Good day, everyone, and welcome to today's NIPET Conference Call hosted by Mitsubishi UFJ Morgan Stanley Securities. Today's call is being recorded. All this time, I do like to pass the conference to mister Orikasa at Mitsubishi UFG Morgan Stanley Security for the opening remarks. Mister Orikasa, please go ahead, sir.
Dear everybody, thank you very much for joining this conference call, and our sincere apologies for ten minutes delay due to technical difficulties on our side. My name is Yori Yori Kasas, general manager of Chiod brand at Mitsubishi UFJ Morgan Stanley Security. Before the meeting starts, please make sure all the materials have been distributed. If not, please download the files on Nidec's homepage at this moment. Now may I introduce Mr.
Akira Sato, first Senior Vice President and the Chief Performance Officer, who will be speaking to you shortly. First, Mr. Sato will make a presentation. After his presentation, we will move on to a Q and A session. Mr.
Sato now discusses the company's fiscal year twenty twenty results, future outlook as well as management strategy. Mr. Sato, go ahead.
Thank you very much, Mr. Horikasa. Good day, ladies and gentlemen, and welcome to today's conference call. My name is Akira Sato, the Chief Performance Officer of Naiac, and I will be your main speaker for today. Joining me is Masahiro Nagayasu, General Manager of Nidec's IR team.
For the forward looking statements, please see slide number two of our presentation material for details. Now I will review the key figures. Please see slide number three for our first quarter's results. As summarized on slide number four, the net sales stood at 336,900,000,000.0 yen 7 percent down year on year. However, despite reduced profit due to the lower sales, the operating profit increased to 28,100,000,000.0 yen, 2 percent up year on year, mainly mainly contributions from improvements on cost structure to WPR program.
The profit attributable to owners of talent increased by 6.2 fold year on year to 20,300,000,000.0 yen as fiscal year twenty nineteen first quarter sales losses mainly on the transfer of SecOps, which is compressor business for refrigerator. On slide number five and six, you have step chart showing the net sales and operating profit year on year and quarter on quarter, respectively, by product groups with exchange rate effect, eliminations, and the structural reform expenses. As you see on slide number six, the net sales went down quarter on quarter due to negative exchange rate fluctuations, reduced sales of auto and appliance commercial and industrial or ACI. However, the operating profit has improved significantly as all of the segments except for auto has improved quarter on quarter. Please turn to slide number nine, which is showing changes in our regional productions on a month end basis where the pre pandemic average utilization ratio is assumed to be 100%.
As of the April, when our previous results were announced, China and Japan were already almost fully recovered. However, as of the June, other regions like Europe, Americas, and rest of Asia also make a significant recovery. Please see slide number 10. While the net sales of the first quarter was just about to form the bottom due to COVID-nineteen, the operating profit ratio is on its way to steady recovery successfully. The net sales is expected to burn back in the second quarter and operating profit ratio has already shown recovery as to exceed not only that of previous fourth quarter, but also the third quarter last fiscal year fiscal year twenty nineteen.
Slide number 11 is illustrating our automotive business as a successful example of the RPR four. The graph on the left hand side makes a year on year comparison of the sales and operating profit of exist existing businesses excluding those from the traction motor related business and Nidec mobility. Also, the graph on the right hand side compares those of Nidec mobility of a quarter on quarter basis. You will notice clearly that in both cases, we have established structure where hard sales can still create positive operating profit. Please see slide number 12.
The sales volume of electric vehicle or EVs that have adopted our e axle exceeded 58,000 units on a cumulative basis as of June, which consists of six models as you see in the table on the right hand side. Please see slide number 13. As a decent example, Chinese automaker, JD, launched their new EV called Geometry C in June. Nidex e axle n I 150 EX installed in geometry c is a model that has evolved from the E axle that started mass production in April 2019. It's contributed contributes greatly to improving the power performance, electricity cost performance, sound, and vibration performance, and reducing vehicle weight of geometry c by applying NIDAC's unique technologies such as circuit design, light scene, short, and small motor structure, utilizing the permanent magnet and unique motor oil cooling structure and adoption of the second generation inverter.
Also, you as you see on slide number 14, GSE, New Energy Automotive or GSE LP, a brand of Chinese automaker GSE Group launched their new EV called AONV in June, which has also adopted our E Axle, LI 150 EX. The first two models that GSE NE has already launched are also equipped with our same E Axle. And especially, the first model called ION s has always been ranked as one of the top three best selling EVs in the Chinese domestic market. Please see Slide number 15. The net sales of ACI in the first quarter went down mainly due to impact from COVID-nineteen.
However, it is showing a sign of recovery. The net sales was down 14% quarter on quarter, while the operating profit ratio improved by 2.5 points quarter on quarter. ACI is currently undergoing a comprehensive review of its cost structure and is on its way to improve operating profit ratio by optimizing outsourcing costs, labor costs, and fixed costs. Please slide number 16. This is the same slide as the one we used in April.
But just to make sure, these are Nidex solutions for the common problems of humankind, which have been exposed by COVID nineteen. They are five g and thermal solutions, decarbonization, manpower saving, digital data explosion, and power saving. We will capture these new five big waves as our growth drivers flow now and going forward. Please slide please see slide number 17. The shipment of urethralazine and with a small fan motor, UltraFluor FDD or UFS, which is used mainly for PC application marked a Lego high level in the first quarter.
USS family supports the demand for teleworking, which started as one of the new five big waves in the wake of COVID nineteen. Please see slide number 18. Our product our product lineups continue to expand into robotics as manpower saving, which is one of the new five big waves is becoming even more important in the wake of COVID nineteen. As you see on this slide, we are ready to cope with manpower saving needs through such products as modules, motors, reducers, automated guided vehicles, and so on. In the field of service and communication robots, commercial and industrial robots, and logistics and agriculture.
Please see slide number 19. In light of spreading of COVID nineteen, Nidec has made a declaration of health oriented management in order to enhance employee health, motivate, and encourage employees, and immediately enhance our corporate value further to productivity reform. As concrete measures firstly, health promotion equity has been established to facilitate liaise with management, the corporate health insurance association, and industrial doctors and employees. Secondly, in order to reduce the risk of COVID nineteen infection, phased reduction of smoking hours in underway and the total smoking ban on NYMEX premises is expected by the end of fiscal year '2 thousand '20 '1. Thirdly, further improvement and measures for health promotion will be implemented through analysis of our employees' health conditions and other issues.
Lastly, on behalf of the entire management team, I would like to thank our customers, partners, suppliers for their support and the commitment as well as our shareholders. At this time, we would like to open up the call for your patience.
Thank you very much, mister Sato. Now we would like to turn to the q and a session. Mister Sato, please do ask the questions from the participant.
Thank you. Today question and answer session will be conducted electronically. If you would like to ask a question, please press 01 on your touch phone keypad. Again, please press 01 if you would like to ask a question. If you would like to cancel the question, please press 02.
We will now pause for a moment to assembly the roster. Our first question today comes from Mr. Aaron Rakers Valfraco. Please go ahead with your question.
Yes. Thanks for taking the question. Just on the small precision motor business, I'm curious as we see you guys referenced the impact of the pandemic and some shutdowns in, I think, Philippines and Malaysia. With shipments down 19% year over year, I'm just curious, can you help us frame how much of an impact those shutdowns have had on your hard disk drive business? And what your kind of outlook expectations are over the next couple of quarters as far as HDD particularly in nearline?
Thank you. Okay. Thank you, Aaron. First of all, we are just going to be talking about the our June results, number one. And then as as we said that we had a policy that we are not gonna talk about our future numbers, but maybe just the directions.
So we shipped the a spindle motor for hard drive in March '50 '5 point '7 million, and it's clearly came down in the number in this June '50 point '4. So five five point seven down to 50.4, the volume is down. And as you suggested, there is some supply chain disruptions among our ATG customers. So this is the major reason that the volume is coming down. But we do see some recovery in this September and onward because we believe this $50,000,000 number in the June shipment will be somewhat the bottom or maybe this year.
That is how we are looking at the current situation. Is that fine?
Thank you for the question, Mr. Ehren. So the next the next question will be go to James Palford from Alma Capital. Please go ahead. Hello?
Hello? Mister
James, please go ahead with your question.
Hello? James. James.
James. Go ahead with your question.
Hi, James. Hi.
Hello? Can you hear me?
Mister James, can
yeah. Can you hear me?
Yes. Mister James, please go ahead with your question.
Yes. Can you hear what I'm saying?
Yes. Yes. I can hear you.
Oh, good. Okay. Sorry. Apologies. I keep saying the same thing.
Okay. I my question is on traction motors, And you've given a lot of very detailed information of what's happened in practical terms in the last quarter. But have there been any developments you'd like to comment on in terms of new orders you may have won, new customers you may have won, some developments that have implications for the longer term growth of that business? Have there been any changes you could comment on that have happened over the last quarter, please?
Okay. Number one, as we explained in the previous announcement, there are two business, e axle business and traction motor business. The total of the motor or system unit, which we do have a so called the order backlog was something like 16,000,000 last time. And and this time, we say a almost same number, 16,000,000. K.
But if you look inside, there are the e axle business, again, and the traction motor business. E axle business, clearly the volume, you know, the total order backlog volume is increased by 500,000. But unfortunately, the traction motor business is down by almost a similar number, 700,000. So roughly, we say the total volume is the same as we announced the three months ago. That's number one.
But on on the at the other end, we say that the e axle business, there were seven customer at the April. Today, at the July, we say 15 customer. So the customer number increased by eight. That eight will compose all seven Chinese and one Japanese. Okay?
Then the traction motor customer, there are six customers at the time. Today, we do have seven customer. So we have new one customer, which is Japanese. So those are the main points that we mentioned for our current traction motor business status. Is that fine, James?
That's great. Thank you. And the decline in traction motor, these are future this is order backlog, so less influenced by what's happened in the short term. Why has the number of why is it the number of traction motor orders have fallen over the period, please?
Okay. Always we said the contract. We contracted the total amount of the motor, which we have to deliver over the life. Maybe three years, four years, and sometimes five years. K?
Then also we contracted a peak void. Then our customer can choose when those motor to be delivered. So as you see, most of the current customer are concentrated in twenty twenty five. If they're gonna be postponed one year, then that's gonna be out because we are just limiting our total order backlog from 2019 to 2025. Is that fine?
That's very clear. Thank you very much indeed. Thank you. Okay.
Next question, please.
Thank you. The next person will be Mr. Bradley Sitter from Endogirl Capital. Please go ahead please.
Hi. Hello. Thank you. Just maybe I had a couple of questions, but first just if I could follow-up the first two questions. On the hard disk drive, could you tell us what were the EBIT margins for hard disk drive in the June please?
And any trends on pricing?
Okay. We are not using EBIT. We are using OP margin, operating profit margin. That's something like a little roughly around 30%.
Okay. I think I remember last quarter you had said you had some pricing gains in there. Is that still the case? Or do you expect that going forward?
Well, what did you say? The last time we said this business? I think you said some
price increases on the We
will not use the word of price increase, but we are trying to correct the profit structure of our business. That's the word that we use.
Got you. Okay. That makes a lot of sense. Think and then I think on the traction motors, I guess my understanding is you've had no change to the volume of orders but maybe some of them were pushed beyond 2025.
So I just
want
to make sure I understood that correctly. And then I think you said you've added you went from seven eAxle customers and you now have 15 customers. I guess I would have expected the order book to go up quite a lot for eAxle. Is it the same sort of situation there as in the traction motor where you maybe there's been some postponement? Yeah.
As I said, e axle business, as the customer number increased from seven to 15, Then we say the total lifetime volume or all so called the order backlog up to twenty twenty five increased by 500,000.
That's what we say. Right. Okay. Right.
So always there is a pushback or somewhat comfort. We usually at this moment the pushback, right, is happening in the Chinese EV market. This is mainly because the order or the demand is very difficult to read, especially the EV is really used by a so called car sharing service like Uber or DG or whatever. And that volume is gonna change because of the COVID nineteen. So those are the reason that we understand the a EV, you know, EV recovery in China is a little bit slower than the AIC cars.
Okay?
Okay. Okay.
Yeah.
All right. Great. Thank you. Thank you. And I see the cost cuts have been going very well.
I was just hoping could you go into maybe some more detail or kind of separate how much of that is coming from kind of more permanent cost structure changes? And with the sales volume being down, how much is variable cost that you might expect to return when sales go up?
Through the LPR program, we just reduced the around JPY 10,000,000,000 of cost in June and mainly coming from the procurement cost reduction, which is around 60% of 10,000,000,000 yen and other probably 10% from direct labor cost reduction and the remaining portion is to reduce the fixed cost. That's kind of a structure of the cost saving June.
Okay, Great. Thank you. And I guess I was a bit surprised I guess the R and D expense was a lot lower than I would have thought. Is this is that a timing difference or are you happy with the R and D expense staying at that level going forward for the next few quarters or?
Probably two reasons. One is time difference as you mentioned. And the second one is some kind of change of the business because we have got kind of big order, for instance, for our trash orders. In this case, maybe our customer will pay the our R and D cost upfront. Or in that case, we we can reduce the R and D cost in kind of fast or kind of fast phase of the kind of a development phase.
And that's why June R and D cost has been reduced to some extent. That's kind of good news for us because we are spending a lot of money for R and D. Mhmm. So, yeah, that's why. That's two two reason there behind reducing, yeah, R and D cost.
Okay. Was and I so sorry. You said it was more for the traction motor. I guess if you had I was thinking maybe if you had eight new e axle customers, is that an area where you need to spend R and D going forward as they get further along in the design process? Or is it mainly for the traction motor?
So it depends, okay. As I say, these customers maybe the product launch will be something like 2024, '20 '20 '5. Then we wanna really start the r and d process and how much we're gonna spend for those particular customer, maybe depending on the timing. Okay? That's number one.
Number two, we try to maybe we are trying to standardize our product lines as you understand. So we would like to use the as much as possible the the product that we already selling to the current customer. For the new customer, it might be much cheaper because they can save a lot of r and d cost. So thereby, the total r and d cost, which gonna be used, which gonna be required for those new customer credit depending on the timing and also what kind of a system they want. They want to clear the new system or something like a standard one.
That's going to depending on the total R and D cost in the future. Okay?
Right. Great. Thank you very much. Maybe just one last topic for me. I just I wanted to ask about the CapEx because I think you said about for the fiscal year $140,000,000,000 roughly on the CapEx.
So if I just looked at Q1, it seems a bit light on a run rate for that. So is that just a timing difference? Or you have an updated CapEx target or if so why would it be lower?
Main reason why the CapEx amount has been decreased Maybe the price of equipment and lower price. I mean, because of the stagnant market, the price of equipment or machine has been decreased significantly. Of course, demand is very decreasing and that's why we are now getting the lower price from the machine manufacturer. That's a kind of big reason why. And also the time difference is another reason, but will be able to the spend the 140,000,000,000 yen in fiscal year twenty twenty in order to increase our production capacity for traction motor and the other products, which is kind of a growth driver for the future.
Is that fine?
And I would guess maybe just since you have such a large order book, if the machinery prices are very attractive right now, is it I guess is there a reason why you wouldn't buy more than you need today if you know you might need it, you know?
Okay. Just to try to clarify, R and D. Right? So we say those new orders, the most of the R and D cost is a so called the certification or co qualification fee. In order to be qualified for the new car, we have to spend a lot of a so called the durability testing and others, then we are correcting all the data.
Right? Then for the first one, which we mentioned the last year, we started the RE 2019 about that process. Then about that, we use the a lot of so called outsourcing service to do that. So the the cost was so huge. Then we decided to do in house.
So in order to do in house, we have to buy the machine. They're using the machine that we are doing the testing. Thereby, as mister Sato mentioned, the cost of the machine is very important. But overall, we have been doing a more and more new customer. We just really started this business April 2019, almost year and three three months.
Right? But now we do have more customer. We are more accustomed that we know how to save the money to get those, to buy the machine very cheap and we're gonna be doing testing by ourselves. That's going be the cheapest way to do that qualification. So thereby, we do have some idea that how we're gonna be spending R and D in the future.
That is not something that we mentioned a year ago about how much we spent at that time. Do understand what I'm saying?
Yes. That's very helpful. Thank you.
Okay. That's that's the point. Yeah.
No. Thank you very much. Guess, there I guess, do you have a timeframe or how should we think about when you might do another stock buyback? And criteria that you're looking to hit before you would start to do that if you can share anything around that topic? That's all for me.
Thank you.
As you may know, the purpose of share buyback is to protect our current shareholders from the kind of very volatile movement of our stock price. So maybe at this point, our stock is up in line with the market trend. So in in that case, we will not buy our shares back. But if something happened in the market or in our share price, maybe we are not hesitating to share or buy our shares back from from the market. That's our policy.
Got it. Thank you. Thank you very much.
Thank you. Our next question comes from Mr. James Palsford from Alma Capital. Please go ahead, Mr. James.
Hi. Thank you very much. Sorry. Can I ask about your other Precision motors where the sales in this quarter, they're down only a little bit year on year, and they've rebounded very sharply quarter on quarter? You're back in the black here, but operating margins are still relatively low, but obviously a lot better than Q4.
Could you comment on the recovery in sales you've seen here and prospects for the next quarter we've got coming up? And whether you
Which motor?
Other precision motor. So if you look at your Other precision. And you strip out HDD, then you're left
Mean, the other precision, small precision.
Okay. Absolutely. And you in your in your materials, you comment just on the the the very small very small fan motors. But for that area overall, could you talk about what happened to the different types of motor in this quarter and the recovery you saw and the prospects for profits in this profitability to perhaps maybe whether that can improve going forward or not?
Okay. So number one, in the past, we do have a DC motor fan and the others. Now we are somewhat remodeling the total. Then we now say hard drive and the haptic vibration and the other. The other include the DC motor, power motor, and the all the other new products such as the a vapor chamber or thermal solution management.
Okay? So Yeah. If you're just looking at the this business, again, the movement or our performance on the top line, bottom line in the March and the this June is clearly affected by the COVID nineteen. So this business is centered in China. So that is a very reason that we could have a little bit better number on this segment when the China is recovering from the COVID-nineteen impact, mainly from March to the April, May, June.
Around that time, you understand that Chinese economy is coming back from the COVID nineteen impact. Then they are riding, or we are writing on that end. So if you're looking at that, one of the key products that we mentioned in the Slide number 17, FDB fund, ultra flow FDB fund. Okay? So those are used by a notebook PC and tablets, mainly the notebook PC.
And as we say, the COVID nineteen is making a huge demand for notebooks, then our funds are used there. Then clearly, we had the a mini history high shipment volume over 5,000,000 per quarter for this June. So this is one example. Okay? But Mhmm.
This business is not just like how to drive one application. There are so many different applications. And overall, as we say, is another very big tier of this business is the farm motor for a five g stations. So as you understand, a five g station is more number compared to four g because the coverage is much little smaller than the four g tag. So the total number of base stations in the future for five g communication, there are huge number, then each one may require a farm water to cooling down the system.
Then we are seeing that's gonna stop maybe from this June. So it should have started maybe March, but March COVID '19 impacted the supply chain in China. So it's gonna be maybe putting into the a a this June, then we saw a surging demand or a five g station from motor demand. That's another point which we can mention the other small patient water. Then the other one which we mentioned in before is the thermal solution.
Five g smartphone is coming. And five g smartphone requires a new solution for a heat dissipation, thermal solution, where we say we are providing a vapor chamber, heat pipe, heat sink, and other so called heat related technology. Then that business is growing. Okay? Then the a a a the final one is haptic.
Haptic was a huge, you know, hype in 2015, but now it's coming down. Right? So it's for a North American smartphone maker. Then we have been shipping those a so called the a haptic vibration motor from 2015 to today. Right?
Then the total volume is clearly depending on the a that customer's a total volume. But we are maybe keeping a decent share. Maybe roughly, we say one third of that customer. There are three supplier in this business, then we are keeping one third share from 2015 and up to twenty twenty five years. We'll be competing against the Chinese competitor, but still we are keeping that share.
That's the current situation. So those are some of the last example of what kind of business are there. So the other small precision motor other than how this drive. Is that fine?
Can I just ask one? Just you mentioned you basically chop it up into hard disk drive, haptic and others. Just so that I can understand what's happening in others, for could you just tell me what the last quarter, what were the sales and profit margins just for Haptic business, please?
For the full year last year, we say a total Haptic sales was something like a 37,700,000,000.0 but that was somewhat the breakeven.
Yes.
Okay.
This year, maybe we are guiding something similar like a 37,000,000,000 for the full year top line sales, but we are looking at something like 33% or 33% to 4% OP margin for this year. Okay?
And what happened in
Unfortunately, at this moment, this customer is very severe customer. It's very difficult to make money for the past and even today.
Yes. Could you tell me what just so I can strip it out, what were the sales and margin just in Q1, please?
Q1 this quarter is at 10,000,000,000 Yeah. 10,200,000,000.0 and breakeven. Yeah.
And breakeven. Okay. Wonderful. Thank you very much indeed. That's very kind.
Yeah.
Okay. Next, please.
Thank you. Ladies and gentlemen, if you would like to ask a question, please press 01 on your touch tone telephone keypad. And if you would like to ask a question, please press 01 if you would like to cancel the question. So the next question will be go to mister Cho Yeoksan from MUFG Security America. Please go ahead, sir.
Hello. First of all, congratulations on hitting such a strong figure, which is way stronger than our figure, you know, with our with, you know, analyst. And and as goes, actually, the, you know, the difference between the your first OP, first quarter OP, 28,000,000,000 versus his 16,000,000,000 yen, is that, you know, that half coming from the cost cut, and the the rest of the half coming from the top line increase. And I have a question on more like a, you know, qualitative aspect. And I want to know if, you know, the your new management has introduced any new strategies, you know, for to achieve such a strong figure?
The also second question is, you know, how the new leadership, you know, led by Techiesen possibly impacted for such a strong, you know, OP result this time? Thank you.
Okay. Can I understand your question is how much of that 28,000,000,000 OP which we reported for the June, how much is coming from a new end of the, like, WPL four, which is mainly you mentioned the cost cut? Right? That's number one question. The same question is how that's gonna be related related to the our maintenance structure.
This is a two top system, mister Nagamori and Mississiki. Is that fine? Or
That's right.
Your question is different.
Yeah. That that's correct. Thank you.
Okay? Yeah. I'll respond to the second question first. Probably, times the the data chip is the how quickly we can decide, make make a decision the in any area, especially the capital expenditure to the increase the production capacity for auto or those kind of things is currently very difficult decision making. But and discussed every week and what is right direction.
So and the decision making speed has been increased a lot with the kind of new management. So section leadership is kind of a is a to speed up our operations. That that that's a kind of answer to your second question. And the first question is, as I mentioned, maybe 10,000,000,000 yen of the cost restructuring. It's contribution from the WPR4 program.
That right? Yes. We never say that half is coming from the cost cut. But we as as mister Sutton mentioned, clearly, we mentioned roughly Mhmm. 10,000,000,000.
Then we just try to modeling how much of that 10,000,000,000 is coming from the a so called the procurement side or labor cut, labor cost cut and how much is the fixed cost. Already we mentioned or we answered that in the previous question. Right?
Okay. Yep. Thank
you very much.
Thank you.
Thank you. There are no further question today. So if, let's say, there is still any question, you can press on your keypad on zero one for the queue. Any questions further? Mr.
Orikasa, there are no further questions today. So at this time, I would like to return the conference back over to you for any additional or closing remarks.
Okay. Okay. We would like to conclude the conference call. Thank you very much for your participation today. Should you have additional questions later, please do not hesitate to contact either Naida Corp or your sales representative at Mitsubishi UFJ Morgan Stanley Securities.
Thank you very much.
Thank you. That concludes today's conference. Thank you for all your participants and you may disconnect now. Thank you.