■Performance Trends

1. Financial Summary for the Fiscal Year Ending March 31, 2024

The consolidated financial results for the fiscal year ended 2024/3 of NMS Holdings ＜2162＞ were sales down 7.8% from the previous fiscal year to 72,874 million yen, operating income up 22.8% to 1,888 million yen, ordinary profit up 10.1% to 1,570 million yen, and net income attributable to parent company shareholders, up 45.8% to 737 million yen. Sales fell far short of the initial forecast of 85,000 million yen and the revised forecast of 77,000 million yen due to the effects of a global economic slowdown and production adjustments by major customers, but operating profit exceeded the initial forecast of 1800 million yen, resulting in a significant increase in operating profit. Looking at each segment, both of the three main businesses saw a decrease in sales and profit compared to the previous fiscal year, but in particular, the improvement in the EMS business segment profit margin from 0.9% for the fiscal year ending 2023/3 to 1.7% for the fiscal year ending 2024/3, and the profit margin of the PS business also contributed greatly. In the EMS business, the effects of improving profitability by improving productivity and reviewing cost structures at major bases such as Vietnam, Mexico, and Malaysia were realized, and in the PS business, measures to improve productivity and reduction of component procurement costs contributed. There was also an impact of customer production cuts due to changes in the business environment, etc., and while the external environment was extremely severe, we were able to improve profitability through management efforts and achieve the operating profit planned at the beginning of the fiscal year.

Looking at earnings trends on a consolidated basis on a quarterly basis, the first quarter had sales of 18,565 million yen, operating income of 483 million yen, and the second quarter had sales of 17,709 million yen, and operating income of 14 million yen. In particular, in the second quarter, in addition to the temporary effects of consolidated adjustments between domestic and overseas subsidiaries, the impact of inventory adjustments due to declining operations of customers in Malaysia and China in the EMS business was greatly reflected, and profit levels declined drastically. Operating income showed steady improvement in the second half of the fiscal year, with sales of 18,407 million yen, operating income of 610 million yen, sales of 18,191 million yen in the fourth quarter, and operating income of 779 million yen.

2. Business Performance Overview

(1) HS business

Sales in the HS business were 22,695 million yen (down 2.4% from the previous fiscal year), and segment profit was 1,110 million yen (up 4.2% from the same period). Regarding the domestic business, although the sales growth rate was suppressed due to the impact of production adjustments of customers centered on automobiles/semiconductor-related products, implementation of infrastructure strengthening measures, such as improving the cost ratio through unit price negotiations and strengthening the management of appropriate sales and administration expenses, was promoted in terms of profit. Also, in overseas business, there were profit pressure factors such as the impact of production cuts due to customer inventory adjustments in China and education expenses due to acquisition of new orders in Vietnam, etc., but improvements in profitability progressed due to various infrastructure enhancements. Against this backdrop, sales for the segment as a whole declined slightly compared to the same period last year, but an increase in segment profit was secured.

(2) EMS business

Sales in the EMS business were 34,290 million yen (down 10.1% from the previous fiscal year), and segment profit was 575 million yen (up 74.1% from the same period). The same business is developing production activities in Malaysia, Vietnam, China, Mexico, etc., but sales declined due to the impact of inventory adjustments by major Japanese home appliance manufacturers in Malaysia, which have a large sales scale, and also due to the effects of economic changes and developments in China. Meanwhile, operating profit was able to improve drastically compared to the previous fiscal year, due in part to productivity improvements and cost structure reviews at bases. Looking at profit and loss on a quarterly basis, segment profit for the first quarter was steady at 242 million yen, but in the second quarter, segment loss was 107 million yen, resulting in a deficit as a segment. From the first quarter to the second quarter, air conditioner production by major Japanese home appliance manufacturers, which are customers mainly in China and Malaysia, fell drastically due to a decline in final demand and inventory adjustments (in particular, the impact of manufacturers leaving room for drastic production cuts due to cuts in subsidies for heat pumps in Europe is significant), and the company was also affected by this, and sales and segment profits fell. Meanwhile, segment profit for the third quarter was 85 million yen, and the fourth quarter was 354 million yen, and profit levels for the fourth quarter in particular improved significantly.

(3) PS business

Sales in the PS business were 15,888 million yen (down 9.8% from the previous fiscal year), and segment profit was 785 million yen (up 23.3% from the same period). Looking at profit and loss on a quarterly basis, the PS business accounts for copier manufacturers about 60% of sales, and since it is difficult to anticipate significant growth in the market itself, the company aims to improve profit margins by reducing costs and improving productivity. In the fiscal year ended 2024/3, although sales declined significantly from the previous fiscal year due to a decline in overseas demand and inventory adjustments, segment profit increased drastically compared to the previous fiscal year, and it is noteworthy that harvesting the effects of cost reduction and productivity improvement that the company is aiming for has been successful.

3. financial status

Total assets at the end of March 2024 were 35,976 million yen, down 2,956 million yen from the end of the previous fiscal year. Current assets were 26,178 million yen, down 3,842 million yen from the same period. This is mainly due to the fact that cash and deposits increased by 1,203 million yen, while notes receivable, accounts receivable, and contract assets decreased by 2,030 million yen, and inventory assets (total value of products, work in progress, raw materials, and stored goods) decreased by 3,376 million yen as sales declined, and recovery of working capital progressed. Fixed assets were 9,784 million yen, an increase of 899 million yen from the same period. While tangible fixed assets increased by 891 million yen, there were no major changes in investments, other assets, or intangible fixed assets.

Total liabilities decreased by 3,786 million yen from the end of the previous fiscal year to 32,631 million yen. Current liabilities were 29,219 million yen, an increase of 700 million yen from the same period. This is mainly due to the fact that notes payable and accounts payable decreased by 2,704 million yen, but short-term loans increased by 1,055 million yen, and since the redemption period for corporate bonds that were fixed liabilities was within 1 year, corporate bonds scheduled to be redeemed within 1 year were newly recorded as current liabilities by 2,000 million yen. Meanwhile, fixed liabilities declined significantly to 3,411 million yen, a decrease of 4,486 million yen compared to the end of the previous fiscal year. This is due to the fact that corporate bonds of 2,000 million yen were transferred to current liabilities as the repayment deadline was getting closer, and long-term loans decreased by 2,856 million yen. Total net assets increased by 829 million yen to 3,344 million yen. The capital adequacy ratio as of the end of 2024/3 was 9.3%, an improvement of 2.9 points from 6.4% as of the end of 2023/3. Also, as for interest-bearing debt, short-term loans are 16,288 million yen, corporate bonds scheduled to be redeemed within 1 year are 2,000 million yen, and long-term loans are 1,874 million yen, making the total interest-bearing debt 20,163 million yen. Interest payments of 739 million yen and amortization of corporate bond issuance costs of 13 million yen have been recorded, and the magnitude of the burden of payment of financial expenses cannot be ignored in relation to the company's profit level, and early reduction of interest-bearing debt and improvement of equity ratio will continue to be important issues for the company in the future.

In order to strengthen its financial base, the company is working on compressing excess inventory and shortening the cycle from purchase to collection while strategically securing parts. Additionally, investment scrutiny and various KPIs have been set, and various measures are being implemented to enhance financial soundness from the viewpoint of cash flow. Also, as the external environment changes rapidly, diversification of material procurement sources and support for exchange exposure compression are also being implemented. On the business side, in addition to strong needs, it is expected that profitability will increase due to steady implementation of infrastructure strengthening measures. I would like to hope that financial soundness will recover as profits accumulate.

(Written by FISCO Visiting Analyst Hiroki Nagaoka)