Seiko Group Corporation
FY23 Q4 Consolidated Results Presentation - Q&A◆ Date:：Wednesday, May 15, 2024, 10:30 - 11:40◆ Location：JP TOWER Hall & Conference (hybrid style: virtual + real)◆ Participants:：Shinji Hattori, Director, Chairman, Group CEO and CCO
Shuji Takahashi, Director, President
Akio Naito, Director, Senior Executive Vice President
Jun Sekine, Director, Senior Executive Vice President
Taku Yoneyama, Director, Executive Vice President
Yoichi Endo, Executive Vice President

Summary of Q&A
Q1. For the final fiscal year of SMILE145, your gross profit margin target is an increase of five
percentage points, and you said that it will increase one percentage point every year.
However, as you pointed out, it increased 2.5 percentage points in the first two years. At
this rate, consolidated operating profit for the final fiscal year is on track to exceed 20.0
billion yen. Did you set a conservative target because you plan to accelerate growthinvestment in the coming three years?
A1. Since SMILE145 is a five-year target, we naturally took fluctuations into account when weset our target range for consolidated operating profit at 18.0 to 20.0 billion yen. Due to theeffects of the post-COVID economic recovery, both the EVS Business and SS Business are
performing fairly well. With this in mind, we set a target operating profit of 17.0 billion yen
for FY2024, and, of course, we are aiming for 20.0 billion yen or more in FY2026.
During the seven previous mid-term management plans, there have been many
unforeseen events that have affected results, most notably the 2008 financial crisis and therecent pandemic. At the present time, performance is steady, and we are still aiming for20.0 billion yen in OP for the final term of the current plan, but we are always cognizant ofpotential risks.
Since you asked about growth investment in the coming three years, I should note that wewill indeed accelerate investment to boost growth. Our plan is to focus on the Watches
Business and the Systems Solutions (SS) Business as the core of our growth strategy.
Q2. Could you share the details of business restructuring expenses posted in FY2023, as wellas their effects in FY2024?
A2. Our business restructuring expenses were aimed at three important areas: the Watches
Business in China, the Devices Solutions Business, and the domestic Clocks Business.
The Watches Business in China has completed a major shift to a new business model.
Although it is difficult to be patient, we know we must give it time and allow the restructuring
to achieve positive results. The second area, the Devices Solutions Business, isproblematic because some precision device sectors are slumping, and we also had torecord an impairment loss related to precision processing. Among precision devices,1automobile-related devices are improving, so we are now reorienting the business to focus
on mobility. The third area is the domestic Clocks Business, which we are restructuring so
as to shift to products with high unit prices.
Q3. I have questions about the cash allocation in SMILE145. Your plan calls for investing over
100 billion yen to spur growth. How is that going? What were results for the first two years,
and what will the allocation be like in the remaining three years?
A3. During the term of SMILE145, we plan to invest over 100 billion yen in growth. In the firsttwo years, we invested slightly less than two-fifths of that total to support growth, and weplan to increase these investments in the remaining three years.
The main focus of this investment will be the Watches Business and the SS Business. In
the Watches Business, we will invest in three main pillars: manufacturing equipment,advertising, and the boutique market. The company that joined the SS Business throughM&A has been doing well and has demonstrated positive synergies. We would like to createthat kind of synergy throughout the Group as a whole, with Seiko Solutions playing aleading role in this. We will continue to pursue M&A activities in order to accelerate thegrowth of the SS Business.
Q4. The Watches Business was strong in Japan in FY2023, but weak in other countries. How
do you see the growth of that business in each region in FY2024? Also, what is your viewon increasing profit relative to net sales?
A4. About ten years ago, 90% of Grand Seiko's sales were domestic. Then overseas sales took
off and grew rapidly, eventually exceeding domestic sales in FY2021. Last fiscal year,overseas sales slowed, while domestic sales were strong, partly reflecting the sudden
increase in demand from inbound tourists.
We view GS as a global brand, and we attach more importance to overall sales growth andbrand recognition than to sales by region. Now, with the yen down considerably against theUS dollar, we aim to increase sales in Japan. Current trends in inbound tourism demandshow that these products are selling especially well to visitors from the US, as well as topeople from Europe. This is completely different from the demand generated by Chinesetourists for mass-market products, which they purchased as souvenirs. We are pleased tosee many wealthy Americans and Europeans buying Grand Seiko products, which webelieve is due to increased visibility of the GS brand overseas.
In the new fiscal year, GS will remain strong in Japan, partly reflecting this inbound tourism
demand. While we struggled in the United States in the last fiscal year, we believe that themarket has bottomed out. We also expect to see improvements in Europe. We haverecently established a GS sales subsidiary in China and reset our business model to makea new start in that market and expand sales of GS. Despite all these positive steps, we feelthe most prudent course is to maintain a somewhat cautious view in the current term.
Q5. I have questions about the Watches Business and about Grand Seiko in particular. We
know the situation in China is still difficult. How much progress have you made in thebusiness model transformation that you started last fiscal year? When will it bear fruit?

2A5. Last fiscal year, we worked on business restructuring and reorganized the distribution ofGS in China. This fiscal year, we will strengthen GS sales, supported by a newly
established GS sales subsidiary in Shanghai. We are also working to secure talented
human resources to support our shift from our old e-commerce-based business to areenergized business based on sales at brick-and-mortar stores. And these are only someof the various initiatives that will propel our Chinese sales in the coming years.
Although our analysis of inbound tourism demand by nationality is only a rough estimate,
we determined that Chinese buyers ranked 3rd or 4th overall. This signifies that GS is wellknown to Chinese people even though it was almost impossible to sell GS products inmainland China. This helped to convince us that we can grow GS in China by steadily
developing a luxury distribution channel. This fiscal year, we are working to build a strong
foundation for the expansion of GS sales, and we expect to see results as soon as the next
fiscal year.
Q6. Strengthening direct sales in the Watches Business is not a new story. This time, what isyour objective in strengthening the direct sales business? And what about your existing
distribution network — will things change there?
A6. In the past, our main business was more or less a wholesale business. In recent years, wehave been globally expanding our directly managed stores, called Seiko Boutiques, toenhance our brand value. We are also actively expanding GS Boutiques globally to buildthat brand. However, the tactics for the GS expansion are different from those used for
Seiko Boutiques.
Our basic policy for GS Boutiques is to emphasize customer experience, which we do inpart by communicating the brand story directly to customers, and also by strategicallyselecting the location and design of each new store. For example, last year we opened aflagship GS Boutique on Madison Avenue in New York. It is among the largest GS storesin the world. The location was very strategically chosen — it is ideal for a boutique that
deals in luxury products. Because Manhattan attracts well-to-do buyers from all over theworld, opening a major store in a prominent location helps to increase the brand's globalappeal. Four years ago, we opened a directly managed European flagship store in thePlace Vendôme in Paris, which has been very successful. The NY store delivers all thebrand power of the Paris boutique and more. In Tokyo, we opened a GS Boutique in the
fashionable Omotesando Hills development in Harajuku just two weeks ago. Of course, wealready operate three GS boutiques in Ginza, but we specifically chose the Omotesando
location to appeal to younger consumers. That strategy seems to be right on target, withover 1,000 affluent young customers visiting the store in just a couple of weeks.
Our current approach is to have a clearly focused strategy for each store that we open. We
are not looking at specific sales figures or the total number of stores as KPIs. We willcontinue to actively invest whenever we find a location that serves our purposes.
Q7. It's clear that GS sales are steady, but the price range is quite broad. Is it possible thatlower-priced quartz movements (which may not be seen as luxury products) are holdingback Grand Seiko's growth? How will you position of quartz movements in the future growthof GS as a luxury brand?

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A7. GS currently sells three types of movements: mechanical, quartz, and Spring Drive. It istrue that the quartz models are in the lowest price range among GS products, but their unit
prices are still quite high for quartz watches. The movements we use for GS are proprietary,
extremely high-precision mechanisms, very different from those used in quartz watches in
the mass-market price range. We are continuing to communicate to customers about theadvantages of GS quartz movements. We absolutely do not think that having highprecision quartz movements in our lineup is harming our brand.
In both Europe and the United States, the overall luxury goods market struggled during thelast fiscal year due to a tight economic environment, which included rising inflation and highinterest rates. Retailers, who are not only our business partners, but also provide key
market research insights, began to request that we expand the lineup of reasonably priced
products. In overseas markets in particular, there is growing demand for products priced
around 500,000 yen, and the GS quartz models fall nicely into this price range. In summary,rather than holding back GS growth, we see quartz movements as filling a market need,and so we will continue to focus our efforts on GS quartz.
Q8. I have a question about the DS Business. It appears that the recovery of operating profit
relative to net sales in FY2024 is weaker than in FY2022. What is the reason for this?
A8. The environment surrounding the DS Business has changed greatly from what it was twoyears ago. However, we did not adequately expand either the customer base or user
applications in response to these changes. That is the most direct explanation for the weak
profit growth. As we go forward, we will focus on three product domains —medical,industrial, and mobility — in our efforts to expand applications and customers who operate
in those domains.
Q9. More questions about the DS Business: You said you will institute changes to make it
resistant to environmental change. Is differentiating investment destinations based on
products enough to become more resilient? Are you considering measures such as shifting
fixed costs to variable costs and downsizing low-profitability businesses?
A9. As I said before, we will concentrate on three main product domains, largely to mitigate theimpact of a market cycle that is unique to the device business. Each domain has a different
peak period. If we can launch innovative products in multiple domains with different peak
periods, we can mitigate the effects of peaks and troughs in individual domains.
One of the strengths of our DS Business is that we can cater to customer needs. In thepast, we offered fully customized products. While these products perfectly match customer
needs, they are extremely time-consuming to produce. At present, we have established atwo-step customization concept whereby we convert products into platforms and then later
customize them to cater to specific customer needs. This enables us to deliver productswith a shorter lead time. In addition, converting products into platforms has facilitatedstreamlining and improved yield, which in turn leads to a higher GP. We will combine thisapproach with good product strategy to make the business more resistant to market
volatility.

4Q10. I have a question about the SS Business. The FY2024 growth of SS operating profit looks
great compared to sales growth. Could you comment on that?
A10. Computer Science Corporation, which the Seiko Group acquired in January of this year,
does not have a higher internal profit rate, but its synergies with existing companies in ourSS Business, such as IIM and Seiko Solutions, are already helping to increase ouroperating profit. We are pleased with the early results and hope to see this plan unfold
smoothly in the coming years.
Q11. I have a question about the SS Business. As the use of generative AI accelerates, are there
any AI-related strengths or business opportunities unique to Seiko Solutions?
A11. The strength of the SS Business is that we create both hardware and software. Because
we manufacture hardware, we obtain certain kinds of data, which we analyze using AI tofind optimal solutions. This is one special feature of our business.
We are also investing aggressively in an initiative that looks for optimal solutions by running
multiple gen AIs. We hope to apply gen AI to solve some of our customers’ social issues,
and we have already received contracts from a number of customers.

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