Harmonic Drive Systems Inc.
Financial Results Briefing for the Fiscal Year Ended March 2022
May 20, 2022

Event Summary[Company Name]

Harmonic Drive Systems Inc.

[Company ID]

6324-QCODE[Event Language]

JPN[Event Type]Earnings Announcement[Event Name]

Financial Results Briefing for the Fiscal Year Ended March 2022

[Fiscal Period]

FY2021 Annual[Date]

May 20, 2022

[Number of Pages]

38[Time]

10:00 – 11:14(Total: 74 minutes, Presentation: 38 minutes, Q&A: 36 minutes)[Venue]Dial-in[Venue Size][Participants][Number of Speakers][Analyst Names]*

3
Akira Nagai

President and Chief Executive Officer（CEO)Akira Maruyama

Director, General Manager of Corporate
Planning and ICT promotion

Kazutoshi Kamijoh

Director, Chief Financial Officer（CFO）

Yuichiro Isayama
Mitsuyuki Oodaira
Hirokazu Miyagi
Toshiharu Morota

Goldman Sachs Japan Co., Ltd.
Tokai Tokyo Research Center Co., Ltd.
Mizuho Securities Co., Ltd.
Okasan Securities Co., Ltd.

*Analysts that SCRIPTS Asia was able to identify from the audio who spoke during Q&A.

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Presentation
Moderator: Ladies and gentlemen, we will now begin the financial results briefing for the fiscal year ended
March 31, 2022, of Harmonic Drive Systems Inc.
Before the meeting begins, I would like to ask you to do one thing. To prevent feedback, please turn off ormove your cell phone or other communication devices away from the phone. If there is severe feedback
during the conference, the conference may be interrupted and we may have to contact the relevant
participant, with the organizer’s approval.
I would like to introduce today’s speakers. Mr. Akira Nagai, President and Chief Executive Officer (CEO).
Nagai: I am Nagai. Thanks.
Moderator: Mr. Akira Maruyama, Director, General Manager of Corporate Planning and ICT promotion.
Maruyama: Maruyama. Thank you.
Moderator: Mr. Kazutoshi Kamijoh, Director, Chief Financial Officer (CFO).
Kamijoh: This 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.
Now, I’ll hand over to Director Kamijoh.

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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, 2022 andthe full-year forecast for the fiscal year ending March 2023, in accordance with the material uploaded on our
website today.
Here are the financial results for the fiscal year ended March, 2022. Now, please look at page two.
Consolidated results for the fiscal year ended March 31, 2022, compared to the forecast announced on
November 12, 2021, are as you see. Both sales and income exceeded the forecasted amounts.
Sales of automotive speed reducers were lower than expected due to customers’ production cutbacks, but
this was offset by increases in sales for industrial robots and semiconductor manufacturing equipment.
Income increased due to higher revenues and lower-than-conservatively-expected SG&A and other expenses.

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Please refer to page three. Here are the consolidated results compared to those for the previous year.
Results for the fiscal year under review showed a significant increase in both sales and income compared tothe previous fiscal year. Net sales for the period were supported by a high level of orders received, which
continued from the beginning of the period, and increased sequentially from the beginning to the end of theperiod, as we worked to raise production capacity.
Looking at sales by region, sales in Asia, including Japan, the US, and Europe, increased from the previous
fiscal year.
In terms of income, the increase in sales offset higher personnel costs due to an increase in the number of
employees to raise production capacity, higher depreciation, and expenses, as the Ariake Plant in Nagano
Prefecture began full-scale operations, and higher R&D expenses.
Capital investment increased from the previous year, mainly due to capital investment in the Ariake Plant for
automotive parts in anticipation of future demand growth.

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Please see page four. Here are the results of our major group companies.
First, our US subsidiary, the second line from the top, reported an increase in both sales and operating income
on higher demand for semiconductor manufacturing equipment and surgical assist robots, as the temporary
economic stagnation caused by the spread of the new coronavirus infection gradually dissipated.
Harmonic AD, Inc., which manufactures precision planetary gear speed reducers, reported an increase in sales
due to an increase in sales of gearheads for motor manufacturers and sales for industrial robots. Profitability,
which was at a break-even level in the previous fiscal year, also recovered with the increase in sales.
Next, our sales subsidiary in China recorded a significant increase in sales to European robot manufacturers
with development and manufacturing bases in China, as well as to local robot manufacturers.
Finally, our German subsidiary reported an increase in sales due to a recovery in demand for speed reducers
for industrial robots, including collaborative robots.
In addition, there was an increase in new small-lot projects and a general recovery in market conditions.

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Please refer to page five. As you can see, both sales and income increased on a non-consolidated basis. The
factors behind the increase/decrease in sales and income will be explained later in this report.

Next, please see page six. This is the non-consolidated orders received by application on a half-year basis.
As you can see, the fiscal year under review saw a steady increase in sales from the previous year, and coupledwith the increase in production capacity, sales increased for all applications.

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Next, please see page seven. This is the quarterly non-consolidated orders received by application.
As you can see, from the beginning of the fiscal year to the third quarter, orders received were at a record
high level, roughly tripling compared to the same period last year. This was mainly due to an increase in orders
for all applications, led by those for industrial robots and semiconductor manufacturing equipment.
With regard to industrial robots, demand for speed reducers for collaborative robots as well as small vertical
SCARA robots from robot manufacturers, who are our customers, increased.
Demand for speed reducers for robots used in the automotive industry, including those related to EV battery
production lines, also increased.
In addition to this increase in demand, customers increased their orders in advance of long delivery times in
an attempt to ensure procurement of our products, which further boosted the value of orders received.
Although the number of orders received declined in the fourth quarter, customers’ current production
activities remain at a high level. We believe this is a healthy adjustment, due to the fact that customers’
anticipatory orders, which I just explained, have settled down.

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Please refer to page eight. Here are the factors behind the increase/decrease in non-consolidated operating
income.
The impact of the revenue increase was JPY9.234 billion. Changes in marginal profit margin, inventory changes,
and other factors contributed to a JPY342 million.
There were no significant changes in unit prices of products or raw materials, and the main reason for theincrease was the effect of changes mainly in inventories of work in process.
Fixed manufacturing costs increased by JPY2.349 billion. This was due to higher personnel costs resulting fromincreased headcount in the production division, as well as higher general expenses resulting from higher
factory operations.
SG&A expenses increased by JPY1.442 billion. This was mainly due to an increase in research and development
expenses and higher personnel expenses.
Next, page nine is the consolidated balance sheet. Please check later for details, along with the financial resultssummary. Page 10 is the same.

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8Page 11 shows cash flows. Cash outflows from investing activities were high in the fiscal year under review
due to making German subsidiary a wholly owned subsidiary.

I would now like to explain our earnings forecast for the current fiscal year ending March 2023. Please referto page 13. Here is a comparison of the full-year forecast with the previous year’s results.
As you can see, we are projecting an increase in both sales and income compared to the fiscal year ended
March 2022. Net sales are expected to increase 31.4% from the previous year to JPY75 billion.

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In the current fiscal year, we already have an abundant order backlog of JPY50.3 billion at the beginning of
the fiscal year, and we will book sales from this backlog while building up further sales through new orders.
We plan to increase sales in all major markets of Japan, China, and Europe.
Operating income is expected to be JPY13 billion. Although we are aiming to return to the 20% level at an
early stage, we currently forecast an operating income margin of 17.3% for the current fiscal year, due in partto an increase in fixed costs resulting from upfront investments and higher component prices.
As for capital investment, depreciation and amortization expenses are expected to increase by JPY1.245 billion
due to investment in increased production at the Ariake Plant in Nagano Prefecture. In addition, we expect acorresponding increase in personnel and an increase in R&D expenses.

Next, please see page 14. Here are the full-year earnings forecasts for the major Group companies.
For the US subsidiary, sales are expected to increase by 50.1%.
By application, demand for semiconductor manufacturing equipment is expected to remain strong, while
demand for medical and service robot applications is also expected to remain strong. In terms of expenses,
we expect an increase in income, although there will be a commensurate increase in fixed costs and anincrease in depreciation expenses for the new plant.
Next, for Harmonic AD, Inc., demand for precision planetary gear speed reducers is also expected to remainstrong, and sales are expected to increase from the previous fiscal year. In line with the increase in sales, we
expect an increase in income.
Our Chinese subsidiary is currently affected by the lockdown in Shanghai, but we expect that our customer
robot manufacturers will gradually recover their production, and therefore, we anticipate a YoY increase insales for the full year. Operating income is expected to decrease slightly due to the impact of product mix andhigher marketing costs.

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As for our German subsidiary, we expect an increase in sales due to steady demand from robot manufacturers,
machine tool manufacturers, and other customers. Although there are expected to be some cost increases,
such as higher electricity costs, we expect the increase in revenue to compensate for these increases, andexpect an increase in income.

The next page, 15, shows the non-consolidated earnings forecast.
The order backlog on a non-consolidated basis is approximately JPY39 billion, most of which is expected tocontribute to sales in the fiscal year ending March 31, 2023.
The Nagano plant is currently operating at full capacity, and we expect a 33.8% increase in sales by raisingproduction capacity through capital investments scheduled to be made in the summer.
Since many of our customers, both robot manufacturers and semiconductor production equipment
manufacturers, expect their production plans to remain high and increase in the future, we will promote
appropriate shipments in conjunction with our customers’ production plans.
Increase in depreciation expenses will amount to approximately JPY1 billion.
R&D expenses are expected to increase by JPY250 million.

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Finally, please refer to page 16. This is an analysis of the factors that may cause a YoY increase or decrease in
non-consolidated full-year operating income.
The effect of the increase in sales is expected to be JPY7.719 billion. The marginal profit margin and otherfactors are expected to have a negative impact of JPY1.824 billion.
Approximately JPY1 billion of this amount reflects the higher procurement costs of semiconductors and otherelectronic components that are incorporated into mechatronics products.
In addition, we have factored in a cost increase of approximately JPY300 million, due to a decrease ininventories, since we expect to proceed with the consumption of inventories for in-vehicle applications, whichwere strategically built up in the previous fiscal year. No significant change in selling prices is expected.
Fixed manufacturing costs are expected to increase by JPY2.195 billion. This was mainly due to an increase inpersonnel expenses resulting from an increase in the number of manufacturing personnel and performancelinked bonuses, as well as an increase in depreciation expenses associated with the installation of additional
automated lines.
SG&A expenses are also expected to increase by JPY1.058 billion due to higher personnel costs and increased
R&D expenses.
This is the end of my explanation. Thank you very much for your kind attention.

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Nagai: I would like to explain our future prospects. Please skip pages 17 and 18 to page 19.
In terms of the environment surrounding our company, we believe that demand for automation and capital
investment will remain strong, but there are concerns about delays and stagnation in capital investment, due
to soaring raw material prices and the effects of the lockdown in China.

Next, please refer to page 21. This is the market trend related to FA robots, which we have indicated in thepast. We believe that the demand for robots will continue to grow at least 6% per year, and the growth rateof small robots will be larger.
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Next, please refer to page 22.
The growth rate of collaborative robots, which we have been talking about for some time, is much faster thanthat of general industrial robots, and we expect it to grow at an annual rate of 22%, or at least at the 20%
level.
Furthermore, when it comes to collaborative robots, HarmonicDrive®, which are characterized by theircompact and lightweight, are used for almost all of the six axes.

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Next, please refer to page 23. Semiconductor manufacturing equipment and automotive.
As for semiconductor manufacturing equipment, as reported in newspapers and other media, it is said thatlarge-scale capital investment will continue worldwide for at least two more years, including this year.
Inquiries from semiconductor production equipment manufacturers are as strong as ever.
As for the vehicle-mounted products, there was a change in Nissan’s plan, which was one of the reasons forthe sales adjustment in the fiscal year under review. This is also due to the shortage of semiconductors, which
has caused a drop in production not only at Nissan, but also at automobile manufacturers in general.
There is no change in total demand.

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Next, please refer to page 25.
As we look to the future, new applications, some of which are already in operation, are increasing in the
medical and healthcare fields.
Other applications include assistive suits and electric wheelchairs, in which our products are not simply used
for driving parts, but rather for autonomous driving, which requires precision in the steering part.
There are venture companies that are considering our products.

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Please refer to page 26. This is the animatronics we have been introducing for some time.
These are robotized versions of characters seen in theme parks, etc. These are not just dolls that move, butalso require very detailed internal movements to reproduce a form that is as close to reality as possible,
reproducing a human or a creature as close to reality as possible. A significant number of HarmonicDrive® andactuators are used there as well.
The theme parks were temporarily closed due to the spread of the new coronavirus, but they have reopened
and the projects are now underway again.

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Please see page 27. Aerospace and aviation.
While NASA has been involved in this field for some time, the electrification of aircraft, which are known as
flying cabs and flying cars, has been gaining momentum, and the number of small vertical takeoff and landing
aircraft is expected to increase dramatically.
Space has been only a testing site for the Company as well; however, space has become much more familiar
to us through the removal of space debris and space travel by private companies, and we recognize thatcommercial opportunities are emerging.

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Next, please refer to page 28.
Under the barrier-free category, we are currently discussing the use of our HarmonicPlanetary® in a device toeliminate the gap between the station platform and the train.

Please refer to page 29. I will report on our ongoing mid-term management plan. Please refer to page 30. We
consider our medium-term management plan to be fixed and do not revise it every year. Accordingly, there
are no changes to the mission, vision, or mid-term management plan figures.

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The management principles at the bottom -- respect for the individual, coexistence and co-prosperity,contribution to society, and a company with a reason for being -- are not themes we newly have set forth.
Our philosophy has remained unchanged since our founding.

Please refer to page 31. These are consolidated sales and operating income.
First, the leftmost bar graph shows the planned values for the first year.
The second dark-colored bar graph shows actual results. As you can see, we exceeded the plan, albeit slightly,
with a result of JPY57.3 billion.
For the interim year, FY2022, we originally did not give a forecast, but as Kamijoh explained earlier, we plan
to post sales of JPY75 billion.
We have already announced JPY70 billion for the final year of the medium-term plan, and fortunately, we
expect to achieve the goal this fiscal year without waiting for the final year of the plan.

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Next, please refer to page 32.
One of the important factors that will enable us to achieve our current plan is to increase our production
capacity, which has been an issue for us.
We are now steadily investing in facilities to achieve a production capacity of 130,000 units of HarmonicDrive®
for general industry alone.
We have also engaged consultants and are steadily preparing for the Ariake Plant to further improve
productivity compared to the existing Hotaka Plant; or to be more specific, to automate the production
process.

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Please refer to page 33. This is a summary of what I have just said.
In particular, the two blue rows above are the numbers for the Hotaka and Ariake plants.
The two plants are expected to achieve a monthly production volume of 130,000 units, excluding those for
automotive applications, as indicated on the far right-hand side.
In addition, we are steadily preparing for in-vehicle applications.
As I mentioned earlier, while we have not yet reached full production, we are building a system capable ofproducing 90,000 units in response to the stagnation of Nissan Motor’s vehicle production volume.
The German and US plants are also increasing their production, albeit in small quantities.

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Please refer to page 34.
As part of the theme of the mid-term plan, which is to provide valuable products, HarmonicDrive® arecompact and lightweight, which allows for space-saving and compact design of equipment.
In addition, since our reducers themselves are light in weight, you can design a robot with a certain degree of
speed of its movements, for example, which in turn increase the speed of the equipment, and thus improve
productivity.
We would like to emphasize here again that compact and lightweight means low power consumption, making
it a green product.

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Please refer to page 35.
As a continuation of the previous point, in order to contribute to energy conservation, we are developing evenmore compact products, for which we are involved in marketing activities, with a focus on MINI-MICRO.
As we have shown to some analysts and investors on several occasions, it is as small as the tip of a ballpoint
pen, as you see the picture of it being pinched with a finger. Next to that, quite a few of the JPY1-coin-size
products are already used in the internal mechanism for the animatronics mentioned earlier.

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Next, please refer to page 36.
In addition to being lightweight, we are also working to make them flat in order to save space. We have beendeveloping the ULW, Ultra-Light Weight, series for the past two years, which is used for drones, surgical robots,
which are also a type of avatar robot, semiconductor manufacturing equipment, and assist suits.
For semiconductor manufacturing equipment, there may not be much of a problem in the case of new
factories, but in existing factories, semiconductor equipment manufacturers are demanding smaller, thinner,and lighter products. This is because the size of clean rooms is fixed to a certain extent, and in order to increase
the density of semiconductor products they manufacture, they need to make even higher density machines
within the same space.
For this reason, we are required to make each component smaller, thinner, and lighter. This is why we believethat our products will be increasingly appreciated.

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Next, please refer to page 37. The products on a finger in the picture are made by a subsidiary of the German
subsidiary, a sub-subsidiary, using the LIGA process. It isn’t made by cutting, but made by chemical processing.
This is also used in the very minute driving parts of inspection devices for semiconductors.

Next, please refer to page 38.

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We believe that we will be able to achieve most of the goals of this medium-term management plan in termsof numbers, and that we will be able to increase the number of applications of MINI-MICRO and our targetedfields in qualitative terms as well.
We will continue our efforts in research and development, production, and sales for the next 50 years.
As I have mentioned in the past, we continue to work with SRI and universities on materials and new principle
gears. Production is not limited to conventional cutting, of course, but new production technologies are now
being deployed.
In terms of sales, our collaboration with Nabtesco has come to an end, but we believe that there are still
partners with whom we can collaborate in various ways. As a manufacturer of only a single part, we are limited
in what we can do, so we will build our sales capabilities by forming partnerships or alliances.
In Asia, our sales network and local subsidiaries in China cover the region to a certain extent, but it would be
difficult for us to cover the inland areas of China and other parts of Asia, or even the entire Asian region
excluding Japan, by our own efforts.
Therefore, we are in the process of exploring ways to collaborate with overseas partners.

Please see page 39. This is our sustainability, which we have been introducing since last November.
Just recently, on March 25, we posted our basic sustainability policy on our website.
As written here, our mission is to further deepen and evolve this rare invention of HarmonicDrive®.
We believe that our mission is to advance the compact, lightweight, hollow, and thin products I repeatedly
mentioned. We define our ultimate goal as contributing to innovation and ecology in the industrial world.

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Please see page 40.
The two blue lines at the bottom show our management philosophy from the time of our establishment andthe Charter of Conduct based on it. We are proud to say that we have been doing things to some extent, even
before society demanded sustainability these days.
Here is a brief summary, which I hope you will take a look at.

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Next, please refer to page 41.
Having said that, we are aware that ESG and SDGs must be addressed in earnest as a company these days.
However, we do not really believe that something such as SDGs can be imposed by management from above
to achieve any results.
We have long had an internal improvement suggestion system, which is based on ISO standards, and webelieve that we should move in a similar manner. In conjunction with this improvement proposal, we arethinking of doing [small things] in our daily lives, through SDG proposals from employees.
Specifically, last year we completely switched the electricity used at our plant to Azumino CO2 Free electricity,which is a brand of Chubu Electric Power Co., Inc.
At the INTERNATIONAL ROBOT EXHIBITION 2022 in March, we partnered with a company that creates
education and employment in Africa and used their products for amenities and uniforms.
In addition, the Ariake Plant’s capital investment was approved as a carbon neutral investment promotion tax
incentive by Ministry of Economy, Trade and Industry.
We would like to achieve the SDGs by accumulating such small efforts.
That’s all from me.

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Question & Answer

Moderator [M]: The first question is from Mr. Isayama of Goldman Sachs Japan.
Isayama [Q]: My name is Isayama of Goldman Sachs Japan. Thank you very much. I would like to ask you threequestions briefly. The first is about trends in orders, and the other two are about the medium-term plan.
First of all, as for trends in orders received, is the result of JPY13 billion in the fourth quarter the level in linewith current actual demand? As Mr. Kamijoh explained, for the past three quarters, there were advanceorders, so I am wondering if the reaction to those orders will appear this year.
I don’t think sales will be a problem at all, but in order to consider how long it will take for orders to comeback again, please tell us what the current level of orders is in line with actual demand. Do you think that
there will be a phase where the BB ratio will return to about one by the end of the year, since the customer’s
advance orders will run their course in the second half of the year when your company’s capacity is increased?
I would like to ask for your thoughts on order trends. Thank you.
Maruyama [A]: Okay, I, Maruyama from Corporate Planning, will answer your question. As there were many
advanced orders last year, we also feel that the trend in orders received is very difficult to read.
From a firsthand experience, I have the impression that the amount of JPY13 billion in the fourth quarter on
a non-consolidated basis, as you just pointed out, is probably in line with actual demand. This factors in thecustomer’s current state of production, etc.
As for demand trends, we are aware that demand will probably rise again in the second half of the year andbeyond, and we are now receiving a large number of advance orders for this purpose. We are investing toward
it and will increase our production capacity.
We are also anticipating that the number of orders will be a little lower than the current level for the time
being due to the extremely high level of advance orders, and we are planning our business operations basedon this expectation.
However, there are different views within the Company on the timing of the BB ratio returning to 1 or higher,
etc. It is difficult to say when it will happen at this time, but at least, we are of the opinion that the order
received will probably return at a relatively early stage, as demand itself remains strong. That’s all from me.
Isayama [Q]: Thank you, Mr. Maruyama, for your very clear answer. In the previous cycle, there were somedouble orders or cancellations. Since you have specified the cancel charges and mentioned that you are being
very careful this time, I assume that there has been no negative chain reaction, and that you have an accurate
grasp of what is really going on. Is this correct?
Maruyama: [A]: Yes. Basically, you are right. The President will provide additional information.
Nagai [A]: I have recently had the opportunity to speak with a very large robot manufacturer, and it is verybullish. It seems that the sales forces of the robot manufacturer are telling the production side to provide
them robots, and the robot production side is having a lot of trouble coping with this.
The last time, our products were the bottleneck, but this time, we were clearly told that the reason of the
production delay is not our products, but because of the unavailability or delay of other parts and materials.
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Therefore, we understand that the current slowdown in orders is due to the fact that robot manufacturers do
not see much point in rushing to secure our products at this time. I believe that when the time is right, we will
see a considerable recovery in orders.
Isayama [Q]: Thank you very much, President Nagai.
My second question. Although you did not mention it in your presentation, I think that there have been somepositive changes, or rather, actions, with regard to shareholder returns, and that there have been somechanges in the management team, such as Mr. Maruyama becoming the new Representative Director andChairperson Ito stepping down from the position of Representative Director.
Since we are here, I would like to ask you again what you are thinking about in terms of shareholder returns.
I believe this is the first buyback in this form, so I would like to get your message again. Also, since Chairman
Ito has stepped down from the position of representative director, I would like to hear about any changes in
new Harmonic Drive Systems. Thank you.
Kamijoh [A]: I would like to respond to the first question regarding shareholder return. Our basic policy for
returning profits to shareholders is to maintain a payout ratio of 30%, and we have not made any changes tothis policy.
Our self-perception is that we are a growing company, and we are still in the stage where we can raise ourcorporate value by reinvesting the funds we have received, so our basic policy is to give priority to such upfront
investments.
However, in light of the unfortunate decline in the share price, we have decided that the current share priceis undervalued. We will continue to implement a flexible capital policy when such an opportunity arises.
Nagai [A]: As for Chairperson Ito stepping down as Representative Director, even before the spread of the
new coronavirus, I and others had been talking about the generational change, and it just so happened at the
moment because we couldn’t some things due to the spread of the new coronavirus.
Isayama [Q]: Understood. Thank you very much. Finally, I would like to discuss the competitive environment.
Mr. Kamijoh reiterated that there is no problem at all regarding the selling price, and I think you are right that
there will not be much change in the actual market share in the robot industry.
However, Nidec and Leaderdrive in China are entering in the market. The technology, which President Nagai
mentions on page 36, is very interesting, but how many technological hurdles are there for them, and can weassume that the gap is still wide? Since you are talking about spending money again, I feel that it is time foryour company to make [Inaudible] solid, and I feel that you should be concerned about it.
I would appreciate any in-depth comments on other companies in this current and prospective competitiveenvironment. This is the last question. Thank you.
Nagai [A]: As for the performance of competing manufacturers’ products, as I have told you in the past, it isperfectly possible with today’s science and technology to imitate our current form exactly. Therefore, I believethat the appearance of our company can be imitated. However, the current state of our products is filled withpast failures, which I believe are not reflected in the competition.
Harmonic speed reducers will work no matter who builds them. However, it is a fact that depending on how
they are used, they will break in no time, or they will work for some period of time even if they are not madeby us.

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31Because of this, I believe that the answer to this question will come in a few more years, maybe within five
years, and that the answer will be that the HarmonicDrive® made at the Hotaka Plant is different from thatof competitors. For the time being, we are not entirely uninfluenced since they are offering a very absurd
price, but the real answer will be given two to three years later.
Isayama [M]: Very clear. Thank you very much.
Moderator [M]: The next question is from Mr. Oodaira from Tokai Tokyo Research Center.
Oodaira [Q]: This is Oodaira from Tokai Tokyo Research Center. Thank you for your support. I have twoquestions. I think both points are on page 19. The first is regarding the semiconductors and EVs. Can youcomment on whether the forecast from customers has changed or not compared to the six months ago?
Nagai [A]: As you know, it is not easy to receive forecasts from semiconductor manufacturers. Semiconductor
production equipment manufacturers give us a certain amount of expectation, but they suddenly ask us tobring products or cancel the order. As with the robotics, there is a situation where even semiconductor
equipment manufacturers are having trouble obtaining motors and semiconductors for their equipment.
However, so far there have not been any problems such as delivery delays caused by our parts.
In addition, since EVs are automobiles, the production plans of major industrial robot manufacturers that are
manufacturing for automobile manufacturers include figures for EVs, so I believe that our production is
sufficiently under control.
Oodaira [Q]: Is it difficult to obtain forecasts of robot manufactures as a whole?
Nagai [A]: As an effect of 2017, as a blessing in disguise, everyone thinks it is a good idea to share information
with HarmonicDrive®. We now have robot manufacturers’ production plan figures for the next three months,
which we use as a reference for material procurement.
Oodaira [Q]: Perhaps there is no choice for the current situation because of the developments in China andthe shortage of materials by your customers, but in the long run, does the production plan remain the same?
Nagai [A]: It has not changed.
Oodaira [Q]: OK. I understand. Secondly, President Nagai, when you were explaining on page 19, you made acomment about delays in capital investment by customers as a risk. Are there currently any delays?
Nagai [A]: I think there are some delays due to the lockdown in China. As you know, more than 35% of global
robot sales are in China, but logistics are in arrears. In addition, there are European robot manufacturers withproduction bases in China whose employees are unable to come to work. Naturally, the manufacturers who
use the robots also cannot introduce robots, because their employees cannot come to work. Due to such quite
short-term factors.
However, at the time we prepared this document, we were not sure that the Shanghai lockdown would be
lifted by next month, and as long as China adopts a zero-tolerance COVID-19 policy, even if the Shanghai
lockdown is lifted, we do not know where it will occur, such as Shenzhen or Shenyang. So, we should keep
this in mind as a risk factor.
Oodaira [Q]: Can I understand that the lockdown causes postponements of investments, but doesn’t lead tocancellations?
Nagai [A]: No, it does not.
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Oodaira [M]: I understand. That’s all from me. Thank you.
Moderator [M]: The next question is from Mr. Morota from Okasan Securities.
Morota [Q]: I am Morota from Okasan Securities. I would like to ask three brief questions.
The first question, which slightly overlaps the question of the first person, is regarding the cycle. I believe you
answered that the current level of non-consolidated orders of JPY13 billion is roughly based on actual demand.
If this is the case, I think the peak ratio fell to about 15% in the last cycle. This time the peak ratio is about 60%
now. I would like to know whether you think the bottom is at the JPY13 billion level, or at least at a point
where it does not fall below JPY10 billion?
Maruyama [A]: As I mentioned earlier, we do not have any negative factors in the demand environment. It isdifficult to make a definitive statement, but we are hoping that the demand stays around 50% of the peaklevel.
Morota [Q]: Is it difficult to make some kind of estimation from inquiries?
Maruyama [A]: Our investment has also helped to dispel some of our customers’ concerns about the
procurement lead time. It is very difficult for us to control our customers’ production plans. Also, since we arecontinuing to receive a steady stream of orders and inquiries, I would like to ask for your understanding that
it is possible that the number of orders received, rather than demand, could slightly fluctuate.
Morota [Q]: An addition to this question. Last time the orders received declined and I think it bottomed out
around the fourth quarter. They have already declined for two quarters this time. If it is the same as last time,
I think that they will decline for about two more quarters. Is that not the case this time or could it be shorter
than that?
Maruyama [A]: As for the possibility, it is difficult to mention. It is natural that this may be a possibility, and
it is difficult to give you a definitive answer. I appreciate your understanding.
Morota [Q]: I understand. It’s fine. I would like to ask my second question. When President Nagai explained
the collaborative robots on page 22, he mentioned that your products will be used almost exclusively for all
six axes. Do you mean that your company is a pioneer or anything like that, or that there is some kind oftechnical barrier for other companies that is unique to collaborative robots?
In connection with this, Nidec-Shimpo seems to be saying that the difference between your company and itis that it mainly focusing on collaborative robots, and that it has torque sensors in its speed reducers. It would
be helpful if you could also explain whether these things are technically difficult to do in the first place.
Nagai [A]: To begin with, a collaborative robot is a robot that can be used without a fence. Yesterday and the
day before yesterday, I saw a similar white collaborative robot at a major robot manufacturer’s new productexhibition, although not the one shown in this photo. The joints of the robot must have a function to stop
gently if the robot bumps something, and therefore, robot makers are putting torque sensors in the joints andmaking various other efforts.
Also, the work to be done will be light work. Naturally, heavy speed reducers would be a bottleneck, so as I
mentioned earlier, our lightweight products are used almost exclusively on the six axes. Nidec-Shimpo also
targets this area and have introduced one with torque sensor.
However, we have been studying this field for many years, and we are currently in discussions with a robot
manufacturer about the use of a torque sensor. It depends on what kind of movement the customer’s

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engineers have in mind. In some cases, products without torque sensor are all right, if customers prepare
something on their own.
Therefore, it is not correct that just because a new product is announced, it will be universally used in the
joints of any robot manufacturer. The speed reducer to be used and the functions associated with the speed
reducer are determined by the robot designer’s needs. I think it is safe to say that the announcement of the
new product will not cause any sudden erosion of our market share.
Morota [Q]: I understand. In terms of the technical aspects of collaborative robots, your company has beenable to reduce the weight and has grasped the detailed needs of robot makers. You are leading a bit in thatarea. Is that correct?
Nagai [A]: Naturally, since Shimpo is a latecomer in the field of wave speed reducers, engineers at robot
manufacturers are designing their robots based on our speed reducers. However, if it approaches with theprice, material departments of robot manufacturers will naturally ask why they do not use the product, so I
believe they thinking about the product.
As I mentioned earlier, there are some products that can be used well enough for certain purposes, but a truecomparison of A and B gears will not be answered until about five years have passed. We have past resultsthat the life of our reducers is longer than the life of robots, so I don’t think we will lose market share so easily.
Morota [Q]: I heard that Shimpo’s prices are very competitive, at about 70% of yours. Or is it offering evenlower prices?
Nagai [A]: I hear it is 40% or 30% lower.
Morota [Q]: I understand. What is the life-span of your speed reducers?
Nagai [A]: It turns almost forever. Theoretical.
Morota [Q]: So, you don’t know if Shimpo’s product will bite the dust in five years or not until about five years
later?
Nagai [A]: I think so.
Morota [Q]: Thirdly, you will almost achieve the mid-term plan this year, but could you tell us whether you
are thinking of revising this mid-term plan in the near future?
Maruyama [A]: As the president mentioned at the beginning of the meeting, our medium-term plan is fixed
for three years and will not be revised. Indeed, as was the case in the previous mid-term, the third-year target
will already be exceeded in the second year. However, we will not change the medium-term management
plan itself, so that we can compare the plan we created three years ago with our current results and look backto see what has changed. That’s all from me.
Morota [Q]: Excuse me, Mr. Maruyama. I think you said that the bottom would be around 50% of the peak,
but conversely, how will be the next peak compared to the JPY21.5 billion this time?
Maruyama [A]: The peak ratio is just my personal wishful thinking, not an official comment. As for the nextpeak, advance orders received with long delivery times have considerably increased the peak orders. We
would like to produce products on an order basis in line with our investment. We will definitely increase ourorders in line with demand.

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Morota [M]: I understand. Thank you very much.
Moderator: It is almost time for the scheduled closing time, so the next person’s question will be the last one.
The next question is from Mr. Miyagi of Mizuho Securities.
Miyagi [Q]: I am Miyagi of Mizuho Securities. Thank you very much. Sorry, time is running out. I have twoquestions.
The first point is a comparison with the mid-term plan. While the sales plan will be exceeded one year aheadof schedule, the operating income target for this fiscal year is JPY13 billion compared to the mid-term plantarget of JPY15 billion. I would like to ask you the reason of the gap between net sales and operating income.
Kamijoh [A]: The major point is the capital investment in the Ariake Plant that was scheduled for this summer.
Originally, the medium-term plan assumed that capital investment would be made in the first year of the next
medium-term plan, so it was assumed that fixed costs, including amortization expenses, would rise from thenext medium-term plan. This was a major factor. In addition, the cost of materials for parts and components,
which was not included in the mid-term plan, increased.
Miyagi [Q]: I understand. Thank you very much. Secondly, on the slide for the next 50 years, it says that you
are looking for partners and deepening the market with overseas partners only in the area of sales. Could youtell us which business category specifically do you image?
For example, are there other FA equipment manufacturers or SIer who may not be in direct competition?
What kind of partner is the most likely possibility? Are you seeking a new capital alliance partner that will
replace Nabtesco? Please tell us a little more about your partner strategy, as far as you can tell us.
Nagai [A]: As you pointed out, there is no point in forming an alliance with a company from a completely
different field, so we have an image of other companies from different business category but in the same
industry, such as those that mainly serve customers in the factory automation industry and robot
manufacturers, as we do.
We are not suddenly looking for a new partner because Nabtesco made dissolution of cooperative
relationship with us. When we talk with other manufactures at an exhibition or other opportunities, we often
find that they have more information than us, or conversely, they don’t have information that we have. So,
we will start by exchanging business information, and if there is a real need, we will consider capital tie-ups.
Nabtesco was also under pressure from investors, and they felt that it would not be very healthy to hold only
shares without any synergies, so if there is cooperation in terms of actual operations, of course, a capital tieup is possible.
Miyagi [Q]: I understand. Again, of course there are companies with knowledge in the FA industry, but is myunderstanding correct that you image a manufacturer, not a SIer or a trading company?
Nagai [A]: Yes. From trading companies, information is always available in many ways.
Miyagi [M]: I understand. Thank you very much. That’s all from me.
Moderator [M]: Now we will conclude the question-and-answer session. Thank you very much for watching
until the end.
This concludes the conference call for the financial results for the fiscal year ended March 31, 2023 ofHarmonic Drive Systems. Thank you very much for taking time to join us today.

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[END]______________
Document Notes
1.
2.
3.
4.

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TollfreePortions 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 ananswer from the Company, or [M] neither asks nor answers a question.
This document has been translated by SCRIPTS Asia.

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