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Teruaki Urago: Now we would like to start Nidec Corporation's preliminary report on the performance values for Q1 of FY2025. First, we'd like to introduce ourselves. We have Mr. Mitsuya Kishida, the Representative Director, President and CEO of Nidec Corporation, and we have Mr. Akinobu Samura, who is the Chief Financial Officer of the company. I am Teruaki Urago from the IR Department. I'm today's moderator here. I would like to have Mr. Samura first to give a presentation on the preliminary report, followed by Mr. Kishida's presentation on the company's corporate strategy. We would like to have a question-and-answer session after that. If you have any questions, please wait until then. We would like to finish this conference at 6:00 p.m. today.
Akinobu Samura: Thank you very much. This is Mr. Samura speaking. I'd like to give you an update on our financial results. First of all, I'd like to offer my apologies for the trouble caused by the additional investigation into the IRC country origin matter. Since we cannot give you the results of our performance the way we normally do, we decided to have this voluntary disclosure as the preliminary report on financial values, which is something that we would like to explain with notional remarks after that in this presentation material. I would really appreciate your understanding on this. When it comes to our consolidated performance compared with the same time last fiscal year, we have had a relatively large fluctuation in currency exchange evaluation. And against the US dollar, the yen has been appreciated by 7.2% in the middle of the quarter and 10.1% towards the end of the fiscal term. Our net sales was JPY637.9 billion, which was down by 1.6%, and operating profit was JPY61.5 billion, or 9.6%, with a slight increase by 2.3% from the same time last year. When it comes to the profit before income tax, it was JPY59 billion, which was down by 24.5%. When it comes to the quarterly profit attributable to the owner of the parent, it was JPY45. 5 billion, which was down by 18.5%. The financial forecast for this fiscal year remains unchanged, as you can see on the far right of this table over here. Next, information by product segment, the small precision motors were able to have this increased profit compared with the prior fiscal quarter. This is thanks to the expanding demand for the HDD motor for nearline and other applications. It is also thanks to the expanding demand for water cooling modules for AI servers, and they were able to convert into the business portfolio that is more profitable than before. The next one is about automotive, which is the top-right corner. They were able to secure increased profit compared with the prior quarter as well. They were able to have this traction motor business in China, where they were able to continue to have profit. When it comes to NPe, our joint venture in Europe, they were able to progress with the mass production, but their sales were in a struggle and the deficit remains to be in existence. When it comes to a [MX organic] business, the OEM manufacturers in Europe were in a struggle and some improvement actions were taken under the new management. Because of that, there was a temporary cost increase by JPY2 billion. But still, they were able to keep this increased profit compared with the prior fiscal quarter. The next segment is about the appliance, commercial and industrial segment. This is the segment most prone to the currency exchange fluctuation. Compared with the prior quarter, there was a decrease by JPY2 billion. The business was still going very well for our base business as well as power generator business. But still, the usually highly-profitable US motor had a drop due to seasonal factors. There are some ongoing projects such as the consolidation of business bases in Europe and a structural reform cost of JPY1 billion was recorded as well. All in all, the situation was rather in decline. The final one is about automation and machinery. They had a decrease in sales and operating profit due to their decreased sales. There were some issues with the profitability of the sale of the businesses as well as the issues regarding the M&A-related cost and profit. These are temporary issues that are reflective of this final segment's latest performance. This chart shows the net fluctuation that excludes currency exchange fluctuation as well as structural reform-related cost. You can see, when it comes to the currency exchange, the impact on sales was JPY35.8 billion and the impact on the operating profit is JPY[2.6] billion. We had JPY2 billion on the impact of the structural reform and a JPY1 billion impact on appliance, commercial and industrial. Compared with the last fiscal year, there was an increase of JPY1.5 billion when it comes to structural reform related to cost. Last fiscal year, we made NPe a wholly-owned subsidiary of Nidec Corporation. Therefore, we had a temporary increase of profit by JPY10.1 billion. All in all, without these temporary elements, all the product groups were able to have this increased profit. All the information related to product groups was exactly the same as the information that I've just given you. Next, free cash flow, the level remained low at plus JPY9.8 billion for this past Q1. In order for us to stably generate free cash flow at a level higher than the certain level, we need to be able to properly control the operating capital, including inventory. We will continue to strongly take improvement actions by staying very close to the front line of our businesses. At the same time, we will make sure to spread the use of ROIC as a tool so that we can convert our business portfolio into a more profitable one. That is all from me. Thank you very much
Mitsuya Kishida: From here on, I would like to explain to you some major topics followed by a progress report on our midterm business plan. This is Mr. Mitsuya Kishida speaking. Over the past three months, I, myself, have been able to and have had to solve immediate issues. We need to become a bigger and a better global company. These are very important and necessary steps for us to take. I was determined to address various issues, including structural reform, business reform, integration and the reform of the global headquarters. All of these things are part of the actions that we need to take, in my opinion, and I would like to work with all the global management executives. That's my personal commitment as well as the company's commitment. That's one thing that I want to share with you today. First of all, please take a look at the chart over here on this slide. This is the original form of our structural reform. This is about how this could drive business. Quarter-by-quarter, we have been doing various business, nearline server, water cooling business, et cetera. The ratio of these businesses is growing larger and larger, and nearline business is approximately more than 80% and, quantity-wise, it's over 60% of the entire quantity of this business. These are the major driving forces of this business, small precision motors. Please look at this data center-related information. As I look back over the past year, we have had a problem and issues with NVIDIA chipsets. We have gone through a lot of discussions since then, and we have been able to understand our position in this market. That's what we have done over the past year. When it comes to the entire market, we have a platform, including software, hyper software, cloud server-related vendors, and we have various leaders in this industry. There are long-time leaders of this industry as well. We have power generation, power supply business, infrastructure business, emergency switch business, and many other different businesses exists in this industry. That's what we have understood as a group, and that's what we have learned over the past year. Please take a look at the photo here. This is in Chiba Prefecture, the MC Digital Realty NRC 12 data center located in Inzai in the Chiba Prefecture. The test operation will start in full scale from next month. That's what I made in a statement of press release back in June. This is Nidec's original specification, In-Row type. Please take a look at the photos on the right. This requires Nidec's own specifications, unique specifications. We would like to appeal these products to a wide range of potential customers and business partners, and we have had a lot of discussions on specifications. From now onward, we are going to expand this business is my feeling. When it comes to this domestic data center, this is not just about that business only. We will target the United States, China, Japan. We are receiving inquiry [about] quick-coupling CDUs, rack In-Row type related inquiries are what we are receiving at this moment. Towards the end of H2 of this fiscal year, we will have [lifted up] this business successfully. In order to do that, we need to redevelop our own basic infrastructure. When it comes to Q1 of this fiscal year, the air conditioner compressor business is something we would like to talk to you about. We have been doing that business for a long time. We have had this new member of the company as part of our business group. Scroll compressor manufacturer is the type of business that they do. We have made a press release about this. When it comes to this compressor, we are going to unify all the products under the Nidec brand, and we are going to target the heat pump for commercial use, and data center chillers. All of these new and large products will be what we are targeting going forward. From here on, I would like to explain to you Conversion 2027, which is something we have already made the announcement on before. This is the overall picture of the Conversion 2027. Towards that fiscal year, we would like to improve our cost structure. We are going to be focused on five different business pillars. Thirdly, we will convert to become a truly global system as a company. As I've said, the third one is the major topic for all of us at Nidec. There are quite a few things we need to do. Comprehensively, we will take action so that we can become a true global company. That's what we are doing at this moment. Among all these activities, we need to reduce the variable cost by JPY100 billion. As you can see here, JPY2.6 trillion, [500% of that is generated by this portion over here. The remaining 50% are these businesses over here. We have core businesses and noncore businesses we will review. It may take time a little bit, but we will review all of these. As we move forward with the discussion, the JPY100 billion improvement in variable cost will be done in conjunction with our efforts to reduce JPY50 billion in fixed cost, as we move forward, the noncore business downsizing and also pulling out from the unprofitable businesses. Furthermore, consolidation of the business sites, those are all going to lead us to complete the JPY50 billion reduction in fixed cost, and we have completed our plan to show the pathway to achieve that in Q1. Also, for the appliance Qingdao business site, we have two factories for the home appliances. We have stopped the operation for this. For the newly-built large campus factory in Qingdao, we will consolidate the production capability. We will be doing similar initiatives for each of the five business pillars. For the 10% of the operating profit, a lot of that is accounted for by the automotive products business. For this, from before, our traction business, the JV in China, we are trying to change the direction of that business, and also for the existing businesses, the integration with ASIM we are conducting business reform and also transforming the NPe business. We are trying to augment our efforts around these initiatives. The structural reform in Europe and the US and also transforming the automotive business are what we are doing as part of focusing the business portfolio, and we will continue to make those efforts. On top of that, as we look beyond for further growth, to transform the conversion business is going to be something that we are going to focus to grow. The pictures you see here are from the Reynosa factory in the US, the Lexington factory, and the Mankato factory. As you can see from the pictures, you see a big turbine-like motor. Using this, we are manufacturing the power generators. In April this year, I visited the sites, and we decided on the ramp-up on the spot, and we are now preparing to ramp up the production there. Within these three months, the customers have mentioned the big potential demand growth over the next three years. I will be there again next month, and with big companies like Caterpillar, we will be discussing the plans to expand our [seating] capacity for their emergency power sources. We need to graduate from the charismatic business management, which means that we have to have a system in place and also reform the process. That's what I have been focusing on. In order to do so, we are going to consolidate the business portfolio into five business pillars. For that, the customer base, our development capability, the production capability, and the sales and marketing approaches from many perspectives, we are going to be revisiting the whole operational flow. One example I can share with you is shown on this slide. For the Technological Chief Officer, we have appointed CTOs for five business pillars. We have launched a CTO summit to coordinate our global technological capabilities across the group. What we need to have as a technology that will be identified. We will be revisiting our existing technology in order to try to fill in the gap. We have just commenced this initiative. Also, for R&D, we are going to have a coordinated global system. For that, we are also introducing digitalized PLM. These CTOs for the five business pillars, these six people, across different business entities, they have been appointed for those five business pillars, and they will go beyond the boundaries of the organization to coordinate from a technological perspective. Also, the discussion is not just about what we can do with technology, but we will be sharing the information with our global CFOs and also with the HR organizations. We will simplify our global organizational structure to manage the process and their business. In April, we announced the Chief Digital Officer and Chief Human Resource Officer’s appointment. On top of that, as of July 1, we have appointed a Chief Legal Officer as well. At the global headquarter, the CLO will be looking at the legal matters throughout our organization from a global perspective. The person appointed was Mr. Kazuya Murakami, who had been serving as our Director as well as auditor. He will be sorting out the challenges that we confirm today from the legal perspective. Mr. Murakami, the CLO, under him, for US, which is a critical market, we will have a [US] lawyer to look at all our business entities within the US who will directly be reporting to me, and that will be included as of September 1. Also, the professional person in supply chain for trade will be appointed as a director candidate, and he or she will be part of the management team effective September 1. Also, we have augmented our talent team in order to pursue a pathway to become a global organization. Nidec will continue to have a huge opportunity and potential to become a great company. To unleash that potential, we need to confront the current challenge by trying to globalize the system and also reform our process. Building the foundation is something that I personally am committed to do. I hope to continue to enjoy your generous support. Thank you very much for your attention. This will be the end of my presentation.
Teruaki Urago: Thank you, Mr. Kishida. Now, we would like to move on to the Q&A session. Also, we will deliver the microphone to you, so please raise your hand and ask a question. Our first questions will be from the securities companies. Then, after that, we will get the questions from the media. Would anyone like to kick off? The person in the middle, please? Takayama This is Takayama from Goldman Sachs. I have three questions. My first question is regarding the trade issue and the tariff issue. You had some internal conflicts, and you're doing some investigation. Can you elaborate on what exactly the problem was, what the background to this issue was, and what kind of investigation is ongoing? What are the measures to avoid the recurrence of this? I think this may link to your new legal structure that you have formed. Can you give us more details? Can you make sure that there are no further issues from any of your subsidiaries? I think that is a concern that's raised by the investors. Can you elaborate on that point, please?
Mitsuya Kishida: I will respond, and Samura-san will make additional comments as needed. In this incident, we acquired a business entity from Kinetek in 2012. It's a company called FIR, and their country of origin expression to the North American market was not accurate. That was the starting point of the problem. To deal with the country of origin issue, we started a specific investigation. As this was discovered in the latter part of 2023, the report was submitted, but the measures taken to date, there were [many] deficiencies on our side and for any of the categories other than FIR. As our own resolution and commitment, we said that we want to do a further investigation on any potential issues elsewhere. Also, for FIR, the investigation has already been completed. Also, I can say that the investigation is now complete. On top of that, we are broadening the scope of the investigation as a show of the role of the company to make sure that there are no other incidents. ASIM, which is overseeing this whole business, we are looking into the whole ASIM to make sure that there are no other similar incidents. Because we have this investigation, from June end, we have extended the submission date of the financial reporting for three months. At this point, I cannot make any specific comments about the potential outcome, but we are doing the appropriate investigation. If we find any issues that need to be dealt with, we will respond immediately, and we are preparing for that. Takayama Also, at this point, you have extended the deadline to the latter part of September. Can you make that deadline with your investigation?
Mitsuya Kishida: For that, on a daily basis, from morning to night, we have relevant people across the different global sites. Regarding the imports to the US, they are collecting the evidence and also the people in charge, or the business owners, are being interviewed. Through those efforts, we are conducting the investigation. On a daily basis, we are working on this, and we plan to complete by the extended deadline. Takayama Thank you. My second question is regarding the variable cost. At the outset of the year, you had mentioned an absolute number for fixed cost, but now you say you have completed the plan to reduce the variable cost. That said, on the variable cost, in order to cut the variable cost by JPY100 billion, would you expect some increase in the fixed cost as a one-off, or would you be able to further reduce the fixed cost, because you said that these two are correlated?
Mitsuya Kishida: Yes. Thank you for your question. Addressing this variable cost is not just simply reducing the raw material ratio. Also, we are saying that we want to cut variable cost by JPY100 billion by selecting and focusing on the businesses that we'd like to continue. So, we may be pulling out from the underperforming businesses, and we also may be negotiating with the customers to improve the profitability of our business. So, our fundamental operation will also be consolidated like the example I gave out about the Qingdao new campus. We are willing to close some sites to consolidate to a larger base. Also, for the fixed cost efforts, we also have better clarity. Takayama My last question is, in H2, you will have to push upward the OP by JPY70 billion, and you have JPY65 billion, so I think Q2 will be okay. But as you move to H2, you need to bring up the profit to JPY70 billion or higher on a QoQ basis. What kind of changes do you need to make? What kind of improvement do you need?
Akinobu Samura: This is Samura speaking. This is part of the midterm plan that we have. I believe your question is related to that plan. As I've said, when it comes to small precision motors, they are becoming a very highly-profitable structure. We have other smaller motors. That's another segment that we have. There are some nonprofitable businesses. We need to make the business shrink, and we need to say no to any future offers when it comes to those nonprofitable businesses. There are some business which we need to grow, alternator power generators. We are having a huge surge in demand. When it comes to the mine business unit, our backlog is more than JPY400 billion already. So when it comes to this business portfolio, in Q3 and Q4, we are going to see a significant conversion in Q3 and Q4 this fiscal year. This will become a huge business driver for our business going forward. Takayama When it comes to the JPY3 billion in Q1, when it comes to this cost reduction, can you elaborate on the quarterly strategy when it comes to fixed cost reduction or temporary cost handling? Company Representative We have negative one-timers and we have positive one-timers as well. We have business consolidations taking place. Real estate- related ones are sometimes what we need to focus on. We have profit-loss makers, profit makers. We definitely need to make a balance between the two, even though we are not going to be perfect in that effort. Takayama About JPY3 billion, are you going to say that you will be seeing this type of amount less and less going forward? Company Representative We are having this midterm plan. We have planned structural reform. We need to realize the amount of loss as we try to speed up the process of this structural reform. We would like to keep in mind about our pace in Q1. That's what we’d like to do. Takayama Thank you very much for that.
Teruaki Urago: Any other questions from anyone? Please go ahead, the person on the left. Akizuki This is Akizuki of Nomura Securities. I'd like to give you some detailed questions, if that's okay with you. When it comes to machinery sales, there seems to be a significant decline there, and there is not so much an effect from currency exchange fluctuation. You have made some comment on that. Can you elaborate on the performance of the business unit, automation and machinery?
Mitsuya Kishida: When it comes to machinery and automation, when it comes to the tooling machine business, compared to Q4, sales are declining significantly from Q4. When it comes to this machine tool market, sales tend to increase towards the end of the fiscal year. So there is a decrease from Q4 to Q1, as you can see, when it comes to sales. As I've touched upon a few minutes ago, when it comes to inquiries and order intake, it was over JPY35 billion back in Q1, and the sales are as much as JPY23 billion, so the amount is 5x. So order intake is going very smoothly. There are some seasonal factors when it comes to this sudden drop. Akizuki Thank you very much for your answer. My second question is as follows, which is about the power generator business. I believe Kishida-san had made some comment on that a few minutes ago. Can you add some comment to that comment, please? When it comes to North American power generator business, one idea is to utilize LNG. That's one major trend up there in North America. [Siemens], GE, among other companies, are some of those companies in that type of business. When it comes to your company, Nidec, you have the super-large power generator. I believe Caterpillar is one of the names. I believe that's one of the suppliers for that product. You have partners, I believe, and you're going into this business. Is that the correct thing to say? Are you going to increase your capacity in that area? When it comes to the power generation made by liquid natural gas, the backup generator needs will decrease because of the possible redundancy, and you will be making probably fewer and fewer such backup generators in the future.
Mitsuya Kishida: Thank you very much for the question. When it comes to data center, data power source, that's not what MOEN is doing. They are in the emergency power source business. We have customers. There are some customers in this business. Emergency, they are all Tier 1 businesses. They are covering pretty much the entire industry there. There are customers of these Tier 1 customers. Those are the customers that are very famous as the worldwide brands. We have a large customer base, in my opinion, and fuel trends may change. The sources for power generation will change, will continue to change. When it comes to emergency power generation, such sources of emergency power generation will not be gone completely. They will stay here in the business. As changes are made, we are making changes. We are making changes as we try to adapt ourselves, continue to adapt ourselves, to that business. Akizuki The third question is also related to this area, water cooling, a data center related question. We have pumps, large pumps, at the foot of the data center. I believe you will be using nuanced people when it comes -- I believe you have a large market share when it comes to pump in North America. Do you foresee any increase in the demand for pumps for these data centers? It could be a Tier 1-to-Tier 1 business, but are you going to make or are planning to make any access to such area in the business?
Mitsuya Kishida: Please take a look at the photo over here. It's not that our internally-produced pumps are used here. That's not the case. We have quite a few group companies that are producing these pumps. These pumps are usually mainly for cars. These pumps are produced in the United States and elsewhere. We are converting this technology for this business over here, as you can see on the slide. We need to make sure that these products are installed in our customers' products. We are making progress to make these pumps part of the data center business. I believe you're talking about the huge pumps for the chiller, the water to be coming from the chiller, which is outside of the data center. We're not having those huge pumps as part of our product portfolio. When it comes to these pumps that we have just talked about, we could expect expansion of our product portfolio. I believe NMC has a large pump business. I believe you're talking about the pumps for natural gas. It's more like a motor rather than a pump. It's a propeller-equipped product, I believe, a turbine-like product, I believe. Those turbines may be used in this type of business in the future. But as I've said, I'm talking about the scroll-type chiller business. That's one of the new possibilities that we have for our future company's future. This is one of the five major business pillars that we are discussing.
Teruaki Urago: Any other questions from anyone? The person on the right, please, in the back. Naito I'm Naito of Citigroup. I'd like to give you two questions. When it comes to variable cost, I have a question for you. When it comes to this structural reform, sales expansion and sales business shrink, withdrawal, OP percentage, 10% or less could be that category. Automotive, for example, that could be the business with a 10% or less operating profit ratio. If this business fails to reach the 10% operating profit ratio, could this business be subject to this type of policy over here? How about the time line for taking those actions, please?
Mitsuya Kishida: When it comes to the target of this company-wide policy, there will be no exception. Whether it's our automotive business, whether it's any other business, there will be no exception when it comes to this company-wide policy. That's one thing that I want to tell you first. When it comes to the timing, we need to think about our customers. We cannot make decisions alone. That's not something we can do. We need to think about our customers. We have this scenario that we need to make covering up to 2027. If we need to withdraw from certain businesses, we need to let the customers know, and we need to discuss the timing with our customers. We have some declaration made about some of our businesses that have been cash bleeders. We have not been able to make a profit more than 10%. And we have been able to convince those customers about the price increase, and we have been able to shake hands with these customers for new business opportunities,. So withdrawing from our business is not everything about what we are trying to do. We'd like to increase more profitable businesses in our hands. Naito Thank you. My second question is about when it comes to this performance back in Q1, and now this Q1 is behind us, behind you. Do you see any changes in the demands regarding the tariffs payment in the United States? If you have any opinions regarding Q2, July through September, please let me know. Thank you.
Mitsuya Kishida: The significant decrease in demand caused by these tariffs is not something we are facing. When it comes to our businesses themselves, we have business taking place in each of these regions here. We are producing and consuming products locally in individual regions. Regardless of changes in the tariffs, we will produce products locally, and we will deliver products locally to our local customers. These current tariffs are not really making any huge impact. That's one thing that I'd like to say based on our long years of business, 50% from Brazil, several percent from Mexico, et cetera, according to several tariff-related talks. There used to be NAFTA. We have USMCA, which is a new form of a trade agreement. It was established back in a few years ago. Up until 2036, this treatment will be in effect. The products will be protected under this treaty. In 2026, the triple-nation talks will be held, and they will be able to decide whether to continue or discontinue this type of policy. The 50% decision today is not going to be in effect forever. We have this supply chain. We have a long range. We need to think about this type of situation in the long range. The 50% tariff ratio for Brazil, Mexico, et cetera, situation varies from country to country. We are not really suffering any huge impact from the tariffs in place. We have had some impact by JPY5 billion or JPY6 billion. We are having these communication discussions with our customers, trying to minimize the impact of the tariffs. That's what we have been doing, and we will continue to do it as a manufacturer in order to survive the situation as a manufacturer.
Teruaki Urago: The next person, please? Goto Thank you for the presentation. My name is Goto from Mizuho Securities. I have two questions. My first one is, earlier, you said that the cash flow level in Q1 was relatively low. Can you give some additional commentary around why that was the case? You did not disclose the balance sheet information, so we cannot confirm, but are there any material changes to your balance sheet? Company Representative Yes, Samura-san will respond to that question.
Akinobu Samura: The cash flow did not grow that much this time because the working capital reduction did not progress as anticipated. The background to this was mainly in the business segment. It's MOEN. As we discussed earlier, the energy-related business for that, we had a lot of intermediary inventories. So, we had made some upfront preparation for the business. At this point, we are not at a phase of trying to reduce the inventory. For machine tools, the revenue is above order book, so we are not able to reduce the inventory. This is a result of a positive business trend in a way. Goto I see. My second question is, for the organic auto products, the margin improvement is happening for real. What triggered this improvement? Revenue was tough, but why were you able to still improve the profitability? Going forward, how much more room do you see for further improvement going forward?
Mitsuya Kishida: Yes. Thank you for your question. For the organic auto products business, mainly the customers are European and US customers. Especially with the European customers, we are going through some major transformation, or the customers are going through the transformation, so we did not see a big growth in sales this quarter. But since last year, we have been trying to transform our business portfolio. Through those initiatives, we have been making improvements through negotiations with the customers. This is not a type of business or product where we close a contract and then get the revenue immediately. With many customers, we have been able to solve the issue, and this will lead to further expansion of business going forward in FY2027 or FY2028. The current improvement we're seeing is the benefit of the operational improvement and also the result of the structural reform. Do you have anything to add?
Akinobu Samura: No.
Teruaki Urago: Now, we will open up the Q&A session for the media, please. The person in the middle, please go ahead. Unidentified Participant My name is [Mita] from Nikkei Newspaper. Looking at the US-Japan tariff negotiation, it's decided at 15%. I think there will be some impact to the auto customers. What are your responses to the tariff that's been or that will going to be implemented?
Mitsuya Kishida: Looking at the media reports, it's the tariff on what is exported from Japan to the US. As for industrial goods, we don't have a lot of goods in our business where we produce in Japan and export to the US. The Japanese OEM who asked us to supply in Japan, we manufacture in Japan and supply in Japan from our capacity in production. So, with the tariff from the US to Japan decreasing from 25% to 15%, it will not have a huge impact. When we deliver our goods to the US, it may come from China, Europe, Asia or Latin America, and from different origin of country, how the supplies are being delivered. In some cases, we may be the importer, and we may deliver those to the customers, so we need to grasp the overall view of the supply chain. After understanding that, we have been studying the impact of the tariff since last fiscal year, so it was not a surprise for us. Maybe this was not the direct answer that you were looking for. In order to mitigate such an impact, we have been making efforts in the past multiple years to locally manufacture and locally sell. Also, through this communication, I think what's been under attention is the rare earth export restriction in China. The nation has a policy to moderate the export restriction. I think that is also being reported in the media. But in practice, in the volume that we need and the volume that's being exported, there is a gap. So, as a manufacturer, we would like to be prioritized for those rare earth exports. So, we are discussing with the government and regulators to closely monitor the situation. Unidentified Participant Regarding the tariff, the direct impact may be just JPY5 billion, JPY6 billion, but indirectly, if the customers' business performance deteriorates, how would you assess the indirect impact?
Mitsuya Kishida: Well, I think your question is coming from Japanese OEMs exporting, like, 1 million cars to the US. I think you need to raise that question to that particular OEM, but that customer is a global top-tier company, and they also have production sites in the US. So those OEMs are also our customers in the US market for our US business. Also, when production shifts to the US, we will also follow suit, so we do not expect a big drop in the demand in that sense. We have very close communication, and this is beyond our control. So, we will continue to collect the information to be able to respond to what is needed by the customers in a flexible way. Unidentified Participant The other question is regarding the cooling module business, which is improving. Can you explain why the water cooling modules are improving, like the GPUs, and maybe different methodologies? What are the reasons for the better performance?
Mitsuya Kishida: Also, we have Urago-san, who is the director of the water cooling modules, so let him explain that.
Teruaki Urago: As Kishida-san mentioned, the AI data center demand, for that, we have two solutions, a thermal solution and energy solution. [Mita]- san, I think your question is around what's happening in the improvement of the thermal solution. It's not just about CDUs, but for the fans for AC systems, also the water cooling modules, and also the pump and the equipment set aside by the facilities. So, for overall inquiries regarding the data center-related demand, there are not a lot of inquiries coming. So from China, US and Asia, as Kishida- san mentioned, and also in Japan, we have a team that's developing these products. In their site or facility, there are a lot of inquiries and visitors coming to look at what we can offer, so that's underpinning current sales for the water cooling modules. I believe that, going forward, in Q2 and H2, we will continue to see evolution and development for this business. Yes. So last year, the whole discussion was around NVIDIA, but GPU, there's going to be more variations and also, depending on the countries, they may choose to use a different chipset. So after 12 months, we see more variations and options. For ourselves, coming into this market and trying to grow in this market, we had multiple entry points. For each of the entry points, it was important for us to prepare the appropriate product offering. We were able to confirm that, and we have been able to complete the preparation for such products. With that, the product lineup is expanding, or we can expect the product lineup to expand in the latter part of this fiscal year. On that note, last year, for the full year, we fell short of our target. Also, we did have some hiccups in the past, but we overcame that. This industry will continue to grow is what we are seeing. For the emergency power source, there's a commitment for the next three years. Here, we see a very strong demand, and we are going to offer the right product to address the robust demand. We were able to confirm that those are going to be driving our business growth. Also, we will take the last question, keeping in the interest of time, from the person in the back. Unidentified Participant This is [Yoshida] of [Emerging Market]. I have two questions for you. You're talking about reviewing businesses that are not really profitable. I believe you talked about before the possibly of selling some of the businesses. In the automotive business, there are quite a few businesses within the automotive business unit, but are you thinking of any specific businesses to be sold? The next question is about M&A tariffs. Do you see any effects of tariffs on the M&A strategy globally, worldwide? Company Representative Thank you very much for your question. When it comes to selling, we will have no exceptions, no sanctuary or anything, when it comes to selling our businesses. It's sometimes very difficult. There haven’t been any cases for us to sell our existing businesses. We need to accumulate our knowledge in that regard, but we will have no exceptions or sanctuary about this effort. When it comes to M&A based on tariffs, tariffs will not change our policy or strategy.
Teruaki Urago: Now, the time has come for us to finish this presentation. Thank you very much for attending. We would like to finish this presentation, the preliminary figures for Q1 of FY2025. Thank you very much, everyone, for your participation. Thank you. [END]