Harmonic Drive Systems Inc.
Financial Results for the Fiscal Year Ending March 31, 2023
May 19, 2023

Event Summary[Company Name]

Harmonic Drive Systems Inc.

[Company ID]

6324-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Financial Results for the Fiscal Year Ending March 31, 2023

[Fiscal Period]

FY2023 Annual[Date]

May 19, 2023

[Number of Pages]

37[Time]

10:00 – 11:12(Total: 72 minutes, Presentation: 35 minutes, Q&A: 37 minutes)[Venue]Webcast[Venue Size][Participants][Number of Speakers]

3
Akira Nagai
Akira Maruyama
Kazutoshi Kamijoh[Analyst Names]*

Yuichiro Isayama
Sho Fukuhara
Hikaru Mizuno
Lisa Jiang
Wendy Pan

President and CEO
Representative Director, General Manager ofCorporate Planning Division
CFO, Director and General Manager ofFinance Accounting, Finance and Tax Division
Goldman Sachs
Jefferies
UBS Securities
Mitsubishi UFJ Morgan Stanley Securities
Macquarie Capital Securities*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A.

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Presentation
Moderator: We will now begin the presentation of the financial results of Harmonic Drive Systems Inc. for the
fiscal year ended March 31, 2023.
First, I would like to introduce today’s attendees. Mr. Akira Nagai, President and CEO.
Nagai: I am Nagai. Thank you.
Moderator: Mr. Akira Maruyama, Representative Director, General Manager of Corporate Planning Division.
Maruyama: Maruyama. Thank you.
Moderator: Mr. Kazutoshi Kamijoh, CFO, Director and General Manager of Finance Accounting, Finance andTax Division.
Kamijoh: My name is Kamijoh. Thank you.
Moderator: Today, Director Kamijoh will give an overview of the financial results for the fiscal year underreview and forecast for the current fiscal year, and President Nagai will explain the future outlook.
Today's presentation material is available on the Company’s website. Today's briefing is also available as anaudio webcast.
Now, I’ll hand over to Director Kamijoh.
Kamijoh: I appreciate your taking the time out of your busy schedule to join our financial results briefing today.
Now, I would like to explain the summary of the financial results for the fiscal year ended March 31, 2023,
and the full-year forecast for the fiscal year ending March 2024, in accordance with the material uploaded on
our website today.

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Please refer to page 2. Consolidated results compared to the forecast announced on February 8, 2023 are as
you see. We believe that this was generally within our expectations. Both sales and income exceeded theforecasted amounts.
We had conservatively factored in the risks associated with the procurement of semiconductors and otherelectronic components and had made similarly conservative assumptions regarding the incurrence ofexpenses in our sales forecast, but the results exceeded the forecasts.

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Please turn to page 3. Here are the consolidated results compared to those for the previous year. Both sales
and profits increased.
First, we have been posting sales while sequentially increasing production capacity, supported by a high levelof order backlogs that had been accumulated at the beginning of the fiscal year.
Looking at sales by region, sales in all main regions, including Asia and Japan, the US, and Europe, increased
from the previous fiscal year.
Profitability increased with higher sales, despite higher component costs related to mechatronics products
due to rising prices of semiconductors and other electronic components, as well as higher labor anddepreciation costs in response to increased production of deceleration devices.
Capital investment increased from the previous year due to investment in increased production of wave gears
at the Ariake Plant in Nagano Prefecture in response to current shipments and in anticipation of increased
demand in the medium term.

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Please turn to page 4. Here are the results of our major group companies.
The second from the top is the US subsidiary. Sales increased due to an increase in demand for semiconductor
equipment and medical equipment. To meet these increases in demand, we proceeded with measures toincrease production at our new plant, which began full-scale operations in the previous fiscal year. As a result,personnel expenses, depreciation, and other expenses increased, but the effect of higher revenues resulted
in an increase in income.
Below that is Harmonic A.D. Inc., which manufactures planetary reduction gears in Japan. Planetary reduction
gears, which are often used as gearheads for servo motors, were affected by our customers' postponement
or curtailment of orders for reduction gears to meet the delivery deadlines for servo motors, which havebecome a bottleneck due to long delivery times. In addition to this, in H2, it was affected by declining demand
for robots and semiconductor equipment. As a result of the above, both sales and income decreased.
Below that is the Chinese subsidiary. Sales and income increased compared to the same period of the previous
year, although they did not reach expectations due to the impact of the lockdown and other factors.
The last is the German subsidiary. Sales to robot manufacturers were at the same level as the previous fiscal
year, but sales to semiconductor equipment and machine tools, as well as general small-lot orders, increased.
This resulted in an increase in operating income.

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Please look at page 5. As you can see, both sales and profits increased on a non-consolidated basis. The factors
behind the increase/decrease in sales and profit will be explained later in this report.

Please refer to page 6. Here are the non-consolidated sales figures by application.
As you can see, for the third consecutive year, demand increased, especially for industrial robots andsemiconductor equipment, resulting in an increase in sales.
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As for robots, sales of reduction gears for small robots from robot manufacturers, who are our customers,
increased.
Demand for semiconductor equipment increased, mainly for front-end manufacturing equipment and wafertransfer robots.
Sales for in-vehicle applications did not reach the sales level assumed at the time of the initial forecast.
However, sales of vehicles equipped with new engines that use our reduction gears expanded and thesemiconductor procurement situation of our customers improved, resulting in an upward trend in sales.

Please refer to page 7. This is the quarterly non-consolidated orders received by application.
As you can see, for approximately 18 months, orders received declined. As we have previously explained, thisis mainly due to customers' ongoing order adjustments in reaction to the high level of orders received in theprevious fiscal year, including advance orders.
In addition to these order adjustments, demand for reduction gears for small robots used in electronic device
manufacturing equipment has decreased since around the end of 2022, mainly in China. Demand forsemiconductor production equipment also softened.
The combination of these factors, as you can see, resulted in a very difficult Q4, with orders received totaling
approximately JPY4 billion.
However, the number of cancellations, which occurred separately from the order amount shown in the graph,decreased from approximately JPY1.7 billion in Q3 to JPY130 million in Q4. We believe that the cancellationof customer orders due to demand adjustments is almost complete.
In addition, there are signs of an increase in orders received on a monthly basis from March, after bottoming
out in February of Q4. Although the outlook remains highly uncertain, we believe that the bottom of orders
on a quarterly basis is likely to be in Q4 that just ended.
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Please refer to page 8. Here are the factors behind the increase/decrease in non-consolidated operating
income.
The impact of the revenue increase was JPY5,430 million. Changes in marginal profit margin and inventorychanges were a negative factor of JPY1,649 million.
Of this amount, the negative impact of semiconductor price hikes is about JPY1.3 billion. The other part of thedecrease is the effect of lower income due to changes in the sales mix, price fluctuations of metal materials
and other products, and lower inventories of work in process and other products.
Fixed manufacturing costs and other expenses increased by JPY2,717 million. This was mainly due to anincrease in personnel costs resulting from an increase in the number of employees in the manufacturing
division, mainly to raise production capacity, and an increase in performance-based bonuses, as well as anincrease in overhead costs due to higher factory utilization.
SG&A expenses were due to higher packaging and shipping costs and marketing costs.

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Please refer to page 9. Here are the factors behind the increase/decrease in consolidated operating income.
Foreign exchange fluctuations had a JPY955 million impact on operating income through the cost of sales, andincreased revenue had a JPY6,823 million impact.
Next, the change in marginal profit margin and inventory change, etc. was approximately JPY1.4 billion, whichis less than the amount incurred on a non-consolidated basis. This was due to a favorable difference in the socalled consolidated/non-consolidated difference due to changes in the sales mix at subsidiaries and otherfactors.
Manufacturing fixed costs and SG&A expenses increased on a consolidated basis as well from the previous
year due to an expansion in the scale of production and an increase in sales.
These expenses are presented on a constant currency basis.
In the future, we would like to disclose the consolidated financial results in this manner, instead of the nonconsolidated financial results.

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9Page 10 shows the consolidated balance sheet. For details, please refer to the financial report.

Same applies to page 11.

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10Same applies to page 12, cash flow.

I would now like to explain our consolidated performance forecasts for the current fiscal year.
Please refer to page 14. As we have already announced in our financial report, we have decided to announce
only the Q1 forecast for the fiscal year ending March 31, 2024 at this time.

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11This is mainly due to the fact that it is extremely difficult to forecast future orders in Japan and other Asian
countries with a high degree of accuracy. As I explained earlier, there are signs that orders have bottomedout, and we expect orders to gradually increase toward the end of the fiscal year. However, it is difficult toreasonably predict the angle and timing of the slope of the increase.
We were concerned that adopting either an optimistic or pessimistic assumption could result in misleading
investors, so we have decided to treat the issue in this way.
We will closely monitor the situation for some time to come, as it is particularly difficult to determine when
demand for small robots will recover and when the accompanying inventory adjustments by robot
manufacturers and distributors will be completed, especially since the timing of such inventory adjustments
differs for each customer and robot. We intend to disclose future forecasts at the appropriate time.
Consolidated earnings forecasts for Q1 are as shown. The main reason for the large YoY decline in income
relative to sales is that the Japan segment, which is relatively more profitable than the US and Europe
segments, posted declines in both sales and income, while the European and US segments performed
relatively well.

Please turn to page 15. This is the projected amount of CapEx, depreciation and R&D expenses. This
information will be provided on a full-year basis, not on a quarterly basis.
With regard to capital investment, we plan to reduce the total amount of capital investment compared to theprevious fiscal year, but we intend to carry out capital investment that is essential for future growth. We will
also invest in capacity expansion for products for which demand is expected to increase in the future but for
which capacity is limited, in order to prepare for the next phase of demand expansion.
We also plan to increase R&D expenses. Although we anticipate that our performance in the current fiscal
year will be challenging in the short term, we intend to maintain and expand our competitiveness in themedium to long term.

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12Page 16 shows non-consolidated performance forecasts. The reason why ordinary income is larger thanoperating income is because we expect to record dividends received from subsidiaries, which is a nonconsolidated event only.

Page 17 shows planned CapEx, etc. on a non-consolidated basis.

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Page 18 shows consolidated net sales and operating income on a quarterly basis.
In Q1, the sales level is expected to be lower than the previous quarter, so the amount of profit is also
expected to decrease correspondingly. However, we will use this period to prepare for the next period ofbusiness expansion, to strengthen our footing, and to prepare for the next leap forward.
This is the end of my explanation. Thank you very much for your attention.
Moderator: Next, President Nagai will give an explanation.

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Nagai: My name is Nagai, the President of the Company. Next, I would like to explain the future outlook.
I will explain the current environment surrounding the Company. Please see page 21.
As explained by Mr. Kamijoh earlier, there are still inventories of our parts at distributors and customers, and
it is difficult to predict when these inventories will be used up, so we announced the forecast for Q1 only.
However, we feel that it has almost bottomed out in Q4, so we will be able to tell a more accurate story in awhile.

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Page 23 shows trends in our major applications.
The main application of our products is FA robots. In the first place, robots are used due to labor shortages,
and as this IFR data shows, even if there are some ups and downs, I have no doubt that the FA robot market
will grow at an average annual rate of about 7%.
Demand for small robots, a particular strength of our company, is now falling, partly because capital
investment in the 3C market in China has come to a standstill. However, there is no doubt that in the longterm, the growth rate of small industrial robots will be higher than that of large industrial robots. We believe
this market will expand further in the future.

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Page 24 discusses the collaborative robotics market. Starting with European cooperative robot manufacturers,
other companies have already introduced their products, including Taiwan's Techman Robot Inc. and CRX
series of FANUC CORPORATION.
My own interpretation of a cooperative robot is that it is only a lightweight industrial robot. The difference
from conventional large industrial robots is that they are easier and safer to handle and thus move slower. In
other words, I believe that they are only worker-friendly robots.
In any case, there are plenty of uses for this. Furthermore, it is also in the category of small robots. So, there
is no doubt that this is an area in which we have very high expectations.

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The title on page 25 is expectation of the growing demand for humanoid robots. I dare to add the word
"expectation" because it is not yet clear to the industry that humanoid robots will definitely play an activerole in society and industry.
As I mentioned earlier, robots have grown significantly in the first place, as the working population has been
declining. One on-site solution to this is FA, automated machinery.
On the other hand, the shortage of human resources is uncontrollable. What defines a person is his or her
brain and body. The body part, or kinetics, has been solved to some extent with cooperative robots, dualarmed robots, and dollies. My expectation is that apparently the development of the brain part is much moreadvanced.
Elon Musk's presentation at the recent Tesla shareholder's meeting mentioned humanoid robots. In thiscontext, he is clearly confident that the AI developed in EVs can be used for this. So, perhaps, people's brains
and bodies are getting ready.
So, although we don't know the figures yet, and we have no evidence at all, we have a feeling that this willgrow.
In fact, Tesla has announced about a humanoid robot called Optimus.
The major difference from cooperative robots is the humanoid hand. The wrist has already been done bysmall cooperative robots, etc., so the big difference is from this point forward.
We, too, have a picture of a three-finger module in our company brochure, and we have had a system in place
for supplying this finger section for several years. If this is further developed in the future and demand forhumanoid robots, especially the humanoid hand portion, grows, we believe we will be able to respondadequately.

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Page 26 is about semiconductor equipment and automotive applications. As you know, there are changes inthe semiconductor industry, and we are responding to them.
As for the automotive market, Nissan's production volume has been falling due to the shortage ofsemiconductors, but the supply seems to have finally recovered a little, and we expect the monthly sales
volume to remain at around JPY500 million.

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Page 27 is medical and health care. Major medical device manufacturers in Japan, the US, and Europe haveentered this field.
Our products have been adopted by various companies. Although the amount of money involved is still small,
we expect that our technology will continue to occupy important place in this field.

About the new application.
In the first place, as I mentioned earlier, the shortage of labor and people led to the demand for robots. Apartfrom that, we believe that new applications will be created with the aim of making troublesome, timeconsuming, and dangerous tasks more convenient at production sites and in daily life.
Please refer to page 29. Hibot Corporation's robots for infrastructure inspection have already been deployedat sites of Mitsui Chemicals, Inc. and BASF SE.
As some of you may know, on sites with complicated piping runs, such as the one in the photo, we first build
a scaffolding for inspection, remove it, and take it to another position again.
This product requires very little scaffolding and has been very well received. Recently, during the Golden Week
holidays, there was a maintenance trade show of DeepStar(DeepStar Technology Symposium 2023?) in
Houston, and Hibot also displayed this product. It seems that the product has received the approval for fullscale adoption from DeepStar members. Thus, we believe this is a growing field.

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Please see page 30. As announced in newspapers and other media, electric eVTOLs, small flying objects withvertical takeoff and landing, will operate at the“EXPO 2025 OSAKA, KANSAI, JAPAN”, and our products are
fully used by one of these companies.
This is one area of potential growth for urban commuters in the future.

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Please refer to page 31. As reported in the newspapers, we are participating in a JAXA’s project to go to themoon in cooperation with Toyota Motor Corporation, and our products are being used in the steering unit.

Please refer to page 32. As I have already explained, in order to promote our presence in space-related fields,
we exhibit at space conferences and space industry exhibitions sponsored by the Nikkei.

Next is the progress of the medium-term management plan.
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Please refer to page 34. This is the same figure as before. We have clearly defined our position, or mission,
based on the four pillars of our management philosophy. We recognize that our role is to contribute totechnological innovation in society and industry.

Page 35 is about long-term growth opportunities. As I mentioned earlier, as the demand for robots grows, wehave an expectation that humanoids will grow in terms of applications.

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Please refer to page 36. We had a difficult time in 2017 and 2018, causing great inconvenience to ourcustomers because our production capacity could not keep up with demand. By 2019, we have had a newplant up and running, and as you can see here, we have also increased our production capacity. In this new
Ariake Plant, we have also made considerable efforts to automate and DX the factory.

On page 37 is the same table as before, which shows the production capacity of each of our bases around theworld. In Japan, especially in the upper two rows, the blue part, we envision a monthly production of 200,000
units at these two plants in the near future, and we are continuing to invest in various facilities.
Although our production capacity in the US is somewhat smaller than in Germany and other countries, thenew plant has the space to accommodate twice as much equipment.

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Please see page 38. As I mentioned earlier, we have been investing to some extent in DXing our plants forsome time, especially at the Ariake Plant. We intend to introduce a scheduler, MES, and various analysis
programs in the future to increase accuracy and reduce manpower.

On page 39, you will find an example of our mission to provide products of value to society, number two in
our mid-term plan. Conventionally, a servo driver was required for the leftmost actuator in the figure

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underneath, which includes the motor and reduction gear. This is now being used in the field of animatronics
and other fields because it is now very compact with the driver integrated into a single unit.
Naturally, we believe that these products will expand into semiconductor equipment and medical equipmentin the future.

Please refer to page 40. It describes the next 50 years. We celebrated our 50th anniversary in 2020. The world
has completely changed, so we did not consider the following year as our 51st year, but have been working
on it as a zero-year-old with the intention of tackling it with a new set of values.
This is not an area where results can be achieved overnight, but we will change our own thought processes
and approaches.
In particular, until now we have only had production bases in Japan, the US, and Germany. As you can see
here, considering production nationalism, the decoupling of China and the US, and other factors, we believethat a more flexible response may be necessary in the future.

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Please refer to page 41. We have also published our sustainability basic policy on our website. The following
is a chronological list of our past efforts that fall under ESG. Especially after 2020, we are working on what is
written on the right side.

Please refer to page 42. We believe that the SDGs should not be imposed by the Company from above, butrather should emerge spontaneously from the high awareness of each and every employee. For example, ourdevelopment team goes to technical colleges and other institutions to give classes. We also have a paper
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equipment “PaperLab” in the Hotaka plant that can recycle used copy paper. All of these things were bornfrom the ideas of our employees.

The last page shows the main topics of the last year.
What makes us a little proud is that our ULW, Ultra Lightweight design, product won the GOOD DESIGNAWARD 2022.
This concludes my presentation.

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Question & Answer

Moderator [M]: We will now move on to the Q&A session.
Isayama [Q]: Thank you for your explanation. My name is Isayama of Goldman Sachs. Thank you. I would
appreciate it if you could briefly tell me three things.
There was talk of order trends bottoming out and then turning up. The 3Cs were also mentioned in the
document.
Other companies are also talking about the investments of the largest company in the United States here andthere. Can you please tell me more about this? Is it about this year? India and other stories are probably inthe future. Are we talking about this season or further into the future?
I understand that you have announced an order forecast for Q1 only. But what is your feel for Asia 3C? If
possible, could you elaborate a bit more on that?
Maruyama [A]: Regarding orders, as I said at the beginning, what is the timing of inventory clearance by robot
manufacturers, mainly due to advance orders, and what is the level and angle of the order increase? I believethat the key factors that will determine this are electronics, which we have been relying on China, and small
robots for 3C.
As for robot manufacturers, the large robot market has been very active over the past year with very highgrowth.
On the other hand, for small robots, low demand has been noticeable since about H2 of last year. I believethat this is due in large part to the influence of China.
However, as Mr. Isayama just mentioned, in terms of the prospects outside of China and with regard to small
robots, to be honest, we do not have a concrete view.
However, there are many top executives of robot manufacturers who mention H2 of this fiscal year as a
keyword, although I am not sure which grounds they have.
However, it is very difficult for us to judge this rationally, and it is difficult to forecast the situation, including
partial downside factors.
There are some prospects for an upward swing, which can be covered in part by the current inventory. There
has already been some smartphone-related investment activity, although it is small. Correspondingly, we arealso receiving orders from robot manufacturers that cannot be covered by our inventory.
Also, I am not sure if this is the catalyst for the expansion of demand for related peripheral equipment, but it
is starting to appear. The outlook is not that there will be no projects at all. There are projects, but we don't
know for sure from the manufacturer whether it can be covered by inventory or whether it will require newrobotic equipment. Therefore, we have taken a cautious stance on this prospect.
Isayama [Q]: Thank you very much. When the time comes to issue guidance, we would be glad to learn a little
more about the prospects.

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My second question is about shareholder returns and the Prime Market. This time last year, there was a
discussion about buybacks, in light of the stock price.
The stock price has not much changed. As you are aware, there has been a great deal of talk recently about
the need to strengthen shareholder returns.
I am not suggesting that your company should aim for a P/B ratio of 1x. You were sending out messages likethat at the time, the price was at the bottom, and you had previously said that Nabtesco Corporation's shareswere no longer meaningful as policy holdings and that you intended to sell them, and I think you could havetaken some action. I would appreciate an update on the shareholder return stance, Nabtesco's stock, and theprime market.
Kamijoh [A]: In terms of share buybacks, we purchased JPY5 billion of our own stock last year based on our
judgment that the stock was undervalued, taking into account the sharp fluctuations in the stock price due tosupply and demand.
This was done based on management decisions at the time in question. As Mr. Isayama just mentioned, thestock price is about the same now as it was then, so I think there is a natural opinion that we should do it
again, and we are not abandoning that option at all. However, while performance this year will be quite
variable, we must also secure some funds for capital investment and other expenditures.
We are now leveraging debt quite thickly. Under such circumstances, we would like to make share buybacks
based on rational business judgment on a case-by-case basis.
Naturally, we are considering the possibility of selling our Nabtesco Corporation's shares and using theproceeds to fund share buybacks or capital expenditures. We have already talked about this last year, andalthough Mr. Isayama is right in pointing out that we have yet to do so, we have not changed our direction ofwanting to do so at the optimum timing from a management standpoint. We would like to do this at an
appropriate time based on management decisions, so we ask that you please wait a little longer.
We are well aware that investors and shareholders have high expectations for the Prime Market. However, it
is not possible to go to Prime if we wish. We would like to consider how to prepare for overcoming various
processes such as listing examinations.
Isayama [Q]: Thank you very much. My third question. There is no guidance for the full term, but there areseveral factors that I would like to know about, even if only direction. I am wondering if you could give us ahint about this year's forecast using the slides on page 9.
Broadly speaking, there are two things. Regarding the impact of marginal profit margin and inventory changes,
you said that the impact of semiconductors was JPY1.3 billion, and that there is an additional amount due tothe impact of various other factors on a non-consolidated basis. How is this expected to play out this year?
Some have said that supply and demand may be loosening to some extent. On the other hand, I think someof you are saying that energy costs remain high. Do you expect that this will still be a negative factor this year,
or is it likely to become a positive factor as you make progress in cost reduction and price shifting?
I don't think you can predict the amount yet, so I would love to get an idea of what direction you envision.
Kamijoh [A]: Regarding the cost of materials, especially semiconductors, price hikes have stopped, the worst
period of procurement has passed, and we have enough inventory for the time being.

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On the other hand, sales from urgently purchased parts inventory will be recorded in the current fiscal year,
especially in mechatronics product actuators. The situation continues where ICs purchased at that high priceconstitute cost of sales.
However, we believe that the impact on the current fiscal year will be less than the JPY1.3 billion for the periodthat ended, probably about half. This is due to the fact that they are switching to new ICs that are a bit more
readily available due to design changes, and prices are also gradually calming down. We believe that costs will
still be higher than they were two years ago, but that this negative impact, relative to last year, will graduallydiminish.
Isayama [Q]: Thank you very much. I would very much like to ask the president. With such a high market share,
there will be a change in thinking regarding price. Regarding price pass-through, I think you have been waryof competition so far. However, given the fact that inflation is so high and the yen is so weak, I feel that there
should be an effort to raise prices. Can you say something about this?
Nagai [A]: As you said, we would like to pass on the price if possible, but we have tough competitors and weare not in a position to make an announcement to domestic robot manufacturers, at least not at this time.
Mr. Isayama, you understand our products well and say that our share is high, but our products arecomponents. Therefore, it is difficult to raise prices as we wish.
However, the cost of electricity and other infrastructure has risen considerably, so we may make anannouncement when the time comes. It is very difficult at this time.
Isayama [M]: Thank you very much.
Moderator [M]: Please state your affiliation and name.
Fukuhara [Q]: My name is Fukuhara from Jefferies. Thank you. I have two questions.
First, consolidated orders received overseas, especially in the US, have so far been in the JPY3 billion perquarter range. In contrast, there is a slight slowdown in Europe. Since the overseas fiscal year is off by threemonths, could you please let us know the results for the January to March period and any changes for the
April to June period.
Kamijoh [A]: It is relevant that the fiscal year is off by a quarter. However, orders for the January to March
period in the US, which are recorded in the April to June period in Japan, are down slightly compared to thestrong Q4.
However, in the US, most are for medical equipment, SPs, and other amusement robots, rather than for robot
manufacturers. Overall, the decline in orders is not as sudden as it is in Japan, but is temporary. Overall, we
believe that a high level can be expected in the future.
Germany's January to March quarter is expected to be almost flat compared to the October to December
quarter that ended. Here, too, we are seeing a slight softening in orders for robot manufacturers, but we do
not expect a drastic decline in orders as we have seen in Japan.
Fukuhara [Q]: Thank you very much. Second, orders for in-vehicle applications have been increasing steadily
recently, despite some production delays at our customers.
Will there be more orders in this area in the future? Or are there any risk factors?

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Also, this may be difficult to comment on, but could you also tell us what the level of profitability is comparedto other products?
Maruyama [A]: Certainly, the number has gradually increased over the years, but it is still at a considerably
lower level compared to the plan at the stage when we started this project.
However, Nissan's sales volume is still very low, but the decline in production volume caused bysemiconductors is improving considerably. Considerably, but not quite enough yet.
At the moment, as Mr. Nagai mentioned, we are projecting about JPY500 million per month. The certainty ofthis will increase through H2.
According to the information we have received, there is a possibility that in some cases we may be able toexceed the plan a bit.
However, it was difficult to announce the full-year forecast because the certainty was still low.
Regarding profitability, production is done through a fairly high level of automated processes. This has led toa very high rate of in-house production.
Simply put, automotive products have higher marginal profit margins than general products. However, ofcourse, depreciation and other investments were large, and the time will come when such items must be
recovered.
In any case, it seems unlikely that orders will decrease from what they are now, so we will continue to worksolemnly.
Fukuhara [M]: I understand. Thank you very much.
Moderator [M]: Please state your affiliation and name.
Mizuno [Q]: My name is Mizuno from UBS Securities. I have two questions.
The first is a question regarding the order or the cancellation of the order. In terms of large robots, looking at
robot production statistics, I think orders are slowing down a bit, or it is not surprising that it is entering a
production adjustment phase. Should we anticipate the risk of production schedule delays, order reductions,and cancellations, even for customers making large robots?
Maruyama [A]: Demand for large robots is indeed a little weak. Orders were high to begin with, and we areaware that they are falling. I don't know if that will affect the cancellation of orders or anything. If we assume
that the large robots sold today are between 160 kilos and 200 kilos, HarmonicDrive®'s share of that market
is unfortunately very low. Therefore, I think the direct impact of that weakness on us will be very minor.
Mizuno [Q]: Understood. Thank you very much. The second question relates to capital investment.
In your explanation, Mr. Nagai, you mentioned that you would increase the number of industrial applicationsin Japan from 130,000 to 200,000. Can you give me a rough idea of the amount of investment needed for thisand where the investment needs to be made in terms of buildings, equipment, etc.?
CapEx was JPY24 billion in 2018, but cash on hand now is roughly JPY20 billion. This area helps us to think
about the use of Nabtesco's shares mentioned earlier. Can you give us a rough idea of the amount of money
needed for the 200,000 units and the areas it would be used for?

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Nagai [A]: I mentioned that relatively early in the 2020s, HarmonicDrive® expects to produce 200,000 units
per month. We will not build the plant all at once, but will gradually invest in facilities and add machines asneeded in the Ariake Plant that we have now. As for how much it would cost to add another 70,000 units tothe current 130,000 units, Mr. Kamijoh will answer.
Kamijoh [A]: In light of past performance, the investment tends to be a bit larger since the rate of automation
has recently increased. It is assumed that it will cost JPY1.5 billion to increase monthly production by 10,000
units.
So, if we increase the number of machines by 70,000, 15 times 7 would be a rough estimate of the investment
in machinery and equipment. There is still space in the Japanese plants to put in enough machines to produce
30,000 to 40,000 units, and to that extent, I think it is possible to increase production without additional
investment in buildings.
If it exceeds that level, it must be erected. The last factory we built in Ariake cost about JPY6 billion, so if webuild the same one, we will need to invest that much in the building.
Mizuno [Q]: I understand. Thank you very much.
One last, question about sustainability. A year ago, you set the materiality of sustainability. When I lookedback at the contents in order to consider the Company's future, I found it difficult to connect them to thespecific goals of the Company.
Personally, I found it a little difficult to think about how these specific items, such as setting KPIs, would leadto increased corporate value.
The TSE just issued a disclosure request on human capital. You published your materiality just a year ago, andhave you any thoughts on your policy for sustainability-related disclosures?
Nagai [A]: We are currently preparing on that point. We are making various preparations, led by Executive
Officer Ono, who is here today, and we intend to disclose what we can. We do not have any materials available
today on specifics.
Mizuno [M]: Thank you very much.
Moderator [M]: Please state your affiliation and name.
Jiang [Q]: My name is Jiang from Mitsubishi UFJ Morgan Stanley Securities. I would like to make one point
regarding profitability. In FY2022 results, the top line was the highest ever, with an operating margin of about
14%. I think you are probably being affected by the severity of the automotive business and the major impact
of cost increases. If the top line returns to more than JPY70 billion again in the future, say within two or three
years, what would happen to profitability?
Kamijoh [A]: For the same JPY70 billion, it is unlikely that profitability will change significantly. However, it
depends on the product mix. In particular, at the Ariake Plant where we invested, we are aiming for a highly
profitable line with considerable automation for projects with a certain amount of volume for robot
manufacturers. If the mix is as expected to fully demonstrate such functions, profitability can be expected to
improve.
As for material prices, etc., they will not change significantly from current prices, so the marginal profit margin
will not change significantly. Also, we are preparing various fixed costs, not for the same JPY70 billion, but for

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a higher top line. We would like to achieve not JPY70 billion, but beyond that, and eventually achieve asituation where the OP margin exceeds 20% again.
Jiang [Q]: Sorry to ask a detailed question, but do you think you can steadily improve profitability in theautomotive business, for example, compared to FY2022?
If possible, could you give us some more clues as to the profitability of the automotive business in FY2022,
although it is probably in the red?
Kamijoh [A]: For the fiscal year ended March 31, 2023, the business was unfortunately in the red in H1, but
in H2, it recovered a little and is now slightly above the break-even point.
We are investing in equipment to reach the 90,000-unit level. We have not used that machine yet, but as we
use it in the future, depreciation costs will increase. However, as Ms. Jiang mentioned, the automotive
business has been more of a dragging-down business to now, but as the top line rises a bit more, I fully expect
it to become a business that contributes to profits.
Moderator [M]: Your affiliation and name, please.
Pan [Q]: My name is Pan from Macquarie Capital Securities. Thank you very much for your explanation. Earlier
you mentioned the Tesla shareholders meeting. Following Mr. Elon Musk's comment that in the future thehumanoid robot market, for example, will be as big as the car market, the stock price of the Chinesecompetitor went up about 8% in one day.
As an investor, I would like to ask you about your company's technological superiority. Of course, yourcompany has technological superiority in the humanoid field. For example, the design of the wrist, fingers,
and whether or not there are fingers is different between Tesla and its competitors. If the entire market forhumanoid robots is similar in size to, say, the car market, I would appreciate any comments on cost,production capacity, or technological superiority.
Nagai [A]: Regarding humanoids, as I mentioned earlier, I just have an expectation that it will grow. However,looking at Mr. Elon Musk's announcement, he is clearly confident in making humanoid robots.
As I mentioned earlier, our understanding is that conventional robots already have human-level skeletons up
to the wrist, so we believe that not only our products but also our competitors' parts can handle this.
The part from the wrist to the end of the hand, which we call the humanoid hand, conventionally uses
pneumatic pressure or a solenoid. If we really want to reproduce human-like grasping and dexterity in thisarea, we have to make fingers that can be driven firmly using small reduction gears. We have a proven trackrecord. Elon Musk says the number will be astronomical. If it has five fingers, each finger uses three reducers,
so 3 times 5 equals 15, and 30 reducers for both arms. Each robot will use 30 very expensive small reduction
gears. I have such faint hopes.
However, it is not yet clear whether such an era will come. According to a Goldman Sachs prediction abouthumanoid robots made long ago, this is 0 or 100.
I believe that this is a field that will not grow slowly like industrial robots but will leap from 0 to 100 in a single
bound. This is the same way that when Tesla announced its EVs, the number of units grew all at once, rather
than slowly.
When that happens, our challenge will be what to do about production. I mentioned 200,000 units earlier,but that may not be sufficient. We would like to gather some more information on this and prepare for it.

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Pan [Q]: I would like to make one last confirmation. Without fingertips, there is not much difference from acooperative robot. From your company's point of view, unless it is a humanoid robot with attached fingertips,
is it unlikely that it will grow to a scale of, say, 1 million units at once?
Nagai [A]: Naturally, we are developing lightweight and compact reduction gears, and even ultra-lightweight
reduction gears. From shoulder to arm can be done by the cooperative robot, but the speed will definitely be
different, at least by my own estimation.
Right now, it is operated slowly on the assumption that there is a person next to it, but I believe that factories
will be completely unmanned in the future. This would also speed up the arm tremendously. This would
require a lightweight reducer.
In this sense, I believe we have a significant advantage in the arm area too.
Pan [M]: I understand very well. Thank you very much.
Moderator [M]: Now, since the time has come, we will conclude the question-and-answer session.
Thank you very much for watching until the end.
This concludes the financial results briefing for the fiscal year ended March 2023. Thank you very much foryour participation today.
[END]______________
Document Notes
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Speaker speech is classified based on whether it [Q] asks a question to the Company, [A] provides ananswer from the Company, or [M] neither asks nor answers a question.
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