HAGIWARA ELECTRIC HOLDINGS CO.,LTD. Q4 FY2025 earnings call

Overall Financial Results

• The company achieved a record-high consolidated revenue of 258.742 billion yen, up 14.9% year-over-year. However, operating profit declined 7.8% year-over-year to 7.112 billion yen, ordinary profit fell 14.0% to 6.21 billion yen, and net profit declined 16.3% to 3.699 billion yen, impacted by a 0.63 billion yen foreign exchange loss booked as extraordinary loss.
• Gross profit increased by ~1.3 billion yen, but gross profit margin fell 0.6 percentage points due to a 0.2 billion yen reversal of one-off spot profits from the prior year and price adjustment impacts. Selling, general and administrative (SG&A) expenses rose 1.9 billion yen, driven by strategic human capital investment and system investment for operational efficiency, which was framed as a necessary investment for long-term sustainable growth.

Device Segment Operational Progress

• Expanded the wholesale business model to capture new market opportunities; acquired ~17 billion yen in new supply chains during the fiscal year, centered on Toyota Group clients in both domestic and overseas markets.
• Expanded Hagiwara Electronics India by adding 2 new locations, building a coverage network across northern, western, and southern India; the company is partnering with Singapore Hagiwara to serve local Japanese subsidiaries and expand business with local Indian automakers including Tata Motors.

Solution Segment Operational Progress

• Launched the new Data Platform (DP) business to deliver total lifecycle management solutions via data collection and value creation; this initiative aims to drive revenue structure reform by adding recurring stock-type revenue alongside traditional project-based flow business and creating new revenue streams by integrating with existing operations.
• Completed the acquisition of Veradata, a company with proprietary IoT data platform technology, in July 2024; post-merger integration (PMI) is fully completed. While Veradata's current revenue is small, it has already secured ongoing projects with clients in the Kanto region and contributes to new customer acquisition for the broader group.

Mid-Term Management Plan and Corporate Governance

• The 3-year mid-term management plan (FY2025-FY2027 March) has a core focus on "improving earning power", pushing forward 3 structural reforms via 6 key strategic priorities.
• Launched a new group-wide management system for proper portfolio management, and revised executive compensation starting in FY2026 March to strengthen linkages with mid-term plan targets and boost incentives for corporate value growth.
• Set 4 key non-financial priority themes: improving earning power, addressing climate change and environmental issues, maximizing human capital via human capital-centric management, and building a sound, trusted corporate foundation. Continues to improve board diversity and review policy-held shareholdings to strengthen governance.

Stakeholder Engagement

• Held 56 individual meetings with institutional investors over the fiscal year, and regularly feeds discussion takeaways back to the management and board of directors.
• Provides balanced, fair information disclosure via sponsored reports, dual-language (Japanese/English) information sharing, and public disclosure of full earning call transcripts including Q&A.

1. Device Segment: Revenue was 226.319 billion yen, representing a 15.4% year-over-year increase, contributing 87.5% of total consolidated revenue. Segment profit was 5.688 billion yen, which remained roughly flat compared to the prior year. Despite headwinds from automotive production adjustments in the first half of the fiscal year, the segment grew revenue by 30.1 billion yen driven by 17 billion yen in new acquired supply chains, yen depreciation effects (an additional 6 billion yen in revenue), and a production recovery in the second half. Higher logistics costs, transition compensation for new supply chains, and active growth-focused human capital investment offset gross profit gains from higher revenue, leading to flat segment profit. All geographic regions posted double-digit revenue growth.

2. Solution Segment: Revenue was 32.423 billion yen, representing an 11.7% year-over-year increase, contributing 12.5% of total consolidated revenue. Segment profit was 1.423 billion yen, a 0.61 billion yen decrease compared to the prior year. Revenue grew driven by strong capital investment demand from automotive industry clients, particularly for electrification-related projects, which drove sharp growth in FA Engineering revenue. However, the high-margin embedded solutions sub-segment faced stagnant sales due to customer inventory adjustments in the China market, and increased R&D and marketing investment for future growth pushed expenses higher, leading to lower segment profit.

• Overall: The company forecasts revenue growth and profit growth for FY2026 March, targeting full-year consolidated revenue of 270 billion yen and operating profit of 7.5 billion yen. • Device Segment: Expects moderate growth; major clients are projected to maintain high automotive production levels, but this is partially offset by a forecasted stronger yen compared to the prior fiscal year. • Solution Segment: Expects revenue growth; continued attention is needed for China economic trends, but the segment will benefit from domestic automotive electrification-related capital investment demand and growing revenue contributions from the new DP business. • SG&A: The company will continue to actively invest in systems and human capital to support sales growth and structural business reform, with guidance already factoring in external risks including exchange rate volatility and rising interest rates. • Dividend: The revised shareholder return policy targets a consolidated payout ratio of 30% to 40%, with a base of stable dividends adjusted for performance. The FY2026 March dividend is planned to remain 185 yen per share annually (90 yen interim, 95 yen final), with an estimated payout ratio of 46.1% consistent with the stable dividend priority policy.

• Automotive production adjustments in the first half of FY2025 March negatively impacted Device Segment sales in the reporting period; production volatility remains a core operational risk for the company's automotive-focused business model. • Weak demand and ongoing inventory adjustments in the China market have pressured the high-margin embedded solutions sub-segment of the Solution Business, and this uncertainty will continue into FY2026 March. • Foreign exchange volatility has already created a 0.63 billion yen foreign exchange loss in FY2025 March, and continued exchange rate fluctuation is a key external risk factored into FY2026 guidance. • Rising interest rates are an external macro risk that has been incorporated into the FY2026 profit guidance. • SG&A investment for long-term growth outpaced gross profit gains in FY2025 March, leading to lower consolidated profit; there is execution risk that growth investments will not deliver expected margin improvements in future periods.

Q: What is driving double-digit revenue growth for the Device Segment in the United States market?

A: The growth primarily comes from the newly acquired ~17 billion yen in supply chains, most of which are linked to Toyota Group clients. New domestic and overseas Toyota-related supply chains are a core contributor to the overall U.S. market expansion, alongside broader recovery in automotive production volumes in the region.

Q: What caused the decline in profit for the embedded solutions business within the Solution Segment?

A: Key major customers in the industrial machinery and machine tool sectors have been carrying out extended inventory adjustments driven by slowdowns in the China market, which has led to stagnant sales for the high-margin embedded solutions sub-segment. The shift in product mix toward lower-margin FA Engineering projects, paired with increased upfront R&D and marketing investment for the new DP business, further compressed overall segment profit.

Q: What is the current status of the new Data Platform (DP) business, and what contribution is coming from the acquired Veradata subsidiary?

A: The DP business was formally launched in FY2025 March following the Veradata acquisition, and full post-merger integration is completed. While Veradata's current standalone revenue is still small, it has already secured ongoing client projects in the Kanto region and supports new customer acquisition for the entire Hagiwara group. Management expects the business to contribute to group solution building and profit growth going forward, as it builds out recurring stock-type revenue.

Q: What is the profit contribution of the newly acquired 17 billion yen in Device Segment supply chains, and what are the plans for new supply chain gains next fiscal year?

A: The newly acquired supply chains are still in the early transition phase, with one-time transition costs including compensation that have limited near-term profit contribution. The company will continue working to improve efficiency and margins for these new supply chains, and will continue targeting additional new supply chain acquisition to grow the Device Segment for FY2026 March.