Seiko Group Corporation

FY22 Q3 Consolidated Results Presentation - Summary of Q&A◆Date: Wednesday, February 15, 15:00 - 16:00, Tokyo, Japan◆Respondents: Shuji Takahashi, President
Shimesu Takizawa, Director, Executive Vice President

Summary of Q&A
Q1. What were the trends in the Watches Business in the Oct-Dec quarter? It seems that boththe sales growth rate and improvement in the gross margin rate for Global Brands (GBs)weakened in this quarter compared to the first half. How do you explain this?
A1. In Japan, the rates have remained unchanged. Overseas, growth of the GB ratio seems tohave weakened in the third quarter. This partly reflects the market reality that product lines
other than GB are most likely to grow during the Christmas shopping season. In the US
market in particular, results for the previous year, FY 2021 3Q, were very strong, and theFY 2022 3Q results were close to those numbers. We interpret this to mean that sales in
the US market remained quite strong in this quarter, although new growth was minimal.
The European market was just the opposite: growth in the 3Q of FY 2021 was low, so weachieved a roughly 10% gain in FY 2022. Although it is difficult to compare such different
global markets, it is reasonable to say that we did well in Europe, the US, and Asia
excluding China.
Q2. You have said that new orders declined in the Devices Solutions Business (DS) and youroutlook for the fourth quarter is grim. How do you see future market conditions
developing?
A2. The main factors for the decline in DS are the downturn in the Chinese market and thedecline of personal consumption in Europe and the US. New orders for thermal printersbegan to fall sharply around last summer due to the decline in the Chinese market, but webelieve they will recover together with China's ongoing economic recovery. In the Others
section, hard disk drive components and other devices also declined in the Chinese
market, while crystal oscillators for consumer products declined due to the slowdown inpersonal consumption, mainly in Europe and the US. We expect that the decline in harddisk drive components and crystal oscillators for consumer products attributed to theslowdown in personal consumption mainly in Europe and the US will continue a littlelonger.

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Q3. Is the decline in printing devices only temporary?
A3. We do not see the market for thermal printers recovering rapidly in the 4Q. As with manyother products, we believe sales are dependent on the economic recovery in China. Inkjet
print heads are partially affected by the Chinese market, but this is due more to the realestate recession than to effects from the COVID-19 lockdowns. We think this line may
become a positive factor for us as the Chinese economy recovers in the near future.
Q4. In your fourth quarter forecast, the expected profit for the Watches Business is virtually
zero. Does this reflect a reduction in the production of watch movements, a downturn inmass-market price range products, or aggressive advertising activities aimed toward thenext fiscal year?
A4. We expect the Watches Business to almost break-even in the fourth quarter. We areassuming there will be declines in watch movements and products in the mass-market
price range in overseas markets. The operating profit forecast was created inconsideration of the overall decline in sales, the impact of soaring energy costs, and ourreduction in the production of watch movements, which was slightly beyond a levelcommensurate with the reduction in sales. However, on the top line, we believe there isroom for a better-than-expected result. As for advertising expenses, we expect only aslight year-on-year increase, which means it should not be a significant factor.
Q5. Regarding the changes in advertising expenses and the changes in the timing of theirposting, was this because digital marketing has enabled more efficient advertising
activities?
A5. It reflects the fact that monthly sales of high-end products have remained mostly steadythroughout the year with no significant seasonal fluctuations, even during the Christmas
season. Another key point is that full use of digital technologies has resulted in a shift awayfrom quantity-oriented advertising activities to continuous, stable investments. Advertisingexpenses for the third quarter increased a little more than 10% year-on-year, the same asin the first and second quarters of this fiscal year, and we expect a similar rise in the fourthquarter.
Q6. How were the results for mass-market products excluding GBs in overseas markets during
the nine months under review?
A6. They differ from region to region. In Europe, we have strategically suspended sales ofbrands in the price ranges below Seiko, which is why those results did not reach theprevious fiscal year’s level. On the other hand, in the US market, sales in the mass-market
price range remained relatively stable during the first three quarters. In general, though,overall results were strong in the first half but have been somewhat stagnant so far in thePage 2 of 5

second half. In Japan, the growth rate was higher in GBs.
The market with the sharpest drop in the mass-market price range is China. Domestic
brands in that range include ALBA and some licensed brands. However, their unit prices
are low and their sales numbers are weak. Our view is that the market itself has been
shrinking. Products in the mass-market price range often used to be purchased in bulk by
Chinese tourists, but we do not see that kind of activity now. Inbound demand has begun
to recover, but at present most purchases tend to be of high-end products. We believe themass-market price range is in a slump overall.
Q7. What was the ratio of spending by inbound tourists, particularly those from China, in thethird quarter? Also, how big was the sales decline in China?
A7. Before COVID-19, spending by Japan-bound tourists accounted for approximately 15% of
the domestic total, and around half of that figure came from Chinese tourists. China did not
relax travel restrictions for its citizens until January (after the end of the 3Q), so we did not
anticipate any impact from sales to Chinese tourists during that quarter. Although Japanrelaxed inbound restrictions at the beginning of the 3Q, tourist numbers grew gradually. Asa result, spending by non-Chinese tourists also remained below its pre-COVID-19 level(approx. 7.5% of the total). Total spending by inbound tourists did increase in the thirdquarter, but only in low single digits. We are hopeful for more significant growth in the 4Q.
In the Chinese market, sales declined around 30% during the quarter under review. In FY
2021, the rate of decline in the third quarter was quite high, higher than in the first half, so
the year-on-year rate of decline in FY 2022 decreased gradually compared to the first andthe second quarter. However, at the beginning of the fiscal year, we assumed the 3Q
decline would be a little smaller than it actually was, and we now expect the recovery willtake a little longer. This has been factored in to our latest revised forecast.
Q8. What is your perspective on trends in the Watches Business by region from the fourth
quarter onwards?
A8. First, let’s take a look at trends by region in the third quarter. Results in North America
declined slightly on a local currency basis because of the strong growth in the previousyear. Europe saw low single-digit growth on a local currency basis and double-digit growthin yen terms. Asia and other regions recorded double-digit growth on a local currency
basis, which is a good overall showing considering the negative impact of China.
Now, looking at the fourth quarter and beyond, we believe that in Europe and the US oursales growth will be higher than the market average thanks to continuing promotion of GSand other GBs. In Asia as well, we are confident that we will be able to achieve ongoinggrowth of GS and other GBs, relying largely on our local subsidiaries. This positive outlook
is partly due to the fact that we established a GS sales company in Singapore in October.
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We want to continue offering new products in the GS line that will attract market attention.
We believe we can increase sales in the Watches Business in Japan again in the next
fiscal year thanks to price revisions and other factors.
Q9. Can we assume that the weakening of mass-market product in Europe and the US, which
you attributed to the global economic slowdown, has not significantly affected higherpriced watches?
A9. In general, lower-end products are more susceptible to economic slowdowns, and higherpriced watches are less likely to be affected. Even when they are affected, we always aim
for growth exceeding the market average. We also believe that GS and other GBs haveconsiderable room for growth.
Q10. Did the GS price revisions announced in the 3Q cause a rush of demand in anticipation ofthe price hike? What impact will the price revisions have in the fourth quarter?
A10. Because we announced the GS price revisions on December 29, they had little impact on
3Q results. As for the fourth quarter, we saw good numbers in January, but on the whole
we expect to see minimal effects, either positive or negative, from the price hike, as wereflected in our forecast. Of course, we are hoping that our forecast turns out to be tooconservative and the price revisions prove to be a positive factor.
Q11. Is it reasonable to think that gross profit from domestic sales will begin to increase in thenext fiscal year?
A11. A key reason why we revised GS prices in Japan at the time we did was to respond toincreasing prices of raw materials, parts, and other items that we received from oursuppliers toward the end of the previous fiscal year and the beginning of the current term.
Accordingly, we increased prices together with rising manufacturing costs, including thesudden increase in energy costs. Obviously, the price increase needs to match ouroverall cost increase, but we believe this GS price hike will be a positive factor. On theother hand, because we did not increase prices across all product ranges, we do notexpect the price revisions to have a major impact overall.
Q12. The ratio of MVP products in DS has been improving slowly compared to otherbusinesses. What is your strategy going forward? Will you simply continue to increase
MVP products or will you increase MVP products while also eliminating less profitablenon-MVP products?
A12. The reason why the DS business showed sluggish growth in the third quarter isweakening sales of products for the digital economy and also for Chinese market. Ofcourse we are working to expand the range of MVP products, both existing and newPage 4 of 5

products. We are developing new MVP products to replace old ones, although they will
not appear immediately. Our development cycle leads to product releases two or threeyears hence. However, we are confident that these activities will enable us to achieve thetarget ratio of MVP products in the final term of the current mid-term management plan.
The ratio of non-MVP products is also likely to drop.
Q13. What was the response to the increase of GS prices in Japan? Are you consideringrevising the prices of other GBs as well? I think the GS price increase will be acceptablefor customers in the watch market who have some appreciation of the added-value of GS.
A13. It has only been a short time since we revised the prices, so we cannot make definitive
statements regarding market response at this time. However, considering the surge indemand up to January and the initial trends following the price revisions, we have reasonto expect better-than-forecast results. We will consider price revisions for other GBs as
necessary, but for the moment, our policy remains unchanged.
Q14. Seiko’s PBR is slightly below 1.0 at present, partly reflecting the follow-up meeting on theTSE's market restructuring. Are you looking to raise the PBR above 1, and if so, will
boosting ROE be a top priority? Will you try to increase the net profit ratio or the operating
profit margin to increase ROE?
A14. We plan to raise our PBR above 1.0 by improving profitability. We aim to improve ROE toa level where our net profit reaches 10.0 billion yen. We believe that doing this will yield astructure that will keep the PBR above the 1.0 mark.

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