant production volumes, while aircraft sales grew on rising demand.
3. Machinery: Total revenue was up ~6% YoY. Bearings and carbide tools grew, led by demand for processing semiconductor machinery and tools; machine tool sales declined primarily due to lower demand in the U.S.
4. Stone & Construction: Total revenue was down 0.4% YoY. Resource exploration sales declined due to a contraction in the Indonesian mining market; domestic construction and consumer portable cutters were flat with a slight decrease.

By geographic segment:

• Japan: +5.6% YoY, driven by growth across electronics/semiconductors, transportation, and machinery
• Taiwan: -12.9% YoY, dragged by lower electronics/semiconductor sales
• China: +19.2% YoY, driven by growth in electronics/semiconductors and machinery
• Other Asia/Oceania: +0.4% YoY, offset transportation declines with growth in electronics/semiconductors and machinery
• Europe: -10.2% YoY, dragged by lower electronics/semiconductor sales
• North America: -36.2% YoY, with declines across all major segments

• Persistent macro uncertainty: ongoing volatility in prices, exchange rates, and geopolitical risk; slowing Chinese economic growth, Chinese rare earth export restrictions and reciprocal U.S. policy responses.
• U.S. trade policy has created negative impacts centered on the domestic automotive industry, and has driven demand declines for machine tools in the North American market.
• Slower-than-expected recovery in the SiC and silicon semiconductor markets has dragged on sales of 5 key focus products, leaving full-year sales well below the original medium-term plan target.
• Revenue declines in Europe (due to economic slowdown and new factory launch costs) and North America have reduced consolidated profitability. The French factory relocation led to longer-than-expected production stoppages and reduced production efficiency, adding additional cost pressure.
• Traditional businesses in automotive, machinery, and construction/civil engineering face low profitability, and reaching customer agreement on necessary price adjustments amid ongoing Japanese inflation is challenging.

Q: What caused the cost ratio deterioration from Q1 to Q2, beyond the already mentioned retirement benefit cost changes? When will the related issues resolve? / A: Two primary additional factors are the ~0.1 billion yen increase in launch costs for the new Asahi Diamond Europe factory in France (aligned with the region's December fiscal calendar, this is fully recognized in Q2) and lower gross profit from the key face grinding wheel product for semiconductors. Increased test product production to prepare for future demand for advanced semiconductors pushed up costs, cutting face grinding wheel gross profit to ~30% of its historical level. This roughly explains all of the cost ratio increase, and this one-time deterioration is not expected to recur in Q3. Mass production of the new advanced device-related products could start as early as Q4, and price adjustment efforts for other products are progressing on schedule.

Q: What is the outlook for SiC tools in the second half and next fiscal year, and when will a full market recovery occur? / A: Silicon-facing products are already on a gradual recovery trend, and SiC-facing sales have declined sharply year-over-year but have now bottomed out. Silicon sales expansion is progressing well, so management expects SiC and overall semiconductor sales to grow year-over-year in H2. Full recovery is expected to take roughly one more year for silicon, and may take over one year for SiC, so the next 12 months will remain a period of patience.

Q: What is the company's strategy for improving profitability in lower-margin non-semiconductor businesses, and what bold actions will be taken to address unprofitable operations, particularly amid persistent Japanese inflation? / A: Profitability is not acceptable in the traditional automotive, machinery, and construction segments. The core priorities are price adjustments and restructuring: either shutting down or outsourcing unprofitable operations, with a formal decision on large currently under review segments expected within one year. Management has the resolve to proceed with price adjustments even if it risks losing some customers to competitors, and is actively communicating with customers about the need for price changes to support stable long-term supply. Once semiconductor market demand recovers, the increased capacity the company has already built will drive significant margin improvement, as experienced during past SiC market booms.