6594.T FY2024 Q4 Earnings Call Transcript
Date: 2025-04-24
Source: Financial Modeling Prep

Teruaki Urago: We would like to start the presentation on Nidec Corporation's performance for the fiscal year that ended March 31, 2025. The representatives of Nidec Corporation are as follows: Mr. Mitsuya Kishida, President and Chief Executive Officer; Mr. Akinobu 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 and the overview of this financial performance, followed by a presentation on their 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.
Akinobu Samura: This is Samura speaking. I'd like to give you an overview of the financial performance of Nidec Corporation. First, net sales, JPY 2,607.1 trillion, which is 11.1% up from fiscal year -- previous fiscal year. Operating profit was up 48.4% to JPY 240.2 billion, which is another record-high result. Profit before income tax was up 17.3% to JPY 236.5 billion, and profit attributable the owner of the parent was up 34.7% to JPY 167.7 billion. Next, I'd like to give an overview by product group. The first one is about the sales Small precision motors. The operation has been very stable, and demand was up for AI cooling -- 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 okay in China. It was continuously okay in China. When it comes to 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 temporary cost increase by JPY 3 billion. 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 base consolidation, especially in Europe, and we have had a cost of JPY 500 million because of the activity. And lastly, Machinery. We have a cyclical downturn, which has been lasted for a long time. We have seen the 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 seeing some profit. And there are some recovery in the various businesses in this area, and we have been able to have increased sales and operating profit. And there are some detailed information over here on this slide due to -- on a 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 currency exchange rate. And you can see the profitability increases and improvement. We have a structural reform in the EV traction motor business. And we have a restructuring taking place in Europe, which has incurred JPY 6 billion. In 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 is -- this slide is about quarter-on-quarter changes. You have seen the exchange rate was down by JPY 1.9 billion. We have sales production, Small precision motors was down by JPY 5.6 billion. And please go over to this slide for cash flow situation. You can see here the -- on a year -- on annual basis, you can see the JPY 137.2 billion, 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 the investment in these areas, as you can see. And these are the 3 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 would like to achieve double-digit operating profit ratio. We'd like to achieve JPY 2.6 trillion for net sales, and when it comes to operating profit, JPY 260 billion. Exchange rate, JPY 140 is the new amount we have set. And the dividend are expected to be JPY 42.5. That is all for the overview.
Mitsuya Kishida: 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 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 the determination for us to become the true global company. And there are quite a few things. We have never tried it before, but we are going to try them going forward. As Nidec, we are going to convert ourselves. So this is the name -- Conversion 2027 is the name of our new midterm strategy. And please take a look at this slide. This is our forecast for the next 3 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 the operating profit. 10% is now our ratio -- target ratio, and we will continue to improve the operating profit ratio as a profit-making organization. In order to support this growth, we have 5 major pillars of growth, and we will make a truly global structure to support our growth. These are the 3 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 12% in 2027 fiscal year. I'd like to give you an explanation as to what these conversions are comprised of. We have sales of JPY 2.6 trillion. We have a profit of JPY 80 million. We are using this -- we are incurring the fixed cost of JPY 50 billion. That's how we were back in 2024 fiscal year. We will add 3 new elements over here. When it comes to variable cost, we will improve it. We will reduce it by JPY 100 billion. It's not just about reducing material cost. We will discontinue unprofitable businesses as well as noncore 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 quality-oriented as Nidec. We will make sure to be focused on reducing variable costs. We will reduce the fixed cost by JPY 50 billion. 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 boast the sales of JPY 2.6 trillion. 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 those -- the structures of these organizations. We will broadly launch various improvements in order to reduce the fixed cost by JPY 50 billion. We are calling these activities WPR-T. And we will identify chances of cost reductions. T of WPR-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 strategy #3, 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. So about 1% of the net sales, that's the amount we would like to spend as -- in the form of investment. And we would like to continue to investment in very good business, improvement systems. We will -- 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 would like to spend 1% of the net sales for these investments. These are the 3 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. And we will continue to improve the operating profit ratio as well as the return on invested capital. We have each of these organizations to be committed in these areas. We have 5 major pillars of business, and we would 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 past due 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%, this is 60 production sites. Are they able to operate at the highest level of efficiency and productivity? We need to reexamine this once again. So if it's a plant in China with regards to automotive products, this will 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 indirect 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 micro management, which has been part of the culture of Nidec. We need to really make an improvement in efficiencies in that as well. And we will start implementing this from April 1. This is the merger of Nidec Mobility and Nidec Elesys, and this will be one of the reference cases. So Nidec, 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 upstream and downstream, and we will be more aggressive in exploring opportunities there. In order to do that, in front of the 5 business pillars, we have 3 technological pillars. One is things that rotate, and there 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 software 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 smile curve of our business, and this is how we would roll out our business domains. So if you were to replace this into 5 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 those 5 business pillars. So this will be carried out in FY 2026. 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, in this midterm plan, we will be able to see them recontribute to corporate value. So this will be the schedule, the time frame, which we will work on. So these 5 pillars -- 5 business pillars will be managed by these leaders and subleaders. 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 BESS. We will maximize that business. In terms of Base of AI society, that is power business for data centers and servers and component part business, which will underpin this area. In terms of Efficient manufacturing, in order to become a one-stop solution, we will maximize our 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 deepwater and [indiscernible] 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 we'll 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 opportunities and 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 5 pillars, we'll directly contribute to increasing in the corporate value. So we will provide you with a specific road map 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 these 5 business pillars has external accountability. We will make commitments to outside stakeholders as well, and we will have these 5 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 FY '25, '26, '27, the members, we will carry out the transformation. We'll be designated as executive officers. So we have redefined executive personnel, and we have now 16 executive officers, including 2 non-Japanese nationals. And so this structure began from April. And also in the CXO structure, we have 2 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. Minai as Chief HR Officer. He has also had wide experience, long experience in Toyota Motors HR. So with the 2 new members, we have 16 executive officers. And also from April, we have established a fellow position. There, we have 5 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 5 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 FY 2025 with this new structure in place. And as we try to reform our service based on ROIC, we would like to maximize our cash flow. And we would like to maximize to the level of JPY 500 billion and aim for our growth. We would 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. A JPY 2.5 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. 50% is the targeting, is our total return ratio, which is going to be comprising of 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 company's M&A. It is a very important lesson that we can learn as we try to grow our service as back in 1984 that we purchased an American company called Torin. And we purchased this company's motor business -- control business. That's the first M&A we have launched in our history. We have Linear Transfer Automation Inc. and related 2 companies is the latest examples of M&A that we launched last fiscal year. 45 companies that joined the Nidec 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 3 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 Emerson electronics -- Emerson Electric Co. And this is the basis of our -- today's MOEN and ACIM business units. We purchased the motors and control businesses of this company, Emerson Electric, of the United States. And we have purchased an Italian company, Ansaldo, the motor and control businesses of the company. There is one more important point. Back then, we have purchased the power generate -- our power conversion, power transmission technologies are the things what 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 BESS business. Without the Ansaldo purchase back in 2012 fiscal year, we wouldn't be in this business of BESS, battery energy storage business. And this is a very major technological area. We have 3 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 Elesys and we have purchased OMRON Automotive Electronics in 2019. With the purchase of these 2 companies, we have been able to grow this business. We have been able to complete the integration of these 2 companies. In order to generate greater synergies than before, we have been able to promote these 2 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 continue to be -- 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 Kyori Kogyo Corporation. We have purchased some American companies and some Spanish companies. And we have purchased Takisawa as well as Linear Transfer, a business of Canada. We wanted to -- more or less are 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 ourselves to go into the same direction. For the next 3 fiscal years, we will respect this history. We will open the new chapter of our business' 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 truly a global company. We would like to make more profit. We would like to make healthier growth going forward. In order to do that, as Nidec, we will respect the people, technology and dreams. We will cherish all of these elements as they 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 will -- we are still in the 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. Does any analysts have any questions? Person in the middle, please?
Daiki Takayama: This is Takayama from Goldman Sachs. I would like to ask you a question regarding midterm business plan. I'd like to go over things one by one, if I may. As far as I know, this midterm plan is -- has already been implemented. And it was -- 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?
Unknown Executive: Your question is -- what you said is right. Over the past few months, every day, we have had heated arguments and discussions among ourselves. 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, but 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 DDP, Delivered Duty Paid, is another Incoterm that we used as 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 these 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 forecast 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 element. 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 EBS as well as brake unit, and we have been producing components for -- brake-related materials component. Rare earth 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 and Mexico and Canada. And when it comes to these materials that are registered as part of the treaty, they're not going to be affected by the current tariffs. This is just one example of so many different ones. You know that 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.
Daiki Takayama: And we have -- there are not so many companies that can provide us with so much detailed explanation. And my second question is about -- once again, is about the midterm business plan. A certain level of cost needs to be considered or taken into consideration. Do you regard this cost as recurring cost? Or could it be a temporary cost?
Mitsuya Kishida: Thank you. So the reform itself cannot be done overnight, and you can't. It's not about planning for 2 years and then realize in year 3. It's not like that way. So we do have a plan. So we will try to reform as quickly as we can. Last year, when we were formulating our midterm plan, our plan for transformation and restructuring were actually complete to a certain extent. But this is like our WPR-T that I have mentioned earlier, but we decided that we will accelerate and execute quicker. And that process is actually endless. There are a lot of things that the numbers are not showing but we would like to deal with it as quickly as we can.
Daiki Takayama: And the last point, your variable and fixed cost in 3 years. So this year, the sales isn't growing as much, but you are trying to generate profit. So maybe you will need to reduce fixed costs first. Maybe in year 2 or year 3, you're planning to increase by JPY 150 billion each year. So maybe you have more focus on variable costs. How are you going to see that ratio change over the fixed cost and variable cost?
Unknown Executive: Sure. And from that perspective, our foreign exchange assumption has changed as well. So in our long history, we have externally declared that sales will not grow. Maybe in our long history, this is probably the first time perhaps. But even if our sales doesn't grow, we want to improve our profit, reform our profit. And it's a show of our intention, our will. And what is that? So we will, first of all, prioritize reform in the fixed cost. That was the sole determination that we have already expressed last year. So we will start to implement and reap the fruit this year. In ACIM and MOEN, we have already started our restructuring. So we will do this more on a company-wide level in this fiscal year in this midterm plan. So this is the basis for the JPY 50 billion in fixed cost. And in terms of JPY 100 billion in variable costs, and this would probably see the effect realized more in 2027. In particular, the noncore unprofitable businesses, as you can read here, this will need to first get the understanding of the customers before we can implement this plan. So we will probably take some time for exchanges with the customers and also implementation. But we do have this goal in place.
?????: Next question please. Then to the gentlemen to the very left.
Manabu Akizuki: Akizuki from Nomura Securities. I also have a question on midterm plan. In 3 years, the allocation to M&A, what's the cash flow level you have in mind? And the reason for this question is because you have shown us the chart earlier -- I forgot which page it was, I think it was Page 21. You have shown us a table. You have really leveraged on M&A. That has really been a big growth driver for you. So M&A and consolidation of production sites, how are they linked? So perhaps you can share that information with me as well.
Unknown Executive: So if you could look at the next page on cash allocation, so this is operating cash flow. And if you add R&D, and this is called cash flow before investment, and this is expected to be above JPY 500 billion in the final year. And half of that will be CapEx and R&D, and the rest, JPY 250 billion, half of it will be allocated for investment for growth. So that's sort of the ideal state in the final year. So the 3 years is a buildup for that. So that will be the appropriate image. Having said that, as you have speculated, it's not really allocating JPY 250 billion. Each year, we have to look at opportunities as well, and there's many things that we want to do. So we will manage this according to our cash position as well.
Manabu Akizuki: What about a relationship between M&A and consolidation of production sites?
Unknown Executive: What I was saying is that once they enter the group, we will focus on consolidating the production sites of the ones that have been in the group on at least 5, 10 years. And even those that will become part of the group. I would assume there will be production sites that will generate synergies right away. So we will look at that cautiously. We will not carry out M&As with an assumption that we will consolidate all the production sites in the beginning. So that's not our assumption.
Manabu Akizuki: I see. With regards to your thinking on the plan for this fiscal year, you have provided us with different conditions earlier. But I think what's most challenging is how will the customer demand change and inventory changes. Also, are you able to actually produce what would be the customers' demand? I think that's where it's very uncertain and very difficult to predict. What is your assumption for these things?
Unknown Executive: Thank you for the question. The main point is demand by category, how sluggish will the demand will be and what will be the impact of tariff and cost -- impact on cost. One thing is the automotive industry, particularly in the United States, how will that change, we have incorporated that. We do not believe that there will be much tariff impact in the Mexico areas. We have -- I think we can probably exclude that factor from the fluctuations in the sales. The other is computer-related components parts. Even from the HS code, there are components from computers that have been excluded from tariff. So the server demand, which continues to be very strong, whether it be China or whether the United States, the demand is still very strong. And we do not think there will be much things that would overshadow that. So we will continue to produce in those areas. Also, there are ups and downs in the demand of civil use, which is not really visible. With regards to that, there will be some decrease in the appliances. But with regards to those growth prospects for appliances, we have ACIM India, AC business for India. This is -- these are the regions that is different from the tariff issues right now. And we can see increasing demand in those regions. So we don't want to have unnecessary inventories there. So that's how we would operate in those areas. Would you like to add? Anything to supplement? I keep talking. So anything from my colleagues? No.
Manabu Akizuki: Then one last question. In terms of power generation and BESS, in battery, your projection -- what is your projection for this year? In terms of power generation, I think demand/supply is quite tight. That's what I'm expecting. That's what I'm assuming. Can you raise prices in order to improve profitability? I think it's a great opportunity to do that. So how do you see this? How about your outlook on this?
Unknown Executive: In terms of power generation or even BESS, we have a lot of back orders, backlogs, and we have not been able to catch up on the production. So we have been trying to enhance production capacity. In FY 2025 first half, we should be able to start operation, increase utilization. But even though we're not able to catch up to the demand, and of course, I think we're in an environment where we can take initiatives on pricing, so I believe that we can aggressively promote the improvement in profitability. And thank you very much for asking that question. I should have mentioned that and I forgot to in the earlier question. In terms of increasing demand, when you start thinking about it, it's endless. I mean -- so what is it that will fill in the increasing demand? Well, we think it's power generation and its BESS. There is a steady certain demand there, so we will need to meet the demand and increase profitability there. So that would be the determination of the management. In terms of the scale of the business, MOEN is about JPY 500 billion. Then [ alternator ] is about JPY 200 billion. BESS-related, we have JPY 50 billion or so. So this is really, as you have said, strong demand. Customers are asking us to ship quickly, increase production capacity, how much can you make? How many units can you make today? Those are the questions we are getting. And next week, I am going to the plant and confirm the production capacity increase, and I will be meeting the customer in June. We have great business opportunity here to increase revenue and profit. It's a very healthy business. And we know that we should be growing this business, so we will do so.
?????: Any other question?
Takayuki Naitou: Naito from Citigroup Securities. I also have a question on midterm plan. So you have 5 business pillars and you have the growth strategy in each of the pillars. That's on Page 18. So you will expect to see the increase in sales in JPY 300 billion in the final year. What areas of growth do you expect? In terms of mobility, you talked about regrowth. What items do you expect to see further growth? Can you be more detailed?
Unknown Executive: So in terms of the probability of the growth of the 5 business pillars, it will be Sustainable infrastructure and energy and Base of AI society. I think these are the domains where we can see a big scale of growth. The Better life and mobility, which is at the 2 ends -- even today, we do have a certain level of growth or business size to a certain extent. But in terms of growth rate, I think we can expect -- but in terms of the rate of the growth, I think it will be sustainable infrastructure and AI where we can see a significant increase. We have great expectations for this.
Takayuki Naitou: As my additional question, for example, in the AI-related area, water cooling businesses, under what circumstances are you -- you are doing a business? And how much growth can you expect? Do you have any changes -- do you see any changes in the competition? About farm motors, do you have any intensifying competition with the Chinese local manufacturers? That's something that I've heard. If you -- this is in addition to the overall structural changes. But if you think about these competition, please, can you make a comment on those measures against your competitors?
Unknown Executive: When it comes to the second point you have made, I forgot to mention that part. When it comes to automotive business, this is something that I've talked about in the previous financial presentation. We have a component business that we would like to improve in the traction motor component business. It's not traction motor itself that we'd like to improve. We like to continue to be very close to our customers in that area. When it comes to other areas, peripheral components, including ECU and other system-related areas, this is an area that has been providing us with huge business opportunities. This is something that I've said before. The OEM manufacturers are trying to be focused on and investing in the autonomous driving and data technologies. Systems and other businesses are the areas of people's -- our customers' expectations in us, in Nidec. In other words, we would like to be focused on those areas. Mobility, Elesys have been integrated for that purpose. When it comes to the third point about automotive business, it is about India. We have the new campus to be established in India for multiple business units. Our Indian customers are not just EV oriented. We have hybrid, ICE-related customers out there in India. We would like to answer the requirements of these customers in India. And one more thing you have touched upon, which is AI and other areas, the movements about the competitors, emerging Chinese suppliers. When it comes to our manufacturing industry, in all areas, we are competing with our Chinese competitors. Just like it has been in the past, we will continue to have this rivalry taking place between us and them, Chinese rivals. And what we are doing is part of our actual capabilities. In China, our traction motor business is one of the areas we have gone through a lot in the past few fiscal years. We have been able to occupy that we'll acquire a very good supplier network in China. As a global supplier, there are quite a -- I believe Nidec is the only one company with such a wide range of business network in China as a supplier of this business. And other component businesses will be able to enjoy such a wide range of network going forward. And our first purchase as a company was the farm motor business of an American company. We have a supplier panel, which is in a very good shape, and we have a wonderful designing and research and development capabilities in China and elsewhere. There will be -- continue to be emerging rivals. But we are fully -- we're going to be fully prepared as we go forward as we try to compete with these Chinese customers' competitors.
?????: The person over there, in front of me.
Shoji Sato: This is Sato of Morgan Stanley Securities. I would like to check the numbers with you, if that's okay. There are 3 things that I want to check with you. First of all, in the midterm plan in 2027 fiscal year, JPY 2.9 trillion, JPY 350 billion in operating profit. Is this only for organic growth?
Unknown Executive: That is correct.
Shoji Sato: My second question is as follows. When you talked back in 2024 fiscal year, data center-related sales and operating profit, what is your forecast for this fiscal year? And what will be the expectations on the growth of this business in 2027?
Unknown Executive: When it comes to 2024 fiscal year, approximately JPY 17.4 billion, we have in -- we failed to achieve our expected target of JPY 20 billion. When it comes to operating profit, even though it is profitable -- I would like to refrain from give you a specific number here. When it comes to 2025 fiscal year, we have Supermicro-related business opportunities. That was the case back in 2024, but we are in a period between 2 active periods. We still have been able to expand our business opportunities. And the results will be very productive, make fruits in this fiscal year. We probably will be able to double the profitability this fiscal year, maybe if everything goes well. We will check -- monitor the situation very carefully. We like to make the business over -- worth over JPY 50 billion, if that's possible, if everything goes well.
Shoji Sato: And my third question is as follows. Back in 2024, structural reform expenses, JPY 9 billion. Is that the entire amount? And when it comes to temporary profit, PSA e, JPY 10.1 billion. Other than that, Nidec Precision Yamada was sold. I believe that's another area of expenses to have incurred possibly. Can you give us a number? When it comes to consolidating PSA e, do you have any impact on the sales and operating profit? Can you give me those numbers?
Unknown Executive: Well, first of all, when it comes to 2024 fiscal year and the structural reform takes place, as I've said, ACIM-related -- Europe -- JPY 6 billion approximately. When it comes to automotive business, it's not -- may not be categorized as structural reform. But when it comes to in the final quarter, JPY 3 billion was incurred. In fact in Q3, similar cost was generated based on the similar activities we have launched. The JPY 6 billion, JPY 3 billion were incurred, as I've said a minute ago. When it comes to Copal Yamada, which was sold to another company, there are some minute numbers. These are not really part of our temporary expenses to have been incurred over the PSA e consolidation.
Shoji Sato: The JPY 10.1 billion in quarter 1, that is the correct number?
Unknown Executive: Yes, that is right.
Shoji Sato: When it comes to PSA e, how much contribution -- sales contribution do you expect in the '24 fiscal year? That's what I meant.
Unknown Executive: NPe, JPY 65 billion was the sales approximately. JPY 4 billion -- so including this acquisition, JPY 4 billion approximately. That's the operating profit of NPe. About the water cooling business -- I would like to add one information about the water cooling business when it comes to CDU and other system-related businesses. We started this business by the last fiscal year. We talked about the shipment of GPU units and other products. We have been in a struggle trying to see what's going to happen. But after a year, since then, here is what I strongly feel. When I talked about the midterm business plan, I talked about quick coupling, LCM and other component as part of our business. We would like to state, appeal these possible future business opportunities. When it comes to CDU itself, something that's different from the previous models, we have already embarked on those other new business opportunities. And we can expect the range of our customers to be widened. We would like to continue to try to make a healthy growth. We would like to even go beyond our budget target of JPY 50 billion.
?????: Any other question, comments from securities analysts? The person that is right in front of me.
Fumihide Goto: This is Goto of Mizuho Securities. I'd like to ask you 2 questions. Please go to Slide 14. It's about the ROIC forecast management. Can you give me an update on how do you -- how you are going to manage each business unit, how you are going to try to increase the turnover ratio -- improve the turnover ratio? What is the direction of these different businesses? In addition to that, you have talked about improving variable cost and fixed cost. How are you going to improve your manufacturing capabilities? In this midterm business plan, how are you going to make a big decision about the future directions that you're going to go in?
Unknown Executive: When it comes to ROIC, please take a look at this slide. You have seen here a plot by group. We'd like to go into more details so that we can check our businesses one by one. When it comes to successful businesses, their balance sheets are very good. Even if their profitability is not so high, ROIC is very good for these successful businesses. Some of these businesses are not really something that we are expecting so much future success. In that case, we may think about the chances of shrinking the size of those businesses if we cannot see any future -- great future potentials. We would like to make a very good portfolio -- a better portfolio going forward. I would like to add some information here. This is a very important point. We have been generating these businesses, and this shows how we are going to manage our businesses. We have talked about the traction businesses and nothing else in the past sometimes. Sometimes we had to make a significant downturn because of our focus on the traction motor business. We need to understand why that happened. We need to make sure -- we forgot to show you our entire picture as the Nidec Group. There are some highly profitable automotive businesses, some are not. These businesses are organic organisms. So it's a very living creatures in a way. And we need to come up with a very good management style of each of these set of product portfolio. We need to understand how each of these businesses is going to go forward. We need to go beyond the boundaries when it comes to this ROIC forecast business management.
Fumihide Goto: When it comes to technological development, would you like to say something?
Mitsuya Kishida: That's something that I myself think is the primary area of our focus. When it comes to Nidec, Nidec is a company of technology. Nidec is a company that respects people. That's the type of the ideal style that we like to convert ourselves to. For example, when it comes to tariffs, we sometimes had to think about relocating our production bases. When it comes to production site transfers, there are some products that you -- there are no products that we can easily transfer to the United States, for example, in order to avoid the tariffs. We have had discussions about the production -- possible production relocation. Global development and production technologies are what we need going forward. We need to have a baseline production technology for different types of products. This is not going to be a group-wide effort. We have these 5 different categories so that -- based on which -- so that we can check -- change our production sites freely based on these 5 different areas or pillars. In order to obtain a very good paradigm, production technology is truly important. That's one of the things. The second technology is the designation of the 3 technological areas that I have mentioned before. So we were talking about what we move and what we rotate. And so these are all the motor technologies. So it's all about what we -- things that spin and move, so motor technology, but we have actually added to that. One is thermal management. So often, they say that heat is the grave for energy. So we want to focus on thermal management before heating -- the final heating. So that is where we're working on in terms of fan and water cooling. And we need to identify what we're missing in the technological areas, and we will try to fill in that gap. So that's the second technology. And the third technology domain is the power generation, power distribution and power transformation. So this is control. Motor -- changing the rotation of motor is actually control of voltage itself. So we will reinforce the control technology of our circuits.
Fumihide Goto: Samura-san, I want to ask this question to you. So you're aiming for JPY 60 billion operating profit. What is the factors for fluctuations there? So it's JPY 140 and you have that tailwind, and you have JPY 20 billion in addition in R&D and depreciation. So what are the factors for changes in profit here, operating profit?
Akinobu Samura: So I talked about JPY 100 billion in variable and JPY 50 billion in fixed cost, so this is the 3 years restructuring. The reductions in fixed cost will be done top-heavy. We will try to carry this out in 2025, and we already started that endeavor. So I think this will have a big impact. Also in terms of variable costs, as we have said earlier, it's more -- has a nature -- has more heavy in the latter half. So in the initial year, you will not have much impact. But in terms of the transformation portfolio, I think it will be very significant. But in terms of the product mix, we're planning to change it quite significantly. So in terms of sales, in FY '24, '25, basically we're looking at flat at JPY 2.6 trillion. But in terms of content, so you have MOEN, energy, we're planning to increase by about 10% or so, but we talked about fan and other items. But in precision motors and also we have other small motor areas, we have a plan where we will be shrinking it to a certain level. So we are planning to change the profit structure with the changes in product mix. So this is the sort of large framework for FY 2025.
?????: So we are almost running out of time. So I would like to invite questions from the media.
Unknown Analyst: [ Niita ] from Nikkei newspaper. I have a question about tariff. In peak, you're expecting impact of several tens of billions of yen at the peak time. But tariff policies are changing quite frequently. So maybe there was that potential at one time. What is your projection now?
Unknown Executive: I think there are some more elements to that. So we have the element of tariff policy changing. And when you actually analyze it carefully, it seems as though that change will disappear. And the other point is that we're not just producing and just shipping it. We have suppliers who supply components to us. We have Tier 1s and OEMs which we ship to, and we have the communications with all of them. So we're looking at maximum JPY 30 billion and what would be the reduction plan for that -- based on that. So we have consulted based on that. With regards to tariffs, the big factor was the changes in Mexico. USMCA is still alive. This is very helpful. Also the computer components is excluded from HS code. It's excluded from the tariff. I think this played a critical role as well. So my interpretation going forward from here is that the United States have seen that there's a direct impact on the consumption. Anything that has impact on the consumers, they're trying to avoid. That could be automobile, telecommunication equipment, IT equipment, infrastructure and network. I think in America, they have to have infrastructure network. So based on this assumption, as for tariffs, anything to do with, for example, IT tariff, they wanted to exclude. So that is why they kept USMCA alive.
Unknown Analyst: So it was JPY 30 billion, but you negotiated and you are going to overcome.
Unknown Executive: Yes. We have reduced it so -- by negotiation, yes.
Unknown Analyst: And related to that, you are also increasing production in the United States. What's the percentage of production in the United States? What's your investment plan in the United States?
Unknown Executive: The production volume in the United States itself up until the situation occurred, we were on a declining trend each year. I think that's the fact, to be honest with you. We're not in the OEM -- automobile OEM industry. So we want to meet the demands from the customers. So for example, if there's a cost reduction request, then we would come up with a plan to reduce cost, and we have been doing this sort of countries around the United States. This isn't really tariff-driven. But because there are categories where we have seen explosive demand growth in the United States, that is why we're increasing production in the United States. And I think it's really ultimately the demand from the U.S. data centers, so the alternative system. We are -- we'll be supplying to the United States, also including supply from countries outside the United States. But we will also produce in the United States so that we can meet their daily demand.
Unknown Analyst: And the last question is on traction motor. In Q4, you have approached to near profitability. And the components business is growing because number of cars that are adopting this is increasing as well. So what is your projection for FY 2025?
Unknown Executive: For FY 2025, China traction business, in principle, we will see increase in delivery to Japanese manufacturers. But we don't want to change quantity because we have changed our policy. So we will not pursue volume. In principle, we're assuming flat, unchanged from 2024. Meanwhile, in Europe, in NPe, 2024, the production capacity was very low. But we have tried to scale it. So in Q4, the sales exceeded JPY 20 billion. So for 2025, I think we will see one step higher level. And as you can see from the graph, I think it will be very close to JPY 100 billion.
Unknown Analyst: And you will be profitable on a full year basis. Is that correct?
Unknown Executive: Yes, that will be correct.
?????: Then the gentleman at the back.
Reiji Yoshida: My name is Yoshida. I'm a journalist from Mergermarket. There are 2 questions. One is in terms of variable cost reduction, the JPY 100 billion, you said you will review some profitable noncore business. Is this something that will be done during the midterm plan? And will you be spinning off or selling off some of your businesses? And if that's part of your option, then what would be the criteria? Would it be area? Is it capital efficiency? Or is it whether it's profitable or not?
Unknown Executive: We will basically work on it without any sacred cows. We -- anything we have not done in the past, we will do so. So we do have an option of selling it, divesting. We have some ideas in our mind, but we are not able to disclose at this point in time. We don't have anything that we have really decided that we can announce today. But in terms of the direction, noncore business is something that you will always have to face with when you do a business for a long time. So we don't have to have any sacred areas where we will not untouch.
Reiji Yoshida: And Mr. Samura, I want to check some numbers. In terms of cash flow allocation, you talked about M&A. In the memo, it says in 2027, JPY 500 billion, and half will be R&D, and the rest will be in shareholder return and growth investments. So number two, M&A, this is just the ballpark figure, about JPY 250 billion. Is that correct? And also in terms of cash flow, in midterm, in 2025 and 2026, so it will grow and -- depending on the deal. But for '25, '26, you're in this process of increasing cash flow. So that would be the maximum of the M&A framework?
Akinobu Samura: Well, for 2027, in terms of thinking, we're looking at JPY 525 billion. I think that's by math. But of course, you have to look at opportunities. It depends on the deals. But if there's nothing -- no opportunity, we will use it to pay down our interest-bearing debt. So it really depends on the deal. Between '25, '26 and '27, we will grow our cash flow on a linear basis, and we will manage ROIC. That will be our tool to do that.
Reiji Yoshida: So half of JPY 500 billion is JPY 250 billion. And half of that is -- so half of the JPY 500 billion is JPY 250 billion. So that would be on investment for growth, right? So that's your estimate, right, JPY 250 billion?
Akinobu Samura: Yes.
Reiji Yoshida: And in terms of impact tariff, of course, there's a concern for global recession. This isn't just about tariff, right? Have you included recession in your outlook? So in terms of macro, how serious do you -- are you looking at recession? What is your view on this?
Unknown Executive: Well, how much have we incorporated on that, we do not have a very clear-cut answer on this. But of course, we do foresee situations like that. We could be in a global great recession. What would we do then? And that's WPR-T. How much do we expect in terms of decreasing sales? Even if we analyze it carefully, I don't think that calculation will be very meaningful. So why do we do this story -- talk about cash? It's because when recession, what's most important is cash. And this is a common sense, I don't even need to say it. But rather than CapEx, we need to prioritize is cash. So we have -- we will operate it with, first and foremost, priority on cash management.
?????: Now we would like to finish this conference, and we would like to finish this presentation of Nidec Corporation's latest financial performance. Thank you very much for your participation today.
Unknown Executive: Thank you very much.
Unknown Executive: Thank you. [Statements in English on this transcript were spoken by an interpreter present on the live call.]