Nidec Corp Adr

I would like to start the presentation on NIDEC Corporation's performance for the fiscal year that ended March 31st of 2025. The representatives of NIDEC Corporation are as follows. Mr. Mitsuya Kishida, President and Chief Executive Officer. Mr. Kinobu Samura, Senior Vice President and Chief Financial Officer. And I am Teruaki Urago, General Manager of the Investor Relations Department, and I will serve as the moderator of this presentation. First, we would like to have the presentation by Mr. Samura on the overview of this financial performance, followed by a presentation on the third year plan by Mr. Kishida. Then we will have a question and answer session. Please make sure to wait until then to ask your questions. We would like to end this presentation at 6.30 p.m. Japan time. Mr. Samura, please. This is Samura speaking. I would like to give you an overview of the financial performance of NIO Corporation first. Net sales, 2.6071 trillion yen, which is 11.1% up from the previous fiscal year. Operating profit was up 48.4% to 240.2 billion yen, which is another record high result. And the profit before income tax was up 17.3% to 236.5 billion yen. And the profit attributable to the owner of the parent was up 34.7% to 167.7 billion yen. Next, I'd like to give an overview by a product group. The first one is about small precision motors. The operation has been very stable, and the demand was for AI water cooling server. There was a period in between active periods, and compared with Q3, there was a decline in sales, but eventually the operating profit was up from the previous fiscal year. Next, automotive products. We have been able to have the increased sales and operating profit. Even traction motor business was OK in China. It was continuously OK in China. European joint venture, the profitability was good in a stable manner. When it comes to organic business, we have made structural changes in our organization. We have a temporary cost increase by 3 billion yen. We have been able to keep the profitability ratio from the last fiscal term. Next, appliance commercial and industrial products. We have a significant decline due to the seasonal decline, but we have been able to make a recovery from that as battery storage system and other energy-related businesses have been very successful. Due to all those circumstances, we have been able to have the increased sales and operating profit. We have this business-based consolidation, especially in Europe. And we have had the cost of 500 million yen because of the activity. And lastly, machinery. We have a cyclical downtime. It has been lasted for a long time. We have seen signs of recovery in this area. And starting from the first half of the last fiscal year, we have been doing some recovery activities. And we have started to see some profit. And there are some recovery in the various business in this area. And we have been able to have this increased sales and operating profit. And there are some detailed information over here on this slide on the pure business basis. And you can see the year-on-year changes, as you can see on this slide. And we have some impact from this current exchange rate. And you can see the probability increases and improvement. We have a structural reform in the EV and traction motor business. And we have a restructuring taking place in Europe, which has incurred 6 billion yen in the AMEC organic area. We have incurred several hundred billion yen of expenses. And by the product, you can see We have had some sale of real estate, but other than that, all the other product groups have enjoyed increased sales and operating profit. This slide is about quarter-on-quarter changes. You have seen the exchange rate was down by 1.9 billion yen. We have sales production. Small precision mortars was down by 5.6 billion yen. And please go over to this slide for cash flow situation. You can see on the annual basis, you can see the 137.2 billion yen. And this is about the second best record high result. As I will explain later, we have a ROIC situation being very stable, and we have accelerated our pace of balance sheet-based business management. When it comes to this slide, which is about the capital expenditure depreciation and R&D, we have been active in making investment in these areas. As you can see, And these are the three major highlights from this latest presentation. Lastly, I would like to give you an update on the 2025 fiscal year forecast. The world economy is very uncertain, but as far as we are concerned, we like to be anticipatory in making steps forward. Instead of depending on sales, we like to achieve a double-digit operating profit ratio. We like to achieve 2.6 trillion yen for net sales, and when it comes to operating profit, 260 billion yen exchange rate. 140 is the new amount we have set. And the dividends are expected to be 42.5 yen. That is all for the overview. Thank you very much. I will take it from here to explain our business strategy. Over the past year, under the new management, I have been working with the new members of the management. This is the second phase of the founding, in a way. And despite all the uncertainties and various changes, we will overcome all those changes to go forward. And this information that I'm about to tell you and explain to you is based on a determination for us to become the true global company. There are quite a few things we have never tried before, but we are going to try them going forward. As NIDIC, we are going to convert ourselves, so this is the name. Conversion 2027 is the name of our new mid-term strategy. And please take a look at this slide. This is our forecast for the next three fiscal years. There are quite a few uncertainties that we are going to face going forward. And we will make sure to find solutions. And we will make a company-wide effort to solve those problems and issues. Please take a look at operating profit. 10% is now a ratio, target ratio, and we will continue to improve the operating profit ratio as a profit-making organization. In order to support these growths, we have five major pillars of growth. And we will make a truly global structure to support our growth. These are the three major conversions that we are going to make happen. Year after year, we will make improvements, and we will be ROIC-focused. 7.2% was the target percentage last fiscal year. We will make it to the 12% in 2027 fiscal year. I'd like to give you an explanation as to what these conversions are comprised of. We have a sales of 2.6 trillion yen. We have a profit of 80 million yen. We are incurring the fixed cost of 50 billion yen. That's how we were back in the 2024 fiscal year. We will add three new elements over here. When it comes to variable cost, we will improve it. We will reduce it by 100 billion yen. It's not just about reducing material cost. We will discontinue unprofitable businesses as well as non-core businesses. We will review them one by one. We will withdraw from some businesses if and as necessary. We will utilize all of our technologies to make our products much more value-added. We will be equality-oriented as NIDIC. We will make sure to be focused on reducing variable costs. We will reduce fixed cost by 50 billion yen. In the past, we have gone through 74 M&As. We have many businesses and companies that joined the Nidec group since the foundation of this company. We will respect all of these companies and the history of M&As of our company. And now we are a company. that boosts the sales of 2.6 trillion yen. We will try to search for the chances for business consolidations. And we have a business basis of more than 280 around the world. We will seek for chances to improve the structures of these organizations. We will boldly launch various improvements in order to reduce the fixed cost by 50 billion yen. We are calling these activities WPRT. We will identify chances of cost reductions. T stands for something that you can imagine very easily. T stands for transformation, in my opinion, making sure that we will execute all the transformations that we need to implement. Plus, we have a strategy number three, strategic investment. We will invest in DX, digital transformation. We will transform our processes and systems. We will make a strategic investment in these areas. It's about 1% of the net sales. That's the amount we elect to spend in the form of investment. And we would like to continue to investment in very good business improvement systems. There are quite a few categories that we would like to expand in the United States, for example. We need to transform and convert our businesses in these areas in the United States and elsewhere. We elect to spend 1% of the net sales for these investments. And these are the three major activities as we go forward. When it comes to ROIC, as of today, this is where we are in terms of ROIC. You can see our performance in each of these categories. We will continue to improve the operating profit ratio as well as the return on invested capitals. We have each of these organizations to be committed in these areas. We have five major pillars of business. We like to make sure to go into these areas, green areas, on a group-wide basis. When it comes to 2024 fiscal year, especially internally, We were focused on improving our balance sheet. We wanted to improve inventory situation and we would like to make sure to improve our accounts receivables as well as accounts payables. We need to reduce fixed cost among many other areas. We will continue to reduce and improve these path to do receivables as well as inventory. We will make such effort on a group-wide basis.

So one of the key points of this transformation is to focus on areas where we have not been able to work on so much, which is in particular reorganization of production sites. As of today, we have 248 production sites within the group. If you look at this by group, there's 34% of less than 100. Midsize of 42% and above 500 is 24%. So 34% means that over 80 production sites are small size, less than 100 employees. This means that we will focus on cutting this down by half. In Europe and United States and Americas, ACIM has taken a leadership in consolidating the production sites, and this will be done on a company-wide basis. Meanwhile, the 24 percent, this is 60 production sites, Are they able to operate at the highest level of efficiency and productivity? We need to re-examine this once again. So if it's a plant in China with regards to automotive products, this would be sort of designated as one of the cutting edge plant. We will implement cutting edge AI and we will build a template for the highly efficient production and operational process. This has been implemented from last year. Also, with regards to these larger plants, in particular, further efficiency of the manufacturing indirect groups. will be carried out. So we will be reducing the size of the interact departments. And on the right hand side you will see number of entities within the group. We have this many entities within the group for all the various reasons in the past. You can see that over 61% of entities have 100 employees or fewer. And again, we will look at this by geography and also by business to seek for better efficiency. So the number of entities will also be improved. The number of the entities doesn't directly affect our P&L, but it's really about efficiency of our governance and of our management. Therefore, we need to be more efficient and we need to be more hands-on. especially in the micromanagement, which has been part of the culture of NIDIC. We need to really make an improvement in efficiencies in that as well. And we will start implementing this from April 1st. This is the merger of NIDIC Mobility and NIDIC ELISIS. And this will be one of the reference cases. So NIDIC, as we have been from before, we will continue to compete in manufacturing, at the very core of manufacturing. And we have business opportunities in upstreams and downstreams, and we will be more aggressive in exploring opportunities there. In order to do that, in front of the five business pillars, we have three technological pillars. One is things that rotate and that is thermal management and the other is power generation and control. So these are the new business domains that we have designated. And we will try to explore opportunities where we can commercialize in the upstream technological areas. This will include initiatives in areas that is expected to grow explosively, such as coupling, quick coupling. And also in terms of machine tools, we have softwares and we have control technologies as well. Also in downstream, We have large motor business. These are recurring businesses after sales, maintenance. These are the solution businesses, and I think this will be part of that as well. In particular, in machine tools, we want to offer a one-stop solution to provide entire service, end-to-end service. And through this, we can expand the small curve of our business And this is how we would roll out our business domains. So if you were to replace this into five business pillars, this is how it will look like in terms of the growth. And we will continue to pursue efficiency in each of these business pillars. And the segments that we use We will change the segment structure so that we will reflect this five business pillars. So this will be carried out in FY2026. So the growth opportunities is unlimited. As for the better life to the left, AC business, India, we have much potential for growth here. Sustainable infrastructure and energy, BESS, battery energy storage system, quick coupling, LCM and fans. These are the water cooling businesses as well as component business which is peripheral to that. and also emergency power outlets and system development. We're expecting a very large business development in the United States. And so the production efficiency and also mobility innovation, which has been worrisome for you, this mid-term plan, we will be able to see them re-contribute to corporate value. So this will be the schedule, the timeframe, which we will work on. So these five business pillars will be managed by these leaders and sub-leaders. We have designated each individual person, and the discussions are going on. And there will be focus areas. focus regions where they will focus on maximizing customer value. They will look at what is the theme, focus theme. So this has been defined in each of the pillars. So in each of the businesses, so for example, to the left in the better life, we have motor compressors. And we want to expand each of the categories, but we also want to expand in emerging markets like India. This includes consolidation of production sites as well. The second from the left, sustainable infrastructure and energy, first and foremost, will be best. We will maximize that business. in terms of base of AI society, that is, power business for data centers and servers, and component business, which will underpin this area. In terms of efficient manufacturing, in order to become a one-stop solution, we will maximize full lineup. And we will also build gearbox businesses for humanoid application for mobility innovation. We have made a very significant transformation in the past in China. We have deep water and faraway businesses that have begun. As for the component business, including traction business, Japanese customers will be at the core, so we will continue to expand that, but we will at the same time look into expanding our business in India as well. With regards to the joint venture in China, at this point in time, we will minimize our R&D spending and will realize optimal operations. After Q2 last year, it has become profitable and we will continue to make it profitable, but we will also focus on making it even more efficient in the operations. For NPE, the parent Stellantis, has a new management structure which will be established in July. That's what I have been informed. So along with that, we will discuss what we can do as parent companies, and we will explore every opportunity without excluding anything. So we have our production plan, inventory plans and investment plans. We will try to keep it at the minimum, but at the same time, make it as profitable as possible. So in each of these five pillars, we'll directly contribute to increasing in the corporate value. So we will provide you with a specific roadmap so that we can implement this directly. When you think about it, The center of our discussion on the operation has been very much more internally focused, but this five business pillars has external accountability. We will make commitments to outside stakeholders as well, and we will have These five pillars help us track our performance. So we will continue to advance the structure. And as a first step, in 2025, we have this new global structure which will be transformed. And so in FY25, 26, 27, the members who will carry out the transformation will be designated as executive officers. So we have redefined executive personnel, and we have now 16 executive officers, including two non-Japanese nationals. And so this structure began from April. And also, in the CXO structure, we have two additional CXOs. One is Chief Digital Officer. The individual, Mr. Onishi, has a long-time experience in digital business in Sony, and he has now been assigned as CDO to lead our transformation. Also, from Toyota Motors, We have Mr. Ninai as chief HR officer. He has also had wide experience, long experience in Toyota Motors HR. So with the two new members, we have 16 ex-officers. And also from April, we have established a fellow position. There, we have five officers assigned. We will, as a group, enhance our technical capabilities and expertise We also have chief quality officer, which is a global position. This is the management of the next generation management. In order to make it more visible, we have established this position. It's a senior general manager position. There are 10 senior general managers, including four, five foreign nationals. So these are the next executive officer candidates. We have Americans, Italians, French, Chinese and Brazilian. It's quite a diverse foreign national management. So this is the next generation candidates for officers. Again, this is to make it visual and transparent to external stakeholders. So we will have started FI 2025 with this new structure in place.

And as we try to reform our service based on ROIC, we like to maximize our cash flow. And we like to maximize to the level of 500 billion yen. And for our growth, we like to make investments in our research and development and many other different business activities that we do. And M&A, which is part of our main features, is going to be another subject of investment. And we will continue to control interest-bearing debt control if there is no M&As. and this will be a primary area of our activities going forward. We will make sure to make a return better than ever to our shareholders as well. When it comes to our purchase of our own shares, we would like to intensify our efforts in this area. When it comes to dividend, as I've said before, we will continue to increase 2.5 yen increase is going to be made this fiscal year. And going forward, we would like to continue to be in the same direction as we go forward. This 50% targeting is our total return ratio, which is going to be comprising a dividend as well as a share repurchase. That's another major area for our reform or conversion. As we look back our history as a company, M&A is a very primary element of our growth. Without looking at it, there will be no future growth for us. If you think about the future, we need to take a look at the history of our companies M and A. It is a very important lesson that we can learn as we try to grow our service. It was back in 1984 that we purchased an American company called Torrens And we purchased this company's motor business, controller business, and that's the first M&A we have launched in our history. We have a linear transfer automation, Inc., and related to companies is the latest examples of M&A that we launched last fiscal year. You know, 45 companies joined the Nilek Group in 2010 and thereafter. And these companies are making great contributions to our sales growth. And please take a look at the chart. You can see the history in and after fiscal year 2010. Since I have been appointed to serve as president of this company, I make sure to check the history of the M&A of our company's history. I have been spending a lot of time to study these M&As. There are three major points that I need to continue to utilize. with which I would like you to know my stance about M&A going forward. First, the major element is that back in 2010, we purchased a business of Amazon Electronics, Amazon Electric Co. This is the basis of today's Moen and ASM business units. We purchased the motors and control businesses of this company, Amazon Electric, of the United States. And we have purchased the Italian company, Ansaldo, the motor and control businesses of the company. There is one more important point. Back then, we have purchased a power generator, power conversion, power transmission technologies are the things we have purchased from Ansaldo. These areas are what we have expanded continuously since then. And the same thing can be said about Emerson. We have made another purchase from Emerson after 2010 fiscal year. And these are the very basis of today's best business Without the answer of the protests back in 2012 fiscal year, we wouldn't be in this business of best battery energy storage business. And this is a very major technological area, and we have three major technologies that we have purchased in this area. And we have repeatedly searched for new major opportunities in our business, and this is one of those examples of our hard work and dedication in business expansion. We have purchased Honda LSS, and we have purchased Omron Automotive Electronics in 2019. With the purchase of these two companies, We have been able to grow this business. We have been able to complete the integration of these two companies. In order to generate greater synergies than before, we have been able to promote these two companies into new stages through this integration. This was part of our group-wide effort. There has been hardly any cases like this one. But going forward, we will be active in these areas as well when it comes to business integration in our group. The third point is about the machinery area. Back in 1997, we purchased the Kyori Kogyo Corporation. We have purchased some American companies and some Spanish company and we have purchased Takisawa as well as linear transfer business of Canada. We wanted to always trying to become a total solution provider. These businesses are the basis of this movement for us to become a total solution provider. We will continue to make steps carefully, one by one, to become a total solution provider. In these areas, we will stay active as well. We are trying to generate synergies for a long time. Instead of individual companies trying to do things differently, we will make sure to unite our service to go into the same direction. For the next three fiscal years, we will respect this history. We will open the new chapter of our business's history in order to become a total solution provider. This is what I wanted to tell you as my primary message to all of you today. Going forward, we will try to establish bold steps going forward through M&A to become a truly global company. We would like to make more profit. We would like to make healthier growth going forward. In order to do that, as NIDIC, we will respect the people, technology, and dreams. We will cherish all of these elements as we go forward. Dreams are truly important for us. Dreams are our existence itself. People, technology, purpose are truly, truly important. And we have cherished all of these elements over the past year. I have a lot to learn still. We will continue to lead this new management system to go forward, making steps one by one. Under this new system, we are still in this second phase of foundation, so to speak. We will try to do things we have never tried before. We will be focused on those things so that we can make a healthier growth. All for dreams. Thank you very much for your attention. Thank you very much, Mr. Kishida. Now we would like to have a question and answer session. We will hand over the microphone to you, so please make sure to raise your hand if you have any questions. First, we would like to entertain questions from investor analysts followed by people from the mass media. Thank you. Thank you very much in advance. Thank you. Does any analyst have any questions? Person in the middle, please. Thank you. Thank you very much for explanation. This is Takayama from Goldman Sachs Corporation. I'd like to ask you a question regarding a mid-term business plan. I'd like to go over things one by one, if I may. As far as I know, this mid-term plan has already been implemented, and preparation was already done in February or March, I believe. And I believe the situation has been changing very drastically since then. I believe you are making steps in advance. You are anticipating those changes, I believe. Do you have any predictions about measures, how you can absorb the tariffs, et cetera? Can you come up with an explanation as to how you anticipated all those risks, how you could possibly absorb those risks? Your question is what you said is right. Over the past few months, every day, we have had heated arguments and discussions among our service. When it comes to tariffs, Our transactions are based on Incoterms. We have reviewed our Incoterms. We reviewed the way we do our transactions with our business partners. I don't have to explain this to you. Almost all the sales are based on FOB or other Incoterms. We didn't care about tariffs so much. We didn't have to care about tariffs so much. Sometimes a DDP, Delivered Duty Paid, is another Incoterm that we used. We have to pay for duties based on this Incoterm terms and conditions in some business cases. We have had an impact of about several tens of billions of yen because of this Incoterms that we have used. We have had some discussions with our business partners when it comes to Incoterms and other terms and conditions of our business. We have checked all of these different elements, and we have focused on the United States as well when it comes to the production sites. We needed to understand the capacity of our American production sites. We checked and studied how much capacity we can increase in what period of time span. This is an endless process when it comes to updating our information and our processes. We try to manage the entire situation. That's how we are now at this moment. On the other hand, in these discussions, there are quite a few issues, major issues that we have identified. One of them is magnet and other rare earth element materials. We have export restrictions from China when it comes to these rare earth materials, elements. We have used motors and magnets over the past 50-some years. We need to have a certain level of supplies of motors and magnets. We produce EPS as well as brake units. And we have been producing components for brake-related materials components. Rearest materials are truly important for these products. We need to have a certain level of supply. We have this USMCA, which is a treaty among the United States, Mexico, and Canada. And when it comes to these materials that are registered as part of the treaty are not going to be affected by the current tariffs. This is just one example of so many different ones. In order to cover these points, I'd have to continue to talk for the next hour or so. We are trying to manage those tariffs and many other different elements. That's how we are now. Thank you very much. And there are not so many companies that can provide us with so much detailed explanation. Thank you very much for the information in that regard. And my second question, once again, is about the mid-term business plan. A certain level of cost needs to be considered, taken into consideration. Do you regard this cost as recurring cost, or could it be a temporary cost?