YASKAWA Electric : Financial Reporting Document

Q&A for FY2021 2Q Results Briefing (Summary)

Yaskawa Electric Corporation

(October 11, 2021 (Mon.))

[Speakers]

Hiroshi Ogasawara, Representative Director, President

Shuji Murakami, Representative Director, Senior Managing Executive Officer

(Note):

Motion Control: Motion Control segment

AC servo: AC servo & controller business (Motion Control segment)

Drives: Drives business (Motion Control segment)

Robotics: Robotics segment

System Engineering: System Engineering segment

Other: Other segment

Q What is the regional revenue ratio in AC servo and Drives for FY2021 1H?

A AC servo: 29% in Japan, 14% in the Americas, 10% in Europe, 32% in China, 15% in Asia excluding China

Drives: 17% in Japan, 32% in the Americas, 13% in Europe, 29% in China, 10% in Asia excluding China

Q What is the percentage of AC servo and Drives in Motion Control revenue for FY2021 1H?

A 63:37

Q What is the segment breakdown of each cause of change in supplemental material (P. 12) for analysis of changes in operating profit from FY 2020 1H to FY 2021 1H?

A Effect of changes in forex rates: Motion Control +2.5 billion yen and Robotics +2 billion yen.

Profit increase due to revenue increase: Motion Control +13.9 billion yen, Robotics +7.4 billion yen, System Engineering +0.9 billion yen, and Other -0.5 billion yen.

Decrease in added value: Motion Control -3.4 billion yen, Robotics -1 billion yen, System Engineering +0.2 billion yen, and Other +0.1 billion yen.

Increase in total expenses: Motion Control -4.7 billion yen, Robotics -3.7 billion yen, System Engineering -0.1 billion yen, and Other +1 billion yen.

Other: Motion Control -0.9 billion yen, Robotics -0.2 billion yen, and Other +0.2 billion yen.

Q What is the segment breakdown of each cause of change in supplemental material (P. 17) for analysis of changes in operating profit from FY 2020 to FY 2021 forecast?

A Effect of changes in forex rates: Motion Control +3.6 billion yen and Robotics +3 billion yen.

Profit increase due to revenue increase: Motion Control +26.3 billion yen, Robotics +14.9 billion yen, System Engineering +0.6 billion yen, and Other -1.2 billion yen.

Decrease in added value: Motion Control -1.9 billion yen, Robotics +0.4 billion yen, System Engineering +0.2 billion yen, and Other +1.1 billion yen.

Increase in total expenses: Motion Control -10 billion yen, Robotics -6.9 billion yen, System Engineering +3.1billion yen, and Other -1.3 billion yen.

Other: Motion Control -0.4 billion yen, Robotics -0.4 billion yen, System Engineering -0.1 billion yen, and Other -0.2 billion yen.

Q With regard to the graph of quarterly orders on P. 25, please tell us the regional and groupwide rate of change in each business in 2Q FY2021.

A ・AC servo

YoY: +99 % overall

Breakdown: Japan +98 %, the Americas +103 %, Europe +102%, China+79 %, and Asia excluding China +132 %

QoQ: -7 % overall

Breakdown: Japan +13 %, the America +3 %, Europe -15 %, China -27 %, and Asia excluding China -5 %

・Drives

YoY: +75 % overall

Breakdown: Japan +76 %, the Americas +68 %, Europe +108 %, China +65 %, and Asia excluding China +81 %

QoQ: +2 % overall

Breakdown: Japan +25 %, the Americas +6 %, Europe -8 %, China -10 %, and Asia excluding China +1 %

・Robotics

YoY: +50 % overall

Breakdown: Japan +51 %, the Americas +53 %, Europe +70 %, China +36 %, and Asia excluding China +47 %

QoQ: -5 overall

Breakdown: Japan +4 %, the Americas +8 %, Europe -11 %, China -12 %, and Asia excluding China -8 %

*YoY=year-on-year,QoQ=quarter-on-quarter

Q Regarding Motion Control, revenue is on the decline in China, but was there a production constraint in 2Q?

A We haven't stopped production in the first half. While orders are higher than expected, we deliver according to the customer's delivery date. Neither AC Servo nor Drives had a significant impact in the first half.

Q At the previous peak in FY2017, there was no sudden drop in revenue in China. I thought you had wanted to produce more, but you couldn't.

A The level was in line with production and sales plans, and there was no problem with production.

Q What is the reason behind the increase in added value in the second half?

A The consolidation effect of development functions that occurred in the 1Q is eliminated in the second half, resulting in an increase of approximately 3 billion yen. The impact of inventory fluctuations and effects of new products are also included. In the second half of the fiscal year, although material and logistics costs are affected by the increase, we will offset to some extent by transfering prices. The added value is planned to increase by about 5.3 billion yen in the second half.

Q The upward revision will bring FY's earnings forecast to a record high, but is it adding an upswing to orders in the first half? What are your assumptions about the uncertainty of China Evergrande?

A Orders received in the 2Q were higher than expected, and orders received in September were also strong. Entering of October is not bad.

We will firmly link this order to revenue. Although we recognize that we have received orders in advance, we will supply in accordance with our customers' production and sales plans.

Although information from Chinese customers is used to understand the situation in the case of Evergrande, we believe that this is a domestic issue and has no direct impact on Yaskawa. However, the government will keep a close eye on the issue as it could develop into an economic problem if it continues for a long time.

China has experienced power outages in the past, and if there is no power supply during the day, we will conduct production flexibly, such as during the night. According to local information, there is no major impact such as the shutdown of the plant.

Q What areas of orders received in the first half of the fiscal year were higher or lower than expected compared to three months ago?

A All regions and major segments are good overall.

Q What is the breakdown of the factors causing changes in operating profit from 1Q to 2Q of FY 2021?

A Exchange rate impact +0.3 billion yen, of which Motion Control +0.2 billion yen, Robotics +0.2 billion yen

Revenue Impact +0.2 billion yen, of which Motion Control -2.0 billion yen,

Robotics +2.2 billion yen, System Engineering -0.1 billion yen, Other +0.2 billion yen Value added +2.2 billion yen, of which Motion Control +1.0 billion yen,

Robotics +1.5 billion yen, System Engineering -0.0 billion yen, Other -0.3 billion yen Overhead cost -0.9 billion yen, of which Motion Control -0.9 billion yen,

Robotics -1.0 billion yen, System Engineering +0.3 billion yen, Other +0.7 billion yen Other -0.8 billion yen, of which Motion Control -0.6 billion yen, Robotics -0.0 billion yen, System Engineering -0.1 billion yen, Other -0.0 billion yen

Q What are the 2Q results and the 3Q outlook for plant utilization? A Overall 2Q results were over 130%.

AC servo: about 140%, of which China about 200%.

Drives: about 125%, of which China about 140%.

Robotics: nearly 110%, of which China about 110% and Slovenia 100% plus The overall 3Q plan is around 135%.

AC servo: 140% plus.

Drives: about 120%

Robotics: about 90%

Robotics' base production capacity increases by 10 to 20%, so its utilization rate will decrease relatively.

Q What are the increases in procurement and logistics costs in the first half and second half? A Cost increases in the first half of the year totaled about 1 billion yen for both procurement and logistics. In the second half of the year, we expect to spend around 2 billion yen and about 3 billion yen for the full year. In the second half, the breakdown of procurement and logistics is 50:50, and the costs are collected in the form of price pass-through or surcharge

to some extent.

Q Is the price pass-through planned for the second half factored into the earnings forecast? A 100% cannot be covered, but is woven.

Q Yaskawa has been able to meet the delivery deadline in China, but the operation rate of AC servo production is around 200%. In the long run, wouldn't it be necessary to make the next production increase? Is equipment input to Shenyang third plant proressing?

A After the establishment of the third plant, there was U.S.-China trade friction and COVID- 19 crisis, and demand has been recovering since then. We are investing according to the amount of business. Next year, a new factory will be built next to the Changzhou robot factory. We will cope with an increase in quantity also by improving logistics efficiency in China.

Q What is the breakdown of the increase in the total overhead of the current full-year plan compared to the previous full-year plan?

A Labor costs rose in 2Q due to an increase in actiity accommpanying increase in revenue, as well as the suspension of layoff in Europe and the U.S earlier than expected. In the second half of the fiscal year, the Company expects to allocate strategic medium- to long- term compensation.

Q Have you revised the assumptions for orders in the second half in response to the upward revision of earnings forecast?

A The increase in orders for the full year is reflected.

Q Please summarize the results of the first half for temporary factors of impact of the consolidation of development functions.

A At the time of the announcement of 1Q financial results, there was an impact of 2.5 billion yen. In 2Q, an additional cost was incurred because the calculation related to inventory valuation of affiliated companies became larger than expected due to improved profit margin. The impact was 600 million yen, comprising 400 million yen for Motion Control and 200 million yen for Roboticss. Combined with the first quarter, the total was 3.1 billion yen in the first half.

Q When will it be possible to produce orders worth 140 billion yen per quarter?

A That's a tough question. Accurate information is obtained by DX for the link between production and sales, optimization of procurement, etc. In order to cope with fluctuation risks, the increase of fixed assets will be controled and we will adjust shifts in production. The company also plans to build a new factory in Changzhou and a new robot production