Nidec Corp Adr

Dear all, thank you very much for joining NIDEX conference call. I'm Yoichi Orikasa, General Manager, Kyoto branch of Mitsubishi UFJ Morgan Stanley Securities. 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 right now. Please note, This call is being recorded and the conference materials will be posted on NYDEC's homepage for the coming week for investors and analysts who are not able to join today's call. Now, I would like to introduce today's attendee from NYDEC Corporation, Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer. First, Mr. Samura will make a presentation. After his presentation, we will move on to a Q&A session, and Mr. Samura will answer your questions. Mr. Samura now presents NIDEX Q3 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 Akinu Samura, Chief Financial Officer of NIDIC. I'll be your main speaker today and answer your questions with the help of Mr. Hironari, which is an interpreter. Please see slide 3 for the financial year 2022 nine-month results. Shown on slide 4, the nine-month net sales stood at a record high of $1,000. 699.7 billion yen, 20.8% higher year-on-year. The nine-month operating profit decreased 6.8% year-on-year to 124.4 billion yen. However, the nine-month profit before income taxes and the profit attributable to owners of the parents increased 9.7% year-on-year to 141.9 billion yen, 4.8% year-on-year to 104.1 billion yen, respectively. Both stood at record high. We are implementing WPRX, the Drastic Reform of Profitability, to tackle the recent deteriorations of market environments with aims to reduce the fixed cost significantly and to make a V-shaped recovery in financial year 23. Based on Q3 results and the Q4 demand outlook, we have made revisions to financial year 22 annual forecast. On slide six and seven, you have step charts showing the net sales and operating profit year-on-year and quarter-on-quarter, respectively, by product groups which exchange rate effect eliminations and structural reform expenses. As you see the upper chart of slide seven, the quarterly sales of all of the segments except for electronic and optical components, and other declined due to recent deteriorations of market environments. The overall operating profit on the lower chart declined due to decreased OP in small precision motors, automotives, and appliance commercial vehicles. commercial and industries, or ACI, as well as structural reform expenses. Please see slide eight. We have started WPRX, the drastic reform of profitability amid adverse market conditions, in the second half of financial year 22, as explained on slide nine. WPRX is a drastic reform of profitability to tackle economic downturn caused by the expansion of COVID-19 in China and economic shrink in Europe through prolonged Russian invasion of Ukraine, as well as polarization caused by technological innovations. With the idea of technology creates cost competitiveness in mind, we are going to accelerate development of products that can overwhelm competitors with our technologies and to implement structural reform to reduce fixed costs through automation with our technologies and streamlining operations. Please see slide 14. The number of EV models adopting NIDEX e-AXEL has increased by 3 to 14 models compared with the previous quarter. The annual sales of EVs with our e-AXEL grew 175% year-on-year in current year 2022, and the latest December sales hit record highs. Please see slide 15. The e-axle market in China is about to enter the growth stage on a full scale. The number of market entrants, including OEMs, for self-manufactured motors is increasing. An increase in the number of competitors in such a growth stage is within our expectations. at the time of strategy creation. As our strategies for this growing market, firstly, we ensure a speedy implementation of large-scale capital expenditure before the demands arrive as countermeasures for market expansion. Secondly, in order to expand our customer base and geographical market areas. We will be targeting five major customers in China, two existing and three new customers, and acquiring new orders from European and US OEMs. Please see slide 16. Global sales volume over YP Axel is expected to continue to increase at a pace that exceeds the growth rate of the battery electronic vehicle, our BEB market, and we are targeting to sell 4 million units of e-axle in financial year 2025, which consists of Nidec PSA e-motors, a joint venture with Stellantis, and customers in China and other areas. Please see slide 17. We are preparing for V-shaped recovery in financial year 23 by posting large structural reform expenses in the second half of financial year 22. Please see slide 18. A paradigm 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-wheel vehicles and small EVs. We are planning mass production in financial year 2022. for 11 projects including six related to electronic two-wheel vehicles and five related to small EVs. We have added in four-wheel motors for electronic motorcycles in India. And with regard 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 floor area of our Indian factory. Slide 19. In the small precision motor segment, we are implementing business portfolio transformation amid HDD motor market structural change. Slide 20. 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 generator storage system, battery charger for EVs, etc. And for the air conditioner market, we are going to expand the business globally, mainly for industrial use. Assuming a higher raw material cost continues for the time being, like in the oat businesses, we are going to accelerate the improvement of the profit structure through passing that onto selling price and reducing manufacturing cost. Please see slide 21. Despite the weaknesses in the appliance and the commercial areas due to loss of demands driven by COVID-19 and the negative impact of prolonged Russian invasion of Ukraine on the European market, We are going to continue our efforts to improve profitability. Please see slide 22. In other project groups, the operating profit ratio since financial year 21 is keeping high level of over 15%. Please see slide 23. Neadex Machine Business Group which consists of Nidec Simple, Nidec Machine Tool, and Nidec OKK is going to expand and improve product portfolio through steady organic growth and M&A and realize high growth of the machinery businesses. Firstly, in the machine tool business, we are planning M&A's to expand product line-ups of machine tools and explore overseas markets, and supporting overseas sales expansion of NIDEC machine tools and NIDEC OKK by acquiring PAMA in Italy, which has a strong sales network in highly growing markets such as China, etc. Secondly, in the press machine business, orders for machine for manufacturing cans and EV-related parts, such as motor core, battery, etc., are increasing. We are going to strengthen production and sales through collaboration among our major brands. Thirdly, in the reducer business, we are launching Komagane business facilities in Japan with an aim to increase supply capacity of high precision reducers and planetary reducers for the domestic market and aiming to gain market share of reducers for six accessible robots. Please see slide 24. We have purchased the shares of Italian machine tool manufacturer, PAMA, and its nine affiliates, and executed a transfer agreement on the stock acquisition. PAMA is one of the most well-known companies in the machine tool industry for the wide range of product lineups and high-level technological capabilities with large machine tools, particularly horizontal boring milling machines. The company is also known for its solid sales and service networks in Europe and other places, such as China, the U.S., and India. Following completion of acquisition of PAMA, Following the completion of the acquisition of PAMA through reciprocal usage of management resources between PAMA and our two machine tool companies, Nideco Machine Tool and Nideco OKK, we are able to pursue synergies in all areas of sales, manufacturing, and product development. After completing the stock acquisition, we are going to actively provide PAMA with resources and make necessary investments in PAMA to accelerate the growth of NIDEX machine tool businesses. Please see slide 25. We are tackling to build a strong corporate governance system. and following the Establishment of Sustainability Committee that we announced in the previous quarter. We established a nomination committee last November as an advisory body to the Board of Directors. With the establishment of the nomination committee, fairness, transparency, and objectivity are ensured in the deciding on the election policy. It's the standards and the candidates of our directors and executive officers with appropriate engagement and advice from our external directors. We will continue to improve our corporate governance system even further going forward. 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 would like to turn to the Q&A session. Mr. Samura will be pleased to answer your questions. Today's Q&A session is conducted electronically. If you would 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 would like to ask a question. If you would like to cancel your request, please press star and 2. We now pose four questions from the participants. Our first question today is from Mr. Ito of Arga Investment. Mr. Ito, please go ahead.