HIROSE ELECTRIC CO., LTD.
Q3 Financial Results Briefing for the Fiscal Year Ending March 2020
February 6, 2020

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

[Event Type]Earnings Announcement[Event Name]

Q3 Financial Results Briefing for the Fiscal Year Ending March 2020

[Fiscal Period]

FY2019 Q3[Date]

February 6, 2020

[Time]

10:30 – 11:31(Total: 61 minutes, Presentation: 38 minutes, Q&A: 23 minutes)[Venue]4F Tekko Conference Room 2+3+4
Tekko Bldg., 1‐8‐2 Marunouchi
Chiyoda‐ku, Tokyo, 100‐0005[Venue Size]

349 m2[Number of Speakers]

2
Hiroshi Fukumoto

Corporate Board Director, Group President,
Administration GroupManager, IR Office, Administration Group

Hideo Suzaki

1Presentation
Suzaki: Good morning. We will start the briefing on HIROSE ELECTRIC CO., LTD.'s financial results.
We sincerely thank you for your attendance today. This is Suzaki from the IR Office of HIROSE ELECTRIC CO.,LTD. Today, I will serve as moderator.
First of all, we’d like to confirm the materials we distributed at the reception. On the top is today's briefing
material. A press release and a summary of financial results released yesterday on the Tokyo Stock Exchange
are included below. It consists of three parts. If anything is missing, we will provide them right away, so pleasecheck.
The English version of today's briefing materials will be later disclosed on our website as well as on the Tokyo
Stock Exchange, but we have a few copies available at reception so, if you need them, please receive them at
the reception desk when you leave.
Now we will start.

2

The first three pages provide an overview of our business.
As cumulative results for the third quarter, orders amounted to JPY93.43 billion, a YoY decrease of 4.1%. Sales
were JPY91.53 billion, down 4.6% YoY. Operating profit was JPY16.21 billion, down 18.9% YoY. The profit
margin was 17.7%. Sales and profits both declined.
From the overview by application,regarding the general outcome of the third quarter, trends in the second
quarter carried on. I will elaborate on the details when I walk you through each business.
Overall, the US/China trade friction led to the deterioration of the landscape from spring through May andJune, and a feeling of stagnation persists with the slowdown of the Chinese economy and poor results in
automobile sales. These factors were behind the decrease in sales and profit.
As for sales to the industrial market, although the downward trend that has continued since the latter half ofthe previous fiscal year is coming to a halt, it is taking time to recover. The third quarter was also slightly
weaker than originally anticipated. The cumulative result is a YoY decrease of 19%.
With regard to sales of smartphones, although third quarter results declined from the second quarter, it hasremained at a fairly high level. We saw a 5% YoY increase.
As for sales to automotives, sales of existing products have continued to decline due to sluggish sales ofautomobiles themselves. We are proceeding with the launch of new products as planned, and sales of suchproducts are mostly in line with the plan, but with the decline in existing products, sales were almost
unchanged YoY, with an increase of 1%.

3

I will proceed with a little more explanation with some graphs. First of all, both orders and sales remained flat
overall. As shown in the graph with the previous year as 100, the result is 100 in sales and 99 in orders received.

4

Next is for smartphones. This index dropped from 123 in the second quarter to 109 in the third quarter. We
had originally expected that figures would fall in Korea, and China would be past peak, as a seasonal tendency.
In a sense, if we add the second quarter and third quarter, we have been proceeding at high levels in thecurrent fiscal year.

5

Next is Automotive. Recovery is weak in the aspect of sluggish sales of automobiles themselves. At first glance,
the third quarter seems to show a recovery trend, but we had been hoping it to be a little higher. In that sense,
it was a little disappointing.

6

Lastly for industrial machinery. We feel that sales have bottomed out. Sales are not all bad and some orders
are turning around.. In the industrial machinery industry as a whole, the sense of recovery has yet to berealized. It has hit bottom, but has continued to be flat.
We do not disclose the order numbers so, just as an impression, we feel that orders are heading in a better
direction compared to sales. Although we do not see a strong return, we are seeing signs of recovery.

7

This is the income statement. The cumulative sales of the third quarter were JPY91.53 billion. This represents
a YoY decrease of 4.6%, or JPY4.46 billion. Operating profit was JPY16.21 billion, a profit margin of 17.7%, anda YoY decrease of 18.9%, or JPY3.78 billion. Income before taxes and net profit were JPY16.92 billion and
JPY11.98 billion, respectively. The balance of total assets is JPY344.19 billion, and I will discuss this in moredetail with the balance sheet later on.
Then, as written on the bottom right, the cost of flood damage in Koriyama. Approximately JPY1.01 billion
was actually recorded in this third quarter. This is mainly about our plant, Koriyama Hirose, in Koriyama City,
Fukushima Prefecture. It is close to the Abukuma River, where the riverbank collapsed. The first floor of theplant was immersed in a little over one meter of water.
The water withdrew quickly in one or two days, but there were production facilities on the first floor as wellas building, machinery for elevators and air‐conditioning systems, which were flooded. In particular, anythingthat uses motors became unusable. Therefore, the Company has posted a considerable loss on retirement ofequipment, which accounts for a significant portion of this JPY1 billion.
We did not have such a large amount of inventory, so it was not that large. In addition, there are some costs
and expenses. I would like to explain this again later. As stated in the notes in yesterday's financial results,
insurance coverage is to be provided.
We have already provided the insurance company with property and casualty‐related documents, so theyshould be finalized within this fiscal year. However, in the third quarter, the compensation amount is notincluded in the income statement. This is currently under discussions. Therefore, it is expected that about thesame amount will be recovered.

8This table summarizes changes in each major item. Sales declined by JPY4.46 billion, but on a non‐consolidated
basis it was JPY4.39 billion. The number of subsidiaries remained almost unchanged.
The cost of sales ratio worsened by 2.1 percentage points and the purchase cost ratio was slightly worse. Thisis because the sales of industrial machinery was decreased than expected due to the impact of the mix. Thisis largely due to changes in the mix.
The Company's depreciation expense ratio has risen since last year. Rather than worsening, we have been
making upfront investments in the automotive business, and we have an awareness of the situation and is asplanned.
As for selling, general and administrative expenses, although the ratio has worsened by 0.8 percentage points,
the amount has decreased by JPY380 million from the previous year.
With regard to the financial balance, since the yen has been appreciating this fiscal year compared to theprevious fiscal year, it is worsening this year.

9Next, the changes are listed with some more numbers. The impact of the exchange rate was JPY2.93 billion
on sales and JPY1.2 billion on operating profit. As I mentioned earlier about the depreciation expense ratio,
the increase in depreciation expenses affected the operating profit by about JPY1 billion.
In terms of volume, the impact was about JPY1.5 billion on sales and JPY700 million on profit , and became anegative factor for profit.
The profit from the sale of land, as explained in the financial briefing for the first quarter, is JPY840 million
this fiscal year. This is a one‐time factor for the current fiscal year.
As mentioned earlier, the flood damage in Koriyama had an impact of JPY1.01 billion on operating profit.
There is a JPY1 billion reduction from a third quarter point of view , but we factored in the prediction that thiswill be recovered in the fourth quarter.

10

This shows just the effects of exchange rates. As mentioned earlier, the yen's appreciation against the US
dollar, euro, South Korean won, and other currencies led to a decrease of JPY2.93 billion in sales, a decreaseof JPY1.21 billion in operating profit, and a JPY1.86 billion decrease in income before taxes.

11Next, the sales and profits by quarter are shown in the graph. For the third quarter only, sales are JPY31.26
billion, operating profit is JPY4.68 billion, and the profit margin is 15%. Excluding the JPY1 billion impact from
Koriyama, the rate will be in the 18% range, which is our actual perception.

12

This is the balance sheet. There has been no significant change in the trend, but since the comparison is madewith the beginning of the fiscal year or end of March, cash has been reduced through the payment of interim
dividends. Trade receivables have increased slightly. In terms of tangible fixed assets, there is an increase
where it says “second building of Kikuna office”, where we are expanding the mold development facility.
From this fiscal year, we have adopted IFRS16, or so‐called lease accounting, and assets and liabilities havebeen recorded accordingly.

13

The following page shows liabilities and net assets. Items increased this fiscal year are due to lease accounting.

14

Next, I will discuss trends by field. As I mentioned at the beginning, sales of industrial machinery applications
declined 19% from the previous year, sales for smartphones are up 5%, and sales for automotives are up 1%.
Production of digital consumer electronics tends to be still strong. Although we have not disclosed any figures ,it is actually doing well, about 30% higher on a YoY basis. This trend has remained unchanged from the second
quarter.

15

This is the breakdown of sales by application. This structure is roughly the same as that of the second quarter.
The portion of industrial machinery has fallen from 35% in the previous fiscal year to 30%, down by about five
points. Meanwhile, digital consumer electronics rose to 11%.
I forgot to mention about digital consumer electronics. In the past, this category was driven by digital cameras,
televisions, and so on, but, recently, the earphones and speakers produced in China have been very strong,
as consumer items that connect to smartphones are doing very well, especially among young consumers.
We have benefited from the wide range of orders we receive from top makers. Some of our products originallydeveloped for smartphones are directly being repurposed. This is a good business for us, and customers areable to obtain relatively new products at a low price. We have benefited from this.

16

Next is the overseas ratio. The sales ratio increased from 72% in the previous fiscal year to 74%. The
production ratio has risen from 42% in the previous fiscal year to 46% in the third quarter, so both sales andproduction are rising. This is because the ratio in South Korea is rising. In particular, production is increased
for micro connectors for smartphones and products for the consumer market. We are increasing the
production of HIROSE KOREA CO., LTD., our subsidiary in South Korea.

17

Next is equipment and depreciation. The right‐hand side of the graph shows the cumulative total for the third
quarter: JPY13 billion for capital investment and JPY10.6 billion for depreciation. As a supplement to the above,the cumulative R&D expenses for the third quarter totaled JPY9.2 billion.
The annual forecasts for equipment and depreciation are unchanged from the initial forecasts. There is nochange from the second quarter, either. In general, it is being carried out in accordance with the plan.
However, we invested in equipment with some concentration on the third quarter. JPY4.2 billion was used ascapital investment in the third quarter.
This larger figure is due to replacing the equipment to restore Koriyama. Since we have completed the process
to some extent, we believe that fourth quarter will return to a regular level, and the full‐year total will bewithin JPY17.5 billion.
Annual depreciation is projected at JPY14 billion yen. We might exceed it slightly, but it should be roughly inline with our expectations.
There are no changes to the plan for R&D expenses, which are expected to total JPY13 billion.

18

Finally, regarding the annual forecast, there are no changes from the announcement made in November
based on the second quarter. We plan to achieve sales of JPY125 billion, an operating profit of JPY22 billion,
and a profit margin of 17.6%.
With regard to the annual forecast for the exchange rate, as we are seeing a trend of a slightly weaker yen,
our assumption is 108.75 yen to the dollar. The euro and South Korean won assumptions are listed here.

19That’s the end of the main presentation, but we have one more topic on the next page.
Our product has won a CES 2020 Innovation Awards. As you know, CES is the annual Consumer Electronics
Show held in Las Vegas around early January. Recently, it is well known that the automobile‐related products
are boasting a strong position.
These awards are given every year, and this time we won awards in two categories: the Vehicle Intelligence& Transportation category with FX26. This is a floating board‐to‐board connector for internal connection in
the powertrain of automobiles. We released it last year, but we believe that sales will grow in the future,especially with the spread of EVs.
Another is the multi‐RF board‐to‐board connector for 5G smartphones called BM46, which was awarded in
the Mobile Devices & Accessories category. As the number of 5G smartphones is due to increase, we believethat our early response was appreciated. We are very grateful for the recognition.
Especially, the CES award itself is rather focused on the set side, so we are very thankful that we were able towin with our components.
I will conclude my presentation. Now Fukumoto, head of the Administration Group, will continue to provide
our general outlook and several topics.
Fukumoto: Good morning. This is Fukumoto from the Administration Group. We sincerely thank you forvisiting us today.
From a number of perspectives, I am pleased to talk about FY2019, which has about two months left.

20First is the business environment. Our three pillars are automotives, industrial machinery, andsmartphones/consumer products, and we are making a variety of efforts to achieve medium term growth.
As you are aware of, the slowdown of the Chinese economy, US/China trade friction, and poor sales ofautomobiles have led to a rather unfavorable performance for automotive and industrial applications. For
smartphones and consumer devices, we are doing relatively steady, with a variety of applications of our microconnectors, and we are in the process of moving forward.
On the other hand, although this is not just about HIROSE ELECTRIC CO., LTD., it has been a year in which wewere reminded very strongly that different things happen in the environment surrounding the Company. Until
the first half of the fiscal year, there was a sense that we could carry on normal operations, in order to reachour goal.
As mentioned earlier, in October, Koriyama suffered flood damage due to typhoon No. 19 / Hagibis. We
incurred costs in excess of JPY1 billion in its wake. We have incorporated these costs into the third quarter's
financial results and, as a result, nominal operating margin is 15%. Excluding this, the rate is 18.2%, which isstill not the level of profitability we are aiming for. But we still have 18.2% worth of underlying earning power.
In fact, the damage caused in Koriyama has largely been restored, and normal operations resumed at the endof last year. But many things of this kind happened.
And, in November and December, as you are well aware, while media coverage seems to have declined
recently, but there were a series of demonstrations in Hong Kong. We also have a sales company or an IPO
base in Hong Kong, and demonstrations have been held near the office, causing employees to stay away fromthe office and work from home. We had to take various measures to address this issue.
And, in January, as you know, the new coronavirus has been spreading. We have manufacturing bases andsales offices in China and Hong Kong. As instructed by the Chinese authorities, we have extended the Chinese
New Year leave and are scheduled to resume operation from February 10.
So far, the top priority has been placed on the health and safety of employees and their families. For theforeseeable future, the Japanese government has restricted visits between Japan and China, or between ouroverseas bases and China.
So many things happen, it no longer makes sense to say what was unexpected. It is, therefore, crucial for acompany to adapt to these various changes. We will continue to enhance our risk management andresponsiveness so as not to miss any big risks.
For the Koriyama plant, this kind of flood occurred 33 years ago, and the plant experienced floods. It may
happen once every few years. We are considering various measures to be taken, which we would like to sharewith you at an opportune time.
In addition, even in Japan, there may be incidents where employees cannot come to the office for a variety ofreasons. This is also true for overseas sales companies and manufacturing bases, and we are finally setting up
remote work environments. We also want to be able to respond to unexpected situations.
As the third point, the engine with which Hirose grows and improves productivity remains throughdevelopment and manufacturing capabilities.
We held technology exhibitions last October and November in Tokyo and Osaka. The event proved a big
success with a total of 6,700 visitors. This number surpassed last time’s visitor count, and I believe very
passionate discussions took place between our junior engineers and our customers’ engineers and members

21

of the purchasing department. I also feel that we have been able to have our development and technologicalcapabilities recognized again by our customers.
About the CES Innovation Awards. Fortunately, we were able to win the award for the two connectors thistime. I believe this was also the result of our technological and development capabilities and our ability todevelop products in line with the needs of our customers.
I think the main focus of the awards is sets for consumers. This may be one example that our development
and technological capabilities were recognized in this context.
Talking about strengthening our development and manufacturing capabilities, we have Production
Techniques Department and they have recently joined the Engineering Group , which is in charge ofdevelopment. Strengthen development and manufacturing, and accelerate it. We are working to do this.
This change took place just last October, and we are yet to see immediate results. But, going forward, we feelthe need to further strengthen our development capabilities and manufacturing capabilities and accelerate
this progress.
I forgot to mention one point. I assume many of you would like to ask about the impact of the new coronavirus
on business performance. Unfortunately, our sales companies and manufacturing companies are currently
closed. Our customers are also closed, and there are very few exchanges between our customers and us at
this moment. Moreover, the supply chain is very complex, so it is not yet clear what kind of impact willmaterialize.
Therefore, we are currently in a situation where we can’t comment on this. We will continue to investigate
the impact. If operations start on February 10 as planned, the impact will be very small. However, if it isextended further by one or two weeks, or a month, there will be some impact.
In any event, the impact has not been included in the earnings forecast for the current fiscal year because thenumbers are not clear at this point in time. I’d like to reiterate this point.
Another topic is in the area of corporate governance. We decided to establish the Nomination andCompensation Committee to enhance fairness, transparency, and objectivity in the procedure for nominating
and rewarding directors and corporate auditors.
This is actually scheduled to be effective April 1. We will have four or more members of the committee, morethan half of whom will be independent outside directors or independent auditors. This is an advisory body,and the advised content will be the matter of board resolution.
In any case, this Compensation Committee is going to discuss various matters regarding appointment andretirement of directors and representative directors, or preparation of successors.
Apart from that, there is the question about the proportion of external directors going forward., We are also
considering the medium term capital policy we have promised since last year. The next financial results arescheduled to be announced on May 8, and the briefing to be held on May 11, so we will proceed so that it canbe reported on those occasions.
Over the past few years, the Company has generated sales around JPY120 billion, or less than JPY130 billion,
and margins of 18% or 17%, and we’d like to work on sales growth and profit recovery for sure.
In this context, as I’ve been repeating, we have to reinforce our development and manufacturing capabilities,
as well as our ability to respond swiftly. We need to further strengthen risk management and responsiveness.
That's also about strengthening corporate governance in a positive sense.

22

Having a workplace where employees are motivated and trained well is the lifeline of a company. Regarding
this aspect, we will continue to make steady efforts so we will make sure to achieve stable growth andimprove profitability over the medium term.

23

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, financial
performance, events or conditions. These statements are based on management’s assumptions and beliefs inlight of the information currently available to it.

24