Nidec Corporation (NJDCY) Earnings Call Transcript & Summary

I would like to start the presentation for Nidec Corporation's earnings result for the first -- second quarter this fiscal year as well as the business update. I'd like to present to you today's presenters. First, Mr. Kishida, the President and CEO of Nidec Corporation; Mr. [indiscernible], Vice President and Deputy Chief Financial Officer of the company. We have Mr. Masayuki Mina, the VP and Chief Compliance Officer of the company. I am [indiscernible], GM of Nidec Corporation's Corporate Communications department. I'd like to give you an overall guideline outline of today's conference. Mr. Kishida will give you some opening remarks, followed by Mr. Nakagawa's presentation on the financial update and Mr. Kishida will take the extra part about talking about Nidec's latest business activities. Then before we will open up for a question-and-answer session. Mr. Kishida, please start your presentation.

My name is Ms. Mitsuya Kishida, Representative Director, President and CEO of Nidec Corporation. Today, I would like to talk to you about our business update for the first and second quarter of this fiscal year. And we would like to talk to you about those information, which we have disclosed today. When it comes to the operating profit, we have experienced a significant downward revision from the last time we made a presentation about it. We have a cost concern and trouble to all the shareholders and investors, we deeply apologize for that at our company as well as our group companies. There have been suspected cases of inappropriate accounting transactions, and we have commissioned the investor relations to a third-party committee, which is an independent body. And when it comes to the security report, for this fiscal year, we have received a disclaimer of opinion. Under this circumstance, our share price has been -- our share has been designated as a security on special alert by the Tokyo Stock Exchange. During this time, we have caused tremendous trouble and anxiety and concern to our shareholders, our investors, people of the Tokyo Stock Exchange, our business suppliers and our business partners. And we truly deeply apologize for having you caused so much trouble. Regarding the first quarter financial account closing, rating profit was significantly revised downward. And we deeply apologize. We deeply apologize for not being able to have this type of opportunity since July 24, when we had the last presentation about our financial earnings. We deeply apologize. Now I would like to be -- we like to be seated as we met the rest of the presentation. Mr. Nakagawa will present you with Nidec Corporation's financial update.

This is Nakagawa speaking. I'd like to give you a financial update of our company. Here's our net sales over here. Sales increased by JPY 8.5 billion compared to the previous fiscal year. Operating profit was decreased by JPY 99.4 billion, had the financial impairment in our automotive products, including costs related to provision for the contracts lost with our customers. There are specific negative factors, as you can see. These will be explained in detail later. On the other hand, when it comes to cash generation, we remain healthy with cumulative net cash provided by operating activities of JPY 112.3 billion, free cash flow JPY 45.2 billion for the first half of the fiscal year. As you can see on the note, there are 3 points that I'd like to make here. So when it comes to the third party committee, it is still investigating suspected improper accounting. If there is any special activities, there will be maybe another downward summary revisions to our financial report, and we have received the special designation from the Tokyo Stock Exchange and we received an interim review report containing this criminal opinion from the accounting auditor. Please go on to the next slide, please. This is a year-on-year changes. The net sales are on the top and the operating properties on the bottom section of the slide. And operating profit, as you can see is here a 21.1 and JPY 120.5 billion last fiscal year, and it's down to JPY 108.8 billion. Now it's JPY 221.1 billion, as you can see for the first half of this fiscal year. There is a [indiscernible] reserves for the items, there will be high possibilities. Break down the profit for the contract loss, income loss and claims for reimbursement, and we have accumulated and recorded the financial impairment over here sales of [indiscernible] JPY 13 billion and based on the settlement with our suppliers, a certain amount, there is a loss of JPY 90.5 billion and JPY 87 billion were recorded and 12.1 of operating profit was recorded in terms of yen. And when it comes to profitable -- profit attributable to owners of the parent, it's actually JPY 45.5 billion. And please take a look at the next slide over here. The year-on-year change was JPY 664.3 billion, it's a plus JPY 626.3 billion. You can see the JPY 60.1 billion, and you can see JPY 61.5 billion for the preliminary result for the first quarter. And the third one is about causing all the breakdown of significant losses JPY 59.4 billion. And you can see a total other loss of JPY 85.8 billion. And you can see the JPY 26.4 billion in deficit in the red. And you can see the down the decrease in operating profit by JPY 47.5 billion. In the previous slide, you get -- on this side, JPY 89.5 billion, as you can see, this is based on the result of the differences in cost exchange rates between this and the previous slides. So all the same content. If you go to the chart on the right-hand side, the profit attributes of the parent, minus JPY 9.4 billion. Next slide, finally, cash flow. Yellow is operating cash flow, green is investment cash flow and red is free cash flow, the line graph. On the right, second bar, the free cash flow, JPY 9.8 billion for this first quarter, second quarter, JPY 35.4 billion free cash flow. Second -- first half free cash flow, JPY 45.2 billion. So you see on the right in the pink. Operating cash flow, JPY 11.2 billion. And then you subtract the investment cash flow, then you have the JPY 45.2 billion cumulative. So compared with JPY 28 billion, it's an increase of JPY 17.2 billion. That was a report from Nakagawa. Next, Kishida will explain about the history of the incidents and our initiatives. From here, let me explain what has been the history and our determination about dealing with these issues. So let me make that report. On June 27, we had the deadline extension for the securities report since that announcement, several issues have come up. And we have been responding to each one of them and the counter measures well, we have made a determination that we're going to make countermeasures against that. And with that, we announced the establishment of the third-party committee on the third of September. So 3 months after 27th of June, that was the deadline for the submission for the securities support and the internal control report. And then October 23 because we could not fix the amount available for dividends, we decided no dividends for the interim and outlook for the full fiscal year and the outlook for dividend payment at the year-end, we said we do not have that outlook. And then we were designated security on special alert. And immediately after that, internally as a company, we decided that we're going to fully cooperate -- will continue to cooperate with a third-party committee. So we renew that determination. And in parallel to that, we considered what we could do thoroughly as a company. So on October 30, we established the [indiscernible] corporate reform committee. And on the course of November, we disclosed that in the form of apology to our partners on the same day from the 2 mega bands. So we were able to have a commitment line totaling JPY 600 billion that we have announced that we've concluded those commitment lines. And today, we are now disclosing the first and second quarter financial results. So we have submitted those financial reports for the quarter and the first half. And also in terms of the policy for developing the improvement plan, we have submitted that to the today, so many incidents in front of us. And what should we do as a company? What is the right thing to do? Well, the investigation by the third-party committee is continuing. But in parallel to that, I think we felt that we need to take initiatives to work on this. So we have been working on several measures. FIR issue started this chain of events. And with this as a trigger, we're going to make sure that this will never be repeated again. So we have been working on recurrence presential measures. For one thing, we are going to establish compliance first sentiment, and we're going to change the corporate culture. So that is going to be our priority. So from the Board to all of the group companies, we're going to deliver clear messages. And myself, I'm going to communicate to the management all around the world, clear messages more frequently than before. And that's what we have already been doing. And I'm not saying that, that has been sufficient, not at all. One by one, we should work on the issues based on the findings of the third-party committee. We're going to take every necessary measure to respond to these developments. And in terms restrengthening the legal and compliance department, giving them more authority. Well, we have positioned internal lawyer and we are going to strengthen the whistleblower response and investigation systems. And in terms of strengthening the organization structure, we are strengthening the global governance structure. And we have established a position of the COO, Chief Legal Officer and Murakami is the new CLO. And from the FIR issue, we have seen a series of events. And especially in North America, we felt that it was necessary to have an expert in legal compliance. So Mark Carol has been employed as fellow and he has started work in the U.S. So we should have a good balance of various businesses and regions should be checked amongst them. And so in order to establish a system that has those checks and balances, we have taken a very important first step. Also in addition to that, we should have had a quote function, and we shouldn't have strengthened regional functions as well, and we're not going to compromise in achieving that. 30th of October, Nidec Corporate Reform Committee was established. So the corporate culture that is in front of us, we have to reform that culture itself. And we need to shift to a more ideal structure. And for that, we have established this kind of committee and effort. So this is in parallel with the investigation by the third-party committee. So we're going to try to reform our corporate culture, organizational culture and that no longer will we have the HR system where people who make short-term revenue will be appreciated. We're going to reform the HR system that rewards those who help to create a long-term healthy organization, and we're going to develop human resources based on that. And in order to overcome the various accounting issues. We're going to have procedures regulations, and we're going to also reform the way the business is operated, including IT systems, and so we will have these subcommittees held globally, and we are now organizing these subcommittees and assigning team leaders. So the responsible people have already been assigned. They are conducting activities dailies and leading the effort. So we will be continuing to work on improvement on this activity as well. We're going to further enhance transparency and we're going to be reporting about our activities to the third-party committee. So through those measures, we're going to deepen these activities myself. I'll serve as the Chair of this committee. So I'll take the responsibility to start this corporate reform committee. And what comes out of this committee, I'm going to ensure that they are implemented. So that is the effort that I will make. Today, in terms of the improvement plan development policy, we have submitted that to the [indiscernible] and we've disclosed that. And the content of that is reforming corporate culture, improving the human resource system and have accounting system where there's no interference and also reform of the IT system as well. So the investigation by the third-party committee, we're going to continue to fully cooperate with that and make sure that we have thorough investigation and elucidation of the root causes. And going forward, we will have a report to [indiscernible] by the third party committee, we will receive it with sincerity. We will make sure to launch and may prepare the improvement actions. When it comes to this corporate reform committee, you will make sure to provide people with instructions on what to do and how to do those actions. Towards the end of January 2026, we will -- and we are planning to submit our improvement plan. And in towards the end of October 2026, we will make a report to confirm the improvement of our internal organizations so that we can have an assessment by the Tokyo Stock Exchange in the end. We have caused various concerns and travels. Once again, we apologize to have [indiscernible] that. Going forward, Nidec will change. We will eliminate all the bad habits from the past, and we will be reborn as a new Nidec. We will plan ourselves. And on a global basis, we will launch all of these actions. That concludes my presentation for today.

[Operator Instructions] This is the joint conference for analysts and press people. First, we would like to have questions from the mass media. Now the person from the right-- second person from the right.

Thank you very much for your presentation. This is Hiroi of the Nikkei Newspaper. At this moment, you have this corporate reform committee in your presentation. When it comes to the inappropriate accounting practices, can you provide us with an background? How do you see the situation that cost you are going to have an internal improvement and what reform will be taking place. But what cost do you think is an appropriate accounting practices if I may. Here is my second question. When it comes to the schedule going forward and it's very difficult for you to plan submit improvement plan without a specific date, but can you give us an update on some specific data as to submit your improvement.

Well, thank you very much for your questions. I would like to give an answer. And as necessary, [indiscernible] as well as Nakagawa will may give you some additional comments, if that's okay. First of all, to answer your first question, what caused this inappropriate accounting practices. The background about our launching the reform of our corporate culture. As of today, as has been disclosed publicly, there are 5 inappropriate accounting or compliance-related issues we need to review the details of these cases and we need to come up with a reason and the main reason for these issues is first -- is related to corporate culture. We need to reform the corporate culture that we have in our company. And the third-party committee will provide us with its final report. And based on that, we will have a deeper analysis and a deeper review of the background of this problem. But as of today, we have recognized as facts as well as issues based on which as I've said to you, I can say the reform of our corporate culture, human resources-related issues, accounting process-related issues and accounting system-related issues existed. These are the 3 major reasons for us to have this problem, inappropriate accounting practices. We need to eliminate any and all of these issues going forward. We will first make a review of these items, and we will go forward after solving them. When it comes to our schedule going forward, as you have pointed out, when it comes to the investigations by the third party committee, detailed schedules -- detailed points about the schedule is not yet to be clarified yet. I cannot give you any comment on that. We have received some impact from the third-party committee at least by the end of this year, we'll not be able to receive any report from the third-party committee as far as we have been informed so far. If there is any update -- if we receive any report from the third party committee, we will make sure to disclose such information in a proper way. As far as we are concerned, we have been designated as a security on a special alert in several weeks ago, and we have already submitted to clarify what we need to do going forward towards the end of October 2026, we will have some issues pointed out by the third-party committee. Minai-san, do you have anything to say?

This is Minai speaking. I would like to give you some additional comments here. We have this investigating body, the third-party committee, many people must be interested in when the report is going to be out. We have not been able to give you any detailed information about it, and we have caused some anxiety concerns about it because of that situation. I would like to give you some detailed information about it. We need to utilize this opportunity to address and solve any and all accounting-related issues and problems. In that regard, we have spent so much time so far. We definitely need to be focused on solving those issues, eliminating those issues. I let the members of the third-party committee are dedicating very much to service to these activities. We have more than 130 business places around the world. I'm not saying that all of these bases have any problem, I have a problem, but we need to check all of these business bases thoroughly. That is what's important for us to not related to the current issues, there are -- there could be some issues from the past that could -- that we could uncover during the course of investigations depending on the scale of the business business as well as some of the events that the chronological order of those events, these are the things we need to check, investigate and this is how we like to address and eliminate all of these issues we're going to face, and we are facing that is offer.

The questions from the analyst. In the front row, in the middle?

From Goldman Sachs, this is Takayama. So let's sort out the issues or the facts, including this time, well, you talked about 3 incidents -- 3 issues. So you have uncovered these and there are those that may be undiscovered or there may be cases that you're going to investigate on what kind of companies are included there. So like automotive inverter or [indiscernible] models, are all the [indiscernible] were included or not. So what has come out for which -- what there will not be any more losses? For what you might have more losses -- I mean have you gone through the 300 locations already. And have you already grasped most of the issues? Are there many places where you have to continue to do more investigation.

Let me respond to that first and then have the 2 people supplement. So JPY 87.7 billion comprising 3 issues. And so contract -- JPY 36.5 billion for contract loss provision. So that would be for our inverter business for life. So that's a provision for the loss that we assume for that. So for the inverter business, going forward, next 10 years, we think that the business will continue. So all of the losses that may come up for the next 10 years, that's included and booked for Nidec [indiscernible], that's the company that was doing this business. So from April this fiscal year, has been integrated and absorbed into the Nidec Corporation. So the company as a whole is working seriously to work on this. Then the second one -- second item, that was about the fixed assets impairment. Two elements there. One, as I said, for the inverter business, there was some fixed assets total amount of that. And also for the traction motor business. In the past, for 4 years, I have been conducting restructuring for the automotive business conversion. And so what was remaining there? By the end of November, we're going to have communication and we see signs of impairment. So we have taken measures to address the full amount. So that's the impairment for facilities. The third factor that is for the claims for reimbursement. So NPe in France where there's a joint venture that we have with Stellantis and from supplier, we have received claims for reimbursement. And in November, this year. So NPe and the supplier came to an agreement and the full amount that has been agreed has been booked or included in the figures. So how is it going to be divided by the 2 parent companies. And will there be a negotiation with the changes but NPe is the frontline company, and so the full amount has been booked. So the 4 points for those 3 issues, we think that there will be no more impairment going forward. For the other items, the progress -- Well, for the 350 corporations, how much progress have we made? We have not grasped that progress status fully myself or the company, but the third-party committee taking various methods and conducting investigations on a number of cases and for each one, we are -- it's our mission to respond fully to provide answers to the increase. So that was the background. So let me make some additional comments, Nakagawa. So the numbers that we announced. So those were based on the facts that occurred until November. And so in terms of the incidence, they have been continuing from the first half. And so there has been treated as adjusted subsequent events. But those events that triggered the impairment, those occurred by November. So from Q1, for example, for the claims reimbursement, we were negotiating. And for the inverter, the loss provision. So impairment check we were doing every time. But this time, the future profit and loss of inverters we booked in a lump summer because this product there's going to be SOP in January next year at that time. Well, as of now, the current management has estimated the lifetime profit and loss compared with the past, well, at 1 time, we had some outlook. Even if you had that kind of estimate, we don't have a clear evidence to prove that and that is why we made a judgment that it will be impairment loss. So for these 3 items, there are not things that happened for the first time in Q2 like inverter development has been continuing since before. So according to the investigation by the third-party committee, the we cannot deny the possibility that there will be further revisions in past statements. So I want to get the correct understanding of this. So the loss from what may come in the future, you have already reflected. I mean maybe there are some that hasn't been investigated. But the biggest ones have already been found and included. So for the past ones, there could be perhaps a retroactive amendment. But going forward, most of the losses have been included, of course, there could be some partial changes because you're just expressing an opinion, but from outside investors that have the fear that you might have this magnitude of loss again in the future. So I want to get a correct understanding there. So this size of loss, will it happen or not. We are not able to accurately tell you whether that will happen. Inclusive of that through the third-party committee will be conducting verification as we move forward. But 1 thing I want to tell you. So second quarter onwards, we have been working and having deep discussions with the accounting firms. And so in the past, we tended to have this short-term response. And we have discussed what we should do for the long term, what is the right thing to do. And that is going to be the perspective that we're going to take. And that is what I'd like to communicate to you. Let me supplement with 1 more comment. About the future, I mean, we don't know because we don't know what will happen to the business, especially for the automotive industry. You don't know what will happen tomorrow. That's the situation we are in. And so given those circumstances, I mean, for the assets that we have, would there be an event that would require impairment? Well, if there is, then we're going to firmly work on that. And at that time, if something occurs, that's different from our outlook or results then we have to look at what is actually happening and make decisions accordingly. So that was 1 big question. The second one. So what's the true strength of your results? For JPY 47.5 billion in Q2. As of Q1, I think that was more than JPY 60 billion. I mean you had that capability to grow JPY 60 billion, and you have come down. So I think maybe you have taken some conservative calculation. So this is your actual capacity to generate results or this is an emergency. And so that will cause confusion. And so your actual capability has come down. So in the second half or the second half quarters, how much can you bring back to the previous state. So for Q2, in our ordinary business for automotive, we have conducted a structural reform. And for machinery, we have conducted restructuring and those expenses have been included in the figures. Inclusive of those, we have made various responses. At the same time, as we have been repeatedly saying for new big business. So we prepare for increased production where there is a strong demand. So we're making the preparations. So towards the second half, there is no bottleneck that is stopping the business from moving forward as far as we know. Midterm management plan still is alive. It still exists. So conversion 2027, we have presented that as our midterm plan. the numbers in those midterm plan, we are intending to review those numbers. But in terms of the direction of the midterm plan. So 350 corporations and more than 200 plants, we should integrate them and so that we will have 5 efficient businesses. We should have restructuring for that structure. That policy has not changed, and we're going to strive to transform to that kind of structure. But what has been happening, we're going to put into the process, and we are calculating what will be the accurate numbers.

We'd like to have some questions from the reporting agencies. A third person from your right.

This is [indiscernible] Newspaper. First of all, I'd like to ask you a question, Mr. Kishida. Within your Q&A session, since you talked about a 5 inappropriate accounting practices. You said 5. Can you please tell us what these 5 cases are? You talked about automotive business. Do these 5 include this three automotive business.

Minai-san will give you some details about this.

These automotive issues have not -- really do not have anything to do with the 5 fronts that I've just talked about. That's 1 thing that I want to make sure that you understand. This is Minai speaking, I would like to give you an answer for that. When it comes to these 5 issues that I've just made, we have made -- we have said about the committee checking various matters in addition to that among all the items we have disclosed to the public, there are issues that are the current under investigation. One of them is as follows, which is called FIR. This is one of our subsidiaries in Italy, cheese and they have had a trade-related issue. It's about the exporting and the motors. There was a violation -- some kind of error made in the exportation of motors. The second one is about issues with 1 of our subsidiaries called Nidec Analysis Corporation. This is about the transaction of equipment between China and Japan for product development and estimation of the equipment was wrong. That's the second issue. This issue is still under investigation. The third one is about our swiss subsidiary, export coding related issues. An internal investigation is underway about this issue. The fourth one is about our subsidiary in China. So the understatement of withholding attacks, this issue has started to be investigated. These are the 4 of the 5 issues that are under -- internal investigation by utilizing an outside third-party organization. The fifth one is about Nidec Techno Motor corporations, Chinese business base. This is about purchasing a temporary payment was back in July that we discovered this issue, and we then started investigating into this matter. From then on, multiple business bases have been revealed to have possibly have the same type of problems. So technomotor and adages are currently being invested by the third-party committee. And the internal investigation is taking place on the issues. And the other one is about Nidec technomotor issues in China. So technomotor temporary processing of money and Nidec corporation and group companies have some issues that possibly involve executives arbitrary change in prices or data and third party committee is investigating these issues covering approximately 350 business legal entities around the world that is correct. And here's my first question here after taking all these relevant facts. You talked about the amount of approximately JPY 87 billion and third party committee may or may not include some issues and suspicious -- the statement may be described over here on the statement. Let me give you an answer to the question, followed by some additional information and statements by these 2 people on my side have talked about this determination of financial impairment. We do that on a quarterly basis based on evidence and facts that we have done so far. As I've said already, when it comes to these 3 different sections of issues inverter, traction NPe-related issues by November, we have identified various issues, and we have conducted some termination in financial impairment. It was decided to be incorporated into Q1 data. On that hand, when it comes to these major issues, the third party committee is now trying to determine when house when will be appropriate, when will be the right timing for these issues to be incorporated. We have this gene issues that came later -- came to surface later. There is a possibility that these -- the decision could be made that this should be recorded at other timing. Depending on the determination by the third party committee, you may come to a conclusion that the postponement was made intentionally. That is correct. That is what is written here -- is indicated here. Here is what we have taken ver seriously. [indiscernible] modification, and I don't -- I hope that will -- this is not the case. But if there is any modification of the data, those issues have to be identified and corrected. And that's what we are determined to do. We will go -- we will go through all the issues via the third-party committee. We will be fully cooperative with this committee. Do you have any additional comments from anyone? No [indiscernible] No.

Here's my second question Mac in September, you submitted and disclosed the securities report. And in the report, you said that the financial system wasn't really effective but this is not the first case last time back in 2024, you have had a problem with the Nidec [ Direct ] technology. financial reporting system wasn't really effective, and you have made this type of statement for 3 consecutive fiscal years. This is a weakness about your financial system in your company, and you have some made your dividend over the limit and you have established party committee back then in the past. Over the past few years, I understand what you're going to do going forward. Over the past few years, what have you done and why those efforts want to roll is successful and why you came to have those current problems. Can you Kishida-san answer this question?

Thank you very much for your question. When it comes to all of these issues -- when it comes to the final assets to these issues, we will first receive the report from the third party committee. And we, as a company, need to decide what to do. That's what's important in my opinion. As of today, my impression is as follows on a case-by-case basis. We will take appropriate required actions. That's what we believe we have done. But these actions themselves may not have been drastic, fundamental, prominent. It is asked as it is a question as to whether these actions have been global effective that's 1 of the issues to be tackled by us and said about [indiscernible] that is our [indiscernible].

Next question from an analyst from the front rows.

Sato from Morgan Stanley Securities. Two questions. First, the third party committee report that it seems difficult that the final report will be issued by the end of the year. But the report from the third-party committee, I mean the original text, would we have no opportunity to see it? And after the report is issued, then the financial results with the appropriate opinion from the audit corporation, how long do you think it's going to take?

So I will respond to the extent of my knowledge. So the report from the third-party committee. They have informed us that they will not have the final report by the end of this year. And the final report itself, I believe, will not be disclosed. However, from the third party committee, there will be some communication, I think, and the findings in the final report, the company side will publicly disclose with transparency. We'll make preparations for that. So on that first point, any additional comments. So from the third-party committee side, there should be a determination and the content will be disclosed based on their determination. I think that's the ordinary way of doing things. So we shall discuss and confirm with the third-party committee members and figure out the appropriate disclosure method. The second question about the audit opinion. So that will be up to the decision and determination of the auditor. So the amended statements will have asked the auditor to thoroughly go through it. So please accept that is the extent of my response. So as of now, you don't know when. So schedule-wise, not something we will not be able to answer from our perspective.

So understood. Second question, Q2 financial results. Page 20 talks about interim consolidated cash flow statement. So numbers are very detailed, sorry to go through them. But operating cash flow 112.3 billion. Of that, operating liability is increasing. And then there is an increase in provisions. So on those 2 points, the amounts are very large. And compared to the previous year, the amount is larger year-on-year. So explain the background of that, please? That's my second question.

Nakagawa would like to respond to that.

So about operating liability increase, so earlier, we talked about the claim for reimbursement. That has a big impact on that liabilities. That's my understanding. Other provisions that's increasing. That is due to that other factor that you explained. Yes, we explained that is for the provision for the claims for reimbursement.

So excluding those items, in the ordinary business, business is going on as usual is what I would assume. So employees, I think they are very busy responding to the third-party committee investigations. So talk about the impact to your ordinary day-to-day business? Are you starting to see that impact? And can we understand that such impact does not cause any material problem for you?

Thank you for a very important question. So our intent is that the ordinary business operations, there is nothing I'm healthy about it. So we should work to further enhance the health or the integrity of that business. However, the third-party committee has been established, and we have been designated as a security on special alert. Those are facts. And based on those facts, several customers have indicated concern to us. There have been such developments for that, we, in the management, well, to all the employees around the world, we should communicate the progress of the investigation and the investigation of the Corporate Reform Committee and also that we have secured JPY 600 billion commitment line. So -- and we are explaining to our customers 1 at a time very thoroughly. That is the current situation. So for the customers for the first half results, we have now come to a stage where we could report it. And so in terms of the business, developments and preparation for investment and introduction of new products, we want to make sure that we ensure integrity, and we continue to work on this. And at the same time, we are going to provide full cooperation to the investigation so that we can fix what needs to be fixed thoroughly. That is our stance about business operations.

Next person from the press, the person, the lady in the white clothes, please?

This is Nagao with TV Tokyo Broadcasting. The first question should be addressed by Mr. Kishida in my opinion. But in your explanation, you talked about improving the corporate culture several times. In your -- from your perspective, I believe this is before the release of the report by therapeutic but where do you think you have problems with your company's corporate culture? Next question is about JPY 600 billion commitment line. JPY 340 billion as of the end of the fiscal year. I believe you have enough cash reserve, but you have this commitment line is as much as JPY 600 billion. You said you talked about this has no effect on your business operation, but what type of risks are you aware of?

Thank you very much for your very important questions. To answer your first question, which is about the corporate culture reform. We need to understand all the issues in our understanding we need -- tend to be focused on short-term profitability. And based on the tendency, we have been -- we have pressured ourselves to achieve a short-term result. And we haven't focused on anything else very much at the first area where we need to start reforming our service when it comes to our corporate culture reform. Many people have said that the Nidec is the company whose motto is do you -- do your job right away without hesitation and never give up, it is until it is done. In addition to these funds, we need to be able to do our job properly right all the time. That's the type of corporate ethics we need to add to our existing corporate model. That's what's very important in reforming our corporate culture. That is the hypothesis that I have as we go forward with our corporate culture reform, we need to brush up the on our corporate culture in this point.

I mean I agree with Kishida-San about this. These points have need extra strength. But in order for us to pursue our strength improvement on a day-to-day basis, we have been probably excessfully focused on securing profitability on a day-to-day basis. This is a very good opportunity for us to make the reform on that point. You talked about previous years, but we need to stop, take a look around and make or to do things right for our future. That's what we need to make sure. We need to make sure every Nidec employee does his or her job that way. When it comes to this commitment line of JPY 600 billion, as our message from me, Mr. Nakagawa, we have in communication with our banks, and we have been receiving a support from these companies MFG as well as SMBC have given us this contract committed underlying contract for JPY 300 billion each from these 2 banks. We sometimes establish syndicate -- business syndicate, but we made this equal divest commitment with us and these 2 banks especially from suppliers, they gave us questions such as if the payment will be made without any problem. It is in order to eliminate those worries that we decided to have this commitment line agreement that is standing. We have about a total debt with JPY 600 billion. And we don't have to repay this amount of payment all to us -- this amount of debt all at as that's not now what we have today. At the end of month is [indiscernible] JPY 600 billion in 2 months. That's the type of a view that we have, and we had a match in opinion between us and 2 banks. So even without using this amount of money, we have enough amount of cash flow, we are in a very good relationships with these banks that we use. So there is no -- so far there is no problem financial with our financial infrastructure.

Person in the right, in the front row.

Akizuki from Nomura Securities. Two questions from me. First, so the big framing of the problem. You have the assets and appropriateness of the market to value where they should have provision or should it go through the impairment test, and there's some arbitrariness for that. That is what was suspected. So that is that at the core, the biggest issue of your problems or are there some other problems. I mean you can ignore the small problems, but you have like off-balance sheet debt liabilities or something that's clearly outside of the framework that you are presenting. Do we have to be concerned about those things. So where is the sort of the center of the problem. So I want to get the big picture conceptually. Now within management, the appropriateness of assets, I think you continuously evaluate. So whether -- I mean, there could be views about whether that is appropriate. But with senior company, the signs of the business or the sales concerning the asset evaluation, do you need to review each time. I mean if you are profitable, you don't basically need to review any profitable in -- basic all your businesses. So I don't think that there should not be any business where you have to do those checks, but is that understanding correct? That's the first question.

So where is the essence of the problem that we are confronting. That is how I understood your question. What we are facing in front of us. I mean is there going to be something that you've never heard of. And is it going to be like a huge loss it's our understanding that, that is not what lies within the essence of the problem. So there has been points made about the issues from before, like for automotive, and for machinery, some business where profits were not booked properly. And so those were within our sites as our businesses. And appropriate treatment has that been done will going through the books retroactively. And I think that is what we are doing now. That's 1 thing. Now the other thing is, no matter how small a compliance issue, it is the fact that there is a compliance problem existing. We cannot be accepting of that. So the 5 points that we discussed, the value impact. Maybe you can make a judgment about -- well, 1 is bigger 1 is not they are violating compliance in each case. That's the same for all of those cases. So we have to create a corporate culture that absolutely does not allow that to exist. And that kind of corporate culture we all of us here determined to establish and through the Corporate Reform Committee, we're going to establish that, visualize that and take the appropriate measures.