KAGA ELECTRONICS CO.,LTD.

Looking at the global economy during the first half of the consolidated fiscal period under review, a gradual recovery was observed in the U.S., including growth in personal consumption and capital investment. However, the outlook remained uncertain given such circumstances as continued sluggish real estate market in China, escalating tensions in the Middle East, and sharp fluctuations in exchange rates. Meanwhile, in Japan, despite the impact of price increases, the economy continued to follow a gradual recovery trend, supported by a rebound in personal consumption against the backdrop of improvement in employment and income environment.
In the electronics industry to which the Group belongs, demand related to automotive applications remained robust on the back of vehicle electrification, while in applications related to industrial equipment, inventory adjustments showed signs of moderation. In some areas, including applications related to air-conditioning equipment, an inventory adjustment phase continued.
Under such circumstances, during the first half of the consolidated fiscal year under review, net sales decreased by 5.8% year on year to 259,064 million yen and gross profit decreased by 2.9% year on year to 34,133 million yen, due to such factors in the electronic components business as the impact of inventory adjustments and diminution of transactions with a certain major customer of an overseas subsidiary. Nonetheless, because the said transactions with a certain customer were comparatively low in profitability, gross profit margin improved by 0.4 percentage points year on year. Operating income decreased by 17.1% year on year to 11,501 million yen. In addition to a gross profit decline, the decrease was also attributable to an increase in selling, general and administrative expenses resulting from such factors as an increase in personnel expenses resulting from wage increases implemented during the period under review and rising logistics costs. Ordinary income decreased by 19.1% year on year to 11,278 million yen, due partly to the impact of foreign exchange gains and losses. Profit attributable to owners of parent decreased by 30.4% year on year to 7,941 million yen, partly reflecting the absence of 1,074 million yen in gain on sale of investment securities and 481 million yen in gain on bargain purchase both recorded in the same period of the previous fiscal year.

Segment summary

(a) Electronic components (Development, manufacture and sale of semiconductors, general electronic components and other products, the electronics manufacturing service (EMS*¹), and other activities)
In this business, the components sales business enjoyed robust sales of SoC*² products by Kaga FEI Co., Ltd., but overall, business was slow due largely to the impact of inventory adjustments at key customers and diminution of transactions with a certain major customer of an overseas subsidiary of Excel Co., Ltd. As a result, net sales and income both recorded decreases. In the EMS business, net sales and income increased due to strong sales in automotive sector and recovery in industrial equipment sector. Sales to the air conditioning equipment sector also started to show positive signs of recovery beginning in the second quarter, despite being affected by inventory adjustments at major customers.
As a result, net sales decreased by 6.9% year on year to 225,866 million yen, and segment income decreased by 26.4% year on year to 8,679 million yen.
Note: 1. Electronics Manufacturing Service: Provision of product development and manufacturing services on an outsourcing basis.
2. Abbreviation for System on a Chip. A design technique of integrating all the functions necessary for operation of a device or system on a single semiconductor chip.

(b) Information equipment (Sales of PCs, PC peripherals, home electric appliances, photograph and imaging products, original brand products, and other products)
In this business, the PC sales business saw continued strong sales of PCs for educational institutions, in contrast to sluggish sales of PCs for mass retailers due to a reduction in product lines by a major PC supplier. Additionally, the LED installation business faced a decrease in net sales given completion of the large-scale project that the Group had been pushing forward on a full scale since the fiscal year ended March 2023. Income margin, however, improved due partly to robust sales of security software with its comparatively high profit-margin.
As a result, net sales decreased by 10.1% year on year to 18,633 million yen, and segment income increased by 8.7% year on year to 1,392 million yen.

(c) Software (Production of computer graphics, planning and development of amusement products, and other activities)
In this business, orders for computer graphics production remained generally steady. Net sales increased by 20.1% year on year to 1,471 million yen, and segment income increased by 127.2% year on year to 256 million yen.

(d) Others (Repair and support for electronics equipment, and sales of amusement equipment and sports goods, and others)
In this business, the PC product and PC peripheral recycling business remained strong, as did sales of amusement equipment and sporting goods. Net sales increased by 24.2% year on year to 13,093 million yen, and segment income increased by 75.6% year on year to 1,094 million yen.

Summary

During the first quarter of the consolidated fiscal period under review, net sales decreased by 6.6% year on year to 128,638 million yen, due to such factors in the electronic components business as the impact of inventory adjustments at key customers which emerged from the second half of the fiscal year ended March 2024, as well as diminution of transactions with a certain major customer of an overseas subsidiary.
Gross profit was generally at the same level year as the same period of the previous fiscal year despite a net sales decrease notably in the electronic components business, down 3.3% year on year to 16,980 million yen, with gross profit margin improving by 0.5 percentage points year on year, reflecting improved sales mix resulting from a reduction in sale of lower-margin products. Operating income decreased by 20.6% year on year to 5,550 million yen. In addition to a gross profit decline, the decrease was also attributable to an increase in selling, general and administrative expenses resulting primarily from wage increases implemented in April 2024 for the Group’s employees in Japan. Ordinary income decreased by 12.5% year on year to 6,045 million yen, due partly to the impact of foreign exchange gains and losses.
Profit attributable to owners of parent decreased by 28.4% year on year to 4,127 million yen, partly reflecting the absence of the 1,065 million yen gain on sale of investment securities recorded in the same period of the previous fiscal year.
In the earnings assumption for the fiscal year ending March 2025, the impact of inventory adjustments at key customers is carefully factored into our assumption of a decrease in both net sales and incomes in the first half, and an increase in net sales and incomes in the second half reflecting recovery from such adjustment phase. In line with this scenario, performance got off to a good start in the first quarter under review.

Segment summary

(a) Electronic components (Development, manufacture and sale of semiconductors, general electronic components and other products, the electronics manufacturing service (EMS*1), and other activities)
In this business, the components sales business enjoyed robust sales of SoC*2 products by Kaga FEI Co., Ltd., but overall, business was slow due largely to the impact of inventory adjustments at key customers which emerged from the second half of the fiscal year ended March 2024, and diminution of transactions with a certain major customer of an overseas subsidiary of Excel Co., Ltd.
In the EMS business, although sales in applications related to air-conditioning equipment were affected by inventory adjustments at key customers, net sales turned upward on the back of solid sales in the automotive sector as well as sales recovery in applications related to industrial equipment.
As a result, net sales decreased by 7.2% year on year to 111,320 million yen, and segment income decreased by 26.9% year on year to 4,331 million yen.
Note: 1. Electronics Manufacturing Service: Provision of product development and manufacturing services on an outsourcing basis.
　　　2. Abbreviation for System on a Chip. A design technique of integrating all the functions necessary for operation of a device or system on a single semiconductor chip.

(b) Information equipment (Sales of PCs, PC peripherals, home electric appliances, photograph and imaging products, original brand products, and other products)
In this business, the PC sales business saw continued strong sales of PCs for educational institutions amid the season of high demand for newly enrolled students, in contrast to sluggish sales of PCs for mass retailers due to a reduction in product lines by a major PC supplier. Additionally, the LED installation business faced a decrease in net sales given completion of the large-scale project that the Group had been pushing forward on a full sale since the fiscal year ended March 2023.
As a result, net sales decreased by 12.0% year on year to 10,606 million yen, and segment income decreased by 14.4% year on year to 639 million yen.

Summary

In the electronics industry to which the Group belongs, the automotive market continued to enjoy demand growth along with easing of supply shortages of semiconductors and electronic components, on the back of vehicle electrification and other trends, but demand in the industrial equipment and other markets remained in an adjustment phase.

Under such circumstances, during the consolidated fiscal year under review, the electronic components business was affected by such factors as disappearance of spot demand given easing of supply shortages of semiconductors and electronic components, diminution of transactions with a certain client of an overseas subsidiary of Excel Co., Ltd., and inventory adjustment taking place on a full-scale from the third quarter of the consolidated fiscal year under review. As a result, net sales decreased by 10.8% year on year to 542,697 million yen.

Operating income decreased by 19.9% year on year to 25,845 million yen, with efforts made to reduce selling, general and administrative expenses in the face of a decline in gross profit due to lower net sales, while ordinary income decreased by 20.7% year on year to 25,976 million yen.

Profit attributable to owners of parent decreased by 11.8% year on year to 20,345 million yen, reflecting in part posting of extraordinary income that included 1,420 million yen in gain on sale of investment securities and 481 million yen in gain on bargain purchase associated with a corporate acquisition.

Segment summary

(a) Electronic components (Development, manufacture and sale of semiconductors, general electronic components and other products, the electronics manufacturing service (EMS*), and other activities)
In this business, the components sales business enjoyed robust sales of SoC*2 products by Kaga FEI Co., Ltd., but sales of semiconductors and electronic components in general were sluggish, affected by disappearance of spot demand given easing of supply shortages of semiconductors and electronic components that had continued for two consecutive years until the previous fiscal year, diminution of transactions with a certain client of an overseas subsidiary of Excel Co., Ltd., and inventory adjustment taking place on a full-scale from the third quarter.
In the EMS business, sales in the automotive sector increased due to improved supply and demand balance of semiconductors and electronic components, whereas sales in applications related to medical and industrial equipment decreased due partly to investment adjustment at key customers.
As a result, net sales decreased 12.4% year on year to 472,583 million yen and segment income decreased 26.2% year on year to 20,887 million yen.
Note: 1. Electronics Manufacturing Service: Provision of product development and manufacturing services on an outsourcing basis.
2. Abbreviation for System on a Chip. A design technique of integrating all the functions necessary for operation of a device or system on a single semiconductor chip.

(b) Information equipment (Sales of PCs, PC peripherals, home electric appliances, photograph and imaging products, original brand products, and other products)
In this business, net sales remained robust with continued strong sales of PCs for educational institutions and security software, although sales of PCs for mass retailers struggled due to weak demand. In the LED installation business, sales of a large-scale project that the Group started pushing forward on a full scale in the previous fiscal year contributed.
As a result, net sales increased 1.4% year on year to 44,305 million yen and segment income increased 19.4% year on year to 2,924 million yen.

(c) Software (Production of computer graphics, planning and development of amusement products, and other activities)
In this business, orders for computer graphics production remained generally steady. Net sales decreased by 14.4% year on year to 2,567 million yen while segment income increased by 29.0% year on year to 370 million yen, attributable partly to the effect of containing cost of sales through operational efficiency improvement and other efforts.

(d) Others (Repair and supports for electronics equipment, manufacture and sales of amusement equipment, and sales of sports goods, and other activities)
In this business, the PC and PC peripheral recycling business remained strong, and so did sales of amusement equipment and sporting goods. Net sales increased by 5.4% year on year to 23,241 million yen, and segment income increased by 41.2% year on year to 1,555 million yen.

Summary

Segment summary

(a) Electronic components (Development, manufacture and sale of semiconductors, general electronic components and other products, the electronics manufacturing service (EMS*), and other activities)
In this business, the component sales business attracted a high level of sales in a broad range of industries, in part due to the improved supply/demand conditions for semiconductors and electronic components from the second half of the fiscal year, which remained tight. Some products for automotive-related applications are facing supply shortages, but the Company mobilized its abilities and secured sales volume by using its strength in procurement capabilities as an independent trading company as well as proposing alternative products.
In the EMS business, sales in the automotive sector grew significantly and sales to key customers in applications related to medical and office equipment remained strong. The yen has been weak since the start of the fiscal year, and this pushed up revenue on a yen basis.
As a result, net sales increased 24.3% year on year to 539,342 million yen and segment income increased 56.4% year on year to 28,314 million yen.

(b) Information equipment (Sales of PCs, PC peripherals, home electric appliances, photograph and imaging products, original brand products, and other products)
In this business, sales of PCs for corporations and educational institutions were sluggish on a unit basis due to the prolonged replacement cycle but performed well on a value basis thanks to sales of high-end products. Sales of PC peripheral products such as security software also remained solid. In the LED installation business, the installation of large-scale nationwide projects, which had been delayed due to material shortages, made steady progress and contributed significantly to operating revenue.
As a result, net sales increased 10.3% year on year to 43,680 million yen and segment income increased 17.4% year on year to 2,449 million yen.

(c) Software (Production of computer graphics, planning and development of amusement products, and other activities)
In this business, orders for large-scale and new projects in smartphone games development and computer graphics production recovered, and the profitability of the business improved as a result of progress in cost reductions.
As a result, net sales increased 8.3% year on year to 2,998 million yen and segment income was 286 million yen (segment loss was 26 million yen in the same period of the previous year).

(d) Others (Repair and supports for electronics equipment, manufacture and sales of amusement equipment, and sales of sports goods, and other activities)
In this business, the PC and PC peripheral recycling business was strong. In addition, sales of game equipment for the amusement industry in Japan and overseas as well as golf products were robust, in part due to the relaxation of restrictions on movement during the pandemic.
As a result, net sales increased 12.5% year on year to 22,044 million yen and segment income increased 76.0% year on year to 111 million yen.

summary

During the consolidated fiscal period under review, conditions remained harsh for the Japanese and overseas economies due to a global supply shortage of semiconductors and other products, stalls in the international distribution network, and the resurgence of COVID-19 cases due to variants. However, economic activity recovered due to progress in vaccination campaigns and the relaxation of restrictions on movement, and there were signs of improvements in capital investment and manufacturing activity in the manufacturing industry overall as well as in personal spending.
In the electronics industry to which the Group belongs, demand for semiconductors and electronic parts expanded in a wide range of fields, including automotive, medical equipment and industrial equipment. Manufacturing could not keep up with the higher demand for some electronic parts, leading to ongoing supply shortages, and unit prices were also increased. However, demand remained robust on the back of a recovery in manufacturing activity.
In these conditions, the electronic components business, which is the Group’s core business, addressed customer requests from various industries in advance, pursued sales activities that leveraged its strengths as an independent trading company, and gave the highest priority to securing sales volume. As a result, the Group’s net sales in the fiscal year under review totaled 495,827 million yen, up 17.4% year on year.
In terms of income, the Company’s continued efforts to facilitate telework and take other workstyle reform measures in the midst of the COVID-19 pandemic while also controlling operating costs, combined with an increase in gross profit due to higher net sales and an improved gross profit margin, led to an 82.4% year-on-year increase in operating income, to 20,915 million yen, and a 90.9% increase in ordinary income, to 21,456 million yen. Despite the absence of the 7,963 million yen “gain on bargain purchase” posted as extraordinary income following a corporate acquisition in the previous fiscal year, profit attributable to owners of parent increased 35.1% year on year, to 15,401 million yen, due to a significant increase in ordinary income.
Net sales reached the highest level in two fiscal years, since the fiscal year ended in March 2020, operating income and ordinary income reached record levels for the third straight year, and profit attributable to owners of parent did so for the second straight year
The Accounting Standard for Revenue Recognition (ASBJ Statement No. 29, March 31, 2020), etc. was applied from the beginning of the current fiscal year . This lowered net sales in the current fiscal year by 6,060million yen. For details, refer to “４. Consolidated Financial Statements and Major Notes (5) Notes to consolidated financial statements (Changes to accounting policies).”

Segment summary

(a) Electronic components (Development, manufacture and sale of semiconductors, general electronic components and other products, the electronics manufacturing service (EMS*), and other activities)
In this business, despite prolonged constraints on the supply of semiconductors and electronic parts, strong sales continued in the component sales business throughout the period as a result of previously capturing demand from customers in a wide range of industries. Furthermore, the Company leveraged the strength of its procurement capabilities and knowledge as an independent trading company to enable it to maintain widespread sales quantities, which also boosted revenue in this business. In addition, steady progress in PMI at acquired companies such as KAGA FEI Co., Ltd., and EXCEL Co., Ltd., contributed to profit growth in this business.
In the EMS business, the automotive, industrial equipment, and medical sectors in particular continued to see strong performance. Although lockdowns to combat the spread of COVID-19 and production line stoppages due to a shortage of electronic parts occurred at some plants, the Company endeavored to mitigate their impact by implementing thorough process control through close cooperation with customers’ plants and other measures.
As a result, net sales rose 22.7% year on year to 433,852 million yen and segment income increased 122.1% year on year to 18,107 million yen.

(b) Information equipment (Sales of PCs, PC peripherals, home electric appliances, photograph and imaging products, original brand products, and other products)
In this business, sales of PCs for educational institutions and PC peripherals such as security software remained strong, but sales of PCs to corporations were sluggish due to the winding down of demand associated with the shift to remote work and the impact of product supply difficulties attributable to a shortage of electronic parts. In addition, the impact of difficulties in procuring equipment, products, and materials and delays to construction work resulting from late deliveries were also felt in the equipment installation business for LED lighting, network devices, and other, which led to disappointing results.
As a result, net sales decreased 18.1% year on year to 39,616 million yen and segment income decreased 16.0% year on year to 2,085 million yen.

(c) Software (Production of computer graphics, planning and development of amusement products, and other activities)
In this business, demand for computer graphics production for smartphone games was solid on the back of stay-at-home demand during the pandemic, but profitability worsened due to an increase in development costs and other resulting from efforts to meet delivery deadlines.
As a result, net sales decreased 5.6% year on year to 2,767 million yen and segment loss was 26 million yen (segment income was 263 million yen in the same period of the previous year).

(d) Others (Repair and supports for electronics equipment, manufacture and sales of amusement equipment, and sales of sports goods, and other activities)
In this business, the PC and PC peripheral recycling business was strong, as demand for reused and recycled products increased amid continuing supply difficulties for PC products due to the shortage in electronic parts.
As a result, net sales increased 11.4% year on year to 19,590 million yen and segment income increased 32.0% year on year to 626 million yen.
（*）Electronics Manufacturing Service: Provision of product development and manufacturing services on an outsourcing basis

Summary

Segment summary