Now we will start the second quarter of fiscal year 2024 results briefing. Again, please refrain from recording during the session. Presentation material is available on the top page of our website www.nabtesco.com. Please note that today's conference is being recorded. First, let me introduce today's speaker, Mr. Atsushi Habe, Representative Director, Senior Managing Executive Officer, Corporate Planning, Accounting and Finance, Information System, and Corporate Communication Department. Next, Mr. Kazushi Masukami, General Manager of Accounting and Finance Department. Mr. Habe will give a presentation followed by a Q&A session.
Good afternoon. Everybody, my name is Atsushi Habe. I'm v ery pleased to give you the presentation. From here, I can ask the interpretation? Yes, I hope s o. [Foreign language]
So I'd like to deliver the first half of FY 2024 results from here on. Thank you.
[Foreign language]
So first of all about the summary of and agenda so this is going to be the flow today so first I'd like to explain the first half results and then talk about the full year forecast and then I'd also like to talk about the three themes in the actions for profitable growth.
[Foreign language]
So here is the result of the first half.
[Foreign language]
So the upper part of this slide shows the sales and the lower part shows the operating profit and as for the gray bar at the very left this is showing the first half results of FY 2020 and the very right dark blue bar shows the FY 2024's first half results and in between there are bar charts indicating the results or the contributions of each segment.
[Foreign language]
So the first half sales were JPY 152.5 billion which was lower by 6.4% from the previous year's first half. However compared against the plan that we announced on April 30 it was higher by JPY 1 billion.
[Foreign language]
And to give you more details here the biggest drag was coming from the Component Solutions business especially the precision reduction gears which saw a big decline year on year and that is because continually the robotic demand has been low and sluggish however the Transport Solutions and also Accessibility Solutions were doing steadily well and therefore the drop in the Component Solutions CMP was offset by the Transport TRS and Accessibility ACB.
[Foreign language]
Now as for the bottom part here operating profit in the first half of this year the operating profit was JPY 6.4 billion which was - 226% year- on- year and compared against the plan that we announced in April it was actually increased by 1 point which was higher by JPY 1.4 billion. And the reason for the year- on- year lowered operating profit is mainly because of the Component Solutions which saw the drop in the sales that led to the drop in the profit as well. But as for the Transport and Accessibility they were achieving good growth in the profit but one more factor that was dragging down the profit was the impairment loss that was coming from our manufacturing equipment subsidiary in Europe and therefore all in all the profit turned out to be JPY 6.4 billion.
[Foreign language]
And this slide shows the first half results the P & L and as for the sales and operating profit they have already been explained earlier and as for the OP margin it was 4.2% and the net profit was JPY 4.2 billion and as for the interim dividend dividend per share it's JPY 40 as we had announced.
[Foreign language]
Now this slide shows the balance sheet and the column on the left shows the balance sheet as of the end of December 2023 and the blue bar right next to it shows that balance as of the end of June this year and the assets increased mainly due to the inventories that was higher and also because we started to operate the Hamamatsu Plant there was this increase in the non- current assets therefore there was this increasing assets by JPY 11.3 billion and also the liabilities there was increase in the borrowings of JPY 10.2 billion and the total equities also increased and as shown at the very bottom the ratio of the equity attributable to owners of parent was 61.9%.
[Foreign language]
This slide shows the full year outlook and in fact this is showing the market trend outlook as well as our forecast for the second half of the year and on the very right column we're showing the trend of the general market environment and as you can see obviously the CMP Component Solutions would be continually very bad but other segments aside from some little cloudiness in some of the businesses we are going to expect generally good demand a good market environment.
[Foreign language]
So as for each segment the Component Solutions CMP's precision reduction gears are seeing sluggishness and in fact at the beginning of the year we were estimating that the full recovery would start from the second half of this year but actually the situation is still tough the economy conditions in China is bad and also the EVs the automotive production is not really recovering much yet therefore we are now foreseeing the market recovery to take place only after 2025 and therefore we are showing this umbrella to show that the situation is going to be really rainy and that's similar for the hydraulic equipment as well even though we are seeing some recovery in some of the areas overall the demand in China is not coming back we are continually foreseeing sluggish conditions.
[Foreign language]
Now as for the Transport Solutions TRS overall the business is expected to be good here and first regarding the railroad equipment railroad vehicle equipment in Japan we are winning many new projects and the MRO has been good so and we are expecting the good business conditions here to stay now aircraft equipment this is super good actually for both the commercial aircraft as well as the Ministry of Defense business and they are both achieving the greatest ever growth now commercial vehicle equipment this is the only one exception within this Transport which is not going to be growing much in fact in the logistics side logistics industry there is shortage of the truck drivers and manpower.
Therefore we cannot expect much growth in Japan and in the overseas market especially in Thailand in Southeast Asia the demand is sluggish so this therefore we are foreseeing some cloudiness or sluggishness in the Transport in the commercial vehicle equipment now as for marine vessel equipment they are doing well in both the new vessels and MRO so we are expecting good growth in both of those areas and we are also winning new projects so we can expect good performances here.
[Foreign language]
Now Accessibility, which is the automatic doors business first in the building doors business we are expecting good growth in both Japan and overseas and the platform doors are also doing well and it's likely to be continuing well so for the first time for this Accessibility Solutions segment we're expecting the full year sales to exceed JPY 100 billion.
[Foreign language]
Now Manufacturing which is the mostly packaging machines for the food industry the demand is solid however there were some postponement of some large- size projects therefore in the second half of this fiscal year we may see some stalled movement however we know that the underlying demand is continually strong we can expect good growth in the next fiscal year.
[Foreign language]
So here is the full-year forecast for both the sales and operating profit and the very left gray bar shows the plan as of April 30 after the first quarter and the one on the very right shows the current plan as of July 31 so the overall number the plan that we are having is going to be the same the sales would stay at JPY 323.7 billion however the each segment expectations are now changed a bit so basically for the Component Solutions business we decided to revise down the forecast whereas Transport and Accessibility is expected to be higher so we revised it up so all in all it stays the same.
[Foreign language]
And as for the operating profit once again the total amount is not going to be changed we're continually planning the full-year profit to be JPY 13.5 billion but there were some changes in the among the segments and first regarding the Component Solutions even though we are anticipating the drop in the sales we are going to work on further cost reductions and some other efforts so even though the sales is lower we are going to keep the same expected level of profit so therefore this it's not going to be too different from what we had planned and as for Accessibility Solutions in fact we have this is really contributing to our profit overall with various different factors...
...but because of the impairment loss that we are going to foresee I mean because of the impairment loss that we had to book overall the total profit is going to stay at JPY 13.5 billion
[Foreign language]
Now this slide shows the operating profit analysis from a different angle and here you can see the reason why we are keeping the full-year profit forecast of JPY 13.5 billion and once again as for Component Solutions because the sales is going to drop we are going to see some negative impact on the profit from that part of the sales reduction however as highlighted in this blue box we are going to work on this cost cutback efforts including the optimization of human resources and the review of procurement and cost structure so forth therefore this is going to be improvement push up factor by JPY 1.6 billion.
At the same time we're going to work on the further price pass through efforts so only all we can expect to keep the JPY 13.5 billion full-year profit and in fact the part that's highlighted in this blue here is relevant to the Project 10 activities that we are working on in order to recover and achieve the further growth.
[Foreign language]
I would like to talk about the actions for the profitable growth and this slide is showing the progress of that Project 10 that I just mentioned this is the project to improve our profitability which we started from this spring and the idea is to achieve to retrieve the OP margin of 10% by FY 2026 and we're very much determined to do so and that means that we have to improve the operating profit margin by 6 points and in order to do that we have three main actions as shown in those 1, 2, and 3 here and we are making sure that they're going to be carried out steadily and in the middle part of this slide we're showing the actions in 2024 and these are the specific actions for each and from these actions throughout this FY 2024...
...now we're expecting 0.3-point improvement from the activity action number one and 0.1-point improvement from actions number two and three therefore overall we're expecting now the improvement of 0.4 points and we're very much determined and confident about achieving this improvement
[Foreign language]
So this slide is showing some of the growth areas of existing businesses and how we'd like to work on it and the first is for the aircraft equipment and in fact like I said the market conditions are very good for both the Ministry of Defense business as well as the commercial aircraft business and the MRO business is also good for us so while we are enjoying this good market environment how can we achieve further growth then the ideas and actions are mentioned at the bottom part of this slide so first of all as shown in the first bullet point we'd like to maximize growth opportunities by increasing applied models and supply items so this means that through the new projects we would like to sure to win those good new projects and that would be for both the commercial aircraft...
...as well as the Ministry of Defense business like the fighters and missiles and so forth included and not just those new businesses we are also getting inquiries from the existing customers too so we'd like to make sure to win those new businesses and new projects and increase the overall business volume for the second thing is establishment of a highly efficient production system to meet demand increase now while there's increasing volume of jobs and works we need to build up the capacity to cope with such increased volume and we have to improve the efficiency of the production too but we are not planning to just we're not planning to add on headcount here we're planning to improve the efficiency of the production system so that's what this is and the third point...
...the flight control actuation systems it's this is our core product in this aircraft equipment but now not just in the aircraft we'd also like to apply this new tech this technology core technology that we're having for the new generation mobility such as drones and by trying those things we'd like to win new businesses as well and this may not be just limited it to the selling of the flight control actuation system itself but to control the total mobility as a whole as a system.
[Foreign language]
Now here's another example of growing our existing business and this is about the marine vessel equipment so I'm not going to go into the details but then again as shown on the left there is the general needs to cut down the CO2 emission in the marine world as well so we would like to cope with such needs and as shown on the right there's good market growth expectation for the automated operational systems as well so we'd like to make sure to capture such needs too. Now some of the actions to take we're going to cope with new fuel requirement through those products shown here such as electronically controlled hydraulic valves and also the gas valve for main engine adapted to hydrogen and this hydrogen product is developed together with a company in the Greater Osaka area.
Now the other one on the right is about the automatic operational navigation system. In fact we acquired this one company in Greece and together with this company we'd like to provide this kind of system not just for the new build ships newly built ships but also for the replacement ships or even as an add-on to the existing ships as well and if we could really capture this market for the add-on we that means that total approachable market size could be thousands of ships out there so there's a great big business opportunity for us.
[Foreign language]
Now this slide shows the new development of some of the new products and as shown here on the left in this diagram we have been mainly dealing with the mechanical components so far but now we'd like to add more electrification and also automation and autonomy technologies on top of it and realize the smart motion control that's the kind of evolution we're working on and one of the examples we're working on is something that we believe would be unique for us because we can use the competitive edge of our precision reduction gears and that is to add some electrification factors to this precision reduction gears to approach the new market.
[Foreign language]
And we are showing two examples of this kind of smart motion control application and one is for hydraulic equipment for electrification of the excavators and since our precision reduction gears are very compact flat and have high rigidity and long life it really fits with the needs of the excavators therefore we are working on this new product that is going to be electrified and once it's going to be developed it's going to be capturing a lot of market needs and we think it's going to be very competitive. In fact we're going to exhibit this product at the trade show to be happening this September at Tokyo Big Sight so from there on together with the new customers we hope to commercialize this product.
[Foreign language]
One another example is this packaging machines and this is mainly for factory automation solutions in the food industry so we are have plan we're applying the AGV with Mecanum wheels in this automated factory and we think this is going to be fit very much fitting to their needs because it's going to automate the whole system and improve the efficiency of the whole production factory so we can contribute to the to become the solution. So that is all for my presentation. Thank you very.
Now let's move on to the Q&A session. Please let us know your name and company from the Q&A button. I will appoint a questioner. If you are called, please unmute yourself and ask your questions. So please let us know your name and your company from the Q&A button if you have any questions. Okay, Mr. William Nestuk, please unmute yourself.
Can you hear me?
Oh yes, I c an hear you? Thank you.
Okay, I. just have two short questions. I may have missed the beginning portion of today's presentation, but my first question would be, when do you expect robot gear demand to recover? That's my first question, and then my second question will be, Indonesia train railway car equipment sales. Do you expect that in this year in the third or fourth quarter, or is that a story for next year, 2025, Indonesia- related it transportation demand? Yeah, those two questions.
[Foreign language]
[Foreign language]
So to answer your first question, the precision reduction gears sector is expected to be recovering. I mean, relating to OP, it is expected to recover from the first half of 2025 now, and in fact originally we were thinking that it's going to recover from the second half of this year but it's not likely to happen just yet. The market is not improving and also the customers are still having a lot of inventory, so now we think it's going to first half of 2025 and by the way we are continually keeping the good market share and we are confident that the automotive demand would surely come back therefore once it comes back we can once again achieve good results.
[Foreign language]
And as for a second question regarding the railroad equipment business in Indonesia, I think you're talking about the PT INKA and we think the sales recovery would take place from the second half of this year.
Do you have any scale or any image of what the sales volume might be and how will it develop for next year 2025, just some kind of image if you have some figure?
[Foreign language]
[Foreign language]
You're still asking about the Indonesian railroad vehicle equipment, yeah, just.
About Indonesia only that.
[Foreign language]
[Foreign language]
So as a backorder we have about 192 rolling stocks to work on and the sales would be emerging from sales will be booked from throughout this year into next year, but I'm sorry I do not have the number of the amount of the sales at the top of my head, sorry, okay so.
When is the peak next year or is it 2026 for Indonesia rail car sales?
[Foreign language]
[Foreign language]
We think it's going to be 2025.
Okay, thank you. That's it for me. Thank you, you.
Thank you very much. Are there any other questions? If you have any questions, please let us know your name and company from the Q&A button.
[Foreign language]
Please go a head,
okay, so just a short update on the 737 MAX business because of the problems with safety, the blowout of the door, and they're limiting the amount of production by Boeing of this model. Is this affecting you? How do you think this will develop? Will next year be better for this model?
[Foreign language]
[Foreign language]
Thank you for the question. In fact, the answer is yes. We were affected by Boeing's limitation of the production of 737 MAX as you know, but then again, more recently there has been now the turn in change in the Boeing policy and they're going to increase the production volume here on, so we're expecting that positive impact to be upon us for this year as well as the next fiscal year for 737 MAX,
okay, and just one question about currency: Is there a currency benefit from the weak yen, and if so, what is the approximate benefit for the aircraft business to Boeing from the weak yen if you have a figure?
[Foreign language]
[Foreign language]
This is one of the slides that's included in the presentation material, and you can see the overall foreign exchange impact and the sensitivity on our business. Throughout the first half of the year, we had a JPY 1.4 billion benefit on our operating profit for the total company, not just for the aircraft but for the total company.
[Foreign language]
The business with Boeing is, of course, denominated in US dollars. Therefore, according to the foreign exchange rate at the time of the transaction, we would get the foreign transaction foreign exchange gain from the transaction or translation. But for the further sensitivity of foreign exchange, please refer to page 24 o f our presentation application,
okay, yeah, and just one short question—a further question, sorry—on the food packaging business. Your product is high-end, and so some customers don't want to buy the high-end. Do you plan to offer more economical or cheaper models in the future for food packaging, or is it mainly you're going into more automation? So, are you moving? Do you have any plan to move further down in price for the food packaging business.
[Foreign language]
[Foreign language]
So, our food packaging machines are mainly targeting the high-end customers because our products are high-end premium products mainly like pouch machine pouching machines and so forth, and we believe our products does not really fit into those customers or the markets that are seeking the cheaper products, and we do not think our and we have no plans to launch such cheaper version of our products e ither.
Okay. Thank you. That's it for. Thank you,
thank you very much.
[Foreign language]
Are there any other questions? We have still time. Okay, final call: are there any questions? So, I don't see any other questions. So we will close this meeting. Okay, so we will close this meeting. Thank you for joining us today.