Nidec Corp Adr

Dear all participants, thank you very much for joining NIDEX conference call. I am Yoichi Orikata, General Manager, Kyoto branch of Mitsubishi UFJ Morgan Stanley Security. As we kick off the conference, I'd like to ask you to make sure all the materials are ready in front of you. If not, please download the files on NIDEX homepage at this moment. Please note, this call is being recorded and the conference materials will be posted on the company's homepage for the coming week for investors and analysts who are not able to join today's call. Now, I'd like to introduce today's attendees from Nidec Corporation. Mr. Jun Seki, Representative Director, President and Chief Executive Officer. And Mr. Hidetoshi Yokota, Senior Vice President and Chief Financial Officer. Hello, everyone. First, Mr. Yokota will make a presentation. After his presentation, we will move on to a Q&A session, and Mr. Seki and Mr. Yokota will answer your questions. Mr. Yokota now presents NIDEX Q2 Fiscal Year 2021 Results, Future Outlook, and Management Strategies. Mr. Yokota, please go ahead.

Thank you, Rikasa-san. Good day, everyone, and welcome to today's conference call. My name is Hidetoshi Yokota, Chief Financial Officer of NYDEC. Today, Mr. Jun Seki, Representative Director, President and CEO of NYDEC, and myself will be your main speakers and answer your questions. Joining us also is Mr. Masahiro Nagayasu, General Manager of NYDEC IR team. For the forward-looking statement, please see slide 2 of our presentation material for details. Now, I'm going to review the key figures. Please see slide 3 for our first half results. As summarized on slide 4, the first half net sales stood at record high of $910.7 billion, 21.1% higher year-on-year. the operating profit increased 30.4% year-on-year to $90.2 billion. The quarterly operating profit ratio of appliance, commercial, and industrial products, or ACI, has improved steadily, and its first-half operating profit ratio reached 10.7%. The profit attributable to owners of the parent increased 38.6% year-on-year to $67.6 billion. Based on those achievements, we have made an upwards revision to the full-year fiscal year 2021 guidance. On slide 5 and 6, you have step charts showing the net sales and operating profit year-on-year and quarter-on-quarter, respectively, by product groups with exchange rate effect, eliminations, and structural reform expense, as you see on slide 6, while the operating profit of small precision models, automotive products, and electronic and optical components declined, mainly due to the reduced sales caused by the lockdown in some Southeast Asian countries. where main production sites are located and also due to one of expenses caused by the emergency change of production site. However, the net sales of all the segments made an increase despite semiconductor shortage and the reduced sales caused by the lockdown. Please turn to slide eight. As I explained just now, based on the September quarter's achievement, we have made an upward revision to the net sales operating profit, profit before income taxes, profit attributable to owners of the parent and EPS. Please see slide 12. Major OEMs compete the review electrification plan and rapid EV shift is accelerated globally. As illustrated by the red circles, Many of those OEMs have announced that during years between 2026 and 2040, they are going to make their new car sales 100% EVs and QL sale vehicles, both of which are defined as zero-emission vehicles. The greatest opportunity has finally arrived for our traction motor business. Please see slide 13. OEM companies in the world can be grouped into three different types by their strategy of sourcing traction motors, and it is expected that more traction motors will be outsourced after the turning point fiscal year 2025. Type A customers are those who manufacture traction motors in-house such as Japanese, American, and European traditional OEMs, and they stick to this until fiscal year 2025, when they are expected to switch to more outsourcing. Type C customers are OEMs in emerging countries, such as China and Tier 0.5, and are already outsourcing traction motors to NIDIC. For these companies, outsourcing traction motors will completely become the norm after fiscal year 2025. Sitting somewhere between type A and type B companies, who are not heavily dependent on outsourced motors, but less committed to manufacturing them in-house. These companies have established or are expected to establish joint ventures and alliances with motor specialists such as NAICS. We expect that regardless of the types of all the EV manufacturers, we'll eventually be producing traction motors and other major components from independent specialized suppliers after 2030. This is slide 14. As I explained just now, Type C customers are currently increasing their outsource orders, while Type A customers are expected to increase their outsourcing one to two years before or after the turning point. Please see slide 15. While establishing local production and supply in China, we are eyeing expansion of Europe and Americas. In addition to three R&D centers in Japan, we have established one in China to speed up R&D for the Chinese market, and our production sites in China are geographically diversified into north, center, and south to build stable supply chains. Please see slide 16. We are steadily implementing in-house production of main components and equipment by bringing together all the production know-how and technologies within NIDEC Group. The pictures on this slide are showing examples of in-house manufactured parts, such as die casting, precision machining, stamping, pressing, and resin modeling. as well as examples of in-house equipment such as press machine, winding machine, grinding machine, gear shaper cutters, and motor benches. By driving comprehensive vertical integration through in-house production, we are going to achieve overwhelming cost competitiveness and R&D speedup in our e-axle business. Please see slide 17. The cumulative number of EVs using our e-axles reached 200,000 units, and the first half volume has doubled year on year. The number of EV models adapting our e-axle has expanded to nine. Please see slide 18. As the 10th EV model adapting our e-axle, 200 kilowatt NI200EX, has been adopted in ZECA001, the first model of Geely's new premium EV, Blanc ZECA. As is illustrated on the previous slide, Geely's two EV models, Geometry A and C, have already adopted Nidex E-Axles. However, ZECA is their premium Blanc, and this is the first case where Our e-axles have been adapted in premium class EV model with a dual motor type option of Zika 001. You can achieve maximum output of 400 kilowatt, maximum torque of 768 Newton meter, or 0-100 kilometer sprint of 3.8 seconds, maximum speed of 200 kilometer per hour, The sales of Zika-001 in China start within 2021, while its global sale is set to start in 2022. Please see slide 19. Despite semiconductor shortage, material cost rise, and COVID-19, automotive existing business kept double-digit operating profit ratio for five consecutive quarters after bottoming out in Q1 fiscal year 2020. This is slide 20. Paradigm shift from ICE vehicles to EVs is rapidly accelerated in two-wheel and compact cars as well. In the mobility area, electric two-wheel vehicle market formed mainly in India, China, and ASEAN countries is expected to enter high growth period driven by environmental measures. We are currently focusing on two major markets of India and China, and have already started mass production of motors for major customers. In the mini EV area, we are receiving inquiries from multiple numbers of potential customers, mainly in the Chinese market, and eyeing for possible mass production of motor for major customers. Please see slide 21. In small precision motor segment, we are implementing business portfolio transformation and HDD motor market structure change and mobility and mini EVs which belong to this small precision motor segment are expected to be the drivers going forward as I explained in the previous slide. Please see slide 22. In SEI, we are executing structural reform in overseas business and looking to enter new phase of growth. While estimating CAGR of the market at 3% to 5%, we aim to grow SEI sales at CAGR of 10% to 11% by creating a new demand through solution proposal in markets such as HVAC, and handling robots where structural change is occurring. Please see slide 23. HCI's operating profit ratio is steadily improving after bottoming out in Q4 fiscal year 2019, and we have achieved record high net sales and operating profit in Q2. Please see slide 24. In other product groups, Operating profit ratio is keeping high level with over 20% operating profit ratio in quarter two after bottoming out in quarter four fiscal year 19. And we have achieved record high quarterly net sales and operating profit in machinery segment in quarter two. Last but not least, on behalf of entire management team, I'd like to thank you customers, parents, partners, suppliers for their support and commitment, as well as our shareholders. At this time, we would like to open up the call for any questions. Thank you.

Thank you very much, Yokota-san. Now, we would like to turn to the Q&A session. Mr. Seki and Mr. Yokota will be pleased to answer your questions. Today's question and answer session will be conducted electronically. If you'd like to ask a question, please press the star key and 1 on your touch-tone phone. Again, please press star and 1 if you'd like to ask a question. If you'd like to cancel your request, please press star and 2. If you'd like to cancel your request, please press star and 2. We now pose for questions from the participants. OK. Our first question today is from James Passport of Arma Capital. James, please go ahead.