Nidec Corp Adr

Thank you very much for joining NIDEC conference call. My name is Abe, Chihara Abe, General Manager, Institutional Assets Department of Mitsubishi UFJ Morgan Study Securities. As we start this conference, I'd like to ask you to make sure all of the materials are ready in front of you. If not, please download the files on NIDEC's website right now. Please note this call is being recorded and the conference materials will be posted on NIDIC's website for the coming week for those investors and analysts who are not able to join this call. Now I would like to introduce today's attendees from NIDEC Corporation, Mr. Akinov Samura, Senior Vice President and Chief Financial Officer, and Mr. Masahiro Nagayasu, General Manager, Investor Relations. At first, Mr. Samura will make a presentation. After his presentation, he will move on to Q&A session and then Mr. Samura and then Mr. Nagayasu will answer your questions. Mr. Samura now presents NIDEX fourth quarter fiscal 2022 results, future outlook, and then management strategy. Mr. Samura, please go ahead.

Good day, everyone, and welcome to today's conference call. I'm Akinobu Samura, Chief Financial Officer of NIDEX. I'll be your main speaker today and answer your questions with the help of Mr. Hironari Novichi as an interpreter. Please see slide 3 for the fiscal year 2022 full year results. As shown on slide 4, net sales stood at the record high of 2,242.8 billion yen, 16.9% higher year-on-year. Operating profit decreased 41.3% a year to 100.1 billion yen due to structural reform expenses of 75.7 billion yen. Profit before income taxes decreased 29.1% a year to 120.2 billion yen. after foreign currency gain of 20 billion yen posted. Profit attributable to owners of parent decreased 66.9% year-on-year to 45 billion yen after income tax expenses of 75 billion yen and losses from discontinued operations of 2 billion yen. We will continue WPRX, the drastic reform of profitability, and aim to make a V-shaped recovery in fiscal year 23. On slide five and six, you have step charts showing the net sales and operating profit year on year and quarter on quarter, respectively. As you see, slide five, the operating profit declined roughly corresponds to the structural reform expenses in the period. As we also see in slide 6, the quote-unquote earnest sales decline roughly matches the exchange rate decline. And Q4 operating profit was slightly down before the effects from exchange rate and the structural reform expenses. Please see slide 8. For the fiscal year 23 forecast, we are aiming for the net sales of 2 trillion 200 billion yen, operating profit of 220 billion yen, and operating profit margin of 10%. Please see slide 10. Out of the five executive vice presidents appointed by the nomination committee in March, A new president will be selected by the same nomination committee in April next year. The new president succeeds to the management position with four-year term of office as president and another four years as chairman. When the new president is selected in April next year, the current CEO, Mr. Nagamori, is going to become representative of NIDEC group and board director, while the current CEO, Mr. Kobe, will be promoted to CEO of the company. Please see slide 11. We exceeded the net sales of 10 billion yen in fiscal year 1985. And then 12 years later, we hit 10 times higher net sales of 100 billion yen sales in fiscal year 1997, 17 years later, in fiscal year 2014. We achieved another 10 times higher net sales of 1 trillion yen. Last fiscal year, we exceeded 2 trillion yen net sales, and going forward, We are going to increase sales and profit through organic growth and M&As with a focus on expanding markets and aim for net sales of 4 trillion yen in fiscal year 2025 and in fiscal year 2030, that is 16 years after we hit net sales of 1 trillion yen in fiscal year 2014. We are aiming for another 10 times higher net sales of 10 trillion yen. Please see slide 12. NIDEX midterm strategy vision 2025 remains unchanged. That is organic sales target of 3 trillion yen. It's operating profit margin of 15% and M&A sales target of 1 trillion yen. Please see slide 13. We are aiming to become number one automotive system company by anticipating the strong electrification demand boosted by CASE or connected autonomous sharing electric mobility trends. In the area of EV traction motors, EXL business is expected to become profitable in fiscal year 2023 through introduction of Gen 2, whose targeted replacement ratio is over 70% and cost reduction of Gen 1. In addition to this, the market areas will be shifted from China-centric to global, including Europe and North America. And the growth of sales and profits will be promoted strongly through focus on traction motors only and other components in addition to e-axle. In the organic auto area, NIDIC will capture increasing demand for electrification and gain further market share for motors for electric power steering and electric brake despite slower growth in the global auto sales. Please see slide 14. The sales of EVs using Nidex EXO made a rapid growth of 90% in fiscal year 20, 140% in fiscal year 21, and 138% in fiscal year 22, year-on-year respectively. The number of models has reached 15, with one new model added in the March quarter. Please see slide 15. In China, the share of NEB, or New Energy Vehicle, including OCEBs and PHBs, is seeing a prominent increase until the current year, 2025. While in Europe, It will be after calendar year 2025, when a remarkable increase of NEB share is recognized. The global market is expected to see NEB share of 38% in calendar year 2030. Please see slide 16. Out of an index forecasted on year self-sales volume of 949,000 units, this fiscal year. 71% or 812,000 units will be Gen 2. 26% will be value engineered Gen 1. We are targeting 10 million unit sales of e-axles in fiscal year 30 by expanding into the European markets, et cetera. with a focus on profitability in fiscal year 23 onwards. Please see slide 17. We are targeting EV traction motor business sales of 500 billion yen in fiscal year 25 by supplying traction motors only and other components in addition to e-axles. Please see slide 18. The operating profit and operating profit margin dropped significantly in the second half of fiscal year 22 due to massive structural reform expenses. However, we are preparing for a V-shaped recovery in fiscal year 23 by building a lower cost structure. Please see slide 19. With the organic sales target of 600 billion yen vision 2025, a small precision motors division is transforming the portfolio by actively working on firstly small automotive motors for electric two-wheeled vehicles and small EV motors that are less than 30 kilowatts And secondly, thermal solutions such as cooling fans and our subsidiary CCI's products. And thirdly, data home appliance motors. In HDD, we continue to focus on data centers and servers to improve the product mix for higher profitability. Please see slide 20. A small pressure motor division is preparing for mid-term growth while implementing WPRX for short-term recovery. Please see slide 21. We are going to realize high growth by capturing green innovation demand created by replacement with high-efficiency motors. As mid-term growth drivers in the home appliance area, we offer brushless DC motors for air conditioners, washing machines, dryers, dishwashers, and compressors for refrigerators to meet the increasing demand for replacement with high-sense motors. In the commercial area, We continue to supply motors used for commercial air conditioners and robot modules used for e-commerce. In the industrial area, we are focusing on battery energy storage solutions, essential systems in the renewable energy industry, and a joint venture business with Freya, a semi-solid lithium-ion battery manufacturer. Please see slide 22. We keep pursuing profitability improvement, and it continues to slow down in the home appliance and commercial areas. Please see slide 23. We have created a new business unit called Machinery and Automation, starting from fiscal year 23, with Nidec Drive technology as the core company. This business unit handles reducers, press machines, and machine tools and is going to drive high growth of machinery business and aiming for net sales of 500 billion yen in fiscal year 25 and 1 trillion yen in fiscal year 30. As mid-term growth drivers, we are aiming to gain bigger global market share of strain wave gears for collaborative robots. As for planetary gears, we set a new production base for Europe by utilizing unused facilities of Nidec motors actuators in Spain. In press machines, we are focusing on anti-plastic demands and EV demands against the backdrop of a shift from plastic to canned bottles and growing demand for EVs, and launching full product lineups from small and high speed to large machines, and introducing related equipment. In machine tools, we are going to expand the product lineups and the market areas with a focus on the Chinese market to seek high growth. Please see slide 24. The operating profit ratio of other product groups remains stable at a high level of over 15% since fiscal year 21, with the exception of the March quarter of fiscal year 22. Please see slide 25. Our subsidiary, Nidec Components, former Nidec Copper Electronics, completed the acquisition of all the shares of Midori Precision at the end of last month. Making Midori Precision a full-owned subsidiary of Nidec Components enables the two companies to develop products jointly based on each other's technological strengths. And the NIDEC group to enhance its product lineup of potential meters and encoders. In addition, via this stock acquisition, utilizing NIDEC components global sales channels, the two companies will deliver products across the world to meet the global demand for sensors. Going forward, NIDEC components will make gross investment in middle positions in a timely and appropriate manner to make the positions a sensing business, a major pillar of the NIDEC components businesses. Lastly, on behalf of the entire management team, we would like to thank our customers, partners, suppliers for their support and commitment, as well as our shareholders. At this time, we would like to open up the call for questions.

Thank you very much, Mr. Samura. Now, we would like to turn to the Q&A session. Mr. Samura and Mr. Nagayasu will be pleased to answer your question. Today's Q&A session will be conducted electronically. If you would like to ask a question, please press the star key and number one on your touch-tone phone. Again, please press star and number one if you would like to ask a question. If you would like to cancel your request, please press star and number 2. We will now pause for questions from participants. So today's first question is from Mr. James Passford from Aruma. James-san, please go ahead.

Thank you very much indeed. You plan, I think, your third generation product from June 24. I wonder, can you comment on what are its characteristics compared to the second generation one? After delays and problems you had with customer acceptance for Generation 2, how can you avoid this with Generation 3?

Thank you for your explanation. Regarding Generation 3, I think it's set for June 24th, but I'd like you to tell us about the difference in performance compared to Generation 2 and Generation 1. Also, how do you avoid the delay that occurred in Generation 2 from Generation 3?

Gen3 was originally planned to be introduced in the 25th year, but considering the market situation, we are planning to use it a year ahead and introduce it in June 2024.

When it comes to GENES III, it is not that we are trying to avoid making any delays. When it comes to GENES III, our initial plan was to launch the product in fiscal year of 2025. However, considering the current situation in the market, we decided to advance our schedule by a year, and we decided to launch Gen 3 in June of fiscal 2024 instead.

Of course, we will be using new technology. Just like with Gen 2, we will be taking care of it carefully. This is new technology, so there is a possibility that various problems will arise. We are going to launch new technologies for Gen 3.

Therefore, there is a possibility, I believe, for us to be subjected to some issues that we may have experienced with Gen 2. However, we will make sure to learn lessons from Gen 2. as we try to advance our schedule by a year when it comes to Gen 3.

Can you make any comment on the characteristics of the third-generation product, for example, in terms of what sort of cost reduction relative to Gen 2 you target? And I think the problem with Generation 2 was that your clients weren't keen to make the shift. And I'm wondering how you can – that was the specific problem. I was wondering how you – if you could manage that better this time around.

I'd like to ask you about the performance of Gen 3. For example, how much is the cost lower than Gen 2? How much do you think Gen 3 is? As for Gen 2, even for clients, When it comes to cost, If the cost of Gen 1 is 100, the cost of Gen 2 was 65 to 70. And when it comes to Gen 3, the cost is down as much as 50 of Gen 1. Therefore, this is a significant reduction of cost from Gen 1 through Gen 3. When it comes to the shift from Gen 2 to Gen 3, we will make sure that the timing is right for us to be able to introduce Gen 3, and that the timing has to be based on our customers' period of switchover from existing model to a new model. So we will base our timing to introduce Gen 3 on our customers' timing to introduce new products.

Great, thank you. And can I ask a follow-up separate question, which is I gather you plan to launch a fully comprehensive e-axle package, including various other components like onboard charger. It's written in your documents. And that's also June 24. And I wonder how much demand do you think there is likely to be for this product rather than just the E-Axle, sort of how popular do you think that's likely to be? And can you comment also on the difference in price and potential margins that may be achievable on this greater level of sales?

Thank you. This question is about E-Axle. It is said that E-Axle is sold by putting all the parts together. That was a mistranslation. It's 2024年.

Thank you.

When it comes to Gen 3, as we try to move up our schedule by year, we will change the size of the kilowatts. So far, the mainstream has been 100 kilowatts and 150 kilowatts, but going forward, the mainstream will be 70 kilowatt, and that's the size of our product that we are going to launch. That's what we are going to do going forward.

Sorry, the 70 kilowatt is going to be your standard Gen 3 product. Is that right? Is that different to the comprehensive e-axle package that you're going to launch? Is that correct, or am I misunderstanding?

In addition to the E-Accel product, will 70kW be added to the Gen3? 70kW will be added as a Gen2 variation. Therefore, we will expand the Gen1 version and the Gen2 variation.

When it comes to 7-kilowatt product, there will be a value-added version of Gen 2 product.

Therefore, as part of our immediate actions, we are going to introduce Gen 1 and a value-added version of Gen 2, and plus we are going to move up our schedule to launch Gen 3 by a year.

Sorry, but the answer didn't really cover this point about the likely demand for the more comprehensive e-axle package, which includes DC-DC converter onboard charger power distribution unit. And I wonder, could you comment on that? And I'm slightly confused. Is that product that's going to be launched then, is that the product that's 70 kilowatts? or has it got muddled up?

Comprehensive is called 6-in-1 or 7-in-1. The original E-Axle is 3-in-1. 3 means motor, inverter, and gear. 6-in-1 means DC-DC converter, on-board charger, power distribution unit, PDU. These are all included. These are not only 70kW, but also 70kW or 100kW. The point is that the total price of our company will increase. There are only three 3-in-1s, but they have three new features. Of course, the price of our 6-in-1 package goes up, but from the customer's point of view, the total cost is lower than buying separately and doing it separately. Especially now, if you do it separately, the harness that connects between them is very high, so you don't need that part. By doing so, OEMs are in a hurry to develop, especially because it is cheaper to have all of them in six in one than three sets plus three. As you know, there is a price competition in the Chinese EB and NEB market, and as you can see from the fact that each company is running in the net, the price competition This is Nagarasa speaking. When it comes to a comprehensive model, it's so-called a six-in-one and a seven-in-one model. When it comes to the original E-AXA model, it's a three-in-one which comprises

the motor, inverter, and the gear. And a six-in-one model would be comprised of these three aforementioned elements, DC-DC converter, onboard charger, and a power distribution unit, or PDU. And this can be made into both 70 kilowatts and 100 kilowatts. Therefore, compared with the three-in-one model, price will be higher for a six-in-one model But on a total basis, a six-in-one model will be cheaper than it will be to purchase two sets of three-in-one model plus three additional units. Because the harness will be expensive, which the harness will be a component to connect to different sets. And if you think about the purchasing three-in-one model plus additional three components, three different additional components, it will be cheaper for you to purchase 16W model alone. And what we are trying to do is to hurry up and launch this 16W model in a hurry, especially for our OEM customers. Currently, especially in China, price competition is growing more and more intensive. Therefore, cost reduction will be very key for us to be able to survive in the market. We are trying to see from the perspective of our OEM customers and trying to appeal by saying that purchasing a set of 6-in-1 model is cheaper than to purchase 3-in-1 model plus additional three different functions, components.

Thank you. One very last question, I promise, follow-up, which is just these extra three components, the PDU, onboard charger, DC-DC converter, will they be internally manufactured or procured from outside?

The last question is, will the DC-DC converter, onboard charger, and power distribution PDU, which are added to this, be internalized by the company, or will they be outsourced?

Most of the components are made in Japan, and some are bought from abroad. For example, DC-CC converters are not that difficult to make. We don't know what will happen at this point, but the most important thing is that the harness will be removed, and at the same time, we will cover everything with one so-called control panel. In Japanese, it is called a base. The development of this control panel is the most important. And this is Nagayoshi speaking once again. Some of the components we will be able to produce

But at this moment, it is uncertain as to whether we will be producing everything or some of them in-house or some of them will be outsourced or not, et cetera, when it comes to DC-DC converter and other components. But what we need to do is to develop substrate or control board. The development of the control board or substrate would be very important. important and when it comes to the motor generator and inverter and onboard charger they need to be able to be controlled in one single control unit and a developing development of the semiconductors to handle all of these different components will be truly critical for us thank you very much

Jamie-san, thank you. Next question is from Mr. Ito from the Arga Investment. Ito-san, please go ahead.

Okay, can you hear me?

Yes, yes, thank you.

Thank you. Okay, I'll ask my questions in both Japanese and English. The first question is about the current operating profit rate. Well, considering the large-scale Vista fee of the previous year, it looks a little low, but is this simply a little conservative setting, or is it a macro-like gaffe of this period, and this is the interest rate? So the first question is, your margin for this year looks kind of conservative. Is that just being conservative, or are there macro headwinds that make this a pretty appropriate target? The second question is, the Chinese EV market has a lot of stocks. So the second question is, we hear news that there's lots of inventory in the Chinese car market, so I just want to understand the situation of your customers, your customers of your e-axles, and how do you deal with that? how that is being incorporated into your budget. Thank you. ありがとうございます。 まず1点目のご質問ですけれども、 保守的かどうかということですが、 22年度の結果から高度改革費用を除いたところからですね、 今回トラクション、Eアクセルが黒字化してまいります。

We will also see the results of the structural reform. In that sense, I would like you to think of it as a level of seeing through at the current point. Depending on how we see through in the future, we will aim for higher levels. This is the standard.

When it comes to this operating profit forecast, if you exclude restructuring costs, our e-axial business will be turning into profit from this fiscal year, and we are going to continue to launch restructuring methods. Therefore, this current recently released operating profit figure is our forecast as of this moment. And that's my comment on the operating percentage.

Thank you.

When it comes to my response to your second question, it is true that there are some goods on the inventory due to their customer situations. But we are going to make sure to take very close communications with our customers to handle the current situation when it comes to inventory. That's our current plan.

Thank you. Can I just ask one more question? You know, your long-term operating profit margin target is 15%. Is that something that is already being achieved by your new Gen 2, Gen 3 product pricing, or 15% margin requires, you know, the situation where your production volume is much higher and you are no longer spending money a lot of money on, you know, on CapEx. So that's my, sorry, my additional question. Third, sorry, this is an additional question, but this long-term business interest rate 15% goal, is it a rate rate level that can be achieved with Gen 2 and Gen 3 that are currently available, or is it more of a volume is high, and there is a certain level of agricultural investment, please tell us if it is a profitable rate that can be achieved at a calm stage. First of all, this is a translation story.

First of all, in this year, the 23rd year, we will make sure that there is a certain level of blackout. Next year, we will raise it to 10% by 2024. In 2025, we will raise it to 15%. This is one of our goals. We will also introduce Gen 3. This will lower the cost considerably. However, due to the current financial situation, I believe you are talking about EXR-related situation or traction motor business. When it comes to our traction motor business, as far as 23 fiscal year is concerned, we are trying to get into a positive territory profit-wise.

And in 2024 fiscal year, we are going to try to improve our operating profit ratio to close to 10% or so, so that we can achieve our target operating profit ratio in fiscal 2025. When it comes to moving up our schedule of launching Gen 3 by a year, we are trying to reduce costs very drastically. Depending on the competition, we need to check to see if there is any need for adjustments in our selling prices. That's what we need to be closely monitoring based on our market situation.

Thank you.

Ito-san, thank you. Next question is Mr. Ramsey Niram from the State Street. Niram-san, go ahead.

Can you hear me fine?

Yes, thank you, Raj.

Yeah, so my question, just taking a step back and looking at the volume guidance. So sometime back, we have a volume guidance of 2.5 million, and currently we are standing at 1.5 million units for 2025. So I understand we are focusing more on profitability over the volume growth. But I want to understand what are the other factors that are impacting the guidance, maybe competition and the overall EV market conditions that might have changed over the course of the last two years. Can you give some color on that?

This volume has changed compared to before. It used to be 2.5 million. It used to be about 1.5 million. But it has changed in terms of profitability and other factors. I'd like you to tell us how the numbers have changed, whether it's due to the influence of competition or the influence of competition. I'd like you to tell us what factors have affected the change in the numbers. First of all, this year, we will definitely turn it black, and we will be able to

First of all, I'd like to mention that we are going to

start generating profit in this fiscal year. And as we try to do so, we are going to suppress or minimize the shipment of Gen 1 model, which is not so profitable model. And as we do so, we are trying to increase our in-house production volume, and there will be harsher competition. That's what we are going to experience in this fiscal year.

The second reason is that we need to lower the cost of development in order to reduce the cost of production, so we have reduced the cost of development. In order to reduce the cost of development, we have decided that we will no longer develop a model with a low cost of production, so we have reduced the cost of production by 25 years.

And secondly, as we try to start generating profit this fiscal year, we are trying to suppress our R&D cost as much as possible. In order to do so, we need to, in principle, stop developing unprofitable models, and that is affecting our 2025 figures.

Thirdly, the customer's request is that they want only the motor from the E-Axel. This has changed for Chinese customers as well. Especially in the 25th and 26th years, we don't want the E-Axel, but we want the motor. We use the motor, but we don't want the E-Axel. Only that part has decreased. These are the three points.

Thirdly, our customers' demands are shifting from EXO to motors alone when it comes to especially our Chinese customers. When it comes to 2025 and 2026 fiscal years, some customers will be wanting not our EXOs but our motors alone. and that is affecting our figures for 2025 and 2026 fiscal years.

Thank you. That's helpful. Just to follow up on that, so I think we were initially planning for 6 million units of capacity for 2025 with around 500 billion cumulative capex over a few years. So with the change in the guidance now, there are any changes in planned capacity as well as the CAPEX guidance?

CAPEX is $400 billion. I think this number is also written here. Will this number change in the first place? Regarding this ability, we will proceed with this quantity, building and location security first.

In fact, the introduction of machines and the treatment of people are done while looking at the workload, and the treatment is done just before that. We have been advancing this so far. When it comes to capacity, our priority is to secure land and buildings in order to secure our volumes. Some adjustments mechanically will be done right before everything starts. Therefore, that's

going to remain unchanged. Therefore, our priority remains to be to secure plants and land for our production.

Is there an official guidance you can give in terms of capacity, in terms of units, or the capex amount you're planning to do over the next few years?

Can you please repeat that, please?

Can you give any official numbers on how much capacity you're going to expand over the next few years and also the CAPEX?

This is a number for traction. Are you referring to traction-related videos?

Yeah, traction. EXL or traction-related, yeah.

When it comes to the investment, we have already started investing in advance in the scale of $5 billion or even $10 billion. Therefore, when it comes to 2023 fiscal year, we are trying to minimize the making of any huge investments.

Okay, thank you. And last question probably from the slide number 14 and 18. I see the EXL unit volume grew 70% roughly in Q4 year-on-year, but the revenue has declined 50% roughly. So is that there is some accounting gap between the volume shipped and the revenue booked? Can you give some color on that?

The last question is about slide 14 and 18. The volume of the 300-year-old is about 70%. Compared to the same year and same time of 1994, there is a 70% difference. I think it's increasing, but I think the revenue itself is decreasing. What is the cause?

When it comes to slide 18, the biggest factor is the structuring cost, which is a huge amount. I'm talking about

But if you exclude the restructuring cost, our profitability is actually improving.

I'm talking about the revenue part. So in Q4, I think the difference between the blue line and yellow line, which I think is the actual revenue, so which has declined 50% from last year, Q4 2021, whereas the volumes have increased. I'm asking whether there is any accounting gap between the shipments and the revenue booking.

Q4 2021 Q4 2021 Q4 2021 Q4 2021 The volume is going up, but the revenue is going down. I was wondering if there was a gap between shipping and accounting information. First of all, as for March, compared to the past, as I said earlier, we stopped shipping of non-profit companies. When it comes to January through March period, as I stated a few minutes ago, we have stopped the shipment of non-profitable, unprofitable models.

Therefore, compared with the previous quarter or the quarter before the previous quarter or

The same quarter from the prior fiscal year, the volume has declined.

The bar chart on the 14th page is the number of models that use our e-axle. The number of models that use our e-axle is almost half the share.

And the bar chart on the slide 14 is about the volume of models that are containing NIDEX e-axle models. But when it comes to our e-axles alone, our share has declined by 50%. Well,具体的数字を申し上げるとですね、結局この期間でモデルの数字としてはですね、

And specifically speaking, when it comes to during this specific period, you can see the figure on the number of models over here. When it comes to the models here,

Compared with that, our e-access figure is 57,000 units, so it's approximately 50% of the model's figures.

Okay, thank you.

Yes, . Thank you. Next question is from Mr. John Holt from Janka Investments.

Good evening. Thank you for making time. Hello. Can you hear me?

Yes. Thank you.

Okay. Excellent. Hi. Good evening. Thank you very much for spending time in the evening. I want to start my first question on looking back at the fourth quarter. Which area did better and which area did worse than our original budget if we exclude restructuring costs? Can you talk a bit about the macro environment impacting the various businesses and give us some color on how those impacts might be playing out this coming year? Thank you.

Thank you. This is a question about employment. Compared to the original plan, the results were better. I'd like to ask you about the areas where the results were worse. I'd like to ask you about the areas where the results were worse. I'd like to ask you about the areas where the results were worse. I'd like to ask you about the areas where the results were worse. I'd like to ask you about the areas where the results were worse. I'd like to ask you about the areas where the results were worse.

I'd like to ask you about the areas where the results were worse. I'd like to ask you about the areas where the results were worse. I'd like to ask you about the areas where the results were worse. When it comes to the guidance, I believe our small precision motor business performance was lower compared with the other businesses that we do.

This is chiefly due to the decline in the sales of HDD, motors, and other products in this area. Another area that performed worse than expected was the area of machinery, and it is chiefly due to a product mix. The semiconductor testing equipment was replaced by pressing machines and reducers, and these were not as performing as they should have.

And whereas our appliance commercial and industrial businesses did better than expected in our guidance,

And this is mainly due to especially industrial business where our volume was increased and profitability also increased.

And therefore, when it comes to volume, our SPS business is in a struggle, pretty much.

And our appliance commercial and industrial businesses, and especially industrial product businesses, is going to cover the loss made by the SPM business. I believe this trend is going to continue throughout this fiscal year.

Right. Thank you. Within ASIM, appliance, commercial, or industrial, you mentioned industrial is doing really well. Is appliance and commercial similar to what we expect, or are we seeing some headwinds on appliances, things like consumer appliances, or other commercial applications?

Thank you. In ASIM, especially in the industrial sector, We are working very hard on it. Regarding the commercial sector, what problems do you think are there in the home appliances sector? Consumers, consumer products, etc. I think there are various things, but what are the problems and headwinds? Are there any factors that are directly related to home appliances?

The natural gas industry was very popular in the 21st century, but since then, the housing market has been quite stagnant, and it has not been able to get out of the stagnant state yet. I don't know when this will recover, but I'm looking at it as if it will fall behind the previous year. When it comes to home appliances, in fiscal 2021, it was performing very good. But after that, there was some struggle in the housing businesses, for example. And we're not really sure if

when we will be able to get rid of or go past this current struggle with home appliance business at this moment. But our current prediction is that this struggle continues to the second half of this fiscal year. But I believe, once again, this industrial business, especially in the area of infrastructure, for example, are performing very good. Therefore, they will be able to cover the loss that is currently being incurred by our home appliance area.

I see. Thank you. I also wanted to ask some follow-up questions on EXO. On page 16 of our presentation, we give the market a forecast of our increase. the actual volume in particular I think we are saying that it will grow from three hundred and thirty nine thousand minutes to nine hundred and forty nine thousand units sounds like most of it is going to be in in this am easy division and I assume most of that is out of China can you tell us if that's true can you tell us a Who are the new OEMs and maybe the new models that we have won, the contracts that will make up that increase of about nearly 500,000 in AMEC or China division? Thank you.

This is a question about EXL. This is the 16th page of the slide. It is expected that the volume will rise from 339K to 949K. It is expected that the volume will rise from I would like to ask you about what kind of new models are being introduced and what kind of new models are being introduced.

As I mentioned before, China's customers are GAC, Koshu, and Kitsuri. In addition to these two companies, Shanghai GM Wuling, Cherry, and Chowan are the main customers of our company.

And this is something that I've stated before, but when it comes to China, our existing customers have been GSE and Geely. But in addition to these two major customers now, we have Shanghai, Wuling, Cherry, Changgong, Chiche. And so it doesn't have to be necessarily e-access that they are wanting from us, but when it comes to volume, volume from these customers are increasing.

Second, existing GACs and GDs are gradually releasing new models. This is because GACs are also releasing new models And secondly, when it comes to these two existing major customers of ours, which are GAC and Geely, they are launching a new

And when it comes to GAC, they are launching new models from fiscal 2023. And when it comes to Geely, they are trying to launch a so-called smart EVs, not just for the Chinese market, but for European markets. And it is due to these new models that these customers' volumes are increasing.

Now, when it comes to GSE and GLE, their primary focus is on the mid-

market, and from the fiscal 2021 and 2022, volume has increased by 180% or 2.8 times of what it used to be.

And when it comes to the Chinese market, especially Tesla and others are in the so-called price war.

And this price war is very especially intensive in the high-end market of $40,000 or more. Therefore, when it comes to mid-market, which is not really part of this price war, I believe mid-market still has some potential for further growth in the future. But when it comes to one of our major customers, Geely, they are planning to introduce models in the calendar year of 2022. is three, and that's how aggressive they are when it comes to planning a new model.

So they are going to double the total output from CUI 2022 to 2023. So the point is the meat market is still growing, and the premium market is not growing, but both markets are in China, so that's going to be reacting. But the case is that if you're looking at these GAC and GVIC, they are still bullish and they are planning a very high growth of the volume in current day 23 and 24.

I think this is very, very, yes, this is very, very good. Thank you, Nagesh-san. So the increase of about 500,000 is mostly new models of Geely, it sounds like. Is that correct?

Yeah, the most GED and GAC. GED is doubling, and GAC has not yet. But they might be looking at maybe 180%. But the GAC is planning a numeral, which is going to require our Gen 2 E-access.

I see, I see. Yes, yes, thank you. This is very clear. Can I also ask, have we seen our local competitors in China reducing their market share or maybe exiting the industry? Are we seeing that yet? Or they are still, you know, in the market competing?

Yes. They are still hanging there.

Our prediction is that before a component manufacturer withdraws from the market, I believe OEM manufacturers are more likely to withdraw from the market.

I see. What about the outsourcing or insourcing trend? I know some, even Julie, have been both insourcing and outsourcing. Are they keeping that strategy at the moment or are they outsourcing more back to us? Do you have a read on this insourcing and outsourcing trend?

Okay, so the time is already running out, so I'm just going to be answering two things. Number one is the volume is increasing, as you saw on the bar chart. So that means that the multi-sourcing from single sourcing to dual sourcing or triple sourcing, that's very natural in any type of the market, in the manufacturing market. Second, if they are really going to win this pricing war, they need the low-cost component, low-cost e-axle. So the question is whether they can make their own e-axle, which is lower cost than us. We do believe that they can now. Is that fine?

Thank you. Thank you, Nakatsu-san and Kamuro-san.

Yeah, John-san, thank you very much. Yeah, unfortunately, time is running out, so we reject to conclude this conference call. I would like to appreciate your participation today. Should you have any questions, please do not hesitate to contact SIDEC Corporation or your sales representatives at Mitsubishi UFJ Morgan Standard Securities. Thank you very much and have a good day. You may now disconnect this line.