SMC CORPORATION (6273) Q4 2026 Earnings Call Transcript

SMC Corporation Financial Results Briefing for the Fiscal Year Ended March 2026 May 14, 2026

Event Summary [Company Name]

SMC Corporation

[Company ID]

6273-QCODE

[Event Language]

JPN

[Event Type]

Earnings Announcement

[Event Name]

Financial Results Briefing for the Fiscal Year Ended March 2026

[Fiscal Period]

FY2025 Annual

[Date]

May 14, 2026

[Number of Pages]

44

[Time]

15:00 – 16:29 (Total: 89 minutes, Presentation: 41 minutes, Q&A: 48 minutes)

[Venue]

Webcast

[Venue Size] [Participants] [Number of Speakers]

3 Yoshiki Takada Masahiro Ota Akinori Kato

President Director and Executive Officer, General Manager of Finance and Accounting Division General Manager of Corporate Communications Office

[Analyst Names]*

Yuichiro Isayama Goldman Sachs Kentaro Maekawa Nomura Securities Satoshi Taninaka SMBC Nikko Securities Kenjin Hotta BofA Securities Sho Fukuhara Jefferies Hirosuke Tai Daiwa Securities Mayumi Kuze Nikkei *Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A or whose questions were read by moderator/company representatives.

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Presentation Kato: We will now begin SMC Corporation's financial results briefing for the fiscal year ended March 2026. Thank you very much for taking the time out of your busy schedules to join us today. The materials were registered on the TSE TDnet today at 15:00. Today, Yoshiki Takada, President, will first explain the overall management strategy, followed by Masahiro Ota, Director and Executive Officer, General Manager of Finance and Accounting Division, who will explain the overview of the financial results. A question-and-answer session will then be held. Please note that we will call on approximately five people from among those who requested in advance to speak. The scheduled ending time is 16:30. President Takada, please begin.

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Takada: Thank you, investors and analysts, as always. I am Takada, President. First, I will explain the overview of results for the fiscal year ended March 2026 and our management strategy. In the fiscal year ended March 2026, orders recovered from H2 of Q3, centered on the semiconductor-related industry, and exceeded our revised financial forecast. Net sales were JPY842.5 billion, up 6.4% YoY. Operating profit was JPY190.5 billion, which was flat YoY. By industry, semiconductor-related orders were very strong in each region. By region, in Greater China, both electrical equipment and automotive performed steadily. Regarding the automotive-related industry excluding Greater China, as you are all well aware, China overwhelmingly demonstrated competitiveness in electric vehicles. As a result, there continued to be movements to significantly postpone or cancel CapEx. The machine tool-related industry remained strong in both Japan and Greater China, due to demand for data centers and other areas. CapEx was JPY150.2 billion against the plan of JPY180 billion. Regarding shareholder returns, today's Board of Directors meeting resolved to pay a year-end dividend of JPY500 per share, for a total of approximately JPY31.6 billion. In addition, from May last year, we implemented a share buyback totaling JPY30 billion.

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Next, I will explain the financial forecast guidance for the fiscal year ending March 2027. We plan net sales of JPY1 trillion, which we had set as our medium-term target, and operating profit of JPY219 billion, up 14.9% YoY. Regarding demand trends, semiconductor-related demand in Japan, the US, and Asian countries is recovering rapidly, and at present, orders are coming in at levels exceeding the past record high. In the automotiverelated industry, CapEx demand for hybrid vehicles is increasing, replacing EVs. By region, investments in automation are expected across a broad range of industries in Greater China. For operating profit, personnel expenses will increase due to an increase in sales personnel, and depreciation will also increase due to aggressive CapEx. Still, we plan JPY219 billion, up 14.9% YoY, due to higher sales volumes, price revisions, and productivity improvements. The forecast exchange rate is JPY155. For capital expenditure, investments to secure production capacity and BCP-related investments have run their course, but we plan JPY100 billion, including JPY30 billion carried over from the previous fiscal year, due to the expansion of the Vietnam plant and investments in overseas sales bases.

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This is our shareholder returns policy. Regarding returns of profits to shareholders, we will maintain stable dividends as our basic policy and flexibly implement share buybacks in response to circumstances. The dividend for this fiscal year will be JPY1,000 per share, the same as last year, and for share buybacks, we will set a repurchase framework of JPY50 billion, compared with JPY30 billion last year. As a result, we expect a total payout ratio of 66.6% and a dividend payout ratio of 37.1%. We have held repeated discussions among management regarding our cash allocation policy, but we will refrain from announcing it at this time. There are several reasons. The first is that the market environment is changing significantly. Demand is recovering rapidly, centered on semiconductors, and at present, order levels exceed the previous peak. New growth markets are also emerging. Based on this situation, we will increase sales personnel and consider new investments. The second is that the importance of preparing for geopolitical risks, including the situation in the Middle East and US policies, is increasing. Lastly, as we announced today, we will change our management structure, and it will be necessary for the new management team to discuss our medium- to long-term thinking once again, including allocation.

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These are our mid-long-term priority measures. This is almost the same as last time, so I think you can simply review it.

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Next, the measures for FY2026. The first point for sales is deeper penetration. Considering the productivity of sales activities to date, travel time has been very substantial, so this means digging deeper into each customer company. We will make proposals to customers by fully utilizing SMC's strengths, including BCP, our global footprint, the newly completed JTC in Kashiwa, and the 4BAR factory, which realizes lower factory pressure, and we would like to further enhance relationships of trust through stable supply and new products that meet customer needs. The second point is the expansion of our sales strategy. I will explain the increase in direct sales personnel in detail on the next slide. For distributor sales, particularly in Europe, we need to increase the ratio, and by doing so, we will secure the man-hours that direct sales personnel can allocate to new development. The third point is strengthening the supply system. We will build a system that enables us to prepare production based on real-time sales information, secure appropriate inventory, and differentiate ourselves from competitors through short lead times. Production. The first point is to establish an optimal global production system in response to business expansion. The second point is promoting the adoption of small and lightweight SMC products among customers. In particular, the automotive-related industry still uses large components, so we would like to further advance miniaturization.

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The third point is building a BCP framework that enables us to be a supplier capable of providing a stable supply globally under any circumstances. Regarding development. The first point is speeding up new product development. We will select and focus on product development that directly leads to sales growth and further promote collaboration with overseas TCs. As you will see if you look at the newly completed JTC, we have significantly enhanced the equipment for experiments, so I believe this will lead to faster new product development. The second point is product cost reduction. For products sold only to a small number of users, we will expand sales destinations and promote product consolidation and rationalization. The third point is global collaboration and talent acquisition. We will expand the number of innovative engineers globally and further strengthen collaboration with overseas TCs, or Technical Centers, and local customized product support.

Reinforcement of the sales organization. Driven by technological innovations such as AI, data centers, and humanoid robots, SMC's market as a components manufacturer that supports manufacturing customers around the world is expanding rapidly. What is important is to identify which fields will grow and which customers will be winners, and to pursue breakthrough growth. What is necessary for this is sales capabilities that surpass competitors, and we are increasing direct sales personnel in order to strengthen direct sales to end users and drive diversification.

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Due in part to personnel shortages caused by COVID-19 and the retirement of experienced sales staff, we plan to increase personnel globally by approximately 2,400 over the next three years. In order to rapidly develop newly hired sales staff into effective contributors, we will globalize the Sales Academy, which we started in the US.

Next, the Chinese market situation and strategies. The Chinese market grew steadily in 2025. For the semiconductor-related industry, localization is progressing, and demand is expanding not only for front-end processes but also for back-end processes. The electrical equipment-related industry, including FPDs, remains strong, partly due to subsidy policies. In the automotiverelated industry, EV-related CapEx, including batteries, is recovering. Meanwhile, moves toward internationalization are accelerating in various industries, and price competition with competitors is continuing. Regarding strategy and the FY2026 outlook, China remains the center of global manufacturing and one of the most important markets. Government-led development of the manufacturing industry and aggressive investment in automation will continue, so we will follow that trend. Regarding specific promising markets, capital investment related to solar power generation and storage batteries is recovering rapidly. There are emerging cases in which major North American users place orders with Chinese equipment manufacturers, and that demand comes to us.

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In data center-related areas, demand is also emerging for printed circuit board processing equipment, various types of sensors and optical fiber-related products. As crude oil prices are soaring due to the impact of the situation in the Middle East, the need for energy savings is increasing even further in China as well. We see this as an opportunity and will further strengthen proposals such as the 4BAR factory. On the production side, demand for domestically produced products is increasing significantly, so we will raise the ratio of local procurement and production and advance cost reductions through in-house production.

This is the CapEx plan. In FY2025, we implemented record-high CapEx of JPY150.2 billion, driven in part by the completion of JTC and the Tono Supplier Park. In FY2026, capital expenditure will peak out, and we plan to invest JPY100 billion. Investments will mainly be in the Vietnam plant and overseas sales bases. Depreciation is expected to be approximately JPY62 billion.

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Next, regarding the chiller strategy. For semiconductor applications, which are our strength, as semiconductor chips become increasingly miniaturized, demand is growing for high-performance products with precise temperature control capabilities and high energy-saving performance. SMC will continue to develop products that meet these customer needs. For general industrial applications, we will advance product development by benchmarking against competing products, focus on expanding sales of environmentally friendly chillers, customized solutions, and diversification, and in development and manufacturing, we will promote cost reductions through in-house production. Actual chiller sales in FY2025 were JPY60.9 billion. Our sales plan for 2026 is JPY73 billion, and we will expand sales with the aim of reaching JPY100 billion in 2027.

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This is a new product introduction. We developed and launched a membrane nitrogen generator that can generate nitrogen with a concentration of 99.9% or higher using only a supply of compressed air. Compared with conventional nitrogen cylinders, it can reduce costs by approximately 94%, and eliminates the need to replace nitrogen cylinders, check remaining gas levels, and refill gas. As you can see from this photo, this can be installed directly in-line, which means that those types of work are no longer necessary. It can reduce on-site man-hours and also help address labor shortages, so this is a new product for which we have very high expectations. As for applications, since oxidation must be prevented, possible specifications include laser welding and filling machines, such as those that inject nitrogen into potato chips bags and packages. This product also seems likely to be used in a wider range of areas than we expect.

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SMC has decided to transition to a company with an Audit & Supervisory Committee, subject to approval at the General Meeting of Shareholders in June. As shown here, the Board of Directors will be composed of seven internal directors and seven independent directors. We will strengthen the supervisory function of the Board of Directors, delegate authority for business execution to the representative directors, and accelerate management decision-making.

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ESG. I will explain our initiatives for ESG disclosure. This shows the progression of initiatives from FY2023 to FY2025, so please review it later. I believe you will be able to understand that ESG ratings have been steadily improving.

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This is Scope 1 and 2. This is our GHG emissions reduction plan. Regarding the net-zero target, we obtained certification from the international certification body, the SBT initiative. As shown in this figure, through measures such as green electricity, we aim to reduce emissions by 48% by FY2030 and achieve net zero by 2040.

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This is the Scope 3 reduction plan. For Scope 3 as well, we obtained certification for our net-zero target. We aim to reduce emissions by 33% by FY2030 and achieve net zero by FY2050. Among the 15 categories, we have identified Categories 1, 4, and 11 as priority areas, and we will build cooperative frameworks with suppliers and proceed with reductions.

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Regarding ESG ratings. In FY2025, our CDP and Ecovadis ratings improved. In particular, for CDP, SMC was selected for the A List, the highest rating, in both climate change and water security. In this way, our ESG ratings are steadily improving. That concludes my presentation. Thank you. Kato: Next, Director Ota, please begin.

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Ota: I am Ota. Now, I will explain the consolidated statement of Income currently shown on the screen. This overlaps a little with the President's comments, but net sales for FY2025 were JPY842.5 billion, and the amounts of profit below that are also shown. Operating profit was JPY190.5 billion, and we somehow managed to secure increases in both net sales and profit, but unfortunately, the profit margins versus net sales shown next to them declined. For the figures from ordinary profit downward, the profit margins also exceeded the previous fiscal year's levels. Regarding ordinary profit, non-operating income and expenses were positive JPY45 billion this time. Roughly speaking, interest income, including interest on US Treasuries, was about JPY20 billion, foreign exchange gains were JPY20 billion, and other items were JPY5 billion. We have also announced next fiscal year's guidance at the same time, but we do not know what will happen to the JPY20 billion in foreign exchange gains, so roughly speaking, we are looking at the difference between ordinary profit and operating profit as JPY20 billion. Extraordinary income and losses were positive JPY1.4 billion, but this means that there were various gains on sales of shares and losses on sales of real estate, and the net total of those positives and negatives was positive JPY1.4 billion. I got slightly ahead of myself and talked about ordinary profit and net profit. Still, regarding the weak gross profit margin and operating profit margin, I think you have understood to some extent from the explanations through Q3. For gross profit, the main factors are that depreciation has increased because we have made large CapEx, and that the purchase costs of components have also risen slightly.

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Moving to the right, this is a comparison of Q3 and Q4. Here as well, net sales and profit both increased, but Q4 had a slightly weaker profit margin, and gross profit deteriorated. Sorry, ordinary profit was slightly better, but the reason profit did not increase as much as net sales was that depreciation began in Q4 for some of our capital investments, one being the Technical Center. Another being the Tono Supplier Park, and maintenance costs for those facilities also increased in Q4. Therefore, profit did not grow as much as net sales.

This is the waterfall chart comparing the fiscal years. I have already given a rough explanation earlier. Still, for net sales, sales volume, selling prices, foreign exchange, and, from this time, the positive impact from including more than 20 subsidiaries that had been outside the scope of consolidation through the fiscal year before last, all had a positive effect. Looking at each factor individually, in sales volume, Japan and North America were negative, while Europe, Greater China, and Other Asia were positive. Among these, as the President explained earlier, Greater China grew very significantly, and the image is that volume increased by 15%. Regarding selling prices, in Japan, we raised prices by 10% for the first time in several years, and this contributed around JPY7.1 billion, or 4.4% in percentage terms, so we believe the remaining portion can be incorporated into the guidance for this fiscal year. Overseas, Europe was slightly positive, Greater China was slightly negative, and Asia was also slightly negative, resulting in a total negative impact of JPY2.3 billion.

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For foreign exchange, the US dollar against the yen was almost flat, while the euro and renminbi generated gains due to yen depreciation. Turning to profit, profit increased by JPY0.3 billion. Sales volume and selling prices refer to the net sales section, and each increased. The foreign exchange fluctuation section is slightly unusual and negative. I may have explained this several times before. Still, in the year-end consolidation eliminations, when eliminating the profit included in inventory held by overseas subsidiaries and the portion inflated by foreign exchange, overseas inventory accumulates based on the period-average rate. In contrast, the year-end elimination is done using the exchange rate at the end of the period. This time, there was a fairly large difference between the period-end rate and the average rate for the year, and the period-end rate was more yen-depreciated, so please understand that this became slightly negative for technical reasons because the elimination was done using the higher figure. For inventory devaluation, the previous fiscal year was negative JPY10.3 billion, while this fiscal year ended at positive JPY4.1 billion, so please view this as an improvement of JPY14.4 billion in the change in devaluation. For processing costs and material costs, we view this as an increase of approximately JPY19 billion in processing costs, an increase of more than JPY1 billion in material costs, and, in addition, since manufacturing volume increased this time, a positive impact of JPY6 billion from factory operations and other factors. As for the breakdown of processing costs, depreciation increased by approximately JPY5 billion, labor costs also increased by JPY5 billion, and consumables and utilities increased by more than JPY2 billion. In addition, various small fixtures and items related to capital investments, as well as low-value fixed assets, are not temporarily capitalized and depreciated, but are instead expensed as they are, so these various items totaled about JPY3 billion, probably at the Tono Supplier Park and the Technical Center. Regarding SG&A expenses, an increase of JPY9.7 billion is shown, but this includes a special factor from the previous fiscal year. In the previous fiscal year, there was a downward revision of depreciation from prior years of approximately JPY1.9 billion, so the actual increase was around JPY8 billion. Personnel expenses increased by JPY4 billion, testing and research expenses by JPY1 billion, and depreciation included in SG&A expenses by JPY2.5 billion. These were the factors behind the increase in SG&A expenses. The impact of US tariffs, which appeared for the first time this fiscal year, was a negative factor of around JPY6.7 billion. The expansion of the scope of consolidation that appeared in the net sales section generated profit of JPY1 billion against net sales of JPY7 billion, resulting in a total positive impact of JPY0.3 billion.

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This is a comparison between Q3 and Q4. In Q4, QoQ, sales volume was positive JPY19.2 billion, selling prices declined slightly, for negative JPY0.4 billion, and foreign exchange was positive JPY4.1 billion. As for volume, where did it increase? In Q4, semiconductor sales increased significantly. Therefore, sales increased significantly in areas where semiconductors are present, namely Japan, North America, and Asia. Greater China did not increase that much in Q4. It was up around 2%. Regarding selling prices, the negative JPY0.4 billion means Japan was negative JPY0.4 billion. I may have spoken about this a little before, but our sales in the semiconductor field in the Japanese market have slightly lower profit margins compared with the average profit margin for all of our products in Japan overall. This time, Japan's sales increased because, in Q4, semiconductors in particular increased markedly. Normally, the price increase effect should have appeared and made this positive, but the negative impact from the customer mix exceeded that. In addition, Europe was slightly positive, while Asia was slightly negative, but Greater China has recovered to a level that is almost plus or minus zero. I would like to speak a little about this point as it also relates to our view of this fiscal year. In Greater China, we are currently acquiring quite a few new customers. With existing customers, past discount rates are carried forward, and they ask us to reduce prices by around 1% every year from there, but new customers are places where we are entering anew, so we are able to receive appropriate prices.

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Another point is that in the past, there were about two well-known companies in China related to batteries, or automotive batteries, and equipment manufacturers supplying to those companies demanded fairly low prices, so they shifted to competitors in Taiwan and local Chinese competitors. Those customers are now returning to us and to companies such as Festo, where performance is at a certain level, and they are now buying at prices higher than the prices at which we sold in the past. There have been cases where customers used inexpensive pneumatic equipment and experienced what we call minor stoppages, where production lines stop frequently and productivity declines. We are hearing that customers are returning. This is the reason the price reductions have stopped, and we hope this trend will continue next fiscal year as well. This became a little long, but moving to profit, sales volume was positive JPY8.6 billion, and foreign exchange fluctuation was positive JPY3.8 billion. These carry over from the net sales section. Processing costs and material costs were negative JPY7.0 billion, SG&A expenses were JPY2.4 billion, and the impact of US tariffs was positive JPY0.3 billion. Regarding processing costs and material costs, this reflects the increase in depreciation I mentioned earlier and the increased burden from JTC and the Tono Supplier Park, as well as the fact that material costs seem to have risen slightly toward the end of the fiscal year. SG&A expenses increased due to personnel expenses and higher R&D expenses associated with the operation of JTC.

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This shows the trend in net sales by region. As I have been explaining, in terms of where sales volume increased, it increased in Europe, Greater China, and Other Asia. Looking only at Q4, I think you can see that regions where semiconductors are strong have increased. In addition, semiconductor industry sales account for approximately 20% of total sales, and Japan's sales ratio has now fallen below 20%, to 19%. Overseas accounts for 81%.

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Next is the balance sheet. For the balance sheet, first, inventories. On the surface, this is positive JPY17 billion. However, to make this an apples-to-apples comparison, the impact of the expansion of the scope of consolidation was JPY3.1 billion, the impact of yen depreciation, which inflated the yen-denominated amount, was JPY21.2 billion, and inventory devaluation was reversed this time. A reversal of inventory devaluation is synonymous with an increase in the inventory balance, so if all of these are subtracted from JPY17 billion, the actual change is negative JPY11.5 billion. The monthly sales ratio is shown diagonally below. The inventory turnover monthly sales ratio, divided by March's monthly sales, was 5.9, so you can see that it has shortened to around six months. Next, on the left side, cashable financial assets are deposits, US Treasuries, TBs, and other securities. Cashable financial assets increased slightly, by JPY20 billion from the previous fiscal year. There are also trade payables, although there is not much point in explaining this. This refers to accounts payable. Accounts payable decreased. Normally, since net sales increased, accounts payable would also increase, but there is the Act on the Prevention of Delay in Payment to Small and Medium-Sized Entrusted Business Operators, which was formerly the Act against Delay in Payment of Subcontract Proceeds, Etc., to Subcontractors. Under this act, we have significantly shortened payment terms to suppliers, so this decreased by JPY15 billion, and cash flow decreased by that amount.

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Capital expenditure. The President explained earlier that the planned JPY180 billion became JPY150 billion. As for the details, sales did not increase much in H1, so we slightly postponed the timing of capital expenditure, particularly investments in machinery and equipment. Some items did not fall within this fiscal year, or investments related to overseas sales companies were delayed slightly. In addition, it is not the case that the entire JPY30 billion will be included in the FY2026 plan, but although we originally expected the amount to be below JPY100 billion, due also to these delays, the plan for FY2026 is likely to be approximately JPY100 billion.

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This shows the trend in the number of employees. Regarding this point, as mentioned earlier, there will be an increase in sales personnel. Although the target figure for the three-year period was shown, we have reviewed somewhat more carefully the number of people we are likely to be able to hire this fiscal year. As a result, the figure is not very large, but we have factored this into the sales section, and it is reflected in personnel expenses in the guidance. For production, we are still building new factories, including in Vietnam, so there will be increases in those areas.

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Next is the guidance for this fiscal year. For net sales, we are targeting JPY1 trillion, which has been our target to date. Of course, we are aiming for increases in both net sales and profit, but the plan is for profit margins to decline slightly from the previous fiscal year. The reason for this is the increase in depreciation associated with capital expenditure, which will begin to appear in earnest from this fiscal year. In addition, various related operating expenses will also increase. We are also factoring in an increase in material costs. We also plan to make IT investments, including ERP upgrades. In SG&A expenses, sales personnel will increase, and in production, as well, personnel will increase at newly established factories. Taking these cost increase factors into account, we have prepared this plan.

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Next, we have included a waterfall chart for guidance and this fiscal year's actual results. Sales volume, selling prices, and exchange rate fluctuations are viewed in this way. For the assumed exchange rates in the guidance, US dollar to yen is JPY155, euro to yen is JPY183, and renminbi to yen is JPY22.70. We are looking at all of these conservatively, with rates slightly lower than the current actual rates. For profit, the trends above are carried over for sales volume, selling prices, and exchange rate fluctuations. Inventory devaluation is shown as negative JPY4.1 billion. Regarding this point, JPY4.1 billion of the devaluation in FY2025 was reversed. We think it will continue to decline this fiscal year, but conservatively, we view devaluation as zero. Therefore, it was plus JPY4.1 billion in the previous fiscal year will be zero this fiscal year, so we view the change in devaluation as negative JPY4.1 billion. Processing costs and material costs. For processing costs, we are factoring in an increase of approximately JPY14 billion in depreciation. In addition, labor costs will increase by JPY6 billion, and utilities and consumables expenses will increase by JPY2.5 billion. We are also factoring in an increase of JPY6.1 billion in material costs. For SG&A expenses, we expect expenses to increase based on the following breakdown: an increase of JPY16.2 billion in personnel expenses, an increase of JPY6 billion in depreciation, an increase of JPY4.5 billion in ITrelated expenses, and an increase of JPY2.1 billion in testing and research expenses.

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Current order situation. This is a little difficult to see, so I will explain it using the next graph.

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This is the order trend by industry. The graph is trending upward across all industries, but semiconductors and electrical equipment are moving sharply higher.

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Next is the order trends by region. Here as well, Greater China has risen sharply, but orders in some other regions are settling down slightly. However, looking at absolute order levels, I think we can say that they have not declined that much. That concludes my presentation.

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Question & Answer

Kato [M]: We will now begin the question-and-answer session. We will unmute those we call on, so please speak when called. First, Mr. Isayama of Goldman Sachs, please go ahead. Isayama [Q]: Thank you as always for your support. I am Isayama of Goldman Sachs. Thank you. For my first question, on fundamentals, I would like to ask about your current thinking based on the order trends that Mr. Ota explained at the end. First, regarding semiconductors and electrical equipment, is my understanding correct that both are strong? Is the semiconductor field strong outside China, while electrical equipment is strong in China? I would appreciate it if you could provide a little more granularity by region. For the second point, when you say Greater China, I am sorry, but are there also significant differences between mainland China and Taiwan? You mentioned that semiconductors are very strong, and I have heard that conditions are also improving in mainland China, so I am wondering whether your company is capturing that. I would appreciate your explanation on this point. Ota [A]: First, in terms of the figures, electrical equipment and semiconductors are grouped together as EP, which makes it difficult to understand, but as shown earlier in the bar chart by region, the areas where semiconductors are present are already determined. Therefore, the US, Japan, South Korea, Taiwan, Singapore, and Malaysia are almost all semiconductors in terms of EP. China is a little different, and both semiconductors and electrical equipment are growing. As for whether semiconductors are not growing in China, that is not the case. Semiconductors are also growing by nearly 30%, although not quite 30%. For electrical equipment, storage batteries, and solar panels have not yet grown this fiscal year, but they have grown considerably since April. Hence, the rough situation is that those other electrical equipment areas are also growing. Isayama [Q]: Thank you, Mr. Ota. In the last section on orders, when looking somewhat by region, regions other than Greater China appear to be somewhat flat. Please tell us how you have factored the sustainability of the strength you just mentioned into your plan. In addition, demand is increasing so suddenly, so I am wondering whether products can be shipped, and although I think this is still limited to only some areas, we are hearing talk of supply chains becoming quite tight and product shortages in some areas. How is your company responding? Is your stance that inventories are sufficient, so there is no problem? I would appreciate a comment on the supply chain as well. Takada [A]: Regarding the supply chain, we strengthened it after the supply chain collapse in FY2022 and based on our expectation that semiconductors would definitely come back, we have built up a fairly substantial amount of inventory, so we believe there will be absolutely no problem for the time being. Does that answer your question? Isayama [Q]: How much sustainability is assumed in this plan?

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Takada [A]: Regarding sustainability, for example, data centers. At present, everyone is talking about AI, but the data centers that support this are now very necessary. Probably, even if we take just one way of using AI, people will continue to become more proficient and use it more, so demand for data centers will likely continue for a fairly long time, and data centers represent a very great demand. In that sense, we expect business conditions to remain at a high level for quite a long time. Isayama [M]: Thank you. Ota [A]: To add to that, demand for data centers is also increasing considerably in China now. When we say data centers, it is not simply a matter of memory or other core IC-related products. There are also optical fibers to connect them, connection devices that connect optical fibers to other optical fibers, and, to put it somewhat oddly, things like printed circuit boards used for memory. A huge number of these are also needed. As for where these are currently produced, of course, there are production sites globally, but when you ask which region can produce them at the lowest cost, it is still China. In that sense, we hear that the reason sales in China are currently strong is not the core products for data centers, but the fact that production of various peripheral components and similar items is increasing rapidly. Therefore, as I mentioned earlier, when we approach new customers, we are not asked for such large discounts, so prices in China are not declining. There is also this background. Isayama [Q]: Thank you very much. For my second question, I would appreciate your comments on capital policy, or your medium- to long-term vision. This time, due also to changes in the environment, you are reviewing it once. In the President's presentation, there were sales measures and so on, but I do not think we received any follow-up regarding return on capital or margins. I believe you had previously discussed the original JPY1 trillion target as being for FY2026. Once again, since you are presenting net sales of JPY1 trillion as the target this time, what are you thinking in terms of margins, or whether it is ROE, ROIC, or what type of return on capital? Could you please explain once more, in a little more detail, the background to why you decided to review this, or what you have been thinking about? Thank you. Takada [A]: The market contains various factors that make it extremely uncertain. This includes the situation in Iran and the situation in Europe as well. In automotive-related areas, we do not know what will happen with electric vehicles either. In that sense, one point is that there is a great deal of uncertainty. In addition, we have hardly made any acquisitions up to now, but there are now quite a few occasions where I briefly think that perhaps we need a change in direction in that sense as well. Of course, if we were to make an acquisition, a win-win situation would be the minimum, absolutely necessary condition, but for example, even among Japanese companies, US companies, or European companies, there are quite a few companies that have good products but lack sales capabilities. Recently, I have been thinking very strongly that if we can partner well with such companies, acquisitions are also fully possible. I cannot say anything specific yet, but when I think about that, the background is that I would like to keep a certain amount of cash on hand. I would like to refrain from discussing specific details for now, but that is what we are thinking. If that happens, cash outflows could really be on the scale of hundreds of billions of yen, so that is the situation. That is why it is under consideration. Isayama [Q]: Thank you.

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President Takada,. Regarding the capital policy or the strategy you just discussed, do you plan to announce it again at some point, for example, in H1, or perhaps around next year as a new vision? What is the timeline? Takada [A]: As I mentioned, for something like this, we want to build a win-win relationship of trust, so it is definitely not something where we say it today and do it tomorrow. I think it is very important to gradually cultivate it, or to do various things together and build a relationship of trust between companies. There have been acquisitions in the past that did not go very well, and there are also things I think about when watching other companies do acquisitions. We will make plans at a certain point, but I think there are likely to be many cases where, while looking at things from a very broad perspective, we feel that we could do something with this company. Rather than saying specifically that we will start from a certain year, my image is that these things will emerge as we proceed with our work. Isayama [Q]: Do you have any intention to think about profit margins and return on capital? Takada [A]: This may sound like an evasive comment, but I think those things will naturally follow if we do proper work, so I do not particularly want to set those types of targets. I would like to secure them to a certain extent by really doing good work. Isayama [M]: Understood. Thank you very much. That is all from me. Kato [M]: Thank you. Next, Mr. Maekawa of Nomura Securities, please go ahead. Maekawa [Q]: I am Maekawa of Nomura Securities. Thank you very much for the explanation. I also have two questions. First, regarding results. In your plan for this fiscal year, you provided some breakdown of processing costs and material costs earlier. In the past, you have described the profit increase factor from higher production utilization using the term utilization, so based on the figures you provided, I thought it might include around JPY10 billion. How is this included? I think this is on the profit increase factor side. Also, I think the JPY16.2 billion in personnel expenses and welfare expenses is quite large this fiscal year, and I think most of this is personnel expenses. Is this due to what we can see in the increase in the number of personnel? I think your personnel count itself has been increasing from the past, and although the plan for this fiscal year is indeed for the number of personnel to increase, will this become a special point for this fiscal year? Including whether this will progress in this way, my first question is about utilization-related factors and personnel expenses. Thank you. Ota [A]: First, regarding the factor of increased utilization in this fiscal year's guidance, this time, with JPY1 trillion, volume will increase considerably, so we are factoring in around JPY13 billion from higher utilization. That is the first point. Next, regarding personnel expenses in SG&A expenses, this is as I explained earlier. First, we have a plan to hire 2,400 sales personnel over three years. As the background to this, I think there was the example of data centers earlier, but going forward, we cannot see what will emerge, or, as the President said earlier, what will be the winning segments, or what industries will emerge and what industries will grow. Humanoid robots will probably increase, and data centers will probably increase as well.

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One of our very close customers in the US said that they are now deliberately taking on the challenge of solar power generation. It seems that this will be used in space, but they said they will first do it on the ground. In that context, solar panels had been somewhat declining recently, but they are now attracting attention, and in China, orders are coming in 30% or 40% higher than the previous fiscal year. As these kinds of trends change quite significantly, in order to properly capture those trends and conduct sales activities there, the background is that we probably cannot capture them with the bare minimum sales personnel needed just to maintain current sales. Therefore, we view the JPY16 billion in personnel expenses in this fiscal year's guidance as an investment to increase sales personnel who can capture such opportunities. Of course, we cannot hire 2,400 people all at once, and in fact, we are now conducting recruitment activities, and there are places where we are able to hire and places where we are not, so we are struggling. Please understand that the JPY16.2 billion is the amount we calculated by first finalizing the number of people as a feasible figure that we think can be achieved and then converting that to expenses on an average-balance basis. Maekawa [Q]: Understood. Thank you. For my second question, I would also like to ask about cash allocation. As the President also said, the environment is changing. I think the most important point is that you are now in a situation where you can rather go on the offensive. In that case, conversely, although capital expenditure will decline this fiscal year, I also think it might be acceptable for you to clearly indicate cash allocation measures to increase it going forward. You said ROE will follow as a result, but I think it will rise once such investments are recovered. I would be grateful if there is a possibility that you will present your thinking on cash allocation going forward from that perspective. What are your thoughts on this? Takada [A]: Regarding that, if we were to make an acquisition, the acquisition target would already have a certain level of equipment, so I do not think there would be a major investment in that kind of equipment. Of course, making an acquisition would cost money. Therefore, we currently do not have such a plan. Maekawa [Q]: I see. In that sense, would it be correct to understand that M&A is becoming a fairly major topic, and since it is somewhat different from the direction of capital expenditure up to now, you are now at a point where you need to rethink things from a zero base in the first place? Takada [A]: Yes. I think that is exactly as you said. In the Japanese economy, and not only Japan, as I said earlier, this happens in every country; we can partner with companies that have technological capabilities but lack sales capabilities. We have stronger sales capabilities than almost anyone, so if we can take a form in which we expand sales of their products globally, that would be a win-win. I am very aware that I may be stating the obvious, but it would quickly increase sales and market share, and I think the possibilities have emerged more than before. Maekawa [M]: Understood. Thank you. That is all from me. Kato [M]: Thank you. Next, Mr. Taninaka of SMBC Nikko Securities, please go ahead. Taninaka [Q]: I am Taninaka of SMBC Nikko Securities. Thank you. I have two questions. First, how will the impact of tariffs in the new fiscal year become a factor for lower profits? Also, regarding your stance on price increases in response to this, is your current stance that you would like to raise prices,

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or as shown in the increase and decrease factors for profit, have you not factored that in to that extent, and will you prioritize gaining market share? Could you once again explain the degree of impact and your stance? Ota [A]: I will answer. First, regarding tariffs, of course, they are variable costs, so they will increase by the amount that net sales increase and by the amount that exports to the US increase, but we do not think this will be reflected in the profit margin. Next, regarding the possibility of price increases, of course, we are currently looking at competitors' pricing, and there is a discussion that we would like to raise prices if there is an opportunity. There is also news that a German competitor may reduce personnel slightly, so if that happens, their offensive is weakening . In the US, as well, other than products limited to special fields, I think the main rival will be Festo, so I think such opportunities may arise, but this has not yet been factored into the plan. Regarding US tariffs, an unconstitutional ruling has now been issued, and there is talk of refunding past tariffs. Tariffs have been imposed on us under various names, and the portion corresponding to so-called reciprocal tariffs was rejected in this ruling. Based on a rough estimate at hand, I think there is a possibility that approximately USD30 million in refunds may come back. However, this has not been included in the plan. I think that is about it for tariffs. Taninaka [Q]: Thank you. Second, in the fiscal year ended March 2023, you achieved an operating profit margin of 31%. I am wondering when there might be a story that would allow you to aim for that level again. Excluding the effects of foreign exchange, R&D expenses, and higher depreciation, compared with that time, I have the impression that the margin has declined considerably to around 23%, so I think there may be a fairly large impact from factors other than the increase in R&D expenses and depreciation. Could you once again explain the structural background to why the margin appears to have declined somewhat, and also what would be necessary to aim for the same margin as at that time? Takada [A]: Competitors in China is one of major factors. However, as we have also included in the presentation, we would like to further push value-added aspects such as the 4BAR factory, BCP, and the ability to provide service anywhere in the world. None of our competitors has capabilities that are even remotely comparable to ours in these areas, so we would like to push these value-added elements more. This is also related to deeper penetration, which I mentioned earlier. This is something I have also said many times, and we have not yet fully realized it, but as an approach to sales, we have been selling to maintenance people, equipment design engineers, and purchasing people as well. Going forward, we need to speak with management at a slightly higher level and sell the Company. Of course, it is important to sell products, but I think it will become more necessary to sell what benefits SMC can offer to customers. If that happens, it will not be easy to switch, and I think we can avoid much of the discussion about the price of each individual product. Therefore, a significant improvement in that approach is necessary, and we would like to move that forward. Ota [A]: I would like to add a little explanation from Ota. I do not know whether this will answer the point just raised, but when we look back at the situation regarding delivery delays around the time when we achieved record-high profit, delivery delays of around JPY90 billion or JPY100 billion were constantly occurring, and we made customers wait quite a long time. Also, in terms of parts supply, we were procuring from an extremely limited number of suppliers in Japan. When a slightly large order came in, operations would quickly become unable to keep up. Under those circumstances, although it is a little different from the meaning of running on a shoestring, we operated in that kind of way and finally managed to squeeze out a profit. We have a reflection that production capacity was clearly low relative to the increase in net sales.

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Based on that, we have continued to increase production capacity, and going forward, I do not think we will need that much additional investment. Also, regarding parts suppliers, people are now saying that crude oil is not coming from the Middle East and that there is no naphtha, but that is only a story in Japan. For example, at our China plant and Vietnam plant, we are in a situation where we can obtain as much naphtha-derived material as we need, which cannot normally be purchased in Japan. Therefore, in that sense, we have also continued to advance measures such as diversifying procurement. Is it better to rationalize to the absolute limit, make customers wait, and only increase profit? Or is it better to have customers trade with us with confidence in a more sustainable way, with profit declining slightly at first, but expanding profit over the medium to long term by deepening ties with customers? I think this is a difference in management stance. Please understand that we are choosing the latter. Taninaka [M]: I understand very well. Thank you. That is all from me. Kato [M]: Thank you. Next, Mr. Hotta of BofA Securities, please go ahead. Hotta [Q]: I am Hotta of BofA Securities. Thank you. My question is for President Takada. In your earlier response, you commented that if you do good work, results will follow. It is about the definition of good work. From your perspective, if good work means growing sales, then even if you spend more and more costs to grow sales, returns and profit will not necessarily follow. Conversely, if good work means growing sales and firmly improving profitability, with a focused stance to that extent, then I think results may follow over time. However, listening to today's discussion, I got the impression that improving profitability and increasing returns are lower priorities. I also got the impression that there is quite a strong focus on the cost side, such as M&A and increasing personnel, as you mentioned earlier. I think growing sales is good work, but I was concerned about whether profit will really follow, so could you once again explain President Takada's definition of good work, and, as was also asked earlier, how long it will take for the results to follow by doing that? Takada [A]: Mr. Hotta, I think there are various ways to look at this, but you referred to increasing sales personnel as a cost. However, unless we increase sales personnel, even if we have good products, customers will not buy them if they do not know about them. That is what I mean. Certainly, defining good work may be necessary, but I think the minimum necessary condition is first being able to provide what customers need in a timely manner. You said you felt that we do not place much importance on profitability when we do such things, but that is not the case at all. If we provide truly good products in a timely manner at prices customers can accept, people will buy them. That is what we are aiming for. Also, as I mentioned earlier, in such an unstable world today, I think being a stable supplier is extremely important. I returned from Germany yesterday, and yesterday I spoke with the top purchasing manager of a certain confectionery manufacturer, a world-renowned confectionery manufacturer. When I explained our BCP, they were extremely pleased. Our in-house market share is around 30%, but I think it will probably continue to increase significantly. I think those kinds of things are good work, and if we do those kinds of things, I believe a certain level of profitability will follow.

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As Ota briefly mentioned, last week there was news that Festo would cut 1,300 people, while we are growing in Germany, even under these recessionary conditions. In that respect, while calling it proof may be a bit much, I do think that we are not wrong. Hotta [Q]: Understood. Thank you very much. Regarding M&A, I have the impression that you have said before that the US pneumatic equipment market is relatively fragmented, with quite a few small suppliers. Is it correct to understand that the image is to consolidate those kinds of companies? It does not mean entering other fields, does it? Takada [A]: There will be no completely different fields, but adjacent fields are possible. As I mentioned earlier, having good products or having good technology is the minimum necessary condition. In pneumatic equipment, this is our own view, but we believe we are the best, so it is not necessarily clear whether it will be pneumatic equipment. Hotta [M]: Understood. Thank you very much. That is all from me. Kato [M]: Thank you. Next, Mr. Fukuhara of Jefferies, please go ahead. Fukuhara [Q]: I am Fukuhara of Jefferies. Thank you. I have two questions. First, regarding how you prepared this net sales plan of JPY1 trillion. There is a monthly sales ratio shown on one of the inventory slides, and when I calculate using that, I think the most recent net sales were around JPY86 billion. If so, coincidentally, multiplying that by 12 gives JPY1 trillion, but looking at the order charts at the end, of course, your net sales increased in March and April, but they can also decline. Therefore, as your thinking behind this net sales plan, are you assuming that the situation in March and April will continue? Thank you. Ota [A]: This is Ota. I will explain. Every year, March or April is high, and then it declines slightly toward June, and it rises from there. That is the image I have. This time, we have a clear driver of strong semiconductor demand, and for this, I think it may move in a similar way to the increase from 2020 to 2021. Our sales team has conducted various hearings with major semiconductor players, and they have given us strong figures, such as 1.5 times the previous fiscal year this fiscal year and 1.5 times this fiscal year next fiscal year, so that is one point. Another point is the net sales in China that I mentioned earlier. In China as well, March and April increase every year, but the figures are higher than that, so although JPY1 trillion is of course a challenging plan, I think it is within reach to a certain extent. Fukuhara [Q]: I see. My second question is about the selling price environment. Looking at the increase and decrease factors you provided, there was a positive effect of JPY4.8 billion companywide in the fiscal year just ended, of which Japan was JPY7.1 billion. Overseas was negative JPY2.3 billion. In your explanation at the beginning, you said that China is returning to zero. Was that referring to the three months of Q4, or was that for the full year? Based on that, selling prices are up JPY4 billion this fiscal year, but since that is JPY4 billion in Japan, I think overseas is zero. What I am concerned about is whether China is positive in selling prices this fiscal year, or

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whether there are positives and negatives in some regions. How are you currently thinking about this? In particular, what I am most concerned about now is Asia. What was the selling price environment like in Asia in the fiscal year just ended and this fiscal year? Thank you. Ota [A]: First, speaking in terms of Greater China, the movement in selling prices in Greater China from Q3 to Q4 was negative JPY0.2 billion in amount. Since the denominator in Greater China is quite large, I think it is fair to say that price reductions have almost stopped. There is the question of how long this trend will continue, but regarding Greater China, as I mentioned earlier, semiconductors are of course growing, and beyond that, solar panels, EV batteries, and storage batteries that store electricity generated by solar panels are also areas of growth. Recently, the US has started a war in the Middle East, and I saw an ironic article somewhere saying that this is, conversely, promoting the use of renewable energy, which the current US president does not want. This is exactly what is happening in China, and I think investment in those areas may increase once again. In that situation, I do not think we are in an environment where prices are declining. In addition, for data centers and other areas, new customers are coming in, and they also place a very high priority on speed. In China as well, they are coming to us with demand to build data centers at a tremendous pace, so I think it is probably us, as a top manufacturer, that can respond to that kind of major demand. As long as we can meet delivery deadlines, I think it may be possible to sell at a certain price level. From that perspective as well, I think prices in China will probably not decline that much this fiscal year. You also asked about Asia. For Asia, there are two factors behind this. Chinese companies are expanding into Asia, and Asian prices, which were originally high, are being pulled down by Chinese companies. I think that element exists. However, in Asia, for example, Taiwan, South Korea, Singapore, and Malaysia have significant semiconductor demand. Earlier, I explained that when semiconductors increase in Japan, margins decline, but that is not the case overseas. If the ratio of semiconductors increases, I think margins will increase. We can sell at somewhat higher prices. There are fewer competitors, so that is only natural. In that sense as well, I have a fairly bullish view that Greater China and Asia are unlikely to be negative to that extent. Fukuhara [M]: I see. Understood. Thank you very much. That is all. Kato [M]: Thank you. The scheduled ending time is approaching, so we apologize, but we will take questions from two more people. Next, Mr. Tai of Daiwa Securities, please go ahead. Tai [Q]: This is Tai. Thank you. First, I would like to confirm a few points in the various disclosed materials other than the financial results summary. One is that, in the amendments to the Articles of Incorporation you have presented, the item on share buybacks has been deleted this time. I am not knowledgeable about this, so I would like to confirm whether it is correct to understand that this will become a matter for the General Meeting of Shareholders going forward, rather than a resolution by the Board of Directors. Also, Mr. Ota will be retiring this time, so I would appreciate it if you could introduce who will take on Mr. Ota's role as CFO as his successor.

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Also, regarding the cash allocation policy you mentioned earlier, you said that, because the current situation is as it is, you have decided to postpone it for now. Should we understand that you would like to present it around this time next year, after running the business under the new structure for about one year, or should we understand that, because M&A is also involved, even announcing the timing itself is rather difficult? Could you first confirm these points? Ota [M]: Regarding the amendments to the Articles of Incorporation, Kato, please. Kato [A]: I am Kato from the Corporate Communications Office. Regarding the amendments to the Articles of Incorporation you just mentioned, the provision on share buybacks that was originally in Article 7 of the former Articles of Incorporation has been deleted. Still, a new Article 37 has been established near the very end, and this provides an article on the decision-making body for dividends of surplus and so on. This provision allows year-end dividends and share buybacks to be decided by resolution of the Board of Directors, so the fact that share buybacks can be decided by resolution of the Board of Directors is the same as before. Tai [M]: I see. Understood. I am glad I asked. Thank you. Takada [A]: Regarding Mr. Ota's successor, Mr. Miyazaki, who is currently serving as an outside director, will come inside the Company and serve as his successor. Regarding cash allocation, it is as you said, and M&A may also be involved, so I think we need to handle the timing properly. Tai [Q]: Understood. Thank you. The other point is that there have been various discussions related to M&A, and you said that there are many companies that make good products but have weak sales capabilities. However, SMC is also saying that SMC needs to increase its own sales personnel, and there was also a discussion of Lanchester's law. As the President also mentioned a little earlier, I understood that you are becoming fairly proactive in considering M&A to expand into non-pneumatic areas, rather than pneumatic areas. Is that correct? Finally, could you also tell us whether electric equipment will become one of the key words in that context? Takada [A]: Regarding electric equipment, since around the time I joined this company, there has always been discussion like that, and there has always been talk that electric equipment would replace pneumatic equipment. However, as you can see from the current situation, it has only captured a certain level of market size. That said, we are not completely ignoring electric equipment. We are also expanding our lineup of electrical products and expanding sales, so that is the situation. Does that answer your question? Tai [M]: Understood. Thank you. That is all from me. Thank you very much. Kato [M]: Thank you. This will be the final question. Ms. Kuze of Nikkei, please go ahead. Kuze [Q]: I am Kuze of Nikkei. Thank you. Please allow me to ask two questions. First, I would like to ask whether your concerns regarding the situation in the Middle East and rare earths are incorporated into the earnings forecast for this fiscal year. You also mentioned earlier that naphtha is abundant in China and Vietnam, so could you explain this in relation to those points as well?

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Ota [A]: This is regarding the procurement of components and materials. Particularly for materials such as aluminum and copper, prices are rising, but there is no situation where we cannot procure them. For rare earths as well, we are moving up procurement, and at present, there is no situation where any problems are arising. I think you are referring to the impact of naphtha on production in Japan. Packaging materials are somewhat more difficult to procure than expected. Also, including our partner companies, paints and thinners used for product coating and similar items are in very short supply. Since we still have purchasing power, I have heard that SMC buys them and supplies them to partner companies. However, at present, we are in a situation where we can manage in this way. If asked what will happen throughout the fiscal year going forward, I can only say that I do not know, but I can answer that no such major problems have emerged at present. Kuze [Q]: Thank you. To what extent and what kind of impact have you factored into the earnings forecast figures? Ota [A]: In the earnings figures, first, we are factoring in that raw material costs will rise in the cost of sales. In operating profit, we expect raw material costs to increase by around JPY6.1 billion in amount. You may think this figure is a little small compared with the recent surge in prices of various components and materials, but as you saw earlier in the inventory section, we have inventories equivalent to around half of annual net sales. Since our gross profit margin is about 50%, although it is currently slightly below that, this means we have about one year of inventory. Of course, there are differences depending on the parts. Even if prices rise now, the items first enter the inventory pool and then flow into cost of sales at the average cost. Therefore, current price increases do not immediately lead to higher costs in this fiscal year's guidance. That is why we view the amount as JPY6.1 billion. Kuze [Q]: Thank you. Is it correct to understand that most will be covered by inventory, but you expect around JPY6.1 billion as the impact of the situation in the Middle East? Ota [A]: Yes. Items we newly purchase can only be purchased at higher prices, so we add those to the lowerpriced items purchased in the past and divide by two. Then, we expect cost to rise by around JPY6.1 billion. Simply put, that is what it means. Kuze [Q]: Thank you. Second, you mentioned that profit margins in Japan are lower than the average and lower than in other regions. Could you explain the reasons for that and the outlook going forward, including countermeasures? Ota [A]: When I said that Japan's profit margins are low, I was limiting that to the semiconductor field. What I meant was that profit margins in the semiconductor field in Japan are slightly lower than those for other industries in Japan. Kuze [M]: I am sorry. Thank you. Ota [A]: Regarding countermeasures, I think the only thing we can do is to offer good products that customers like and increase added value. Kuze [Q]: Thank you. Is that the situation for the field as a whole, not only for your company, but rather for the industry overall?

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Ota [A]: I am not sure about that. It is difficult to become a member of the semiconductor industry unless a company has considerable strength, so there are many large customers. In other industries, of course, we also supply our pneumatic equipment to large companies, but beyond that, it is also used by people at what you might call small local factories. It may be very rude to call it a broad base, but we supply customers of various sizes. In semiconductors, by contrast, we sell only to fairly large companies. I imagine that this is also one reason profit margins are somewhat low. Kuze [M]: Thank you. That is all from me. Kato [M]: Thank you. The scheduled time has generally arrived, so we will now conclude today's financial results briefing. Thank you very much for participating today. [END]

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Document Notes 1. 2. 3. 4.

Portions of the document where the audio is unclear are marked with [inaudible]. Portions of the document where the audio is obscured by technical difficulty are marked with [TD]. Speaker speech is classified based on whether it [Q] asks a question to the Company, [A] provides an answer from the Company, or [M] neither asks nor answers a question. This document has been translated by SCRIPTS Asia.

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