Fifth Mid-Term Management Plan(Three-Year Plan to Commence in Fiscal Year Ending in March 2014)

May 14, 2013

Table of contents

1.

Looking back at the 4th Mid-Term Management Plan

2.

Basic Policies of New Mid-Term Management Plan

3.

Basic Strategies for Maximizing Segment Profitability

4.

Challenges for Qualitatively Reinforcing Our Management
Foundation

5.

Target Figures under the Mid-Term Management Plan

1

1. Looking back at the 4 th Mid-TermManagement Plan

2

The 4 th Mid-Term Management Plan
Basic Policy and Strategy
1. All-out efforts to enhance business foundation• Maximizing profitability of Watch Business• Strengthening profitability of Electronic Component
Business• Creating new added value

2. Sounder financial state• Normalizing standards for interest-bearing liabilities• Enhancing shareholderʼs equity

3

Management Target Figures under 4 th MTMP
FY2012
TargetRatio of ordinary
profit against sales

4% or more

FY2012
Actual1.1%

Outstanding loans

200 billion yen or less198 billion yen

Equity CapitalRatio

To achieve 15%

11.0%

Net Debt Equity
Ratio

2.1 or less

3.9

4

All-out efforts to enhance business foundation
Operating Income

Net Sales
313.8

296.9

283.7410.0

11.6

6.7

5.5

21.0

ActualActualTarget(Billion yen)(Billion yen)
450.0

360.0

Others
270.0

180.0

Electronics
Components
Electronics
Components
Watch

90.0

OthersWatch
0.0
FY2010FY2011FY2012FY2012

ActualActualActualTargetActual5

All-out efforts to enhance business foundation• Amid a severe environment defined largely by a super-strong yen andthe European debt crisis, net sales under the Watch Businessexceeded initial targets, with operating income also successfully
meeting targets.
• In the Electronic Components Business, both net sales and operating
income decreased due in part to external environment factors such as
the super-strong yen, flood damage in Thailand and intensified global
competition as well as the withdrawal from the LCD display businessand the sale of its scientific instruments business.
• Seeking to realize the creation of new added value, Seiko Holdings
established a new company under its System Solutions Business,
which will be positioned as the group’s third business pillar.
• Wako’s successfully entered the black through initiatives that
constituted “reforming our corporate constitution into one that doesn’tpermit losses.” Additionally, fundamental structural reforms werecarried out at Seiko Instruments and Seiko Precision.
6Sounder financial state –Loan payable & Equity capitalEquity Capital

Loan payable & Net D/E Ratio(Billion yen)

no more than

237.9

237.5

198.9

250.0

200.0

(Billion yen)

37.2

24.1

39.0

64.5

ActualActualActualTargetLoan Payable
Net D/E Ratio

200.0

150.0

7.9

100.0

50.0

5.1

3.9
2.1

0.0
FY2010FY2011FY2012FY2012

ActualActualActualTarget・ Outstanding debt target of no more than 200 billion yen has been met,
conversely, improvements in equity capital fell short of targets.
72. Basic Policies of New Mid-Term
Management Plan8Basic Policies of New Mid-Term Management Plan

Reconstructing business portfolio around
our Watch segment as groupʼs corebusiness to maximize profitability, as well
as realizing the qualitative reinforcementof groupʼs management foundation

9Direction Taken in Basic Policies: Business Portfolio(Unit :Billion yen)

FY2012Net Sales : 283.8
System Solutions*
Others
13%

8%

Watch

Electronics
Components

36%
FY2015 (3rd Year)Net Sales :320.0

43%

その他&調整System Solutions*
Others6%

11%

Electronicdevice

36%
Watch

47%
* Net sales values for the Systems Solutions Business andElectronic Device Business in FY2012 are estimatescalculated using simplified methods.

10※Changes in Business Segments
PreviousSegments

New Segments

Main Products

Watch Business

Watch Business

Watches, watch Movements

ElectronicComponents
Business

Electronic Device Business

Hard disk components, semiconductors,
quartz crystals, micro batteries andmaterials, printers, and camera shutters

System Solution

Information systems, IC dictionaries,
network systems

OthersClocks,
Optical lenses and frames,
High-end clothing & misc. goods,
System clocks,etc.

Clock Business
Optical Products
Business
Other Businesses

11Qualitatively Reinforcing Our Management Foundation
Interest-bearing debt & Net D/E Ratio

Equity Capital(Billion yen)(Billion yen)

203.4

202.0

195.0

175.0

39.0

43.0

50.0

60.0

ActualTargetTargetTargetActualTargetTargetTarget12

3. Basic Strategies for Maximizing

Segment Profitability

13

Summary of Basic Strategies
1. Enhancing and expanding the Watch segment, the fundamental businessof the Seiko Group
Maximizing earnings through executing strategy that manifests the total capability of thissegment’s finished goods and movement businesses.

2. Electronic Device segment to concentrate on core areas
Concentrating resources into core business sectors while actualizing "SYO"ism technology
centered on timepieces to the fullest extent, and establishing a stable earnings structure.

3. Cultivating our System Solutions Business as a third business segment
Cultivating a solutions-suggestion business with high added value that positions SeikoSolutions Inc. as its core entity and takes advantages of the resources possessed by theSeiko Group.

4. Expanding business development efforts that effectively leverage theSeiko brand
Perpetuating activities to improve brand image and recognition while further strengthening
brand utilization in various products.
14

Shared Challenges of the Seiko Group for Implementing Strategies
1. Creating and expanding upon Group synergy
・Promoting business operation through full integration of manufacturing &marketing / sales.
・Deepening cooperation within the group to promote solutions business withSeiko Solutions Inc. as it core entity.
2. Expanding business to include emerging Asian countries in addition toChina
Strengthening marketing in Asian markets predicted to grow.

3. Promoting the effective utilization of the Seiko brandLeveraging and enhancing the value of the Seiko brand, one of the Seiko Group’s
most crucial management resources.
4. Promptly implementing remedial measures for low-performing businesses
Accelerating fundamental measures for businesses experiencing slow
improvements in their constitution.
15

Basic Strategies by Reported Segments
1) Watch Business2) Electronic Device Business
3) System Solution Business4) Others
161) Watch Business
Enhancing and expanding the Watch segment, the fundamental
business of the Seiko Group
Maximizing earnings through executing strategy that manifests the total capability of thissegment’s finished goods and movement businesses.
(Billion yen)
160.0
16.0

7.8

121.0

10.0

135.0

150.0

13.0
8.8%

140.0
14.0
12.0
120.0

11.0

140.0

7.4%

7.9 %

6.5%

10.0
8.0
6.0
4.0
2.0
0.0

FY2012
ActualFY2013
Net Sales

TargetOperating Income

FY2014
Target

FY2015

TargetOperating Income %171) Watch Business
1. Expanding high-end product business through GRAND SEIKO
Boosting sales by leveraging the feature of “high-precision” & “high-quality”
mechanical movements, spring drives and quartzes, to the fullest extent:

2. Making the SEIKO ASTRON GPS solar watch into a core businessAccelerating the implementation of global strategy and pursuing ASTRON
as a new timepiece standard that overturns existing conventions.

181) Watch Business
3. Reinforcing the mechanical watch business through cooperation
between SWC and SII
Further developing global business for high-end mechanical watches with afocus on the GRAND SEIKO and augmenting pertinent manufacturing
capability. Cultivating emerging markets in the low- to mid-price range.

4. Expanding movement business
Enhancing product architecture and sales with a particular focus onmovements with high added value.
191) Watch Business
5. Further reinforcing Pan-Asian strategy (linked across Japan,China and the rest of Asia)
Positioning Japan, China and the rest of Asia as “aggressive-approach”
markets and expanding Asian businesses predicted to grow.

6. Improving sales and profitability in European and the US markets
Reinforcing product- and distribution-side initiatives to reclaim our position inEuropean and the US markets.

201) Watch Business7. Bolstering efforts in the growing markets of fashion and sports
watchesStrengthening product development and procurement capability andexpanding upon market share through establishing a new company that
integrates SWC- and SII-related businesses.

SEIKO NEXTAGE CO., LTD.

212) Electronic Device Business
Concentrating on core businesses for the Electronic Device
Business
Concentrating resources into core business sectors while actualizing "SYO"ismtechnology centered on timepieces to the fullest extent, and establishing a stableearnings structure.
(Billion yen)

2.0

95.0

140.0
120.0

105.0 4.5
4.3%

7.0

115.0

6.1%

100.0

2.1%

Estimate

TargetTargetTarget*Net sales and operating income values for FY2012 are estimates calculated using simplified methods.

222) Electronic Device Business
1. Positioning our semiconductor and inkjet print head businesses
as core businesses and focusing on them to the fullest extent
with the aim of recovering the profitability of our Electronics
Device segment[Semiconductor business]
We will work on developing products that are lowconsumption, low-voltage, ultra-small and/or offer otherforms of high added value, with a primary focus to beplaced on IC and memory products for power sources.
We also seek to acquire market share with a wide rangeof applications, including those for automobiles.

[Inkjet print head business]
While setting our sights on the “large sign” and “textileprinting” sectors, We will leverage product lines madewith superior design capability and reliable quality topromote the development of sales efforts in global
markets, including emerging countries.
232) Electronic Device Business2. Securing earnings in the other electronic device businesses bypromoting cautious investments keeping a close watch on market
trends and without depending on the excessive expansion of sales
Shifting our HDD components, crystal and camera-related businesses,
which have been struggling, to a constitution conducive to securing
earnings from this fiscal year onward following the implementation ofdrastic countermeasures in the previous term

[HDD components]

We will achieve a stable production framework by putting thenewly-built Thailand plant into operation during the first half ofFY2013.

[Camera-related]

Along with bringing the Thailand plant back online, We willcomplete structural reforms for Seiko Precision and streamline
this business.

[Crystals]

We have spin-off and consolidated development andmanufacturing functions into separate companies while
simultaneously impairing noncurrent assets in order enhanceflexibility and efficiency of business operation.
243) System Solution Business
Cultivating our system solutions business as a third businesssegment
Cultivating a solutions-suggestion business with high added value that positions SeikoSolutions Inc. as its core entity and takes advantages of the resources possessed bythe Seiko Group.
(Billion yen)

28.0

1.0

30.0 1.5

35.0

40.0

2.0
5.7%

35.0

5.0%

30.0

3.6%

25.0

Estimate

TargetTargetTarget*Net sales and operating income values for FY2012 are estimates calculated using simplified methods.

253) System Solution Business
1. Pursuing high added-value businesses through multi-services that incorporate
hardware, applications and data centers
2. Promoting and expanding upon business development in three fields throughpushing forward collaboration between Seiko Solutions and SII−“Payment solutions” that combine the operation of and services for payment packages−“Store-oriented solutions” for energy monitoring, control systems, etc.
−“Wireless network solutions” centered on network equipment
HardwareCenterServiceHardware＆Mobile
NetworkingApplications

ApplicationsCenter Service264) Others
Expanding business development efforts that effectively
leverage the Seiko brand
Perpetuating activities to improve brand image and recognition while further
strengthening brand utilization in various products.
(Billion yen)
60.0
6.0

45.8

-0.0

48.0

1.0

25.0

0.5

27.0

1.0
3.7%

5.0
50.0
4.0
40.0

2.1 %
30.0
3.0

2.0%

2.0
20.0
1.0
0.0
-1.0
FY2012
ActualNet Sales

FY2013

FY2014FY2015

TargetOperating Income

TargetOperating Income %Target274) Others[Clocks]
Successfully bringing this business into the black at an early stage byreinforcing Seiko-brand products, promoting reductions in the cost of sales,and expanding upon sales in Asia and other overseas markets.

[Optical Products]
Boosting competitiveness and profitability through our alliance with HOYA
and expanding upon the development of markets for SEIKO as a corebrand.

284) Others[Time systems]
Engaging in the development of new commodities and the refortification of our sales
framework, and promoting the cultivation of new customers in Japan and Asia as awhole.

[WAKO]
Pushing forward further improvements in earnings to realize stable profitability.

294 . Challenges for Qualitatively Reinforcing

Our Management Foundation30

Challenge 1：Improving Our Financial Constitution
For the purpose of improving our financial constitution:
Realizing further reductions in interest-bearing
liabilities and an improved equity capital ratio<Measures and Policies>
1. Improve cash flow from operating activities through improvement ofprofitability.
2. Increases efficiency of capital investment based on investment
strategies for the Seiko Holdings Group as a whole.
3. Enforce reductions in current assets including inventory andreceivables.
4. Effectively utilize underutilized real estate.
31

Challenge 2：Strengthening the Role of the Holding Company
For the purpose of strengthening the role of the holding company:
Reinforcing strategic decision-making in Groupmanagement and operating company support functions as
conducted by the holding company<Measures and Policies>
1. In reinforcing strategic decision making in Group management.
2. In reinforcing operating company support functions.
3. Reinforcing our PR, IR, and CSR activities and continuing to invest in
our brands.

32

Challenge 3：Promoting the Utilization of Human resources
For the purpose of promoting the utilization of human resources:
Forming mechanisms for developing human resources forsustainable business growth and conducting inter-Group
personnel exchange<Measures and Policies>
1. In forming mechanisms for developing human resources aimed atsustainable business growth.
2. In forming mechanisms for conducting inter-Group personnelexchange.
3. Promoting the development of an environment aimed at effectively
utilizing senior citizens in line with an extension in the mandatory
retirement age.
33

5. Target Figures under the Mid-Term
Management Plan
＜Condition＞
・Exchange Rate (JPY)（USD1 = ¥90 / EUR1 = ¥120）
・The optical products business will be excluded from the scopeof consolidation as a subsidiary of Seiko Holdings fromFY2014 onwards.

34

Target Figures and Performance for Business Operation
FY2013

FY2014FY2015

300.0

290.0

320.0

Operating Income

6.0

10.0

16.0

Ordinary Income（％）

2.0%

3.4%

5.0%

(Billions of yen)

Sales

Interest-bearing Debt*

202.0

195.0

175.0

Equity Capital Ratio

12.3%

14.3%

17.6%

Net Debt Equity Ratio

3.6

2.9

2.1

＊ Interest-bearing liabilities ＝ Loans payable + Lease Obligations

35

Net Sales and Income(Billion yen)283.7 5.5 3.2

300.0 10.0 6.0

290.0 14.0 10.0

320.0

20.0 16.0
6.0%

35
350.0

5.0%

300.0
30

5.0%

250.0
25
4.0%

3.4%
20

3.0%

152.0%
2.0%

101.1%
1.0%

50.0%

0
FY2012
Actual

FY2013
TargetNet Sales

Operating Income

FY2014
TargetOrdinary Inocme

FY2015
TargetOrdinary Inocome %36

Factor Analysis of Sales(Billion yen)

Sales of business for analysis
and measurement instruments-10.0-22.0

SystemElectronics Solution
Device+15.0+20.0
Watch+30.0

Others+4.0

OpticalBusiness
Net Sales
283.7(FY2012)Net Sales
320.0(FY2015)

37Income Statement and Balance SheetFY2013

FY2014FY2015 (b)TargetTargetTarget

283.7

300.0

290.0

320.0

+36.3

Operating Income

5.5

10.0

14.0

20.0

+14.5%

1.9%

3.3%

4.8%

6.3%

+4.4%

Ordinary Income

3.2

6.0

10.0

16.0

+12.8%

1.1%

2.0%

3.4%

5.0%

+3.9%

5.5

5.0

8.0

12.0

+6.5%

1.9%

1.7%

2.8%

3.8%

+1.9%

Interest-bearing Debt

203.4

202.0

195.0

175.0

-28.4

Net Assets

40.8

45.0

52.5

63.0

+22.2

Total Assets

355.3

350.0

350.0340.0-15.3(Billions of yen)

Sales
（億円）

Net Income

FY2012
Actual (a)(b) – (a)Change38Sales and Operating Income by Reported Segments(Billions of yen)
Sales
（億円）

FY2012
Actual (a)FY2013

FY2014FY2015 (b)TargetTargetTarget(b) – (a)Change

121.0

135.0

140.0

150.0

+29.0

Operating Income

7.8

10.0

11.0

13.0

+5.2

Electronics Sales
DeviceOperating Income

125.2*

95.0

105.0

115.0－

-1.5*

2.0

4.5

7.0－

Sales

－*

28.0

30.0

35.0－

Operating Income

－*

1.0

1.5

2.0－

Sales

45.8

48.0

25.0

27.0-18.8

Operating Income

0.0

1.0

0.5

1.0

+1.0

283.7

300.0

290.0

320.0

+36.3

5.5

10.0

14.0

20.0

+14.5

WatchSystemSolution
OthersSales
Cons. Total
Operating Income＊Net sales and operating income values for the Electronic Device Business in FY2012 are included the System Solution Business.

39

Investment Plan
Investment & Depreciation

Advertising and Promotional(Billion yen)

21.5

20.0

15.0

15.0

12.8

15.0

15.5

16.0

Advertising and promotional
expenses to increase by 30%

25.0

Investment
Depreciation and amortization
20.0

＊
15.0

10.0

5.00.0FY2012
ActualFY2013
Target

FY2014

Target

FY2015
TargetActualTarget＊Investment promoted by damage caused by the floods in Thailand40◆ The forecasted results which appear in this report have been
prepared based solely on the information which was available tous as of the date on which the report was released. As a result,actual results may differ from the forecasted figures due to anumber of factors, such as changes in the business environment
in the future.
Numbers are rounded to the unit indicated.
Percentages are cut off to one decimal place.

41