Nidec Corporation (NJDCY) Q1 2024 Earnings Call Transcript
Nidec Corporation (OTCPK:NJDCY) Q1 2024 Earnings Conference Call July 23, 2024 4:00 AM ET
Company Participants
Akinobu Samura – SVP and CFO
Mitsuya Kishida – President and CEO
Shigenobu Nagamori – Founder and Chairman of the Board
Conference Call Participants
Daiki Takayama – Goldman Sachs
Manabu Akizuki – Nomura Securities
Takayuki Naito – Citigroup Securities
Unidentified Company Representative
Now we would like to start the presentation on Nidec Corporation’s performance for the First Quarter of Fiscal Year 2024. (Operator Instructions)
Nidec Corporation’s representatives to be presenting today’s earnings results are as follows: Mr. Mitsuya Kishida, the President and Chief Executive Officer of Nidec Corporation; Mr. Akinobu Samura, Senior Vice President and Chief Financial Officer of the company; Mr. Teruaki Urago, General Manager of the Investor Relations Department. That is all.
In today’s presentation, Mr. Samura will present an overview of the company’s earnings results for the first quarter of first fiscal year 2024. And then, Mr. Kishida will present the company’s business strategy going forward. Then the floor will be opened for a question-and-answer session.
Please kindly wait until the end to ask your questions. The meeting is expected to last until 18:00 today.
Now Mr. Samura, please start your presentation.
Akinobu Samura
Thank you. This is Samura speaking. Thank you very much. I would like to talk to you and explain to you about our performance for the first quarter of this fiscal year.
Please turn to Slide 3. Net sales were up 14.8% to JPY 648.2 billion. And this is a record high result for us. Operating profit was up 0.1% to JPY 60.3 billion. It was a slight increase, but this is also once again a record high operating profit.
Operating profit ratio was 9.3%. And this operating profit ratio includes the Nidec PSA eMotors, it’s called NPe for short. This was an equity-method affiliate of Nidec until the end of fiscal 2023. But from the April, this company, joint venture was consolidated to which, ended at JPY 10.1 billion, was included as a result of remeasuring the shares of the said company. This will be explained in detail later.
When it comes to the operating profit before income taxes, profit attributable to owners of the parent were both down. This is due to the effect of currency exchange rate. We had a decrease in midterm in the area of currency exchange rate. Please turn to Slide 4. This is about NPe is consolidated gain on step acquisition of Nidec PSA eMotors.
Nidec acquired a controlling interest in NPe, Nidec PSA eMotors SAS, an equity-method affiliate of Nidec. And the Nidec made a consolidated subsidiary as of April 1, 2024. Correspondingly, Nidec recognized a gain on step acquisitions of JPY 10.1 billion as a result of remeasuring the shares of the said company held by the end of the previous fiscal year in a fair value on the acquisition date.
In this case, as of March 31, which is JPY 6.7 billion, this was evaluated and based on fair value and et cetera, and gain on step acquisition is going to be minus JPY 6.7 billion, plus JPY 16.8 billion, which equals JPY 10.1 billion. We had a third-party evaluation of this calculation base.
When it comes to this accounting method, this is not so familiar with the general public, but this is not so much of a incident. SoftBank, Rakuten, Recall, Agile and so many other companies have been involved in a similar method of acquisitions.
Please turn to Slide 5. And based on the financial explanations, we have made upward revisions on the forecast. In terms of net sales, operating profit, operating profit ratio, among others. And we have this balance between the first and second half of this fiscal year. We are trying to move up the schedule as much as possible and we have a more value based on the first half rather than on the second half.
Please go to the Slide 6. And this is about our profit performance by group — product group. And when it comes to small precision motors, we have inquiry — recovery in the demand for the HDD motors, and we have a growing demand for water cooling module units, and we have the vertical start-up of this water module unit business, and we accelerate the pace of this recovery, and we have made V-shaped recovery, as you can see.
And next, automotive products, we’re yet to launch a mass production system. And this JPY 33.8 billion is the amount of deficit for this automotive products, and we have JPY 10.1 billion, we have a positive number of JPY 6.3 billion, as you can see on the top right-hand side of this chart. In the end, we have been able to achieve the increased sales and operating profit.
Next appliance, commercial and industrial products. We have consolidated and accumulated restructuring cost of JPY 1.5 billion. We have a slight decrease in profit.
Next machinery. We have had optimization of our machinery production system. In the previous quarter or quarter four last fiscal year, we have had financial difficulties. But today, we have had a transfer of people as well as machinery, because of that we have a temporary decline in our profitability and profit efficiency. And because of that, we have had a decline — a slight decline in profitability.
Please go to Slide 7 for more detailed information. Year-on-year changes. And you have seen that we have a chart on the slight increase or decrease of our performance compared with the last fiscal year. And you can see the — we have an increase in operating profit. And we have had the ACIM and MOEN’s restructuring taking place in Europe.
Including all of these elements, we have increase in profitability and sales in Small Precision Motors and Automotive, where we have a decrease in Appliance, Commercial, and Industrial and Machinery and some other business.
And you can see this decrease in Appliance, Commercial and Industrial Products, in terms of operating profit. In the Small Precision Motors and other units have enjoyed an increase in profitability. And the other sections have suffered a same decrease.
And you can see that 2023 cash flow and we have improved our performance when it comes to free cash flow. And we have been able to use this profitably — increase the profitability for our shareholders and the investment — reinvestment purposes in order to maximize our profitability as the group as a whole.
And we were able to recover from the deficit from last fiscal year, and we have been able to generate a record high amount of free cash flow of JPY 167.2 billion. And we have at a low level, JPY 18.5 billion, as you can see. But on a year-on-year basis, we have been able to achieve an improvement.
Lastly, on Slide 10, these are the highlights of what I have just explained to you. That is all for the outlook of our performance, latest performance. Thank you very much.
Mitsuya Kishida
This is Kishida speaking.
I’d like to give you an important point as well as our long-term business strategy. First of all, when it comes to Q1, for Nidec, this was a very important 3-month period for us to be able to make a very important step. Over the past years of hard work and dedication, we have looked at the reality very hard so that we can see for whom and how we should develop and make our products.
And we would like to give you an update on some of our business activities. First of all, when it comes to Q1, I would like to give you some topics over here. I’d like to give you two points in this section of our presentation. First of all, Automotive business. It was back in October last year that we have launched a very good restructuring reform.
We have talked to the people in the market, and we talked to these people’s focus of interest was on the traction motor, we were able to understand that in the previous session of this meeting. And we were able to understand a very huge impact of this business on us. This year — last year, we have changed our strategy in this business, and we were able to see very positive changes, which I would like to give you an explanation on today in this meeting. And also, I would like to explain to you how we could make a further development of this business.
First of all, the major change is as follows. We have had many traction businesses in China, and we have shifted our focus to be only dedicated on our joint venture in China. We have a GAC as our main customer. And from this fiscal year on, we have a joint venture, a joint venture is called NPe. These are two major automotive joint ventures that we have.
And we have a traction business mainly in China with GAC. And from the second fiscal quarter and onward we are going to make a profit. We will make sure to advance our schedule as much as possible and we are ahead of our schedule, that’s why I wanted to report to you here today.
When it comes to NPe, we will try to minimize the amount of deficit to the best extent, possible so that we can start generating profit from the third quarter of this fiscal year. We have had a direct talk between the two parent companies executives. And then I have — I can say this to you with the confidence.
When it comes to NPe, 670,000 units is our target. We have made a downward revision of this number to the 400,000 unit level. This is how we would like to minimize the negative impact on our financial capability. We like to focus on our production in the second half of this fiscal year.
When it comes to these two parent companies, we have had a various series of discussions with each other. We have had discussions on investment. We have had a capacity of 1.5 million units, and that’s our basic target for these two parent companies. That’s going to be the area of our forecast.
We have a French — France production capacity, we will suppress it to a certain level. When it comes to the additional level, as you can see on this second section of this slide, we have been in a very strict to severe business circumstance.
We will maximize the experience from the country. And we will be focusing on the supply of components such as motors, stators and rotors. We will be talking to European OEM manufacturers as well as Japanese OEM manufacturers to whom we would like to start supplying these products components.
On to the right-hand side of this slide, these are the existing businesses. In these businesses, we have had major changes as well. First of all, this market itself, whether it be a EV or hybrid, in either case, we will make sure to — we have been able to secure very good demands and orders of our products.
First, when it comes to electronics, we have inverters and we have this converters, DC-DC converters. These are ECU units. And designing and delivery of these products are the one new areas emerging in our company and our business. We have OEM manufacturers and automotive driving E-Axle, the areas of other companies concentrations. And we have had the orders for the entire Seat or related components.
Interior motors, brakes, and the entire unit, all of these products are the areas in which we are receiving a growing number of inquiries and orders. In this area, we are making group-wide efforts. We have a large number of the products ready to be supplied to our customers, cockpit, et cetera. We’re going to receive the orders for a system in basis as a whole.
Another point of changing this quarter is, as you can see on the upper left is the water coolant system, and we have seen increased business here. If you look at this water coolant system, it’s called the CDU unit. But aside from that, you have quick coupling and there are many peripheral devices and components, and we have decided to manufacture them in-house. So we are promoting production of critical components in-house.
So when we say water coolant system, we have tendency to speak only about water coolant system. But if you look at as a whole, the AI data centers, which is experiencing an explosive growth, you will be able to see how our components are utilized in the AI data centers.
So for example, in the several racks of AI data center, there are water cooling system, spinner motors for the drivers. There’s cooling tower, there’s motors for the air conditioners or alternators for energy power generator or for clean energy, AI data center. Thus this is the energy storage system and we are able to supply all of these in a comprehensive manner.
In fact, Nidec, we do inspection devices of semiconductor, which is part of water coolant system. So we offer a variety of different types of products, which will contribute to the growth of the AI data centers.
So going forward, based on what we have considered, we would work together with many core management around the world and steer our directions in this mid- to long-term direction that we have set out. And let me share that with you.
So we have been aiming for JPY 10 trillion sales, we will achieve this organically, which will contribute to JPY 7 trillion and JPY 3 trillion through new M&As. This is our mid- to long-term direction which we have set out, which we would like to describe to you.
The mission of the new management is to carry on the strength of Nidec so far, but also enhance our corporate value through quality growth in the period of the second-founding. So this is what we have defined very clearly. And on top of that, we want to be a global company, and we will enhance that foundation as a global company. And also, we want to improve the quality of the company for corporate value. And as a passing point of that, we will aim for market cap of JPY 10 trillion.
In order to enhance our corporate value it will not be all uniformly EV or any other one single product. But we have three access of technology and five business access, which we would overlay. No matter what age we are in, no matter when we will be pursuing something that would allow us to be needed by the society at all times. And therefore, we would engaging activities towards the realization of circular society, and that’s how we would like to grow as a company.
So first of all, what is core of Nidec? First of all, we had thoroughly discussed this what it is. And we have the 73-year history since the foundation of the company over half a century or so. We had built track record on things that spin and move and that’s what it is. And in addition to that, when we think about what the core is, we have found that there are two other access for us.
One is thermal management. Starting with motors, things that spin and move as we produce them, we need to convert from motion to heat, and that cannot be avoided. So how do we control a loss called heat? And that’s a big challenge, and this is where we have built up a lot of know-hows in.
There are great leaps we have made in AI service and also water coolant system. We will continue to build up on that capabilities and make sure that we bear fruit in AI service. And it’s not just thermal management, but we have compressors, which will reduce or compress the coolants.
And it’s not just cooling system, but we will also look at heating system as well, and we believe that there is room for expansion in the AC area and other core axis is electricity generation, storage, charge, and conversion. This is an area where we actually treat electricity. So we have more than 50 years of experience in this area.
And so electricity, which is the source of energy, how do we manage this efficiently? This is something that we have been challenging on since the foundation of this company, and we have built up our experience in the 2010s.
We have acquired companies outside of Japan, and we have been able to grow as a result of that. So from electricity to electricity, electricity to motion power, so — or mechanical power, we have this product line, lineup and groups, which we would like to continue to increase and enhance.
So the core of the three technologies will be the source of competitiveness of Nidec and we will continue to drive towards the involvement and advancement.
So change the world — “Move the World, Change the Future”. This is the circular society, which we would like to realize and we would do so with the contribution of this great technological capabilities and we will be able to become a solution provider, which would reduce — which would realize carbon neutrality and CO2 reductions.
So through this, what would be the applications in which we will be able to contribute to the world? There’s five business pillars, which we have identified and clarified. First pillar is supporting the AI society. That’s how we had defined it. But to see today, AI today, is not just a boom for today.
AI’s existence will become a norm in every industry and every life. And we would see explosive AI growth and demand for servers, which support that. And we know that this will accelerate going forward.
H-AI will be embedded in different devices and terminals. It will be hard disk drivers, coolant fans, it’s coolant, and water-cooling modules. These are the needs of the customers which would we incorporate so that we can be growing at the cutting edge of IT. And with that experience, we would do chillers, BESS, power generator, and also semiconductor inspection devices. So that’s thermal management, that’s electricity generation and storage, all of these will allow us to face towards this explosive growth.
The other pillar is the sustainable infrastructure and energy. In order to lead the circular economy, we need to meet the global demand for energy and support the conversion to sustainable energy. And what is it that we can do? Motor comprises 50% of the energy around the world. Therefore, we need to supply high-efficient motors, which would lead this industry. In addition to that, renewable energy stability and supply and also levelizing electricity demand.
In the area of power generation and battery, we have control system, battery storage system and electricity management system. These are the technologies that we have, which we can contribute to the growth of this business segment as well.
Next is the area of efficient manufacturing. Even in the MONOZUKURI manufacturing, we can contribute as we see automation involve very rapidly. And obviously, we see increase in labor cost, for now beginning to see a big reform taking place in manufacturing. And we have been highly regarded in precision reducers. But we will also be able to offer solutions especially for robots, especially reducers and loaders and in other areas as well. And we will make this our third pillar for growth.
The fourth area is the pursuit for better life. And we would like to contribute to this business as well. Smart appliances and ACs for industrial purposes. These are the equipments and devices that would support the life. And this will continue to advance even in global services, as we see increase in — move towards higher quality of life, we believe that we can continue to expand our business in this domain as well.
Safe and secure and health. Those would be the perspective we would use to contribute to new product development. Especially in AC, we will realize air to water, which is highly regarded. This is high efficient compressors, and we are also captured new technologies such as heat compressors, so that we can also contribute to the world.
And finally, we have mobility innovation. This is electrification and automation of eco-friendly vehicles. We will begin to see continuous innovation in this area. And ahead of that, we can see new mobility such as eVTOL. Just recently, as I have just said, we have electric solutions which we have been highly appreciated, and we can expect great expansion in the mobility products as well, which will contribute to the growth of this business area.
So in these five business areas, we would like to continue to expand and leverage our strength so that we can generate next step growth. In various applications, so we have here areas — several areas for us to pursue. We sometimes acquire knowledge internally, but sometimes by way of demand and we like to drive this effort on a global basis. We have these five called pillars of business as you can see this is how we like to grow each of these businesses.
From the last time, we can see the dark green, these are the areas, sizes last fiscal year, JPY 2.3 trillion in total. And in towards the 2030 fiscal year, we’d like to improve the sizes of these area-wise, so that we can achieve more than JPY 7 trillion in addition to the additional JPY 3 trillion coming by way of M&A.
And by growing these five pillars, we like to pursue the improvement and evolution of things to move and things that spin and move, so that we can pursue a better life and sustainable society as a solution provider, we would like to make contributions to — in these areas.
Next, I would like to talk to you about India, which is one of our highly strategic areas in the world. This country as a market is continuing to grow rapidly. It was 10 years ago, we started doing business in the area. And we have more than 14 different areas of businesses. We have several in northern part and some others in the southern part of the country.
We can be close our customers as possible so that we can make the best way of contributions to each of these customers. As you can see, we have a Sri City — Sri City, where in accordance with the growing demand for the air conditioners, we would like to complete the construction of campus. This is going to be our 15th construction business base. And in this rapidly growing country of India, we like to secure a great number of talented and brilliant engineers so that we can have this area as a Center of Excellence. That’s what we would like to achieve in the future.
In these activities, we would like to accelerate the pace of these activities. And we have made a press release today. We have this MOU to be established with the Tata Elxsi. And especially in the area of software programming, we like to deepen our relationship with each other by sharing with each other our knowledge and expertise.
Last year contents of the press release. We will — in India, we will continue to grow and develop as a country. And we would like to provide our companies — customers with global level of services, and that’s part of our strategy.
And towards 2030, we would like to achieve a huge growth as well as stable cash flow. That’s what we need to do. As a matter of, of course, in order to grow these pillars or businesses, we’d like to generate cash flow better than we have been able to before, that’s the type of a change we would like to make happen. This is how we would like to improve the cash flow and eventually, we would like to have acquisitions by M&A, and we would like to continue to make investment.
At the same time, as has been the case, we will continue to make a contribution back to our shareholders who have been great supporters of our company. This is in addition to this dividend and other things, they have been already listed the public, we will continue to maintain the principle of a stable provision of dividends. We would like to continue to do that on a stable manner.
In addition to that, in today’s Board of Directors meeting, we have this effective date of October 1. We are going to have a stock split and the record date will be September 30 this year. Date of issue will be October 1, of this fiscal year. Split ratio will be two for one common stock. We like to continue to share the enjoyment of growth with as many people as possible, that’s our strong wish as a company.
On to the next slide, this is our organizational structure for our future growth. We have had a huge conversion of management system as of April 1 of this fiscal year. We will continue to be a global company. We will continue to pursue our dreams as a company and we will continue to take on challenges more than any other companies out there in the market.
No matter what changes we face and no matter what times we go through, we will continue to have this corporate culture as a foundation and as a company, so that we can have more people and so that we can enjoy more technologies as a company.
This is the second phase of Nidec’s founding. We have now embarked on this process. We are going to move the future, we will change the future, we will move the world. This is how we like to continue to take on challenges, and as a part of our D&A, and we will continue to make steps one by one, it’s all for our dreams.
Thank you very much for your attention. Thank you.
Question-and-Answer Session
A -Unidentified Company Representative
(Operator Instructions) First of all, from among industrial analysts — securities analysts here, does anyone have any questions? Please.
Daiki Takayama
Hello. Thank you very much for your explanation. This is Takayama of Goldman Sachs. I’d like to ask you three questions. When it comes to water cooling module, over the past few months, I believe the situation has been truly dramatic over the past few months. And please give us an update on the upcoming sales forecast, operating profit forecast towards the end of this fiscal year. Please give me those numbers.
I believe, we have gone through some court issues according to some news or media reports. That’s the point where you have to be handling situations very sensitively, carefully. And we have been receiving requests of orders from people other than your major customers. When it comes to the companies other than SUPER MICRO, do you have to be handling those quality issues? Or are you trying to be focused on one major customer, which is SUPER MICRO? What is your current situation at the business front? That’s my first question here.
Shigenobu Nagamori
I’d like to give you answer — that Mr. Samura gave you some figures over the numbers there. In response to your question, the previous fiscal year, annual forecast was JPY 20 billion or so, not in order to achieve our minimum level of operating profit of 15% at the end of Q1, when it comes to sales forecast, it’s about JPY 7 billion or so.
When it comes to operating profit, in spite, I want to give you any specific numbers, so we have been able to secure profit better than planned originally. When it comes to this fiscal year’s forecast, I believe we can achieve more — a little more than double than initially planned.
When it comes to these numbers, I cannot give you details because of our relationship with our customers. But this is the level we have not really been able to imagine before. Now when it comes to technological relations — revolutions to make these water-cooling modules, these things are moving very rapidly.
Chipsets is going to be a very important source area which would change in second quarter going forward. And we need to improve our water pressure as well. We need to launch all of these improvements in various areas. We have SUPER MICRO and its customers. And we — the number of these customers is growing so rapidly as well.
We need to focus on these existing customers.
We definitely make sure never to cause any quality problems. If we do that, there won’t be any future about this business. Based on that commitment, we are making various efforts to the best of our capability. When it comes to quick coupling and other component related businesses, we have been receiving inquiries from various customers, potential customers through TOB, Takisawa has now — is now a member of our Nidec group. And Takisawa is now trying to make the products in growing numbers.
We would like to improve our production capability so that we can meet the growing needs of quick coupling and other components. We have another designing team to be able to cover the general purpose components and other products. That’s part of our future perspective. But as of now, over the past three months, what we have done is to meet — to be focused on our business with SUPER MICRO. And again, then that, we are trying to meet the needs from the customer.
Daiki Takayama
You have talked about the in-house production of components and products. Can you talk about — more specifically about the products that you’re trying to produce in-house? Are you receiving any approval from individual customers?
Unidentified Company Representative
These products are — components are truly important, that we need to obtain approval from individual customers. Currently, we are focused on quick coupling and other connection related to components. These are the group of components we are focused on as well as some companies within the chillers, pumps, water ascending components, motor-related components within the CDU. These are the areas of focus is as of now. Thank you.
Daiki Takayama
And my second question is as follows. When it comes to traction motors, that’s one of the major topics here. And in China, can you feel — what is the reason for you to be able to confidently be able to say that you have been able to secure a profit in China. When it comes to Europe, how can you say that you will be able to make profits from Q3 and onwards? I believe we are struggling with the increasing the number of quantity, I believe. How you still forecast on the second half of this fiscal year? Or what is your standard business prospect?
Unidentified Company Representative
Thank you very much. Well, this is a very important business area as well. And based on the level of achievement in Q1, we would like to go to the next phase of achievement. When it comes to NCG or Nidec Corporation, we have this business in China. As I’ve said before, we have Gen 1 products and Gen 2 products. We would like to replace them with Gen 3 products starting from September or from Q3 of this fiscal year, depending on the customers.
And when it comes to development process of Gen 3 products that we have been doing this business very steadily when it comes to transfer of business in comparison with Gen 1 or Gen 2 businesses, we have spent five to six years for the transition from Gen 1 to Gen 2. We have had a new partner for electricity-related components. This communication is going very, very smoothly. And based on the knowledge and expertise accumulated inside, we have been able to do this business very smoothly now. Gen 3 products are starting up surely suddenly.
In China, as I — in the past, we have had some illusionary numbers that we have given you before. That’s not the case anymore. We have handled all the fixed cost related issues, we have completed with the process. By the end of the last fiscal year, we can expect the profit to be generated in the area of Gen 3 in China. And that’s the response that I have received when it comes to our automotive business in China.
When it comes to NPe in Europe, we have this very close weekly discussions between the two parent companies of this joint venture. We have been discussing a material cost, fixed cost, and we are trying to reduce all of these costs in cooperation with this two — between these two parent companies. We are going to avoid making additional unnecessary investment.
This is a production taking place within France. When it comes to this joint venture, we will continue to have this — strengthen this joint venture, of course. But at the same time, we would like to think about how much more production that we can take place in France, but as based on the discussion between the two parent companies, now we like to achieve the level that we have shown you today.
And currently, the things are going as planned. When it comes to the NPe business. And we have been able to reduce the deficit more than we had anticipated, and we have been able to — I believe, we will be able to reduce the deficit from Q1 to Q2, so that we can achieve a profit in Q3. That’s what I can say to you with the confidence.
But at the same time, we need to make a large — huge amount of profit from this business. We have had a cap based on that, we are going to have a limit in the amount of profit that we can achieve.
This is another important point of our business. We have EV-related attraction components business, is going to expand as far as we are concerned. More than we had anticipated, we would like to continue to stick to the business we are specialized and we are truly good at making. Thank you very much.
Daiki Takayama
One last question. You mentioned about five businesses and three core accesses. This is very easy to understand. It really — I was able to really understand, especially in light of the second generation. Now you had a chart with this JPY 7 trillion organic growth, achieving that by 2030.
So one question about that is, what sort of visibility do you have? Maybe you have the fixed number for next three years. So what’s the substance of that? And also in the process of developing this, I’m sure you have found something that was missing this. So you have the JPY 3 trillion in M&A. And so what sort of ideas do you have about M&A, the JPY 3 trillion?
Unidentified Company Representative
So let’s go back one page. So the further we try to — we advance in this area, there will be pieces that we would be missing. And what is it that we would be try to fill in with M&A. And of course, I’m not going to be able to put up for you today, but I’m looking at these metrics every week and have deep discussion with Mr. Nagamori, but dots, three dots you see, I would say that’s the missing piece, which will be filled in with M&A.
And I think as we move on, we will be able to increase greater visibility, and there will be things that we will be able to see more. Now that these — the visibility into this — each of these businesses in order to achieve JPY 1.5 trillion, we have tried to build this up with all the businesses. And of course, there’s some more, some less. And when you actually accumulate this, this is the curve that was driven by automotive business.
So auto projection much, much higher than this. And meanwhile, AI data center, the discussion has just started. So maybe it’s not as high as this. So, to be honest with you, there’s a lot of ups and downs. But next year, we say maybe one target will be JPY 3 trillion, maybe within a certain here, we need to be able to achieve this certain level.
So internally, we have a pretty substantial visibility and been able to share that insight. So there’s a pathway that is already clearly in the company and within the businesses. Now going forward, we need to get the feedback from the customers, from the stakeholders and also internally as well so that we can improve the plan more so than before.
Unidentified Company Representative
So thank you very much. Any other questions? Then the person here.
Manabu Akizuki
Akizuki from Nomura Securities. Thank you very much. I have three questions. First question about upside on the profitability and that was your track record in Q1. So where would be the factor for that? And also, maybe if I could ask for more color, you talked about components being produced internally and perhaps that would improve your margin more so than ever. Now, I’m asking this question with some speculations, but is that the right understanding? So, I would like to hear more and get more color on profitability.
Unidentified Company Representative
Sure. So the market has just really started. And so in order to — we have to increase the production system by 10-fold thoroughly, and it’s been a lot of challenges in exploration. So 5% is just internally. And so this is just from the original projection.
But from going forward, I talked about this being a vertical startup, but we’ve been doing this at a very speedy manner and in an appropriate manner. And as a result of that, we have been able to exceed our profitability target. But this industry is evolving at a very quick pace, fast pace. So we have to be cautious in order to secure solid profitability.
In addition to that, as you rightly point out, producing in-house will help us with profitability. And this is our winning pattern before. So we will be through in pursuing that. However, if we limit this to Q1, the profitability improvement through in-house manufacturing, it’s — the contribution isn’t so much in Q1. I think, it will be in the latter half of this year that we will see more contributions. I hope you can look forward to this.
Manabu Akizuki
Related to Takayama-san’s question earlier, but quick coupling was a lot harder than you had assumed there’s a lot of water leakage. And so it’s creating a lot of noise, I think. And I investigated supplier. And there’s a lot of Western companies who’s involved in this business of quick coupling. And it seems as though it’s a very high-margin business, but your volume manufacturer, if you were to do this, my impression is that maybe the profitability is quite good. But in those process components, do you think there’s a good profitability?
Unidentified Company Representative
You are right. So the supplier is quite limited today. These are all Canadian and German companies. So suppliers are limited to those areas. And many assemblers are now starting to enter this business, but this is not an easy business, easy processing. And if there’s one drop of leakage, it could cause a great trouble. So we are extremely cautious and very thorough in confirming the technology so that we will be able to produce this perfectly in-house.
Manabu Akizuki
And the second question, ACIM and MOEN. How should we look at this business this year? Can you be more comprehensive on this explanation of these two businesses? In Q1, the restructuring charges was a little less against the plan, right? I think you said JPY 1 billion, Samura-san, but it’s JPY 7 billion, I think that was the plan in the first half. So can you also explain about that the progress on the restructuring? You have the projection improving profitability from the first half to second half. So are you able to maintain that? Thank you.
Akinobu Samura
So about restructuring, we were looking at JPY 6 billion to JPY 7 billion. That was our estimate initially. Overall, we want to reduce this as much as possible. Also on a full year effect, we want to be sure that it’s generated even — at least, we will be working at cash out. And in Q1, we were able to maintain about JPY 1 billion under this effort to make sure that we have as little cash out as possible.
ACIM and MOEN, I have to be responsible for myself. So I have exchanges on a day-to-day basis. In Q1 restructuring was — there was a lot of ACIM related, especially in Europe. So a lot of restructuring took place in Europe, ACIM business. And the management actually go to the front lines and lead this.
So I think in the second half, we should be able to get a result a lot more than we are planning, MOEN in Q1. In some of the categories, this was a slight underperformance, but their target has been completely overcome, it’s achieved. So ACIM and MOEN in the second half will lead the progress, especially in the five business areas that I had talked about earlier.
Manabu Akizuki
So on Q-on-Q, profitability seems as though has declined slightly in ACIM and MOEN. So if you exclude restructuring, what is the reason for this decline in profitability?
Akinobu Samura
Well, there was a restructuring. And also in Q4, there was a big warehouse accident in the United States. And we had an estimate for the losses here. And this had increased a little bit in Q1, and so there was one-off reasons. And also, in the past, there was increase in selling prices, and so we had lost our shares. So there was a correction of that as well. So these are all the one-off reasons.
Manabu Akizuki
I see. And last point, about M&A. So Nagamori-san in the past was saying that the next Nagamori — I’m sorry, I forgot the official, his name, his title, but anyway. He was saying that he wanted to do a large industrial motors. So you had a lot of M&As in the midsize.
And I think if you were to go to the big size, that will be a natural flow. But under Kishida, CEO, under your new vision, your next M&A will be relatively large in size. Where would you touch on — I’m sure you have a few candidates, but where would you start off with as much as you can share, please give us information.
Mitsuya Kishida
So I’m not sure to what extent I can share this information with you, because that’s a very difficult question, but thank you for that. So industrial use or mechanical, I think we are more focused in our discussion and considerations doing M&As. So there are several M&A candidates in these areas. But we don’t really — if we were to categorize them, it’s really going forward now. I mean, right now, the candidates — so I think the new management’s role is to make sure that there is a good strong pipeline of candidates of M&As, and that’s still yet to take place. So on a day-to-day basis, we have very intense discussion on this. So I hope that this would be enough answer to your question. Thank you.
Unidentified Company Representative
That person over there, please?
Takayuki Naito
This is Naito of Citigroup Securities. I’d like to give you two questions here. First of all, when it comes to overall figures here, you have made a further revision. Can you give me a background about this app for the revision? JPY 15 billion for the first half, and that includes NPe. It’s about JPY 5 billion as an additional element, I believe. Please tell me what this number comes from? When it comes to second half of this fiscal year, I believe the number is slightly less than the past half year’s number. Can you elaborate on that?
Akinobu Samura
When it comes to Q1, when it comes to the original guidance, it’s JPY 100 billion operating profit for the first half of this fiscal year. When it comes to Q1, JPY 45 billion was what we were targeting. And we were able to achieve JPY 60 billion, of that JPY 10 billion was concerning accounting issue. In Q1, we have achieved JPY 5.9 billion. And we have eventually made this upward revision by JPY 15 billion. And throughout the year, we are going to achieve — we expect to achieve for the revision of JPY 10 billion.
Mitsuya Kishida
If I may add one thing, when it comes in the area, especially in the automotive business, we have had some fragile situations we have to go through. We have downward revisions a number of times. India, we are a group of achievement, we are committed to achieve as the new business management — executive management. Thank you very much.
Takayuki Naito
When it comes to this additional, I’d like to give you an additional questions to that point. When it comes to cooling business, you have had the business going over down original plan. And when it comes to Q2 and thereafter, at this moment, are you having the cost of the forecast?
Mitsuya Kishida
I would say, yes, when it comes to this business, as I’ve said, this business is under development still. And we need to check the situation very carefully as we move forward.
Takayuki Naito
Thank you very much. Here is my next question. When it comes to these five pillars of business, I’d like to give you a question. Sales are going to increase in each of these areas. When it comes to operating profit ratio or operating profitability towards the 2030, how do you see these are going to change towards 2030? And are there any areas where you can expect a very good margin? If can you please tell me.
Mitsuya Kishida
In these business areas that we are going to be successful. We like to achieve at least 15% of operating profit ratio. That’s the minimum for us to achieve — want to achieve. And there are some start-up products, which are going to underachieve this. There’s a minimum target of 15%. But all in all, we definitely want to aim to achieve operating 15%, 1-5 percent operating profit ratio as the competition in the market intensifies, that’s the level of target that we have in our mind.
Takayuki Naito
Thank you very much. This is my additional question here. As far as you can see, you are going to be able to achieve a 15% in operating profit ratio in all of these areas?
Mitsuya Kishida
We are not going to enter into any business where we cannot expect achieve 15%. 15% is part of our D&A. We do not need to achieve that. We’re not going to be in any business just to grow the business. That’s not the type of thinking that we have.
Takayuki Naito
Thank you. That is all from me.
Unidentified Company Representative
Next, we would like to have some questions from the mass media. The person who is raising up her hands.
Unidentified Analyst
This is (indiscernible). I’d like to ask you two questions to Kishida-san. And the first question is regarding the software development in India. How are you going to have the software development facility in India in the future, as you said, in your explanation. When it’s going to be — is it going to be in near future — sometime in the near future? Can you tell me when it is going to be?
Mitsuya Kishida
Well, the size of the facility is going to be smaller. We’re going to have some movements taking place from some of our group companies. We have this facility called the Center of Excellence in India. We are going to do that from this fiscal year. We’re going to take actions. And the number will increase from several hundred to several thousand in the future, but we have this somewhere in the state with the — which is home to in Bangalore. We’re going to develop software programs in this place within the state home to Bangalore.
Unidentified Company Representative
Here’s my next question. Thank you for the first question. This is not about India, but this is about the midterm and long-term strategy. In the end, you are going to achieve the sales of JPY 10 trillion in 2030, which is the same as before. You explained once again about your company’s mid-term and long-term strategy. Why is that — are you going to change the way you make steps towards the future to achieve this number? Why is it that you explain this chart once again here this today?
Mitsuya Kishida
We have been sharing this information with you, JPY 10 trillion in 2030 fiscal year. This is just about the sales target. We have not been able to explain to you the chart — the steps toward achieving the target. That has only been in Mr. Nagamori’s mind.
What we have done is to redraw the map toward achieving a target of JPY 10 trillion in 2030, that’s the meaning background of my latest explanation about this road map. Of course, this chart, there are some charts, there are some maps that are yet to be complete or perfect. That is true. There are some missing pieces as well. But we have this global team of management executives to try to come up with a one map to be able to be shown to you. That’s the major reason for us to have decided to explain this to you.
Unidentified Analyst
Thank you very much for explanation. Thank you.
Unidentified Company Representative
And here is going to be — next question is going to be the final question. Anyone? Does anyone have any question? Please, the person over there.
Unidentified Analyst
This is Tsunoda of Nihon Kesa Newspaper. Thank you very much for explanation today. I’d like to give you two questions. My first question is regarding the long-term and short-term strategy — long-term and mid-term strategy. You said that you’re trying to achieve JPY 10 trillion in sales in 2030. In 2025, for example, JPY 2 trillion, ROIC with 15%. I believe that was your target in terms of ROIC. When it comes to these numerical targets, about JPY 10 trillion. And I believe this number strikes me as a conservative number. How can we have not been so aggressive in showing us these numbers?
Unidentified Company Representative
The reasons for — and there is not so many people who would like to explain such reasons, I believe. But as I’ve said before, we are trying to withdraw the map — road map toward achieving this goal of 2030, JPY 10 trillion in sales. And as a mid-term goal, we have ROIC related number, which we have disclosed in the past. We have communicated these numbers to you. We’re not going to throw everything away when it comes to our past targets of premises, but the way we try to do things has not been really a good match with the way we try to do things now. We would like to show you the result of our discussions.
We have been targeted based before, now we are team-oriented as a company as we have been able to reach a consensus which we would like to continue to show you going forward. We would like to improve our market capitalization as a company. We will continue to aim to achieve JPY 10 trillion in sales in 2030 fiscal year. We have spent a lot of time discussing those issues. On the balance sheet, we have a cash flow target, free cash flow target as well to achieve a certain amount by — in a certain fiscal year.
But at this moment, we are yet to be able to disclose those numbers to you in detail. If we can reach — if we have — when we have reached the stage, we would like to show — share these numbers with you in detail. As far as I’m concerned, we have — I like to be managing this company based on ROIC targets. Over the past three months, we have not been fully prepared to be able to disclose those attitude. That’s my honest answer to you.
Unidentified Company Representative
Thank you very much. Here’s my second question. When it comes to India and the software development project, you have had the MOU with Tata as a group company. Can you be more specific about products that you would like to utilize in association in collaboration with Tata?
Mitsuya Kishida
We’re not really limiting the area of products that we would like to utilize together with Tata Elxsi. With this company, I myself have been having a long lasting business relationship even after joining Nidec. We have had some automotive-related folks with the company in the group. We have — this is — this really to realize, it’s not about a specific target or a specific group or a specific product to launch. This MOU is about letting you know about the future growth of our individual businesses.
That’s the case that has been so far. But we have some differences in loss taxes, tax half years, tax practices in different states in India. We’d like to give you such information as part of our group-wide activities. And that’s part of our vision as well.
Unidentified Company Representative
Thank you very much. Now we’d like to finish this financial presentation on Nidec for the first quarter of this fiscal year 2024. Thank you very much for your attendance today.
Akinobu Samura
Thank you very much.
Unidentified Company Representative
Thank you very much, everyone.
