Nidec Corp Adr

Dear all, thank you very much for joining NIDEX Conference Call. I am Yoichi Orikata, General Manager, Kyoto Branch of USBC UFJ Mogast and E-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's homepage right now. Please note, This call is being recorded, and the conference material 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 Nidex Corporation. Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer, and Mr. Masahiro Nagayasu, General Manager, Investor Relations. First, Mr. Samura will make a presentation. After his presentation, we will move on to a Q&A session, and Mr. Samura and Mr. Nagayasu will answer your questions. Mr. Samura now presents NIDEX Q2 Fiscal Year 2022 Results, Future Outlook, and Management Strategy. Mr. Samura, please go ahead.

Good day, everyone, and welcome to today's conference call. My name is Akinobu Samura, Chief Financial Officer of NIDIC. I'll be your main speaker today and answer your questions with the help of Mr. Hiro Nari-Noguchi as an interpreter. Joining us also is Mr. Masahiro Nagayasu, General Manager of NIDIC's IR team. For the forward-looking statements, please see slide 2 of our presentation materials for details. Now I'm going to review the key figures. Please see slide 3 for the first half's results. As summarized on slide 4, the net sales stood at a record high of 1,130.8 billion yen. a 24.2% higher year-on-year. The operating profit increased 8.1% year-on-year to 96.4 billion yen, marking a record high. The profit before income taxes and the profit attributed to owners of the parent increased 35.9% year-on-year to 118.4 billion yen, 30.1% year-on-year to 86.6 billion yen, respectively. Both stood at record highs. The quarterly net sales, operating profit, profit before income taxes, and profit attributable owners of the parent recorded all-time highs. 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 expenses. As you see the upper chart of slide 6, the quarterly sales of small precision motors and appliance, commercial and industrial, or ACI, declined due to the reduced demand in home appliances. However, overall sales increased due to the remaining segment's increased sales and weaker yen. The overall operating profit on the lower chart increased, as the decline in small precision motors was more than covered. by all of the remaining segments increased operating profits. Please see slide 12. We are estimating that the global ratio of NEV, or New Energy Vehicle, which is including EVs and PHBs, is going to reach 20% in 2025 and 37% in 2030. Regarding the NEB ratio in China and Europe, which are the two advanced NEB regions, China is expected to hit 37% in 2025 and 55% in 2030, while Europe to reach 32% in 2025 and 81% in 2030. Please see slide 13. The cumulative number of EVs using our e-axles exceeded 547,000 units since the beginning of the sales in May 2019. Each month in the September quarter exceeded the previous high, and the total sales in the latest quarter increased 188% year-on-year. Please see slide 14. As you see on the left-hand side, we have classified EV OEM customers into three types, namely Type A who manufacture motors in-house, Type B who sit between Type A and C, and Type C who outsource motors, and we have been prioritizing Type B and C customers over Type A. We estimate it will take more time to shift to outsourcing. However, we are beginning to see the sign that Type A customers in Europe could shift earlier than expected. As we have been contacted by a Asia-European OEMs for possible outsourcing. The background of this is considered to be, number one, a fierce price competition for EVs with Chinese OEMs who are exporting their EVs increasingly. And number two, e-access manufactured house by European OEMs are relatively costly We are going to capture this opportunity and aiming to win orders of traction motors. Please see slide 15. We created NIDIC PSA eMotors, a joint venture with Stellantis back in May 2018 as our strategic core in the European e-axle businesses. and they started the first mass production just last month. As you see on the right-hand side, they are expecting to produce more than 1 million units of e-axles in 2025 and more than 3 million in 2030. Please see slide 16. A conversion to e-axle 10-2 has started from 100 kilowatt, and 30% of conversion is expected to happen in the December quarter. We are aiming to complete the whole conversion in the March quarter of financial year 23. And as originally planned, we are aiming to realize the profit in financial year 23 on a single fiscal year basis. and recoup cumulative losses in financial year 2025. In R&D, we have already started to tackle the fourth generation of e-access. The theme is magnet-free, and this has been adopted by Green Innovation Fund project of NEDO, namely New Energy and Industrial Technology Development Organization, a national research and development agency in Japan. Please see slide 17. As you see on the left-hand side, the total production capacity of the seven factories and other areas is going to be 7 million units in financial year 2025, and we are going to prepare almost double the capacity of the 4 million orders in the turning point of financial year 25. Please see slide 18. As higher raw material prices and lockdowns in China pressurized profitability, all results are recovering after the profitability bottomed out in the March quarter of financial year 21. Please see slide 19. Power time shift from ICE or internal combustion engine vehicles to EVs is rapidly accelerating in two-wheels and small cars as well. We are focusing on the two largest markets of India and China in both electric two-wheeled vehicles and small EVs. We are applying mass production in financial year 22 for 11 projects, including six related to electric two-wheeled vehicles and five related to small EVs. We have added in four motors for electric motorcycles in India. And with regards to production, we have converted the former HDD factory in the province of Zhejiang, China, to that of micro-mobility. And we are planning to double the flow area of our Indian factory. Please see slide 20. In the small precision motor segment, we are implementing business portfolio transformation amid HDD motor market structural change. Please see slide 21. In HCI, we are executing structural reform in overseas businesses and looking to enter a new phase of growth. While gaining market share outside Europe that is shaken by the conflict, we are going to accelerate top-line growth through three new strategies in the fields of generators, battery energy storage system, battery charger for EVs, etc. And for the air conditioner market, we are going to expand the businesses globally, mainly for industrial use. Assuming higher raw material cost continues for the time being, like in the oat business, We are going to accelerate the improvement of profit structure, surpassing that onto selling price and reducing manufacturing costs. Please see slide 22. Neelix signed a joint venture agreement with Flyer Badri's SA. Norwegian Semi-Solid Lithium-Ion Battery Manufacturer. NEDEX Battery Energy Storage Solution, or BESS, provides services to the grid that enable accelerated adoption of renewable power generation, which contributes to the realization of a carbon zero society. Meanwhile, WIRE has innovative same-solid lithium-ion battery manufacturing technology in terms of quality and manufacturing process. And it's planning to manufacture eco-friendly same-solid lithium-ion batteries using 100% renewable energy through a dedicated power purchase agreement with STATCLOUD. which is Europe's largest renewable energy producer, based on 100 hydroelectric power. Our partnership with Friar will ensure stable procurement of competitive and clean semi-solid lithium-ion batteries for NEDEX BESS solutions. This will help reduce CO2 emissions significantly throughout the entire process, from the battery manufacturing process to the use of our BESS solution by our customers. Through this strategic alliance, NIDEC will provide innovative storage battery and power management technologies to the world. thereby contributing to the promotion of renewable energy and the realization of a decarbonized society. Please slide 23. NERC's innovative battery energy storage solutions are used in prominent projects worldwide. SEI is also entering solution business such as EV charging stations and circular energy economy-related products. Please see slide 24. Despite headwinds posted by demand slowdown in Europe and low material price high, we are going to continue efforts to achieve operating profit ratio of 15%. Please see slide 25. In other product groups, the operating profit ratio since financial year 21 is keeping a high level of over 15%. Please see slide 26. Nidex Sankyo, Nidex Read, and Nidex Simple are the three major group companies in the machinery segment, and they are going to contribute to vision, 2025 target as growth drivers with high profitability by expanding such respective businesses. As industrial robots, a printed circuit board inspection system, a surprise for inspection system, automated optical inspection equipment, inspection system for parts of traction motors, machine tools, press machines, and reducers. Please see slide 27. Index established sustainability committee, which makes a decision on sustainability within the board of directors. We will find the challenges to be the ideal company, a company growing for the next 100 years and beyond. and promote our sustainable management in a longer term and broader perspective through the committee's activities. Lastly, on behalf of the entire management team, we would like to thank our customers, partners, suppliers for their support and commitment, as well as our shareholders. At this time, we would like to open up the call for questions.

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