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.

Great. Thank you very much for your time. Can I ask just a couple of things about the automotive side and your In your presentation, you say that the mainstream OEMs, that's the sort of type A's, you expect the move, you know, them to be basically relying on internal production for the next sort of four or five years, but then to move to outsourcing. And I know the auto companies plan quite a long way ahead. At the moment, is this just a hypothesis, or do you have concrete evidence for this, or is it too early for that?

Thank you, James. Seki's speaking. And then if we go back page 14. We cannot explain the detail of customers, but many of Type A is already looking forward to move to Type A-DASH. So at this moment they are producing their motor by themselves, but we are receiving the RFQ for like a Lotus only or status only. So they purchase some components from us and then just make a final assembly as motors. That's we are seeing. And then other case is, from these six months, We rapidly take order for hybrid. It's not the e-axle for EVs, but it's already exceeding the two millions, only these six months. And then this is what's happening in there. They shift from hybrid to EV, and then hybrid is no longer their core product. intensively gathering their resource for EVs. Then, naturally, hybrid going out. So it's happening, occurring not only for OEM, but also Tier 1 suppliers. They're shifting to more EVs. That's why it's coming to Tier 2 side or us. So together with those two phenomenons, I think it's not extremely clear, but it's already starting. They are moving from type A to type A-. This is not from all of OEMs, but some of OEMs, but with the next four years, I think many OEMs will move. That we are seeing.

Thank you very much. That's a very clear explanation. And I wonder, could you also update, are there any significant new major contract developments or awards that things that have changed over the last three months in your e-axle business? I think it's correct that you've updated your official forecast for e-axle orders from 2.8 million to 3.5 million. I'm not sure I believe that's correct. And I wonder on what I remember the 2.8 million before included, if you like, as a discount because it was a bit difficult to tell what was coming through. If you have changed to 3.5, on what basis is the 3.5 million made, please?

Thank you again, James. First, can we go to page 17? It's obviously increasing very acutely. This is happening not only for us, but also all EV in China. And then we don't have a September data yet, but if we pick up a China, EV and plug-in hybrid, we are adding plug-in hybrid, but because for us, it's same customer anyway. They have a traction motor to drive vehicles. Those combined percentages, 17%. By the way, EV alone is 13.9%. So almost one out of five cars are becoming EVs. And then it's happening similar in Europe. Europe data in August was 18.8%. It's a combined EV and plug-in hybrid. EV alone is 11.1%. So from these, what I want to say is, we didn't believe number, quantity coming from our customers. It's always like a 50% of, sometimes even 70% of. But now, what's happening in China is, their requirement, their original requirement is, they're changing their original requirement even more so let's say they requested 50 000 in this second half increasing to 100 000 which is very difficult to build because of the lack of semiconductors but of course we are welcoming this you know their required volume is much more reliable than before because of this ev rooms So based on that, we changed the conversion ratio from current order and then very high reliable LFQs. Before, we introduced like 50%. Currently, I'm recommending we use 75%. 75% even maybe too pessimistic based on current. Then we decided to change 2.8 million to 3.5 million. Actually, if it's the same formulas, it's, let's say, like 3.1 million. But because of these conversions, I clearly say 3.5 is a very makeable target. That's the background and all this.

Thank you. So the 3.5 million still includes some element of discount, but smaller than before, yeah? That's right. That's right. That's exactly right. Wonderful. Okay, thank you very much. I have some more Komakai questions, but I'll go to the back of the queue. Okay, thank you. Thank you. Very kind.

Okay, thank you, James. Our next question is from Ramzi Neelam of State Street. Ramzi, please go ahead.

Yeah, thank you very much for taking my question. So to follow up the previous question, can you give a breakup of the 3.5 million units into, like, what is the percentage of the confirmed orders and the orders with the high probability? I think before it was 50-50. I mean, is there any change in the ratio for 3.5 million?

Just a moment.

Yeah, sure.

Sorry, microphone quality is not perfectly good. Can you repeat your question again?

Yeah, I'm audible now. Is it better?

Yeah, it's a little bit better.

Yeah, so we have a revised target of 3.5 million units. So can you break down what is the confirmed portion of the orders and the orders with the high probability? I think for the previous target, we have 50% as the confirmed orders and 50% as orders with the high probability. So is there any change in the mix for 3.5 million units?

Yeah. Actual order we got is 2 million units. And then besides that, we have about over 2 million very high probability RFQs and potential orders. And then we combated that to 150, 1.5 million. So 2 million farm orders, 1.5 million high possibility. That makes 3.5 million.

Thank you. That's great. And moving on to the Vietnam lockdown, so there's a huge impact on sales. I mean, can you give a color on what is the impact from lockdown and also what is the impact from the semiconductor shortage on the automotive sector, especially for Nidec and Q2?

Okay. First, let me answer your automotive area questions and then Yokota-san will explain you the Vietnam situation. First, for automotives, let me tell you just average. We're not living with average. We're much better than average, but automotive average in 2000, sorry, this fiscal year 22, It's around 82% compared with 2019. We don't compare with 2020 because it's extremely low. But we originally expected it's almost same level as 2019. So it's about 18% off. And then we knew this up to June. And we expected it will be better in July, August, toward Q3. As you know, Malaysia, Vietnam, and Thailand went to lockdowns because of the COVID-19 pandemic. And then we have an automotive sector has a huge supply for semiconductor of harness from Malaysia. And then it's completely, 100% locked down. It takes, it continued about one half month. So automotive world completely lost semiconductor for harnesses. That makes current volume down significantly. We are seeing about 25% volume down compared with 2019 for like September, August periods. Sorry, September, October periods. So it's still continuing. By sometime, definitely coming back, we stopped to see optimism for this way. So we are... We're intentionally forecasting volumes, very pessimistic, and then we're still squeezing our cost side. That's what we are saying. Everyone says Q4, it will come back, start to come back. It may take a longer time than we expected before. So that's the semiconductor impact automotive side. But we are not like 25% off from 2019. We are only slightly off, so we are far better. Because first, we are increasing market share from 2019 to 2020 to 2021. Second, in the automotive area, it's clearly see loser and winners. We have more customers for winner side. Those two elements makes our volume better than average. That's automotive area, Yokota-san, for Vietnam's.

Yeah, so the impact of Vietnam lockdown, we have disclosed the numbers in the financial report. It was estimated like 11 billion Japanese yen in operating profit, and the segment spread is like 8.5 billion is for small precision motor, and 2.5 is for automotive. So out of this total 11 billion Japanese yen, roughly 40% to 50% is volume loss, let's say marginal profit loss. And the remaining cost is all the sourcing change or employee support expense or hotel, bath, rental, et cetera, et cetera, to maintain our workforce within the factory. So all in all, the operating profit impact was $11 billion. Of course, we made a lot of counteraction to mitigate or offset this loss in the first half. So in the third quarter onwards, some of the costs were just one time in the second quarter, and the volume lost. We may try to recover as much as we can. That's what we can say now.

That's great, Khaled. To follow up on the same question, can you give some color on what is the capacity utilization or the current status of the production facilities in Southeast Asia?

Can you share what capacity of which factory or segment production, especially?

Yeah, in the areas which are impacted due to lockdowns in Q2.

OK. Maybe I can only tell what kind of product we produce in Vietnam, for example. Is that OK for you?

No, no. Sorry, Yokota. I'm just asking the capacity utilization. In Vietnam, we have many products. Some are precision motors, some are electronics, and some are like a bulb for transmission. And then because Vietnam has a big cost advantage, including taxidermy, we are fully utilizing those, almost 100%, even 110%. Because just after the release of this pandemic, actual usage averaged 80-85%. It's not completely recovered at 100%. Meanwhile, Thailand, it's mainly hard disk drive plants. It's completely recovered at 100%. And then Malaysia, very similar to Britain, it's at, let's say, 80-85%. That's a recovery situation.

And one last question. Yeah, the same question I asked. Thank you. And one last question, if I may ask. So we don't have, I remember from Q2 call, we don't see much impact on ACMI segment from semi-shortage. So is that status remain same in Q3 and going forward or are we seeing any kind of supply chain constraint on ACMI segment?

Answer is yes. But, you know, Ramzi, because that segment is growing, we prioritize the sales. So even supplier requesting increased price, we mostly adapted, then we increased our sales, but our cost becoming high. So actually, without those price up, parts price up, probably our profit would be much better. And also, we are facing a very high logistic cost, either sea or sea freight or air freight. So it's continuing from Q2 to Q3. It's not increasing, but it's a very high level, maintaining high levels. So good news is one of the highest increased part was magnetic steels. We need those for power of motors. There was peak in Q2. In October, we are seeing a slightly coming down, not significantly. So first, we already confirmed we don't have a shortage, significant shortage, but we have been suffered by price increase of those. And it will be softened.

Okay? Yeah, thank you, thank you. I joined back in. Okay.

Okay, thank you, Ramzi. Our next question is the second-round questionnaire from Aramad James. James, please go ahead.

Wonderful. Thank you very much. Can I just ask a brief one first on machinery and then follow up on precision? In the machinery area, you had – record levels for Q2 of individual quarter of sales, and also profitability was dramatically higher. And I wonder, was there any one-off element to that, or does it simply reflect very strong demand and the sort of scale benefit as sales ramped up? Can you comment on that, please?

Yeah, basically the machinery segment, our inspection machine or stamping machine, all of the business in very good shape thanks to all the demand in the global, especially China. So that is one of the biggest drivers that we could enjoy the sales and the profitability. And some profit one-timer is included in operating profit actually. That is boosting the operating profit ratio a little bit higher.

Can you tell me roughly how much was that?

Roughly 20, 24. Japanese or Korean, yeah.

Thank you. Thank you very much. James, this is Sik speaking. Not singularism, but majority of this good self is based on high demand of semiconductors. So semiconductor-related stamping machines, semiconductor-related measuring machines, those are going very well. But at the same time, as I explained, we are suffered by semiconductors, lack of semiconductors. So it's plus and minus together.

Okay. Good. No, thank you very much. And could I just ask on the precision area, at the interim. You mentioned, I understand there are a lot of one-off impacts and sort of shutdowns, but if we look at precision profitability, how does that break down between the spindle side and the HCD motor and the rest of the business? Please sort of say what were half-won margins for the spindle side alone, please.

So, okay, so you're trying to know what the Q2, the September quarter results in terms of the profitability of the small pressure motor, right?

Yes, and also then we can see the profitability of the other motors there as well, please. Yes, thank you.

Yeah, so we say roughly an open margin for spindle, hardest drive. was a 31.0% for this September quarter. Then the non-ATG ones at this moment, you know.

The 31% must exclude the lockdown impact. Is that correct?

Okay. The key point is we do not have so much of the impact because those lockdown is centering around the Vietnam 40-minute city. That's not the place that we are making the motor for hard drive. That factory in Vietnam is non-ATG motor. So, yeah. So thereby, roughly, we say 3.2%. Just a minute. Okay.

James, let me explain one thing. For Spindle, sorry, precision motor side, we have a manufacturing base in Thailand and Vietnam. And the HED side is located in Thailand. And the pandemic level between those two countries was same. but the treatment of government is completely different. In Thailand, they allow us to continue to operate our plant as long as we provide appropriate care to avoid pandemic clusters. But meanwhile, Vietnam was crazy. If we have only one new patient out of 5,000 employees, they request us to shut down. Of course, we made many complaints, official complaints, even to the president by Nagamori-san's name. Then now it's softened much better, but that's why we don't have damage for hard disk drive side, even in Southeast Asia.

Thank you for that.

Okay, already we disclosed how much is the motor for HED, how much is the non-HED, Arab small pressure motor. Then we say the HED motor OP margin is roughly 31, and the non-HED is only 3.4%.

Yeah, thank you. Thank you very much.

That's going to include some of the description that we made for a, you know, 8.5 billion yen negative impact that we analyze from the COVID-19 in Vietnam.

Okay. And sorry, the figures you quoted before of 11 billion for the whole company and 8.5, is that for the first half or the second quarter alone?

Oh, you know, we did not have so much of the impact in the June quarter. The query, we had the impact from this COVID-19 in the September quarter. July, August, and September, and still in October.

Yeah, let's say starting from first week or second week of July through middle of September.

That was peak.

Now we're still continuing, but much better.

Much better. Okay. Thank you for that indeed. Okay, so in which case the sales The sales also for non-HDD were also rather negatively impacted by these production cuts you have. Is it possible to give a sales split for the first half, 155.7 billion of other motors? Is it possible to give me a sales split for that, please? So it includes CCI and vibration haptic and other things, I think.

Okay. So we usually divide in the, those, you know, small patient motor into the, a maybe three segments in the, in our, you know, so-called the model. Right. Yeah. And, uh, at this moment we can say how this drive already, we announced the, the, the number of the top line, right. which is something like 26.4 billion. No.

That's the Q2, yeah?

Yeah. So you need a Q1 plus Q2 or Q2 number, whatever.

If you have the first half number, that would be good.

The first half number is 49.4 billion on the HED. and the OP margin is 33.7. Then we have a second portion is the DC motor fan and the other, okay, which is going to include CCI because we are not separating CCI there. So 139.1 billion for the first half and 5.0% OP margin. The last portion in this small pressure motor is a vibrational haptic. 16.5 billion top line, and 6.1% OP margin. So those are the three segments under small precision, hardest drive, DC motor from the other, and the haptic vibration. So those are the number.

Okay? Okay. Thank you very much. And then lastly, sorry, if it's okay, on the HDD side, I don't know how much detail you're happy to give, but in terms of sort of volumes, your own volumes and ASP and overall and if possible for the various elements within that, how much you're happy to disclose would be great, please.

So we've been clearly disclosing the shipment volume by form factor and the ASP. So for this I mean, September quarter, we shipped 34.0 million total HEG spindle motor, where a 2.5-inch high-end is 9.2 million, and the near-line, sorry, 2.5-inch high-end is 1.1 million, sorry, near-line 9.2, okay? And the 3.5-inch is $12.3 million, $1.2.3 million. And 2.5-inch is $11.4 million. So regarding the ASP, the total ASP is $7.06. Okay? Yeah.

That's good.

So as you can see from our that because COVID-19 hit our customer in time, as Mr. Seki explained. So thereby, we see the shipment is a little bit higher than the production for this quarter. OK? So thereby, we are keeping something like a 55% share for this quarter. And this is the last quarter. our inventory adjustment by our former competitor, Mirabea, might be affecting our business. This would be the last quarter for that, okay?

The last quarter. And the figures you gave me are shipment figures, yeah?

No, no, no, no. The number which we talked about is the shipment of our motors.

Yes, your shipment figures, yeah, absolutely.

Right.

That's great.

Always, we are just in time. So our production number and shipment number is almost in line, especially in the case of the hardest type of spilt water. OK.

Thank you. I'm sorry, very last question. I apologize. For the first half of the year, any restructuring costs you made were quite small, I think. Is it about 1 and 1 half billion yen? Just looking at your flow chart. It showed an improvement of 5.4 billion year-on-year. Is that correct?

So the spending on quarter two is about 6.5 okun. 6.5 okun, yeah. So you want to configure first half versus first half?

No, that's absolutely fine. If you give me the Q2 figure, that's enough. And in terms of the second half of the full year, you're making some changes to production, particularly in the small precision size. What figure do you expect for the full year? Do you have a target for that, please?

Normally, we constantly make a destruction effort by maintaining 2 billion Japanese constantly. But recently, spending is a little bit low because of all the supply chain confusion and everything gets a bit stabilized. We will examine how much exactly we want to make a destruction effort. But roughly, I would say 2 billion average we spend per quarter.

Per quarter, okay. It just happens to be lower in the first half of the year.

Exactly.

Thank you very much. Thank you very much for answering all my questions.

James, just an addition from Seki. We had about 10 million euro restructuring in Europe for appliance commercial industry. But because sales is growing too much, I intentionally stopped because we need people. Those are also mixed. Then meanwhile, I don't expect this pace is slowing down in H2. We may postpone to next year. We have some area we have to distract because good sales from industry appliance side, we didn't spend.

Thank you. Thank you. That's very clear. Thank you very much.

Thank you very much, James. Our next question is from Hamish Chamberlain of Janus Henderson. Hamish, please go ahead.

Thank you. Good evening, everyone. Thank you for taking my questions. So my first question is to do with the recent acquisition of Mitsubishi Heavy Industries machine tool and I was wondering if you could perhaps go into a little bit more detail in the background to this acquisition, its strategic fit, and the financial impact.

Okay. Thank you, Hamish. This is Sik speaking. First, background, why we acquired this company. If we go to vertical integration page of E-AXIS, page 16. So here we have a vertical integration part side, which is upper side. The die cast and gears and plastics and usually some tier one or tier two motor company outsource of those but we don't hesitate to invest and even our investment become higher we are prioritizing a cost lower and then on top lower side is our vertical example of our vertical integration for equipment side pressing machines and then wiring machine of copper wires and then some of the testing equipment for motor itself. And then second from right, that is gear machining machines. Historically, automotive world had lots of gear, particularly manual transmissions. But manual transmission wasn't sensitive for noise. because usually people accelerate always, so noise was very usual. In case of EV, EV itself is very quiet and on top. Usually manual transmission gear only match with one side. For EV side, we have clockwise revolution, anti-clockwise revolutions, So matching phase need to be very careful for both sides. So those are background why we need high technology for gear, while gear was used continuously from transmission errors. So we looked for necessary technology to control this noise, vibration, and harshness. And then Mitsubishi heavy industry had a very high potential Just concern was the equipment is too high. The equipment is too high because their sales is extremely low with very high fixed cost. That is a favorite of Nagamori-san. It's always going to those very poor operated company and purchased with very low price and destruct very quickly. We completely merged this company beginning of August. And in September, he made this company positive profit. So like magic. So he's expecting this company to go to 10% in the last month of this fiscal year, which is March 22. So usually we don't believe it, but if he says he'd do it, He does, probably he does anyway. So that we are seeing. And then, you know, we are showing many of equipment in here. But this is not last. We have some missing puzzle. We have to fill one by one. So we will continue. Only hesitation we are considering is like semiconductor areas. because usually that technology going very fast, even we prepared, maybe invested equipment may just waste. So for that area, we will be very careful, but other area, we positively continue this investment and margin acquisitions. Is that answering your questions?

Yes, and just to follow on from that, so just to understand, so this is not, going to be a completely internal acquisition in the sense that the sales are to internal, as part of your, to other NYDEC operating units within the Axel business. There are some external sales and end markets here. Is that right? And what are they?

Yes, yes. You know, they do not have a business feedback. So they are always interested to be prepared for that.

That is the main thing. And of course, we expect them to expand very rapidly. Actually, they are expanding very rapidly with very strong movement by natural resources.

This is Kosovo speaking. I see the turnover update for a month is between 2 billion Japanese, 2 billion Chinese. So as Mr. Seki mentioned, with this consolidation from all the contributions in our financial statement, the second quarter, the only thing that boosts us is 4.7 billion Japanese. Profit is only neutral, as Mr. Seki mentioned. Of course, our nation will accelerate the PMR and the turnaround of this company. In the past, this company is cash-free, and we have a lot to do to fix the problem. So we are not too optimistic, but we are pushing so hard to make this company profitable. So let's see. EID contribution on the turnover, you can see the 3 billion dollars. a month is like, I don't know, 200, 30 billion or 30 billion. That is the topic of the session.

Okay. Just to be completely clear, the real value of this acquisition is what the technology brings to the actual business or sales configuration, rather than growing the external sales of automated sheets and tools. Of course, of course. Okay. Because I have a major responsibility to see for a gloss of IAXU, I prefer to continue the IAXU business, but as you feel, I want them to grow very fast, and I want them to bring more money. Just talking about acquisitions and acquisitions, Yeah, it's quite a period since over the last couple of years. There were quite a number of acquisitions in 2019. And just wondering if I could get an update on how the integration has gone and the contribution has gone from both the online automotive electronics business and the other sort of large acquisition you did in 2019, the Whirlpool, a Brazilian business, a thermal compressor business.

Mbraco, right?

Mbraco. Yeah, Mbraco. Mbraco, yes, exactly. Mbraco, yeah. So Omron and Mbraco, yeah.

Yeah, thank you. Mbraco was acquired quarter one in 2019, and then Mobility, we call the company Mobility, acquired from Omron. It was done Q3 of 2019. And then both were around 2% to 3% OP margins when we acquired. And now both company has a completely double digit. So PMI won't be finished until they become a 15%. That is a NIDIC criteria. But for double digit OPs, they easily reached that level. Now they are moving from 10% level to 15% level. Only concern is, as I explained, as appliance industry and commercial side, for MBRAC side, they have a very high market share for refrigerator compressors for both personal use and commercial use. They are the ones heavily impacted by price up of magnetic steel. And then, as I said, it was peak in September, now slightly better, but still exists. So without those, probably they already reached 11.5 or 12% levels. Now they are doing best to mitigate this impact. They are around 10.5%. That is where they are. And Omron side, of course, they reached double digit by Q4 last year. But because of current automotive area, volume down, and then many price increase from materials, they are around 10%. So without those handicap, probably their real capabilities are around 11 and 12%. So those were there.

Okay, thank you. And just in terms of the sales performance, so you said the Omron one has been impacted by the automotive industry downturn, but are there any other comments you can give for both MBRCA and Omron in terms of the you know, organic sales performance or sort of R&D and new market performance.

Can we go to page 23? That is sales in left and profit in right. And then main contributor of this sales increase coming from Embraco. Their sales in China, Europe, and Brazil, particularly Brazil, very strong. So they're really leading this growth. I don't have an exact number in my hand.

And then all... Okay. Sorry.

Yeah. In the mobility side? maybe because it's similar to overall behavior we can use automotive sector pictures if we go 19 you know please look at blue bar sorry we should see green bar organic side So Q2 sales was almost same as Q2 2020, slightly better. But industry is much lower than this. So I think they are doing a good job, but still impacted by this lack of semiconductor volumes. Is that answering your questions? I'm not sure.

I think that's very good. And just in terms of the employee turnover in those acquisitions, any sort of perspectives there in terms of the, because I remember Omron, you saying that they had some very talented engineers and they would be a good cultural fit with Nidex. So just how has that gone?

Yes. You know, they are kind of a benchmark, very fast fit as Nagamori is, we call it. Nidec way, very fast fit. I'm not hearing huge turnovers. Usually, average turnover in Nidec is 2% annually. Probably there, better than those. And then for a muscle side, M-block side, same. We have many companies in Mexico and Brazil turnover from GA, we say general appliance, is always benchmark, much better than any other company around them. Even internally as an appliance industry commercial, ACI, many other, our team is worse than them. So we're not worrying any of turnover from both of them.

Thank you very much.

Thank you very much, Hamish. We have exhausted the planned conference time, but there seems to be one more question. And so this will be our last question for tonight. And Mr. Yasushi Anaka of MLG Securities EMEA. Mr. Anaka, please go ahead.

Hi, thank you very much for the presentation. One question from my side. On page 7, we have CAPEX plan revised down 10 billion yen. Could you just let me know about a bit more detail of the background and what sector will be affected about this revision? Thank you very much.

Thank you for the question. Actually, this revision is based on the natural cost-down effort for our investment in the first half and also based on some of the timing issues of the planned investment. So we adjusted. So this is not based on the particular reason of any project cancellation or any fluctuation in the capital expenditure amount. So this 10 million reduction is some timing issue and also deflection of our CapEx control in the first half.

OK, that's very clear. Thank you very much.

Thank you. Thank you, everyone. Just before closing, I expected some question, but it didn't come. This time we updated both sales and profit, and particularly for our sales side, originally our announcement was 1.7 trillion yen. Now we updated to 1.8 trillion yen. But usually our second half sales is better than first half sales, and then first half sales is already exceeding half of those. So we're expecting a better than 1.8 trillion yen base. 2022, as I said last time, at the beginning of Vision 2025, we have to achieve 2 trillion yen, which is two years late from the original Vision 2020. That will definitely come. We are very confident. So that's the first point. And the second point, as we demonstrated with spending on many pages, I think steadily, of business for traction motor getting firmer and firmer. So we just demonstrated 3.5 million as our new target. But besides those, I think everybody understood our strength of cost by vertical integrations and actual sales result in China's. So those two points I wanted to emphasize again before we close in.

Thank you. Mr. Annaka, thank you for your question, and Mr. Seki, thank you very much for your supplemental explanation. Now we'd like to conclude the conference call today. I'd like to appreciate your active participation. Should you have any further questions, please do not hesitate to contact NIDEC Corporation or your sales representatives at Mitsubishi UFJ Morgan Stanley Securities. Again, thank you very much, and you may now disconnect.

Bye-bye.

Thank you.