Earnings Call: Q4 2021

May 18, 2021

My name is Murao, President of GSU ASA Corporation. Let me start by offering a word of appreciation to institutional investors and analysts. Without further ado, I would now like to report on the financial results for the fiscal year ended March 2021. First, I would like to start with net sales and profit for fiscal year 2020. We registered JPY386,500,000,000 in consolidated net sales. This was due to a decrease in sales of lead acid batteries for new automobiles and of lithium ion batteries for plug in hybrid electric vehicles, both in Japan and overseas. Next, we registered JPY 24,800,000,000 in operating income, a year on year increase of 14.5%. This resulted from strong sales of replacement batteries for automobiles and lithium ion batteries for hybrid electric vehicles, both in Japan and overseas. Next, we registered JPY11.5 billion in profit, a year on year decrease of JPY2.2 billion. This resulted from the recording of JPY2.76 billion in impairment losses associated with one of our 1 of our consolidated subsidiaries. Additionally, operating income and ordinary income broke new records. Page 5 discusses the factors for operating income change. Of particular importance here is the sales composition change of batteries for new automobiles and replacement batteries and lower prices for materials. Both factors made a positive contribution. Page 6 contains the segment results. I shall be discussing the details next. I would like to start with our results in the automotive battery segment in Japan. In this segment, we registered a decrease in net sales accompanied by an increase in operating income. The sales overview was as follows. Sales volume for batteries for new automobiles decreased due to the severe impact of COVID-nineteen in the first half, despite a recovery trend in the second half of the fiscal year. On the other hand, sales volume of replacement batteries increased due to the impact of cold weather at the end of the year, in addition to the factor of steady sales starting in the first half of the fiscal year. Page 8 deals with GS US' market share for batteries for new automobiles and replacement batteries. Starting with batteries for new automobiles, our market share grew from 68% in fiscal year 2017 to 73% in fiscal year 2020. This represents an increase of 5 percentage points. This is the result of an increase in adoption of European Standard Compliant, abbreviated as EN, batteries, a type of battery GS Yuasa has a competitive advantage in. Next, regarding replacement batteries, our market share grew from 53% in fiscal year 2017 to 58% in fiscal year 2020. This too represents an increase of 5 percentage points. This was thanks to an increase in replacement demand for batteries for start and stop vehicles. Next, I would like to discuss our results in the overseas automotive battery segment. In this segment, we registered an increase in both net sales and operating income. The sales overview for fiscal year 2020 was as follows. In ASEAN, sales volume of batteries for new automobiles and motorcycles decreased in Indonesia and Thailand. However, in Vietnam, sales volume of batteries for automobiles and motorcycles increased exceptionally. In China, sales volume of batteries for new automobiles and replacement batteries increased due to a quick recovery from the impact of COVID-nineteen. Additionally, in Europe and Australia, sales volume primarily of replacement batteries for automobiles for automobiles increased significantly, because of less impact of COVID-nineteen to our business. Page 10 discusses sales and market share by region in the overseas battery segment. We boast a particularly high market share in the ASEAN region even within the broader region of Asia, 34% for automotive and 48% for motorcycle. Both represented the number one market share for the ASEAN region. Our strategy for the ASEAN region is to aim to maintain a high market share, while at the same time improving profitability through the introduction of high value added products and optimal production systems. Page 11 discusses our results in the industrial battery and Power Supply segment. In this segment, we registered a decrease in both net sales and operating income. The sales overview for fiscal year 2020 was as follows: Although sales increased in Japan, thanks to the start of supply of lithium ion batteries for the large wind power generation project, sales volume of batteries and power supply systems for backup for clients in the telecommunications business, railway companies and private sector companies decreased year on year. Additionally, sales of batteries for backup America and lead asset batteries for forklifts in China recovered. However, sales of batteries for forklifts in Thailand to be sold in the ASEAN region decreased on a full fiscal year basis. Page 12 contains an overview of net sales by model for the Industrial Battery and Power Supply segment. Industrial batteries and power supplies account for the greatest portion of sales. Allow me to give you a breakdown by demand source. We started production and supply to a world class storage battery facility and this falls under private sector demand, leading to a significant increase in net sales from this demand source. We registered slightly sluggish net sales growth from railway companies as a result of COVID-nineteen. Page 13 discusses our results in the automotive lithium ion battery segment. In this segment, we registered a decrease in net sales and a narrowing of operating losses. The sales overview for fiscal year 2020 was as follows: I would like to start with Lithium Energy Japan, which manufactures batteries for electric vehicles, plug in hybrid electric vehicles and energy storage systems. Production volume COVID-nineteen for the full fiscal year. However, sales of lithium ion batteries for a new plug in hybrid electric vehicle model, more specifically Mitsubishi Motors' new Eclipse Cross model, was very strong in the Q4. Next, I would like to discuss Blue Energy, which manufactures lithium ion batteries for hybrid vehicles. Sales of batteries for Honda Motor Company Limited increased due to supply for a new vehicle model from the end of last fiscal year. In addition, supply for Toyota Motor Company Limited started this fiscal year and sales have remained strong. More specifically, this refers to Toyota Motors Harrier model. Lastly, I would like to discuss GSU ASA, Hungary, which produces low voltage 12 volt lithium ion batteries. From November 2020, mass production has already started. Page 14 discusses our results in the segments of specialized batteries and others. In this segment, we registered a decrease in both net sales and operating income. In particular, the sales overview for specialized batteries for fiscal year 2020 was as follows. Production of lithium ion batteries for submarines progressed smoothly. On the other hand, sales of lithium ion batteries for aircraft decreased due to the impact of COVID-nineteen. Page 15 contains the balance sheet statement. Starting with the left hand side, cash and deposits increased by 11,100,000,000 yen resulting from the accumulation of cash on hand as a countermeasure to the impact of COVID-nineteen. Additionally, working capital increased by approximately 1,900,000,000 yen Trade accounts receivable and inventories increased by 3,700,000,000 yen and 3,600,000,000 yen respectively. On the other hand, as shown on the right, trade accounts payable decreased by 5,400,000,000 yen Additionally, we registered an increase of 10,700,000,000 yen in investment securities derived from the mark to market valuation of our stock holdings. Net defined benefit assets increased by JPY 11,000,000,000 On the right, we registered an increase in deferred tax liabilities, net unrealized gains unavailable for sale securities and remeasurements of defined benefit plans. Dividends increased by JPY 8,700,000,000. Furthermore, foreign currency translation adjustments resulting from a weaker yen JPY 6,700,000,000 Moving on to the bottom of the page, the equity ratio increased by 1 percentage point year on year and stood at 46.8 percent. Total borrowings stood at JPY 65,400,000,000 as of March 31, 2021, a slight year on year increase. I would now like to discuss the cash flow statements. The highlights are as follows. We secured profit before amortization, allowing us to deliver operating cash flow totaling 35,800,000,000 yen exceeding the 33,100,000,000 yen a year ago. In spite of payment for the acquisition of property, plant and equipment, free cash flow came to 16 500,000,000 yen which was allocated to fund shareholder returns and the accumulation of cash on hand. Page 17 shows capital investment, depreciation and R and D costs for fiscal year 2020. The main investment carried out during fiscal year 2020 was investments related to BEC, which manufactures lithium ion batteries for hybrid vehicles and capital investments associated with our base in Thailand for the production of automotive batteries for the ASEAN market. I would now like to go over the financial results forecast and initiatives for fiscal year 2021. Regarding the consolidated results for fiscal year 2021, we expect a sales recovery for lead acid batteries for new automobiles, an increase in sales of lithium ion batteries for hybrid vehicles and the sales contribution from the infrastructure business, which we acquired from Sanken Electric Company Limited to allow us to deliver net sales of JPY 430 billion, a new record performance. On the other hand, in terms of profits, in addition to continued uncertainty surrounding the economic climate, resulting from an increase in the number of COVID-nineteen cases, investment in R and D with an eye towards the future and taking into account price trends for the main raw materials used in our products, we are forecasting in operating income. This represents a year on year decrease. We forecast JPY 12,000,000,000 in profit, a year on year increase. Page 20 discusses the factors for year on year operating income change. I would like to start with the positive change factors. Sales quantity is expected to increase mainly for Blue Energy, which manufactures lithium ion batteries for hybrid vehicles and for our overseas subsidiaries. We also forecast from a shortage of container space, etcetera. We also forecast an increase in expenses. In light of these factors, we are forecasting JPY 25,000,000,000 in operating income before the amortization of goodwill for fiscal year 2021. Next is the segment results forecast. I shall be discussing the details next. I would like to start with the forecast for the Automotive Battery segment in Japan. In this segment, we are forecasting a year on year decrease in net sales and operating income. Allow me to discuss the environments of business for this segment for the current fiscal year. Production of new automobiles in Japan has been on a gradual recovery trend. Fiscal year 2020 was characterized by a number of uncertain elements, such as the number of production of new automobiles decreasing due to the impact of COVID-nineteen in the first half of the fiscal year and the global semiconductor shortage in the second half. In fiscal year 2021, production of new automobiles in Japan is expected to gradually recover. However, we believe a continued semiconductor shortage could have a negative effect. I would now like to discuss the initiatives in the market for new automotive batteries. We expect a sales expansion of EN Batteries for new automobiles. We will be pursuing an optimal composition of products, resulting from the sales expansion of EN Batteries for new automobiles. Next, I would like to discuss initiatives in the market for replacement batteries. We expect the sales expansion of high value added products. We will aim to expand sales of batteries for start and stop vehicles. Additionally, the percentage of new automobiles using EN batteries is on the rise, so we would like to we are forecasting an increase in net sales accompanied by a decrease in operating income. Allow me to discuss the environment of business for this segment. Despite a global trend towards electrification, we expect demand for lead in emerging countries to remain steady. Although we are seeing progress in the trend towards electrification with the regulation of petrol cars, mainly in the EU, we expect demand for lead acid batteries to remain steady, mainly from emerging countries in ASEAN. Additionally, we expect production of new automobiles to continue on a recovery trend following a slight drop resulting from the impact of COVID-nineteen. I would now like to discuss our strategy by area, starting with our base in Turkey from which we sell to Europe. We will establish a manufacturing and supplying framework in Turkey to enhance sales to Europe. We would like to expand production capacity to 6,000,000 units per year by fiscal year 2023. On the other hand, in India, which is currently grappling with a drastic surge in COVID-nineteen cases, we would like to enhance production capacity and obtain market share, which is still currently somewhat limited in the country. By fiscal year 2023, we will aim to increase production capacity to 8,400,000 units in terms of battery Additionally, we will also be enhancing sales of replacement batteries by expanding sales channels. We would like to expand production capacity to 6,000,000 units per year by fiscal year 2023. Lastly, I would like to discuss our strategy for the ASEAN region, which accounts for the greatest share of sales. We will be establishing an optimal manufacturing and supply framework in Asia, mainly in Thailand and Indonesia. We would like to expand production capacity of batteries for automobiles to 14,400,000 units per year by fiscal year 2023. I would now like to discuss the forecast for the Industrial Battery and Power Supply segment. In this segment, we are forecasting an increase and operating income. We will be capturing an increase in sales resulting from the acquisition of the infrastructure business from Sunken Electric. Additionally, while we have not yet been able to ascertain concrete numerical figures, we have identified a synergy resulting from this acquisition in that battery related products sold together with power supplies are now GSU ASA products instead of Sunken Electric. Allow me to discuss the environments of business for the industrial battery and power supply segment. There is now a high expectation towards carbon neutrality. The market for renewable energy has expanded due to the announcement of the Japanese government's green growth strategy in fiscal year 2020. Additionally, in fiscal year 2020, construction works were delayed or suspended due to COVID-nineteen. We expect a gradual recovery in fiscal year 2020 one. I would now like to discuss our strategies for each domain, starting with backup in the domain of emergency use. We will be capturing demand from the Japanese government's efforts to build up national resilience and contribute to providing safe power supplies for nuclear power generation. Next are the strategies for the domain of emergency use, batteries which require charge and discharge. We would like to acquire more orders for renewable energies, demand for which is on the rise. Next, I would like to discuss our strategies for the overseas business. Demand is on the rise for industrial lithium ion batteries for UPS in Europe, America and Australia. As such, we will work to acquire new orders in each region. Lastly, I would like to discuss our strategies after the aforementioned acquisition of the infrastructure business from Sunken Electric. We want to generate synergy effects through business cooperation as early as possible and optimize manufacturer and sales points. Through this, we would like to achieve a profit contribution as early as possible. I would now like to discuss the forecast for the automotive lithium ion battery segment. In this segment, we are forecasting an increase in net sales and operating income. Allow me to discuss the environments of business for the automotive lithium ion battery segment. We expect demand for hybrid electric vehicles to continue, mainly for car manufacturers in Japan. We expect demand for hybrid electric vehicles to remain strong in fiscal year 2021 due to strategies by car manufacturers in Japan in light of the planned shift of all sales of new vehicles to electric vehicles by the mid-twenty 30s. I would like to start with our strategies for electric vehicles. We will increase production of lithium ion batteries for hybrid electric vehicles. 1st, we will enhance production capacity at the Blue Energy No. 1 plant, which is located in Fukuchiyama City, Kyoto. We will therefore be adding and launching a new production line at the number 1 plant. Furthermore, construction of the number 2 plant is proceeding according to plan with the start of operations planned for fiscal year 2022. More specifically, the start of production is scheduled for April 2022. Additionally, we will also increase production of lithium ion batteries for plug in hybrid electric vehicles. We would therefore like to aim for the stable supply of lithium ion batteries for plug in hybrid vehicles for existing customers. Next, I would like to discuss our strategies for low voltage 12 volt lithium ion volt lithium ion batteries. Stable operation and supply at the GSU ASA, Hungary plant started in October of last year. We would like to offer a steady supply of 12 volt lithium ion batteries to luxury car manufacturers against the backdrop of more strict regulations in Europe regarding the use of lead. Additionally, we will also be opening up new markets. We are currently suggesting to automakers the use of our 12 volt lithium ion batteries for use in system startup and as a backup against the backdrop of a continued trend towards vehicle electrification. Furthermore, we would like to expand sales to new customers in Europe and to car manufacturers in Japan. Lastly, I would like to discuss the strategies industrial lithium ion batteries. We will expand sales of industrial batteries. We are currently supplying lithium ion batteries in a stable manner to a large scale wind power generation project in Hokkaido. Through production, we would like to achieve further productivity enhancements. Additionally, we would like to expand manufacturing systems for enhancing demand for non emergency use. Furthermore, we are currently in the process of developing new price competitive batteries. These offer longer battery life, about 70% longer than existing batteries and higher capacity about 15% more than existing batteries. We are currently in the process of developing industrial lithium ion batteries for ESS with these characteristics. I would now like to discuss the forecast for the Specialized Batteries and Others segment. Allow me to discuss the initiatives for fiscal year 2021. First, we will be carrying out the stable supply of lithium ion batteries for submarines. Additionally, we will be expanding sales of lithium ion batteries for satellites. Lastly, we are currently carrying out efforts to establish a manufacturing system to expand production. Here, I would like to discuss a number of topics associated with our R and D efforts. First, last year, our lithium ion battery for hybrid electric vehicles won Toyota Motors Technology and Development Award for the first time. Allow me to give you an overview of the award. This is a technology and development award presented to Toyota Motor suppliers that help advance manufacturing through the use of innovative technologies. GS Yuasa and Blue Energy shared this products. This cell is used in Toyota Motor's Harrier model. Additionally, we also won the 2021 MEXT Minister's Science and Technology Award. Allow me to give you an overview of the award. This is an award for science and technology in the category of development, presented in recognition of the development of lithium ion batteries for use in space and technologies to facilitate the operation of those batteries. Regarding an overview of the award winning technologies, these involve the development of an airtight battery structure and the construction of a degradation model. I would now like to discuss the forecast regarding capital investment, depreciation and R and D costs for fiscal year 2021. Allow me to discuss the main capital investment items. As in fiscal year 2020, we expect very significant investment related to Blue Energy, which manufactures lithium ion batteries for hybrid vehicles. Allow me to briefly discuss the topic of financial security. As I mentioned earlier, capital investment for the establishment of Blue Energy's number 2 plant and the funding allowance for the acquisition of the infrastructure business from Sanken Electric are essential. Despite a temporary worsening of financial indicators due to an increase in debt resulting from advanced investment, we would like to continue maintaining financial security going forward. Lastly, we have announced GSU wasa's environmental long term goals for 2,030. Allow me to discuss the details. Our goal is to reduce CO2 emissions in fiscal year 2,030 by 30% or more compared to fiscal year 2018. The term is the 12 year period between fiscal year 2019 fiscal year 2030. In terms of the reduction rate, we are aiming for a 2% annual reduction through to fiscal year 2022 for a total of 6%. Following that, we will aim for an annual reduction of 3% or more from fiscal year 2023 to 2,030 for a total reduction of 24% or more. I would now like to discuss concrete efforts to achieve these goals. These are the 3 subjects of strategies to reduce the CO2 emissions: energy saving, supply to renewable energy and self consumption of solar power energy. We would like to use this opportunity to install our own lithium ion battery products and proactively carry out experiments demonstrations at the GS Yuasa Group level. This concludes today's financial results briefing. Thank you for listening. Mr. Nishizu with Nomura Securities will now pose the first question. My name is Nishizu and I'm with Nomura Securities. I have 3 questions. My first question pertains to the topic of costs. Page 5 shows a negative impact to operating income of 1,000,000,000 yen under expenses, etcetera, between fiscal year 2019 fiscal year 2020. Page 20 shows a further negative impact on the operating income forecast of JPY 8,600,000,000. The company also carried out thorough cost reductions during the fiscal year ended March 2021, so this does not seem like a rebound to me. I would like to know how you view the factors of an increase in logistics costs and an increase in R and D expenses. My second question pertains to the impact of vehicle electrification. Currently, I believe the company manufactures lead acid starter batteries. Should battery electric vehicles become the norm, does the company have electric vehicles become the norm, does the company have plans to continue using lead or is there a possibility you will change to lithium batteries? Additionally, is there a possibility there will be changes to the replacement purchase cycle? Lastly, my third question pertains to the topic of automotive lithium ion batteries. Despite an increase in net sales, the overall recovery for the segment appears to be somewhat weak. I believe LEJ and Blue Energy are the determinant factors here. Is an increase in R and D expenses a factor in this slow recovery? Or the start of depreciation at GSU ASA Hungary resulting in a widening of losses? I would like to hear your thoughts on this. Thank you for your questions. This is CFO Nakagawa speaking. To answer your question, this is due to a variety of factors. In recent months, while travel and transportation expenses have decreased against the backdrop of the COVID 19 crisis, we have registered an increase in personnel expenses and logistics costs among other expenses. In recent months, therefore, we have seen an increase in expenses centered around indirect expenses. Naturally, these are currently estimates for fiscal year 2021, so we would like to continue carrying out efforts to reduce or prevent the further worsening of these expenses. This concludes my answer. I would now like to answer your second question pertaining to the trend and our view on starter batteries against the backdrop of a move towards vehicle vehicle electrification. As you mentioned in your question, low voltage batteries like our 12 volt batteries are required for system startup, whether for hybrid vehicles, plug in hybrid vehicles or electric vehicles. We call these auxiliary batteries. Both lead acid batteries and lithium ion batteries can be used for this. GS Yuasa already has a lineup of lead acid starter and auxiliary batteries. So we are now in the process of developing lithium ion batteries to this effect and building up a lineup of such batteries. We want to do our utmost to continue offering solutions in the domain of starter batteries and of auxiliary batteries for use in system startup against the backdrop of a trend towards vehicle electrification. In Europe, in some regards, we have not yet made much progress in supplying these batteries for OEMs. Doing so does not cannibalize demand, so we would like to take active approach in promoting our 12 volt low voltage batteries in Europe. Lastly, your third question pertained to LEJ and Beck and the topic of profit following an increase in sales quantity. As you mentioned in your question, we are forecasting a significant increase in R and D expenses in this segment. In terms of return on investment, lithium ion batteries require much more investment compared to lead acid batteries. We have our own original facilities for the design and production of lead acid batteries. However, for lithium ion batteries, we have to outsource production facilities in some cases. So this makes for far more challenging profit margins compared to lead acid batteries. This forms the basis for our forecast. This concludes my answer. Thank you for your answer. Could you please clarify one point? On the topic of 12 volt starter and auxiliary batteries, would it be correct to say that you expect the replacement purchase cycle in the aftermarket to remain more or less the same even after electric vehicles become the norm? That is not the case. Against the backdrop of vehicle electrification and the adoption of 12 volt lithium ion batteries, these have a significantly ion batteries for a use other than system startup, namely as backup batteries for self driving. Taking into account this use case, against the backdrop of a trend towards vehicle electrification, we expect a slight increase in the use of 12 volt lithium ion batteries for purposes other than system startup, namely as backup batteries for self driving vehicles. Thank you for your informative answer. Thank you. Mr. Sugimoto with Mitsubishi UFJ Morgan Stanley Securities will be posing the next question. My name is Sugimoto, and I'm with Mitsubishi UFJ Morgan Stanley Securities. Thank you for your presentation today. I have 3 brief questions. First, during the financial results briefing before last, you mentioned how the company intends to dedicate its efforts to the area of industrial lithium ion batteries. Would it be possible for you to give us an update on this front? This concludes my first question. My second question pertains to feedback from clients regarding the production of batteries for use in electric vehicles and requests from the government for hybrid vehicles. So I believe the company's stance remains the same, but I would like to hear your further thoughts on the automotive battery business, especially as it pertains to batteries for electric vehicles. This concludes my second question. Lastly, Toyota Motor has announced it will once again dedicate its efforts to nickel metal hydride batteries, namely to bipolar nickel metal hydride batteries. I would like to share your thoughts and comments on this topic. Does this move come as expected or as a bit of a surprise? This concludes my question. Thank you for your question. I would like to answer your first question on the topic of industrial lithium ion ESS batteries. This is an area we want to dedicate our efforts to, as we mentioned in the financial results briefing before last and indeed perhaps even during the last financial results briefing. You asked if there are any updates on this front. Indeed, demand for industrial batteries for non emergency use is on the rise. Unlike for industrial batteries for non emergency use is on the rise. Unlike backup industrial batteries for emergency use, these require charging and discharging. This demand comes primarily from the energy storage system at the 7 20 Megawatt Hour Wind Power Project in Hokkaido to which we started supplying batteries starting last year. In broad strokes, we divide things into 3 categories. The first category involves grid connection, minimizing output fluctuations primarily through the use of renewable energies. This corresponds to the aforementioned project in Hokkaido. Another area is the use of peak shift and peak cut solutions on a per facility basis to achieve the environmental long term goals I mentioned earlier by saving energy and improving efficiency in terms of electric power flow. Lastly, we consider the category of self consumption by households following the end of the fit system. We divide things into these 3 categories and we are currently focusing our efforts on the facility basis. Although I cannot discuss the specifics here, we have received a number of business inquiries, which we are currently in the process of considering. We have already concluded negotiations for a number of smaller scale projects, but we are currently focusing on large scale projects and projects at the facility level. As I mentioned earlier, we are developing a new price competitive battery. Next, I would like to answer your question about batteries for electric vehicles. The final fiscal year of the 5th midterm management plan was changed to fiscal year 2022, with fiscal 2020 as a single year bridge plan excluded from the MTMP. As previously stated, within the scope of the 5th MTMP, we would like to focus on hybrid vehicles. However, as you said in your question, we have indeed received feedback from many parties requesting we offer batteries for use in electric vehicles. With that being said, taking into account the resources at our disposal, we would like to carry out investment in this area following concrete talks for the supply of such batteries to OEMs. In terms of the platform itself, we already have it in the form of LEJ, so we would like to carry out R and D in an adequate manner. Lastly, I would like to answer your question pertaining to our review on Toyota Motors' nickel metal hydride batteries. Ion batteries. As such, we currently don't have any plans to start development in new areas, like in the area of nickel metal hydride batteries. Thank you for your answer. Next, Mr. Naruse with Okasan Securities will be posing the next question. My name is Naruse and I'm with Okasan Securities. I also have three questions for you. My first question has to do with the company's financial results forecast for the lead acid battery business in Japan as shown on Page 22. The operating income forecast for fiscal year 2021 stands at JPY 6,500,000,000 down significantly on a year on year basis, although admittedly cold weather and factors pertaining to personal mobility contributed to a strong performance last fiscal year. Earlier, you mentioned plans to carry out investments in the automotive battery segment in Japan. Against this backdrop, net sales of JPY 83,000,000,000 and operating income of JPY 6,500,000,000 seems somewhat low. As such, I would like you to discuss the rationale behind this net sales and operating income forecast. This is my first question. My second question pertains to the automotive lithium ion battery segment on a global basis. You discussed the company's long term CO2 emission reduction you discussed the company's long term CO2 emission reduction goals for 2,030. I believe a significant trend towards vehicle electrification going forward is the need to reduce CO2 emissions at the time of production within the context of LCA. You mentioned how the company plans to use renewable energy to further accelerate the reduction of CO2 emissions. Would it be possible for you to discuss in more detail concrete targets regarding electric vehicles as well as regarding hybrid vehicles in the Japanese market. These targets call for 80% to 85% of all vehicles sold in Japan to be hybrid vehicles, and the emphasis in other markets is towards electric vehicles. I would therefore like to hear the company's impression of these plans, namely whether GSUwasa considers these a tailwind, given how it is currently concentrating its resources on batteries for hybrid vehicles. I would also like to hear the company's perspective on a global scale. Additionally, I would also like you to discuss the possibility of the use of LEJ batteries for small subcompact electric vehicles. In broad terms, I would like to hear the company's view on this announcement by Honda Motor and Toyota Motor. This concludes my questions. Thank you for your questions. I would like to yield the microphone to CFO Nakagawa, who will be answering your question regarding the trend in the lead acid battery business in Japan. I will be answering your second and third question. Go ahead, Mr. Nakagawa. Allow me to answer your first question, which deals with the background of the profit and loss situation in the automotive segment in We believe we recorded an over performance in the business segment in question for fiscal year 2020. As you are aware, the business of selling to OEMs batteries for new automobiles is not very profitable. Our business structure is therefore to generate profits through the business of selling replacement batteries. Last fiscal year, as you are aware, production volume of automobiles decreased significantly, particularly in the Q1. On the other hand, consumers were reluctant to purchase automobiles, and this translated into significant growth in the market for replacement batteries. Additionally, cold weather is starting in early fall and through to the end of the year led to further growth in the market for replacement batteries. We were therefore blessed with an unusually favorable business climate during this period. In light of this, we expect an increase in sales volume of batteries for new automobiles this fiscal year. Additionally, as you are aware, our EN batteries have been very well received by new automobile manufacturers. As such, and as we mentioned earlier on the topic of capital investment, there is a possibility we will see a further sales volume increase to OEMs of batteries for new automobiles. On the other hand, we expect a year on year decrease in sales volume of replacement batteries following a strong performance last fiscal year. This mix represents a significant factor. Another factor is a change in the price of lead, the main raw material used in our products. As you might be aware, last year, the price of lead in the Japanese market was approximately 5% lower than in the previous year. This had a positive impact on profitability. Conversely, we are forecasting slightly higher prices for the current fiscal year. We therefore believe that these factors require us to take a more conservative approach when it comes to profits and form the basis of the financial results forecast. This concludes my answer. Now allow me to answer your second question pertaining to the reduction of CO2 emissions associated with the process of manufacturing our batteries. First, we have formulated environmental long term goals, and we believe the procurement of renewable energy to be indispensable when conducting our business operations. This is point number 1. Additionally, regarding the manufacturing of lithium ion batteries, we currently procure a number of resources and carry out efforts at our R and D division to assure the optimal selection of chemicals for each use case. Furthermore, we are carrying out various initiatives in terms of battery structure and manufacturing process, allowing us to reduce the CO2 emissions at the time of manufacturing by as much as possible. This is by no means an easy feat, but we believe this to be indispensable going forward. Now allow me to answer your third question. Many different countries and companies have announced their commitment to certain targets pertaining to electric vehicles. Your question is how we view these announcements. To be frank with you, the truth is that we have carried out efforts on all fronts pertaining to electric vehicles, plug in hybrid vehicles and vehicles and hybrid vehicles. However, as we have mentioned on previous occasions, taking into account the company's resources, within the 5th MTMP, we have decided to focus on hybrid vehicles. With that being said, we have received many requests regarding batteries for use in electric vehicles in terms of improvements, cost reductions and capacity increases. In light of this, we would therefore like to continue carrying out R and D and continue improving our products. A number of timetables have been put forth regarding the timing of the shift towards electric vehicles. So we are not sure which schedule is correct. However, assuming a trend ultimately leading to full electric vehicle adoption, we believe standing idly by is not an option for us. As such, we would like to continue carrying robust R and D efforts in this area going forward. This concludes my answer. Thank you for your answer. Mr. Sakae with Daiwa Securities will be posing the next question. Thank you. My name is Sakae and I'm with Daiwa Securities. I have two questions, the first of which dealing with the contents of Page 28. The forecast is for a net sales increase of 15 1,000,000,000 yen between fiscal year 2020 fiscal year 2021. If possible, could you give us a breakdown of this net sales increase between Lithium Energy Japan and Blue Energy? My second question pertains to the fiscal year 2021 forecast for the Industrial Battery and Power Supply segment. Could you give us a breakdown of this forecast in the manner shown on Page 12 of the presentation materials, namely by model and demand source? Materials, namely by model and demand source? If possible, could you discuss the net sales and operating income contribution by the infrastructure business acquired from Sunken Electric? Additionally, could you give us the forecast for the industrial battery and power supply segment excluding the large scale wind power project in Hokkaido? This concludes my question. I would now like to yield the microphone to CFO, Nakagawa, who will be answering your first question. We forecast a significant year on year increase in net sales of 15,000,000,000 yen between fiscal year 2020 fiscal year 2021. I believe you requested a contribution breakdown of this net sales increase between Lithium Energy Japan and Blue Energy. We would like to request your understanding in that we do not disclose specific net sales and operating income data for these two companies. With that being said, at Blue Energy, we expect companies. With that being said, at Blue Energy, we expect a significant sales volume increase of batteries for Toyota Motors' new models and a similar sales volume increase for Honda Motor and our forecast reflects this. On the other hand, a significant change factor at Lithium Energy Japan is a change in the supply of batteries to Mitsubishi Motors plug in hybrid vehicles. Our forecast assumes a slight year on year sales increase following a significant drop last year. I am aware my answer might be somewhat vague, but I hope it is enough for you to extrapolate the information you seek. This concludes my answer. Nakagawa speaking once again. Allow me to answer your second question. We do not disclose specific net sales and operating income contribution figures associated with the infrastructure business acquired from Sanken Electric. When the transfer of this business was announced, we mentioned a sales quantity figure around JPY 22,000,000,000 to JPY 23,000,000,000 annually. We expect this amount in terms of sales and we currently do not expect significant profits. Such is the premise of our forecast for the current fiscal year. The figures I mentioned just now are on an annual basis, but since the infrastructure business became a part of the GSU ASA Group on May 1, the forecast actually covers 11 months of sales and profit instead of 12. Within the topics shown on Page 12, sunken Electric's business does not fall under the category of forklifts or overseas, but rather within industrial batteries and power supplies. As such, from this figure, the calculus involves subtracting the Eurus Energy project in Hokkaido and adding sales for the Sanken Electric business. We also expect a sales increase in GS US's traditional UAS's traditional industrial battery and power supply segment. We do not disclose specific figures, but I believe this will translate into a lengthening of the vertical bar shown on the graph. I hope you find this answer satisfactory. Thank you for your answer. If possible, could you tell us what kind of change you are expecting in terms of net sales by demand source? Allow me to answer your question. As I mentioned earlier, the Eurus Energy Eurus Energy project in Hokkaido falls under private sector demand. We believe the Sunken Electric business falls under multiple demand sources, namely private sector demand, telecommunication and public agencies. Thank you for your answer. It appears that we only have time for one more person. Lastly, I would like to yield the microphone to Mr. Aiba with Nomura Asset Management. Thank you. My name is Iva and I am with Nomura Asset Management. I have two questions, the first of which pertaining to 12 volt lithium ion batteries. Approximately 6 months have passed since the company started selling these batteries. Could you give us an annual sales estimate? Additionally, I would like to know what kind of business inquiries the company has received for its 12 volt lithium ion starter, auxiliary and backup batteries, although I believe inquiries for the latter 2 to be still limited. Your question pertains to the current trend for our 12 volt lithium ion batteries. Regarding the scale of annual sales, we are just starting out. To be frank with you, we have received business inquiries for our 12 volt lithium ion starter batteries and for 12 volt lithium ion auxiliary batteries, batteries, that is batteries for use in system startup. We have not yet received any business inquiries pertaining to the use case of 12 volt backup lithium ion batteries for self driving vehicles. We are in talks with OEMs and consequently cannot currently reveal any further details. So we ask you for your understanding. With that being said, this business is off to a good start. Would it therefore be reasonable to say that 12 volt lithium ion starter batteries as an alternative to lead acid batteries make up a large number of these initial business inquiries? Actually, looking at the business inquiries we have been receiving, while there are inquiries pertaining to starter batteries, we are also seeing requests for 12 volt batteries for use startup against the backdrop of a trend towards vehicle electrification. We are seeing both, so it's not just 12 volt lithium ion starter batteries. I see, that is most interesting. My second and final question is as follows. The net sales target outlined in the 5th midterm management plan is 4.60 ,000,000,000 or greater and JPY 28,000,000,000 or greater in terms of operating income before the amortization of goodwill. I would like to hear your current thoughts on this topic in light of the fact that the plan was formulated prior to the acquisition of the infrastructure business from contribution into account. Naturally, I believe there is a need for the company to meet these targets, but I would like to know if the addition of the infrastructure business maybe presents the possibility of the infrastructure business maybe presents the possibility of an upward revision? Allow me to answer your question. The infrastructure business we acquired from Sunken the GS UASA Group are accounted for using the equity method, so we have considered our approach to these within the scope of the 5th MTMP. Fiscal year 2022 is the final year of the 5th MTMP with a net sales forecast of JPY 460,000,000,000 or greater and JPY 28,000,000,000 or greater in operating income before the amortization of good well. These targets remain unchanged as we would like to carry out our best efforts towards their achievement. I hope you find this answer satisfactory. Would it therefore be correct to say the company does not see the need to revise these targets? As it stands, that is correct. I see. Thank you for your answer. Thank you. This concludes today's