HIROSE ELECTRIC CO., LTD.
Q1 Financial Results Briefing for the Fiscal Year Ending March 2020

August 5, 2019

Event Summary[Company Name]HIROSE ELECTRIC CO., LTD.

[Event Type]Earnings Announcement[Event Name]

Q1 Financial Results Briefing for the Fiscal Year Ending March 2020

[Fiscal Period]

FY2019 1Q[Date]

August 5, 2019

[Number of Pages]

27[Time]

10:30 – 11:26(Total: 56 minutes, Presentation: 32 minutes, Q&A: 24 minutes)[Venue]Sapia Tower, Tokyo Station Conference Center, 6F 602
1‐7‐12 Marunouchi, Chiyoda‐ku Tokyo 100‐0005[Venue Size]

309 m2[Participants]

103[Number of Speakers]

2Hiroshi Fukumoto
Corporate Board Director, Group President, Administration Group
Hideo Suzaki
Manager, IR Office, Administration Group

Presentation
Suzaki: Good morning. We would like to thank you for visiting our financial results briefing today. We will holda financial results briefing for the first quarter of Hirose Electric. I am Suzaki of the IR Office and will lead thebriefing today. Thank you very much.
First, please confirm the materials we delivered at the reception. Today's briefing consists of two parts:
materials used today for the financial results briefing and the financial results summary that was disclosed on
the Tokyo Stock Exchange on Friday last week. Please confirm.
Today, I will explain our financial results for about 20 minutes. After that, Mr. Fukumoto, Corporate Board
Director, Group President of Administration Group, will explain the recent trends and our efforts for thecurrent fiscal year. The remainder will be the time for a question and answer session for about 15 to 20minutes. Closing is scheduled at 11:30, so we would like to ask for your cooperation. Then, we will begin togive explanations.

First, we will review our business in the first quarter of the current fiscal year. Orders received amounted to
30.08 billion yen, down 8.5% from the same quarter of the previous fiscal year, sales were 28.23 billion yen,down 0.8% from the same period of the previous fiscal year, operating profit was 5.34 billion yen. The profit
margin was 18.9%, a year‐on‐year increase of 6.5%.
In terms of overall business conditions, there was a sense of stagnation in a wide range of areas, such asdeterioration in business confidence due to trade conflicts between the United States and China, a slowdown

in the Chinese economy. Also, there was slump in automobile sales, mainly in Europe, the United States, andChina.
By segment, sales for the general industrial market continued to decline from the second half of the previous
fiscal year, and declined in the first quarter of this fiscal year. This resulted in a year‐on‐year decline of 22%.
We will explain in more detail later.
Sales for smartphones increased 29% year on year, due in part to the effects of an early increase in demandfor smartphones in China and elsewhere compared to the usual year.
Sales in automotive markets were also affected by sluggish sales worldwide, and partly due to a decline insales of some existing products. There was a decline of 7% compared with the fourth quarter of FY2018, anda slight increase of 3% compared with the same period of the previous fiscal year.

Please refer to the graph above. This graph shows the average of FY2018 being set as 100. As a whole,although sales are likely to remain sluggish, orders have bottomed out and increased in the first quartercompared to the fourth quarter of the previous fiscal year.

By segment. Sales for smartphones increased due to an increase in sales mainly to Chinese market. Although
it was slightly short of the previous year's average, sales are growing compared with the first quarter of theprevious year, and have become positive compared with the fourth quarter of the previous year.

Automotive. The decline in automotive sales volume resulted in a slight decline in sales. Although the growthof new products was in line with our plans to some extent, the decline in sales of existing products in themarket environment had a slight impact. We do not believe that this trend will move downward from now on,and we believe that the upward trend will also emerge toward.

General industrial machinery. The graph shows that the decline in sales has not yet stopped due to the decline
in business sentiment. However, the content of the graph shows that inventory adjustments have alreadybeen made to some extent, so that the feeling of bottoming out in real terms appears to some extent.
However, for example, three months ago, I talked about expectation of recovery from early autumn. There isstill no sense of a strong return because of the US‐China problem or such a sense of blockage in consumption.
However, we believe that a recovery trend will emerge in the future.

This is the P&L. As mentioned earlier, sales were 28.23 billion yen, a decrease of 2.4 hundred million yen, or0.8% decline, compared with the same period of the previous fiscal year.
The cost of sales ratio and the SG&A expenses ratio were 57.5% and 26.7%, respectively, for a slight
improvement over the previous fiscal year. Operating profit was 5.34 billion yen, a year‐on‐year increase of
3.3 hundred million yen, or 6.5%. The operating profit margin was 18.9% and earnings before income tax was
5.67 billion yen, a ratio of 20.1%. Net profit was 4.07 billion yen, with a 14.4% ratio, a decrease of 0.7 hundred
million yen, or 1.6%, from the same period of the previous fiscal year.
The balance of total assets was 342.1 billion yen, and I will explain it in the B/S later. The shareholders' equity
ratio was 88.8% and income per share was 111.56 yen.

Major year‐on‐year changes are summarized here. Sales decreased by 2.4 hundred million yen, with Hirose'snon‐consolidated sales of negative 1.07 billion yen and subsidiaries of positive 8.3 hundred million yen.
The cost of sales ratio worsened by 1.7 percentage points, because the purchase cost ratio rose slightly from
38.1% to 38.4%, and the depreciation expense ratio rose from 7.5% to 9%. We have been investing for thepast few years, so this was in line with the plan.
The ratio of selling, general, and administrative expenses was 0.4 percentage points better, decreasing by 1.6
hundred million yen, from 7.71 billion yen to 7.55 billion yen, due mainly to a decrease in outsourcing
expenses.
Financial revenues and expenses worsened by 3.5 hundred million yen. Foreign exchange losses were incurred
over the previous fiscal year.

This is a summary of the variation analysis. Breakdown of changes in the first quarter of the current fiscal year
compared to the first quarter of the previous fiscal year. As shown on the following page, the impact of foreignexchange rates on sales was negative 5 hundred million yen, on operating income was positive 0.9 hundred
million yen, and earnings before income tax was negative 3.7 hundred million yen.
The increase in depreciation expenses was explained on the previous page. Personnel expenses slightly
increased by 1.6 hundred million yen, but to some extent they remained unchanged.
There was a slight profit due to increases in the products. Others added 9.7 hundred million yen in operating
profit and Others also added 1.09 billion yen to earnings before income tax. A temporarily recorded income
was the main reason for the increase in profits in the first half of the current fiscal year.

Only the effects of exchange rates are taken out. For the first quarter of FY2019, the dollar was 109.9 yen, theeuro was 123.49 yen, and the won was 9.43 yen per 100 won.
As in the previous page, the effect on sales was negative 5 hundred million yen, on operating profit waspositive 0.9 hundred million yen, and on earnings before income tax was negative 3.7 hundred million yen.

Above is a simple graph showing trends in sales and profits by quarter. The results of the first quarter werenot satisfactory. We have seen some recovery in profit, but sales were not enough.

Cash and cash equivalents increased by 2.2 billion yen. Other financial assets decreased 4.3 billion yen, due
to refunds of consumption taxes receivable and bonds.
One new issue in the quarter under review was the application of lease accounting. We have begun to apply
the IFRS 16, so the impacts are seen in assets and liabilities. 4.65 billion yen were recorded as right‐of‐useassets.

As for the lease accounting, the liability was also recorded at 4.64 billion yen.
The cancellation of treasury stock amounted to 1.49 billion yen. Assets totaled 342.1 billion yen.

Year‐on‐year comparisons by segment. Sales of general industrial were down by 22%. There was a 29%
increase in smartphones and a 3% increase in automotive. There are no figures for digital consumer
electronics, but this also increased significantly.

This is a graph and a percentage distribution. Sales for general industrial declined by 8 percentage points,from 39% in the previous year to 31% in the current fiscal year.
In this first quarter, sales for smartphones were positive, so the ratio was up 6 points from the previous fiscal
year, or 25%. Sales for automotive accounted for 21% of the total, with a slight increase.

The overseas sales ratio and production ratio are as shown. The sales ratio rose from 72% in FY2018 to 73%
in the first quarter under review, an increase of 1 percentage point. This reflects the fact that sales for
smartphones have increased, and sales for general industrial, which is centered on domestic market, havedeclined.
In addition, the overseas production ratio declined from 42% in FY2018 to 41% in the first quarter underreview. The decline in general industrial was the reason behind the decline. Operations at overseas plants
have declined slightly. We are also taking steps to strengthen overseas plants, including the recovery ofmarket conditions, in the medium term.

Investment and depreciation trends. In the first quarter of FY2019, which is the right‐hand side of the table,
capital investment was 4.6 billion yen and depreciation was 3.4 billion yen. Although not stated here, R&D
expenditures in the first quarter were 3.2 billion yen.
Incidentally, the annual forecast remains unchanged, with about 13 billion yen.
The forecast of capital investment and depreciation have not changed with 17.5 billion yen and 14 billion yen,respectively.

This is the last slide of the explanation. This fiscal year's business forecast. There is no change from theannounced figures in May. Sales of 130 billion yen and operating profit of 25 billion yen remain unchanged
from the figures announced in May. That's all. Thank you very much.
Fukumoto: Good morning. I am Fukumoto of the Administration Group Hirose Electric Co., Ltd. I became aCorporate Board Director and Group President of Administration Group at the general meeting ofshareholders on June 27. I would like to ask for your continued support.
We thank you for you coming in the hot summer today. I appreciate many analysts and institutional investors
who have long seen Hirose, as well as new visitors.
Suzaki has explained the financial results for the first quarter. I would like to make some comments orsupplements about four points.
The four points consist of the results of the first quarter, the full‐year forecast, various internal measures toimprove our business performance, and corporate governance.
Here, quarterly sales, operating profit and operating profit margin were 28.2 billion yen, 5.3 billion yen, and18.9% in Q1, respectively.
Operating profit margin was 11.1% in the fourth quarter of the previous fiscal year, so it can be seen as
recovering a little. In the fourth quarter of fiscal 2018. the cost including disposal of facilities was about 600
million yen.
In the first quarter under review, gains of roughly 840 million yen on the sale of land were recorded. We use
IFRS from the fiscal 2018. Under IFRS, such items are included in operating profit, so in reality, the operatingprofit margin for the fourth quarter of the previous year was about 13.3% when roughly calculated. For thefirst quarter, 18.9%, but it is down about 3 points to 15.9%. I think that this kind of recognition needs to bemade.
Unfortunately, if sales are approx. 28 billion yen, the 20% of operating profit margin that we consider to be
the minimum cannot be achieved.
As for the sale of land, we have lands in Shimomaruko, Komaoka in Yokohama and Narashino, where we hada factory or which we had used as parking lots. We are trying to steadily remove such assets that are notdirectly linked to businesses and working to streamline them.
From fourth quarter to first quarter, sales for automotive have been sluggish a little, and the effects of thishave also begun to emerge a little.
Regarding general industrial, it seems fairly drastic. We are affected by the overall demand and order decline
for general industrial.
Recently, we have begun to receive orders a little more from the fourth quarter. At this point, however, it isdifficult to see whether orders will recover in the second half of this fiscal year. We are very troubled, but thisis the situation.
It is true that this year's announced figures have been left unchanged. As you know, the impact of the US‐
China relationship and Japan‐South Korea relationship on business is extremely uncertain at this point.
Since last weekend, the yen has been approaching 106 yen. That's why we are not yet able to grasp the impact.
In reality, we are presenting many new products and connectors for automotive and general industrial, andwe have received inquiries. However, it is still unclear how the base load, which is affected by economicconditions, will move.
As a result, this figure has been left unchanged in the first quarter. I think a review may be carried out in earlyNovember at the time of the Second Quarter settlement of accounts.
However, basically, as our president Ishii mentioned last time, the basic strategy to grow our consumer
relations, automotive, and general industrial over the medium term will not change. We are looking at thetiming when the results of the strategy will emerge.
Third, as for measures to improve business performance, I feel that the figure of 28.2 billion yen in the firstquarter was a little short of our expectations.
About 30 billion yen was our expectation, but this was the situation. Amid increasing uncertainty, we have totighten our policies internally as well. There are various measures, including personnel expenses. I would liketo refrain from specifically talking about it today, but we have been working to strengthen automotive byoffering executive allowance and cost of business trips, and career recruitment. I believe that we should revise
this once.
In addition, IT‐related investments have been outsourced, so we are also looking forward to reviewing theseareas.
At the same time, there is a surge in logistics costs in many areas. There are still many things we carry byairlines, so we are going to consider whether part of products will be shipped or how to deliver for small‐lot
products. Naturally, we are doing direct reductions in the cost of materials.

Looking at the first quarter, the capacity utilization rates of domestic and overseas factories have declined.
This is particularly true at overseas plants, so we would like to review expenses, personnel, and othermeasures.
We have been reducing equipment costs and making further use of existing equipment, for both fixed andvariable costs, but we have decided to redouble these efforts once more.
In addition, over the past few years, we have significantly increased our investment in human resources andequipment by shifting our focus to automotive and general industrial. It is true that fixed costs are rising
compared to the past. This is basically what we had assumed from the outset, but we will look back again at
this point.
We intend to carefully sort out the various investment recovery plans, which seem to be slightly delayed, andin short, the sales that we originally looked at have not been successfully achieved, and to examine the causes
and countermeasures.
Automotive‐related businesses require capital expenditures, so we would like to operate by further organizing
the initiatives in areas of production technology and manufacturing.
The number of micro connectors used in smartphones has increased by about two times over the last fiveyears. However, the increase in sales is about 1.4 times. It is true that prices are becoming more severe. We
intend to further reduce costs and expand sales of micro connectors such as those developed for smartphones,
thereby actively promoting sales of consumer products.
Fourth, I would like to talk about a little about corporate governance. Also, for many other companies, I think
there were many cases in which shareholders voted against the top management on the agenda for theappointment of directors at this year's general meeting of shareholders.
Although we had been opposed by a few percent in the past, we received nearly 20% in the current fiscal year.
As we have many foreign investors and many shareholders, it has become clear that there are many
shareholders who voted against the Board of Directors, with regard to the ratio of outside directors and theappointment of female executives. We would like to make preparations for this issue in a way that will
increase the number of votes in favor of us as much as possible for the coming year.
This was a very rough explanation, but one of the reasons why you are coming today is that the business ofHirose Electric is highly profitable in the face of a challenging business environment. We would like to makecontinued efforts to recover as much as possible. So, I would like to conclude my brief explanation. Thank youvery much.
Suzaki: We would like to accept your questions, but before that, we would like to introduce one point to you.
The IR Department has changed its structure in July, and the number of employees has been increasing. So,
we will introduce a new member. Nagoya.
Nagoya: I joined the IR Office of the Administration Division. Thank you for your support.

Disclaimer

In this material, there are descriptions based on current estimation by Hirose Electric.
Hirose cautions you that a number of important risks, uncertainties and others could cause actual results todiffer materially from those discussed in the *forward‐looking statements. Thank you for your understanding.

*Forward‐looking statements include, but are not limited to, those statements using words such as “believe,”“expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “may” or“might” and words of similar meaning in connection with a discussion of future operations, financialperformance, events or conditions. These statements are based on management’s assumptions and beliefs inlight of the information currently available to it.