IDEC (6652) FY2026 Q3 Earnings Report

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Executive Summary

The cumulative results for Q3 of FY2026 ending March 2026 showed a substantial increase in profit, driven by revenue growth and the emergence of operating leverage. Revenue was ¥530.2B (+7.2% YoY), Operating Income was ¥43.8B (+90.4%), Ordinary Income was ¥49.1B (+107.6%), and Net Income attributable to owners of the parent was ¥28.9B (+78.6%). In addition to maintaining a gross profit margin of 44.5% while controlling the increase in SG&A expenses, improved profitability in Asia-Pacific and Japan drove the expansion of the operating margin to 8.3%.

Factors Affecting Performance

【Revenue】Revenue was ¥530.2B, up +7.2% YoY. By region, Asia-Pacific recorded the strongest growth at +24.0%, while the Americas also expanded by +11.0%. In contrast, Japan grew by +1.4% and EMEA by only +0.7%, resulting in differences in growth rates among regions.

【Profit and Loss】Operating Income was ¥43.8B (+90.4% YoY), and the operating margin improved by approximately 3.6pt to 8.3%. The increase in profit was led by a sharp rise in segment profit in Asia-Pacific from ¥7.5B to ¥22.2B, and an increase in Japan from ¥6.1B to ¥13.9B. Meanwhile, segment profit in the Americas declined from the previous year to ¥9.3B, indicating that revenue growth has not translated into profit. EMEA reduced its loss to ¥4.1B but has not yet returned to profitability. Ordinary Income grew faster than Operating Income (+107.6%) due to the recognition of ¥5.8B in foreign exchange gains. Special gains and losses resulted in a net loss of ¥1.5B, owing to the recognition of a ¥3.0B special loss related to a litigation settlement, partially weighing on the conversion to Net Income as a temporary factor. In conclusion, the company achieved both revenue and profit growth.

Segment Analysis

By segment, Asia-Pacific demonstrated the highest profitability, with Revenue of ¥160.2B (30.2% composition ratio) and segment profit of ¥22.2B (13.9% profit margin). Japan is the largest segment, with Revenue of ¥263.4B (49.7% composition ratio), but its profit margin remained at 5.3%. The Americas recorded Revenue of ¥119.5B and a profit margin of 7.8%, with the profit margin declining from the previous year, raising concerns regarding the quality of its revenue growth. EMEA recorded an operating loss of ¥4.1B against Revenue of ¥133.4B, continuing to be the only loss-making segment among the four segments. Overall, the structure is one in which higher profitability in Asia-Pacific and Japan is driving consolidated profit, while the recovery of profitability in the Americas and EMEA remains a key focus going forward.

Key Financial Indicators

【Profitability】The operating margin of 8.3% and Net Income margin of 5.4% both improved from the same period of the previous year (4.7% and 3.3%, respectively). ROE was 4.2%, below the general benchmark of 8% for capital efficiency. 【Cash Quality】Cash and deposits were ¥151.0B, down from ¥192.1B at the end of the previous fiscal year. Inventories were ¥127.2B (finished products ¥127.2B, raw materials ¥64.7B, and work in process ¥19.0B), while accounts receivable were ¥116.9B, indicating an accumulation of working capital. 【Investment Efficiency】Intangible assets were ¥264.2B (23.9% of total assets), and goodwill was ¥119.1B (17.4% of net assets), indicating a high weighting of IP and acquired assets. Improving asset turnover, together with improving profitability, will therefore be important. 【Financial Soundness】The Equity Ratio was 61.8%, up from 58.9% at the end of the previous fiscal year, indicating a conservative financial foundation.

Cash Flow Analysis

Because cash flow statement figures were not disclosed in these results, funding trends are analyzed based on changes in the balance sheet. Cash and deposits were ¥151.0B, a decrease of ¥41.1B from ¥192.1B at the end of the previous fiscal year. Meanwhile, inventories increased from ¥112.3B to ¥127.2B, and accounts receivable increased from ¥103.6B to ¥116.9B, suggesting that the buildup of working capital accompanying revenue growth may have contributed to the decline in cash levels. Long-term borrowings remained broadly flat at ¥99.0B, while short-term borrowings declined from ¥109.9B to ¥83.0B; the reduction in interest-bearing debt is also considered to have contributed to the decline in cash. Retained earnings remained flat at ¥380.8B from ¥380.8B, indicating a balance between dividend payments and profit recognition.

Quality of Earnings

Both recurring and temporary factors were present in the improvement in profit for the current period. The growth in Operating Income (+90.4%) reflects the realization of operating leverage through the maintenance of a gross profit margin of 44.5% and control of SG&A expenses, and can be viewed as an improvement in recurring profitability. Meanwhile, the growth in Ordinary Income (+107.6%) includes a contribution of ¥5.8B from foreign exchange gains, which accounted for 44.4% of total non-operating income of ¥13.1B. Because foreign exchange gains are subject to market fluctuations, caution is required in treating the entire improvement in Ordinary Income as permanent earnings power. A ¥3.0B special loss related to a litigation settlement was recognized, which reduced Net Income as a temporary factor. The effective tax rate was high at approximately 39.5%, limiting the conversion efficiency from Profit Before Tax of ¥47.7B to Net Income of ¥28.9B. Comprehensive income was ¥82.1B, substantially exceeding Net Income of ¥28.9B, primarily due to foreign currency translation adjustments of ¥53.1B. This divergence reflects valuation differences in the assets of overseas subsidiaries resulting from yen depreciation and should be considered separately from the earnings power of the core business.

Performance Forecasts and Guidance

Progress against the full-year company forecast was 77.2% for Revenue, 92.2% for Operating Income, 97.9% for Ordinary Income, and 83.7% for Net Income, with progress on the profit side substantially exceeding revenue progress. Operating Income required to achieve the company’s plan in Q4 is limited to approximately ¥3.7B, and the planned operating margin of approximately 2.4% represents a substantial decline from the cumulative actual result of 8.3%. This divergence is considered to reflect conservative planning toward the fiscal year-end or the incorporation of seasonal factors and a reversal of temporary earnings factors. Ordinary Income had reached a progress rate of 97.9%, nearly achieving the full-year forecast of ¥50.2B, suggesting potential upside.

Shareholder Returns

The Q2 dividend was ¥65.00 per share, resulting in a Payout Ratio of 70.7% against cumulative Net Income of ¥28.9B. The full-year forecast calls for a dividend of ¥130.00 and forecast EPS of ¥117.06, implying a forecast Payout Ratio of approximately 111.1% and a planned total dividend amount of approximately ¥38.4B, exceeding forecast full-year Net Income. Accordingly, maintaining the full-year dividend depends not only on current-period earnings but also on retained funds such as cash and deposits of ¥151.0B and retained earnings of ¥380.8B, as well as future cash-generating capacity. Treasury shares stood at 1,846 thousand shares (5.9% of issued shares), and no new developments concerning share repurchases can be confirmed from the data for these results.

Risk Factors

1. Inventory and Working Capital Efficiency Risk: Inventories had accumulated to ¥127.2B (11.5% of total assets), primarily consisting of finished product inventories of ¥127.2B. The buildup of inventories during a period of revenue growth entails the risk of obsolescence and inventory write-downs if demand slows.

2. Regional Profitability Concentration Risk: While Asia-Pacific was the largest driver of consolidated profit, with segment profit of ¥22.2B, EMEA continued to post an operating loss of ¥4.1B. Changes in regional demand and competitive environments could have a significant impact on consolidated profit.

3. Foreign Exchange Sensitivity Risk: Foreign exchange gains of ¥5.8B, which contributed at the Ordinary Income level, were equivalent to 13.3% of Operating Income and could become a source of volatility in Ordinary Income if exchange rates reverse.

Industry Benchmark (Reference; Compiled by the Company)

Industry Benchmark (manufacturing)

Profitability and Returns

The company’s profitability is slightly below the industry median but remains at a level positioned in the middle of the interquartile range.

Growth and Capital Efficiency

The Revenue growth rate exceeds the industry median and is positioned toward the upper part of the interquartile range.

※Source: Compiled by the Company

Key Takeaways from the Results

1. The operating margin improved by approximately 3.6pt YoY to 8.3%, and progress against the full-year Operating Income forecast reached 92.2%. Improved profitability in Asia-Pacific and Japan was the primary driver of the increase in profit, while the decline in the Americas’ profit margin and continued losses in EMEA indicate regional disparities in profitability.

2. Inventories have accumulated at a pace exceeding revenue growth, while cash and deposits declined by ¥41.1B from the end of the previous fiscal year. Changes in working capital accompanying revenue growth will be a key observation point for assessing future cash-generating capacity.

3. The forecast full-year Payout Ratio is approximately 111.1%, exceeding forecast Net Income, and trends in retained earnings and cash on hand as sources of dividends will continue to attract attention.

Theoretical Share Price (Reference Value)

Sensitivity: ¥2,001–¥2,109 at a ±1% change in the cost of equity, and ¥2,046–¥2,059 at a ±0.1 change in ω.

Notes:

• Because forecast ROE is below the cost of equity, the theoretical value is below book value per share.
• Net assets as of the end of the quarter are used (there is a timing difference from the full-year forecast).
• Because net assets include non-controlling interests, the theoretical value may be calculated somewhat higher.

(Calculation model: Residual Income Model (Ohlson-type, explicit five-year fade) / Interest Rate Reference Month: 2026-07 / This is a mechanically calculated value based solely on publicly available data; it is not a forecast of the market share price or a recommendation of any specific investment action, and does not predict or guarantee future share prices.)

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This report is an earnings analysis document automatically generated by AI based on XBRL earnings release data. It does not recommend investment in any specific security. The industry benchmarks are reference information compiled by the company based on publicly disclosed earnings data. Investment decisions should be made at your own responsibility, after consulting experts as necessary.

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AI Financial Analysis

Executive Summary

IDEC delivered a strong FY2026 Q3 cumulative earnings performance, with revenue growth translating into a disproportionately large operating-profit recovery. Revenue rose 7.2% year on year to ¥53.02bn. Operating income increased 90.4% to ¥4.38bn, lifting operating margin to 8.3% from 4.7% a year earlier, a 360bp expansion. Ordinary income rose 107.6% to ¥4.91bn, supported by ¥0.58bn of foreign-exchange gains within non-operating income. Net income increased 78.6% to ¥2.89bn. Gross margin improved to 44.5% from 43.3%, an expansion of approximately 125bp, indicating a meaningful improvement in product mix, pricing, procurement, or manufacturing absorption. SG&A expenses increased only 0.7% to ¥19.23bn, substantially below revenue growth, creating favorable operating leverage. The Asia-Pacific business was the principal earnings engine, with segment profit rising sharply to ¥2.22bn from ¥0.75bn. Japan also improved materially, with segment profit more than doubling to ¥1.39bn. The Americas remained profitable but saw segment profit decline 9.0% despite revenue growth. EMEA narrowed its segment loss but remained loss-making. The balance sheet remains sound, with a 192.0% current ratio, 144.0% quick ratio, and 0.62x debt-to-equity ratio. However, working-capital efficiency is a material issue for a manufacturing company, as receivable days are around the warning threshold and inventory days are elevated under both reported alert methodologies. The long cash-conversion cycle increases the amount of capital tied up in operations and can constrain cash generation even while accounting profits recover. Reported annualized ROE of 5.6% remains below the level generally associated with strong capital efficiency, despite the earnings rebound. FY2026 guidance appears conservative at the revenue level but leaves limited room for further operating-profit slippage in Q4. The planned full-year dividend of ¥130 per share would exceed forecast EPS of ¥117.06, making dividend coverage the principal capital-allocation issue to monitor.

Profitability Analysis

Annualized DuPont ROE is 5.6%, decomposed into a 5.4% net profit margin, 0.640x asset turnover, and 1.62x financial leverage. The largest positive change is operating profitability: operating margin improved by 360bp year on year to 8.3%, while gross margin rose approximately 125bp to 44.5%. The gap between gross-margin improvement and the larger operating-margin expansion reflects tight overhead control, as SG&A grew only 0.7% versus 7.2% revenue growth. This favorable operating leverage was the primary reason operating income grew 90.4%, far faster than sales. The 8.3% EBIT margin is within the “good” benchmark range, but is not yet at the >15% level associated with excellent profitability. Net margin of 5.4% is also within the acceptable 5-10% range, although its sustainability partly depends on non-operating foreign-exchange gains of ¥0.58bn, equal to 13.3% of operating income. Financial leverage at 1.62x is moderate rather than aggressive, so the low annualized ROE chiefly reflects moderate margins and asset utilization rather than insufficient leverage. Asset turnover of 0.640x annualized is modest for a manufacturer and is consistent with the substantial working-capital and intangible-asset base. The quality alert indicating ROIC of approximately 5.0%, below the 5% threshold, points to returns that remain only around the cost-of-capital hurdle despite the profit rebound. The improvement in operating leverage can persist if volumes, gross-margin gains, and expense discipline hold, but the weak EMEA result and slower Americas segment profit demonstrate that the recovery is not uniform across regions.

Growth Assessment

Revenue growth of 7.2% was geographically broad-based, led by Asia-Pacific at +24.0% to ¥10.57bn and the Americas at +11.0% to ¥11.55bn. Japan revenue increased 1.4% to ¥19.68bn, while EMEA revenue was broadly flat at +0.7% to ¥11.22bn. Asia-Pacific was the core business by operating-income contribution, generating segment profit of ¥2.22bn, or 53.9% of aggregate segment profit before eliminations. Its segment margin was approximately 21.0%, well ahead of Japan’s 7.1% and the Americas’ 8.0%, whereas EMEA posted a negative margin of 3.7%. Japan’s segment profit increased 126.6% to ¥1.39bn, making it the second major contributor to the consolidated recovery. The Americas’ profit decline to ¥0.93bn from ¥1.02bn despite higher revenue indicates margin pressure that merits monitoring. EMEA reduced its segment loss to ¥0.41bn from ¥0.53bn, but a return to sustainable profitability is still required for the regional portfolio to be fully supportive. Against full-year guidance, Q3 cumulative revenue has reached 77.2% of the ¥68.70bn target, 2.2 percentage points above the standard 75% seasonal progress rate. Operating income has reached 92.2% of the ¥4.75bn forecast, 17.2 percentage points ahead of standard progress, and ordinary income has reached 97.9% of forecast, 22.9 percentage points ahead. Net income has reached 83.7% of the ¥3.45bn forecast, 8.7 percentage points ahead of standard progress. The guidance therefore implies a substantially lower Q4 operating-income run rate than achieved through Q3; this may reflect prudence, normal seasonality, anticipated costs, or uncertainty around currencies and regional demand. Revenue sustainability will depend particularly on maintaining Asia-Pacific momentum, restoring EMEA profitability, and preventing margin erosion in the Americas.

Financial Health

Liquidity is strong: current assets of ¥50.94bn exceed current liabilities of ¥26.54bn, producing working capital of ¥24.40bn and a 192.0% current ratio. The 144.0% quick ratio confirms that liquidity remains adequate even before relying on inventory realization. Cash and deposits of ¥15.10bn cover 1.82x short-term debt, providing a meaningful refinancing buffer. Interest-bearing debt totals ¥18.20bn, comprising ¥8.30bn of short-term loans and ¥9.90bn of long-term loans. Debt-to-equity of 0.62x and debt-to-capital of 21.1% indicate a conservative overall capital structure, well below the 2.0x D/E and 40% debt-to-capital caution levels. Interest coverage of 14.41x is strong, notwithstanding a doubling of interest expense to ¥0.30bn. The material refinancing-risk alert arises because 45.6% of debt is short term, above the 40% alert threshold. This maturity profile is not presently a liquidity threat given cash coverage and the current ratio, but it creates recurring refinancing exposure and leaves cash balances more strategically important. Current assets exceed short-term loans by a wide margin, limiting near-term maturity-mismatch risk. Goodwill represents 17.4% of equity and 10.8% of assets, both within healthy M&A-risk parameters. Intangible assets equal 23.9% of assets, making the company relatively IP- and acquisition-asset intensive, though still below the 30% concentration warning level. Treasury stock decreased in absolute carrying amount by ¥3.47bn year on year, from negative ¥6.87bn to negative ¥3.40bn; this change increased reported equity relative to what it otherwise would have been, and the capital-management rationale should be monitored. Comprehensive income of ¥8.21bn exceeded net income because of a ¥5.31bn foreign-currency translation gain, which strengthened equity but is not a source of operating cash generation.

Notable B/S Changes

Treasury stock: increased by ¥3.47bn in carrying amount (negative balance narrowed from ¥6.87bn to ¥3.40bn, +50.6%) - increased reported equity relative to the prior year; monitor the associated capital-management action and its implications for future shareholder returns. Finished goods: +¥1.49bn (+13.3%) to ¥12.72bn - adds to inventory carrying risk and is consistent with the elevated inventory-days and cash-conversion-cycle alerts. Cash and deposits: -¥4.11bn (-21.4%) to ¥15.10bn - remains sufficient relative to short-term debt, but should be monitored alongside working-capital absorption and dividend funding. Goodwill: +¥0.70bn (+6.0%) to ¥11.91bn - still moderate at 17.4% of equity, but reinforces the need to monitor acquired-business performance and JGAAP amortization/impairment exposure. Construction in progress: +¥2.05bn (+475.0%) to ¥2.48bn - indicates a significant investment pipeline; project completion, timing, and return generation should be monitored.

Cash Flow Quality

The available information does not provide operating cash flow, investing cash flow, financing cash flow, free cash flow, or capital expenditure; therefore, direct OCF-to-net-income conversion and free-cash-flow coverage cannot be assessed. Balance-sheet working-capital indicators nevertheless point to a meaningful cash-conversion risk. The quality alert for receivable days of approximately 60 days is at or above the 60-day warning threshold, suggesting relatively slow collections compared with the <45-day manufacturing benchmark. Trade receivables increased 12.8% year on year to ¥11.69bn, faster than revenue growth of 7.2%, which is consistent with some cash being absorbed in customer balances. The quality alert for inventory days of 118 days, calculated on a conventional annualized cost-of-sales basis, is nearly double the <60-day manufacturing benchmark. A separate quality alert measures inventory days at 196 days; irrespective of the differing inventory scope or methodology, both measures identify inventory intensity as a material concern. Finished goods were ¥12.72bn, raw materials ¥6.47bn, and work in process ¥1.90bn, with finished-goods exposure especially relevant to demand forecasting, product lifecycle, and obsolescence risk. The quality alert for a 219-day cash-conversion cycle is substantially above the 120-day warning level. This long cycle indicates that sales growth and the earnings recovery may require significant incremental working capital, reducing the certainty that reported earnings will convert into distributable cash. Accounts payable increased only 6.0% to ¥4.01bn, broadly in line with revenue but insufficient to offset the rise in receivables and inventories. There is no basis in the available figures to conclude that working-capital management is being deliberately manipulated, but the elevated DSO, DIO, and cash-conversion-cycle alerts make inventory discipline and collections central earnings-quality monitoring items. Extraordinary items were modest in aggregate: ¥0.15bn of extraordinary income and ¥0.30bn of extraordinary loss resulted in a net ¥0.15bn loss, equivalent to about 5.0% of net income, so reported profit is not materially dependent on exceptional gains.

Dividend Sustainability

The disclosed interim dividend is ¥65 per share, and full-year guidance indicates total FY2026 DPS of ¥130 per share. Based on forecast EPS of ¥117.06, the prospective dividend payout ratio is approximately 111.1%, above both the 60% sustainability benchmark and the 100% warning threshold. The calculated Q3 cumulative payout ratio of 70.7% reflects the already declared ¥65 interim dividend against nine-month net income and should not be interpreted as the full-year payout ratio. The planned ¥130 dividend also exceeds Q3 cumulative EPS of ¥97.78, although Q4 earnings are expected to add to full-year EPS. Retained earnings of ¥38.08bn provide balance-sheet capacity, and liquidity is strong, so an above-100% payout is not an immediate solvency concern. However, the absence of cash-flow data prevents verification of free-cash-flow coverage for dividends. Elevated inventories and the 219-day cash-conversion-cycle alert increase the risk that cash availability could lag accounting earnings. Dividend sustainability therefore depends on Q4 cash conversion, inventory normalization, and whether management views the ¥130 DPS as a temporary shareholder-return commitment supported by existing cash or a recurring policy level. No share repurchase amount is provided, so a total return ratio cannot be calculated.

Risk Assessment

Business risks include Working-capital intensity is the highest operational risk: quality alerts identify DSO of about 60 days, inventory days of 118 days and, under a separate methodology, 196 days, plus a 219-day cash-conversion cycle. The root cause is a large capital commitment to receivables and inventory relative to the sales cycle; for a manufacturer, this can signal slower sell-through, supply-chain buffering, or demand-forecasting risk. The impact is weaker cash conversion, greater inventory-obsolescence exposure, and potential future margin pressure if stock must be discounted., Finished goods of ¥12.72bn are substantial relative to the operating-profit base. Manufacturing-specific demand shifts, product lifecycle changes, component availability, and customer order volatility could require inventory write-downs or reduce factory utilization., EMEA remains loss-making, with a ¥0.41bn segment loss despite a narrower loss year on year. Continued restructuring needs, weak regional demand, pricing competition, and currency effects could limit the group’s margin recovery., The Americas generated revenue growth but segment profit declined 9.0%, indicating regional mix, pricing, input-cost, or operating-cost pressure. If this persists, consolidated operating leverage may weaken., Foreign-exchange gains of ¥0.58bn were 13.3% of operating income. Currency movements are a material risk for an internationally diversified industrial-controls manufacturer and can create volatility below operating income..

Financial risks include The refinancing-risk alert is triggered by a 45.6% short-term debt ratio, above the 40% threshold. The root cause is ¥8.30bn of short-term loans within ¥18.20bn of interest-bearing debt. Strong liquidity mitigates the immediate risk, but refinancing terms and interest costs could become more important if rates rise or cash is absorbed by working capital., The capital-efficiency alert reflects ROIC of approximately 5.0%, around or below the 5% warning threshold, while annualized ROE is only 5.6%. The recovery in profits has not yet lifted returns to levels that clearly exceed an appropriate cost of capital, constraining valuation support from fundamental returns., Interest expense doubled year on year to ¥0.30bn. Interest coverage remains robust at 14.41x, but further funding-cost increases would reduce the benefit of the current operating recovery., Goodwill of ¥11.91bn and total intangible assets of ¥26.42bn represent 10.8% and 23.9% of total assets, respectively. Goodwill leverage is healthy at 17.4% of equity, but the sizeable intangible base exposes reported earnings to amortization and, under JGAAP, potential impairment if acquired businesses underperform..

Key concerns include Priority 1: convert the operating-profit recovery into cash by reducing inventory intensity and improving receivable collections., Priority 2: assess whether the FY2026 ¥130 DPS can be funded from recurring earnings and free cash flow, as implied payout versus forecast EPS is approximately 111%., Priority 3: validate the sustainability of Asia-Pacific’s exceptional profitability and achieve a durable EMEA turnaround., Priority 4: monitor Q4 performance against guidance, which implies only ¥0.37bn of operating income after ¥4.38bn was achieved in the first nine months., Priority 5: monitor debt refinancing and funding costs given the above-threshold short-term debt mix..

Investment Implications

Key takeaways include The nine-month result demonstrates a substantial operating recovery: operating income rose 90.4% and operating margin expanded 360bp to 8.3%., Gross-margin improvement and SG&A discipline were the central drivers, with SG&A growth of just 0.7% materially below revenue growth., Asia-Pacific is the earnings leader, while Japan recovered strongly; the Americas and EMEA remain the main regional execution issues., Liquidity and leverage are sound, but elevated working capital dilutes the quality and cash-conversion certainty of earnings., Capital returns are aggressive relative to forecast earnings, with the planned ¥130 dividend implying a payout ratio above 100%..

Metrics to watch include Q4 operating income relative to the ¥4.75bn full-year forecast, Asia-Pacific segment margin and Americas segment-profit trend, EMEA segment-loss reduction and path to profitability, Receivable days, inventory days, finished-goods balances, and cash-conversion cycle, Operating cash flow and free-cash-flow coverage of the dividend, Short-term debt share, refinancing conditions, and interest expense, ROIC and annualized ROE progression, Foreign-exchange gains or losses relative to operating income.

Regarding relative positioning, IDEC’s 8.3% operating margin and strong liquidity place it in a recovering and financially resilient position among diversified industrial manufacturers, but annualized ROE of 5.6%, ROIC around 5%, and unusually long working-capital conversion remain weaker than best-in-class manufacturing efficiency standards. The company’s goodwill burden is moderate, while its regional earnings mix is increasingly dependent on high-margin Asia-Pacific performance.