Dear all participants thank you very much for joining Nidec's Conference Call. I am Yoichi Orikasa, General Manager, Kyoto branch of Mitsubishi UFJ Morgan Stanley Securities.

As we kick off the conference, I'd like to ask you to make sure all the materials are ready in front of you. If not, please download the files on Nidec's homes page at this moment.

Please note, this call is being recorded, and the conference material will be posted on the company's home page for the coming week for investors and analysts who are not able to join today's call. Now I would like to introduce today's attendees from Nidec Corporation.

Mr. Jun Seki, Representative Director, President and Chief Executive Officer; and Mr.

Hidetoshi Yokota, Senior Vice President and Chief Financial Officer.

Hello, everyone.

First, Mr. Yokota will make a presentation.

After his presentation, we will move on to a Q&A session and Mr. Seki and Mr.

Yokota will answer your questions. Mr.

Yokota now presents Nidec's Q2 fiscal year 2021 results, future outlook and management strategy. Mr.

Yokota, please go ahead.

Okay. Thank you, Orikasa.

Good day everyone and welcome to today's conference call. My name is Hidetoshi Yokota, Chief Financial Officer of Nidec.

Today, Mr. Jun Seki, Representative Director, President and CEO of Nidec and myself will be your main speakers and answer your questions.

Joining us also is Mr. Masahiro Nagayasu, General Manager of Nidec's IR team.

For the forward-looking statement, please see Slide 2 of our presentation material for details. Now, I am going to review the key figures.

Please see Slide 3 for our first half results. As summarized on Slide 4, the first half net sales stood at a record high of ¥910.7 billion, 21.1% higher year-on-year.

The operating profit increased 30.4% year-on-year to ¥90.2 billion. The quarterly operating profit ratio of Appliance, Commercial and Industrial Products, or ACI, has improved steadily and its first half operating profit ratio reached 10.7%.

The profit attributable to owners of the parent increased 38.6% year-on-year to ¥67.6 billion. Based on those achievements, we have made an upward revision to the full-year fiscal year 2021 guidance.

On Slide 5 and 6, you have step chart showing the net sales and operating profit year-on-year and quarter-on-quarter respectably by product groups with exchange rate effect, eliminations and structure reform expense. As you see on Slide 6, while the operating profit of small precision motors, automotive product and electronic and optical components declined mainly due to the reduced sales caused by the lockdown in some Southeast Asian countries where main our production sites are located and also due to one-off expenses caused by the emergency change of production site.

However, the net sales of all the segments made an increase despite semiconductor shortage and the reduced sales caused by the lockdown. Please turn to Slide 8.

As I explained, just now, based on the September quarter achievement, we have made an upward revision to the net sales operating profit, profit before income taxes, profit attributable to owners of the parent and EPS. Please see Slide 12, major OEMs compete the review electrification plan and rapid EV shift is accelerated globally.

As illustrated by the red circles, many of those OEMs have announced that during years between 2026 and 2040, they are going to make the new car sales 100% EVs and fuel cell vehicles, both of which are defined as zero emission vehicles. The greatest opportunity has finally allowed for our traction motor business.

Please see Slide 13. OEM companies in the world can be group into three different types by their strategy of sourcing traction motors.

And it is expected that more traction motors will be outsourced after the turning point year fiscal year 2025. Type A customers are those who manufacture traction motors in-house such as Japanese, American and European traditional OEM, and they stick to this until fiscal year 2025, when they are expected to switch to more outsourcing.

Type C customers are OEMs in emerging countries such as China and Tier 0.5 and are already outsourcing traction motors to Nidec. For those – these – for these companies outsourcing traction motors will completely become the norm after fiscal year 2025 fitting somewhere between Type A and C Type B companies, who are not heavily dependent on outsourced motors, but less committed to manufacturing them in-house.

These companies have established or expected to establish joint ventures and alliance with motors specialists such as Nidec. We expect that regardless of the types of all the EVs manufacturers will eventually be producing traction motors and other major components from independent specialized supplier after 2030.

Please see Slide 14. As I explained just now, Type C customers are currently increasing their outsource orders.

While Type A customers are expected to increase their outsourcing one to two years before or after the turning point. Please see Slide 15.

While establishing local production and supply chain – supply in China, we are eyeing expansion of Europe and Americas. In addition to three our R&D centers in Japan, we have established one in China to speed up R&D for the Chinese market and our production site in China geographically diversified into north, center and south to build stable supply chain.

Please see Slide 16. We are steadily implementing in-house production of main components and equipment by bringing together all the production knowhows and technologies within Nidec Group.

The pictures on this slide are showing example of in-house manufactured parts such as die casting, precision machine, stamping/pressing and resin molding, as well as examples of in-house equipment such as press machine, winding machine, grinding machine, gear shaper cutters, and the motor benches. By driving comprehensive vertical integration through in-house production, we are going to achieve overwhelming cost competitiveness and R&D speed up in our E-Axle business.

Please see Slide 17. The cumulative number of EVs using our E-Axles reached 200,000 units.

And the first half volume has doubled year-on-year. The number of EV modals, adapting our E-Axle has expanded to nine.

Please see Slide 18. As the 10th EV model adapting our E-Axle, 200 kilowatt Ni200Ex has been adopted in ZEEKR 001, the first model of Geely's new premium EV brand ZEEKR.

As is illustrated on the previous slide, Geely's 2 EV models Geometry A and C have already adopted Nidec E-Axle. However, ZEEKR is the premium brand, and this is the first case where our E-Axles have been adopted in premium Class EV model with a dual-motor type option of ZEEKR 001.

You can achieve maximum output of 400 kilowatt, maximum torque of 768 Nm or 0-100 kilometer sprint of 3.8 seconds, maximum speed of 200 kilometer per hour. The sales of ZEEKR 001 in China start within 2021, while it’s global sale is set to start in 2022.

Please see Slide 19, despite semiconductor shortage, material cost raise and the COVID-19, automotive existing business kept double digit operating profit ratio for five consecutive quarter after bottoming out in Q1 fiscal year 2020. Please see Slide 20, paradigm shift from ICE vehicle to EVs is rapidly accelerated in two wheels and compact car as well.

In the mobility area electric two-wheeled vehicle market formed mainly in India, China and Asian countries is expected to enter high growth period driven by environmental measures. We are currently focusing on two major markets of India and China, and have already started mass production of motors for major customers.

In the main EV area, we are receiving inquiries from multiple numbers of potential customers, mainly in the Chinese market. And eying for possible mass production of motor for major customers.

Please see Slide 21. In small precision motor segment, we are implementing a business portfolio transformation I mean, HDD motor market structure change and the mobility and the mini EVs, which belong to this small precision motor segment expected to be the drivers going forward as I explained in the previous slide.

Please see, Slide 22. In ACI we are executing a structural reform in overseas business and looking to enter a new phase of growth, while estimating CAGR of the market at 3% to 5%, we aim to grow ACI sales at CAGR of 10% to 11%, by creating a new demand through solution proposal in markets such as HVAC and Henry in global [ph], where structural change is occurring.

Please see Slide 23. ACI’s operating profit ratio is steadily improving after bottoming out in Q4 fiscal year 2019, and we have achieved record high net sales and operating profit in quarter two.

Please see slide 24. In Other Product Groups operating profit ratio is keeping high level with over 20% operating profit ratio in quarter two after bottoming out in quarter four fiscal year 2019.

And we have achieved record high quarterly net sales and operating profit in machinery segment in quarter two. Last but not least, on behalf of entire management team I'd like to thank you customers, parents – partners, suppliers for their support and commitment, as well as our shareholders.

At this time, we like to open up the call for any questions. Thank you.

Thank you very much Yokota. Now we'd like to turn to the Q&A Session.

Mr. Seki and Mr.

Yokota will be pleased to answer your question. Today’s question-and-answer session will be conducted electronically.

[Operator Instructions] We now pause for questions from the participants. Okay.

Our first question today is from James Pulsford of Alma Capital. James, please go ahead.

Great. Thank you very much for your time.

Can I ask just a couple of things about the automotive side? And in your presentation, you say that the mainstream OEMs that are sort of Type A’s you expect the move them to be basically relying on internal production for the next sort of four or five years, for them to move to outsourcing.

And I know the auto companies plan quite a long way ahead. At the moment is this just a hypothesis or do you have concrete evidence for this or is it too early for that?

Thank you, James. Seki speaking.

And then if we go back Page14, we cannot explain the detail of customers, but many of Type A is already looking for to move, to Type A dash. So, at this moment, they are producing their motor by themselves, but we are receiving a RFQ for like lowest-priced only, or status only.

So they purchase some components from us and then just to make a final assembly as motors so that we are seeing. And then other case is from these six months, we lap three taking order for hybrid.

It's not E-Axle for EVs, but it's already exceeding the two mediums only these six months. And then this is what happening in there, they shift from hybrid to EV and then hybrid is no longer their core product.

They are intensively gathering their resource for EVs, then naturally hybrid going out. So, it's occurring, not only for OEM, but also Tier 1 suppliers as they are shifting to more EV.

That's why it's coming to a Tier 2 side or us. So together with those two phenomena, I think, it's not extremely clear, but it's already starting.

They are moving from Type A to Type A type. This is not from all our OEMs, but some of our OEMs with next four years, I think, many OEMs will move, that we are seeing.

Okay. Thank you very much.

That's a very clear explanation. And I wonder could you also update, are there any significant, new, major contracts developments or awards that things that have changed over the last three months, new E-Axle business?

I think it's correct that you've updated your official forecast for E-Axle orders from 2.8 million to 3.5 million. I'm not sure.

I believe that's correct. And I wonder on what – I remember the 2.8 million before included if you like is sort a discount because it was a bit difficult to tell what was coming through.

If you have changed to 3.5 on what basis is the 3.5 million made please?

Yes. Thank you again, James.

First, can we go to Page 17? It's obviously increasing very acutely.

This is happening not only for us, but also all EV in China. And then we don't have a September data yet, but if we pick up China EV and plug-in-hybrid, we are adding probably in hybrid, but because for us it's same customer anyway, they have a traction motor to drive vehicles.

Those combined percentage is 17%. By the way, AV alone is 13.9%.

So almost you know one out of five cars is becoming EV. And then it's happening similar in Europe.

Europe data in August was 18.8%. It's a combined EV and plug-in-hybrid.

EV alone is 11.1%. So, from these, what I want to say is we didn't believe in number, quantity coming from our customers.

It's always like a 50% off, sometimes even 70% off, but now what's happening in China is, their requirement, their original requirement is they are changing their original requirement even more. So let's say, they requested 50,000 in the second half, increasing to 100,000, which is very difficult to build because of a lack of semiconductors.

But of course, we are welcoming this, their required volume is much more reliable than before because of this EV wounds. So based on that, we changed the conventional issue from a current order and then very high desirable RFQs before we introduced to like a 50%, currently I am recommending to use 75%, 75% even maybe too pessimistic based on current.

Then we decided to change 2.8 million to 3.5 million. Actually, if it's same formulas, let's say like a 3.1 millions, because of these conversions, I clearly say 3.5 is very makeable target.

So that's the background and all this.

Thank you. So the 3.5 million still includes some elements of discount, but smaller than before.

That's right. That's right.

That's exactly right.

Wonderful. Thank you.

Thank you very much. I have some more questions, but I'll go to the back of the queue.

Okay. Thank you.

Thank you.

Okay. Thank you, James.

Our next question is from Ramsai Neelam of State Street. Ramsai, please go ahead.

Yes, thank you very much for taking the question. So to follow up the previous question, can you give a breakup of the 3.5 million units into like, what is the percentage of the confirmed orders in the orders with the high probability?

I think before it was 50/50, I mean, is there any change in the ratio for the 3.5 million?

Just a moment. I'm sorry.

Microphone quality is not perfectly good, can you repeat your question again?

Yes. Am I audible now, is it better?

Yes, it's a little better.

Yes. So we have about revised target of 3.5 million units.

So can you break down what is the confirmed portion of the orders? And the orders will be high probability.

I think for the previous target, we have 50% as the confirmed orders and 50% as orders with high probability. So is there any change in the mix for 3.5 million units?

Yes, actually the order we got is two million. And then besides that we have about the over two million, very high probability RFQs and potential orders.

And then we converted that to 150 – 1.5 million. So 2 million from order, 1.5 million high possibility that makes 3.5 million.

Thank you. That's great.

And moving on to the Vietnam locked down. So there's a huge impact on sales.

I mean can you give color on what is the impact from lockdown and also what is the impact from the semiconductor shortage on automotive sector especially for Nidec in Q2?

Okay. First let me answer your automotive area questions and then Yokota-san will explain you the retail administrations.

First, for automotives, let me tell you just average. Okay.

We are not living with average, we are much better than average but automotive average in 2000 – sorry, this fiscal year 2022, it's allowing the 82% compare with 2019. We don't compare with 2020 because it's extremely low, but we originally expected almost similar as 2019.

So it's about 18% off. And then we knew this and up to June and then we expected it will be better dry August towards Q3.

As you know Malaysias, Vietnamese and Thai went to lockdowns because of the COVID-19 pandemic. And then we have automotive sector has a huge supply for semiconductor or harness from Malaysia.

And then it's completely 100% locked down. It takes – it continued about one and a half months.

So automotive world completely lost semiconductor for harnesses, that makes current volume down significantly. We are seeing about 25% volume down compared with 2019 for like September, August period, – sorry, September, October period.

So it's still continuing, sometimes definitely coming back, we stopped to see optimism for this way. So we intentionally forecasting volumes, very pessimistic, and then we still squeezing our cost side that we are saying.

So everyone will say, Q4, it will come back, start to come back. It may take a longer time than we expected before.

So that's semiconductor impact on automotive side. We are not like a 25% off from 2019.

We are only slightly off. So we are far better because first, we are increasing market share from 2019 to 2020 to 2021.

Second, in automotive area, it's clearly see losers and winners. We have a more customers on winner side.

Those two element makes our volume better than average. That's our automotive area, Yokota-san for details.

Yes. So the impact of Vietnam lockdown, we have disclosed the numbers in the financial reports.

It was estimated like ¥11 billion in operating profit. And this segment spread is like ¥8.5 billion is for small precision models.

And a 2.5 is for automotive. So out of this total ¥111 billion, roughly 40% to 50% is volume loss, let's say marginal profit/loss.

And that remaining costs is all the sourcing change or employee support, expense, or hotel, [indiscernible], et cetera, et cetera, to maintain our workforce within in the factory. So all-in-all, the cost was – our operating profit impact was ¥11 billion.

Of course, we made a lot of counter action to mitigate or offset this loss in the first half. So in the second half – sorry, third quarter onwards some of the costs, just one-time in second quarter and the volume loss we may try to recover as much as we can.

That's what we can say now.

That's great color. So to follow up on the same question, can you give some color on what is the capacity utilization or the current status of the production facilities in Southeast Asia?

Can you share what capacity of which factory or segment production, especially?

Yes. In the areas which had impacted due to lockdowns in Q2?

Okay. Maybe I can only tell what kind of product we produce in Vietnam, for example, is that okay for you?

No, no. So let me say asking the capacity utilization that was in regional, we have many product, some are precision motors, some are electronics, and the some are like about for transmissions.

And then because Vietnam has a big cost advantage including taxations. We are fully utilizing those almost 100%, even 110% because of the just after disease of the this pandemic actual usage average 80%, 85%.

It’s not completely recovered as 100%. Meanwhile Thailand it’s mainly had this drive trends.

I took completely recovered about 100%. And then Malaysia very similar to refinance let’s say 80%, 85%.

That’s a recoveries positions. Is that answer your question?

And one last question. Yes, yes, the same question I asked.

Thank you. Yeas, and one last question, if I may ask.

So we don’t have I remember from Q2 call, we don’t see much impact on ACMI segment from semi shortage. So if that status remind same in Q3 and going forward or are we seeing any kind of supply chain constraints on ACMI segment?

I’ll say yes, but Ramsai, because that segment is growing, we privatized the sales, so even applier requesting increased price, we mostly adopted then we increased ourselves, but our cost to becoming high. So actually we resolved those price up, that’s price up probably our profit had would be much better we are facing.

I know also we have facing very high logistic cost, either sea or sea freight or air freight. So it’s continuing from Q2 to Q3.

It’s not increasing, but it’s a very high level, maintaining high levels. So good news is one of the highest to increased part was magnetic steals.

We need those for all the motors. That was peaked in Q2 in October.

We are seeing a slightly coming downs. It’s not significant.

So first, we already confirmed. We don’t have a shortage, a significant shortage, but we are suffer – we have been suffered by a price increase of those, and then it will be soft, okay.

Yes, thank you, thank you. I joined back to queue.

Okay.

Okay. Thank you, Ramsai.

Our next question is the second round questionnaire from Alma, James. James, please go ahead.

Yes, wonderful. Thank you very much.

Can I just to ask a pretty fun festival machinery and then follow-up on precision. In the machinery area, you had record levels for Q2 individual quarter of sales and also profitability was dramatically higher.

And I wonder, is that – was there any one-off element to that, or does it simply reflect a very strong demand and the sort of cost of the sort of scale benefits is sales ramped up. Can you call into that please?

Yes. Basically the machinery segment of our inspection machine was stamping machine all of the pieces in the very good shape.

Thanks to all the demand in the global, especially China. So that is the one that we as a driver, that we could enjoy the sales and the profitability and some profit one-timer is included in operating profit actually, that is a boosting what I think probably show a little bit higher.

Can you tell me roughly how much was that?

Roughly 2024, that was hopefully and yes.

Yes, yes, thank you. Thank you very much.

James. This is Seki speaking.

Not single reason, but a majority over this good self is based on a high demand of semiconductors. So semiconductor related stamping machines, semiconductor related measuring machines those going very well, but same time as I explained, we are suffered by semiconductor like go through the conductors.

So it’s a plus and minus to get it.

Okay, good. Thank you very much.

And could I just ask on the precision area at the interim you mentioned, I understand there are lots of, there was a one-off impact as was shutdowns, but the – if we look at precision profitability, how does profits, how does that breakdown between the spindle side and the HDD measure and the rest of the business, please, instead of say, what were half one margins because the spindle side alone, please.

Okay. So you address to know what the Q2, the September quarter results in terms of the profitability of the small precision motor, right?

Yes. And also that then we can see the profitability of the other motors there as well, please, yes, thank you.

Yes. So we say roughly a open margin for spindle, how this drive was a 31.0% for a the September quarter.

Then the known HDD at this moment.

So the 31% must exclude the lockdown impact. Is that correct?

Okay. The key point is we do not have so much of the impact, because those lockdown is centering around the Vietnam fortunate cities, that’s not the price that we are making the motor for how this drive, that hopefully Vietnam is known HDD motor.

Okay. So yes.

So thereby, roughly we say 3.2% just submit.

James, why the last thing you get me on that’s let me explain one thing, for spindle sorry, precision motor side, we have a manufacturing base in Thailand and Vietnam. And the HDD side is located in Thailand and then pandemic level of between those two countries once same, but treatment government is completely different.

In the Thai, they allow us to operate, continue to operate our plant as long as we provide appropriate care to avoid a pandemic, sorry clusters. But meanwhile, Vietnam was crazy.

If we have only one new patient out of a 5,000 employees, they request us to shutdown. Well, of course, we made a mini complaint, official complaint even to a President by Nguyễn Xuân, then now it’s softer and much better, but that’s why we don’t have the damage for how this right side, even its in south sea features.

Okay. That’s – thank you.

Okay. Already we disclosed how much is the motor for HDD, how much is the known HDD, how our sets small precision motor, then we say the HDD motor or margin is roughly 31.

And the known HDD is only 3.4%.

Yes. Thank you very much.

That’s going to include some of the distribution that we made for ¥8.5 billion negative impact that we analyzed from the COVID-19 in Vietnam. Okay.

And sorry, the figures equation before of ¥11 billion for the whole company and ¥8.5 billion, is that for the first half or the second quarter alone.

We did not have so much of the impact in the June quarter. The query we had the impact from this COVID-19 in the September quarter, July, August and September and still in October.

Yes. Let’s say starting from first week or second week of July through mid of September.

It’s all about peak.

No, still continuing about – much better.

Okay. Thank you for much, indeed.

And is this, okay, so in which case the sales also for non-HDD were also rather negatively impacted by these production cuts you have. Is it possible to give a sales split for the, I think you have 100 – for the first half, ¥155.7 billion of other motors.

Could you – is it possible to give me a sales split for that, please? So it includes CCI and vibration haptic and other things, I think.

Okay. So we usually divide in small piston motor into the – maybe three segment in the – in our so of the model, right?

And at this moment, we can say how this drive already we announced, the number of the top line, right, which is the something like, ¥26.4 billion.

That’s for the Q2. Yes.

Yes. So you need a Q1 plus Q2 or Q2 number, whatever.

If you have the first half number, that would be good…

For the first half number is – yes, ¥49.4 billion on the HDD. And the OP margin is 30.7%.

Then we have a second portion is the DC motor fund and the other, okay, which going to include CCI, because we are now separating CCI there, so ¥139.1 billion for the first half and 5.0% OP margin. The last portion in this small precision motor is a vibration haptic, ¥16.5 billion top line, and 6.1% OP margin.

So those are the three segments and small precision I describe DC motor fund the other and the haptic vibration. So those are the number.

Okay.

Okay. Thank you very much.

And then lastly, sorry, if it’s okay, on the HDD side, can you – I don’t know how much detail you’re happy to give, but in terms of sort of volumes your own volumes and ASP and overall, and if possible for the various sort of elements within that, how much you are happy to disclose would be great, please.

So we’ve been clearly in this crossing the shipment volume by form factor and the ASP. Okay.

So for this June, I mean, September quarter, we shipped ¥34.0 million total HDD spin motor, where a 2.5-inch high end is ¥9.2 million and the ERI, sorry – 2.5-inch high end is ¥1.1 million, sorry, ERI ¥9.2 million. Okay.

And the 3.5-inch is ¥12.3 million and 2.5-inch is ¥11.4 million. So regarding the ASP, the total ASP is $7.06.

Okay. So as you can see from our conscience that because COVID-19 hit our customer in time as Mr.

Seki explained. So thereby we see the shipment is a little bit higher than the production for this quarter.

Okay. So thereby, we are keeping something like a 55% share for this quarter, and this is the last quarter, our inventory adjustment by our former competitor maybe affecting our business.

This would be the last quarter for that.

Okay. Last quarter.

And the figures you gave me a shipment figures. Yes.

No, no, no, no. The number which we talked about is shipment of our motor.

Yes. Your shipment figures.

Yes, absolutely. Right.

That’s great.

Always we are just in time. So our production number and shipment number is almost in that, especially in the case of how they drive spin more.

That’s it. Thank you.

I’m sorry. Very last question.

I apologize. For the first half of the year, any restructuring costs you made were quite small, I think.

Is it about ¥1.5 billion? Just looking at your flow chart, is it showed an improvement of ¥5.4 billion year-on-year?

Is that correct?

So the spending on quarter two is about ¥6.50 billion.

¥6.50 billion, yes.

Yes. So you want to configure first half versus half-half.

No, that’s absolutely fine if you give the Q2 figure that’s enough. And in terms of the – for the second half or the full year, you’re making some changes to production, particularly in the small precision side.

What figure do you expect for the full year? Do you have a target for that please?

Yes. Normally, we constantly make a destruction gear fault by maintaining, like what, ¥2 billion Japanese concentrate.

But recently spending is a little bit low, because of all the supply chain confusion and everything gets a bit stabilized. We will examine how much exactly we want to make destruction.

But luckily, I would say, ¥2 billion average we spend per quarter

Per quarter. Okay.

Okay. It just happens to be lower in the first half of the year.

Okay.

Exactly.

Thank you very much. Thank you very much for answering all my questions.

James, just addition from Seki. We had about €10 million restructuring in Europe for appliance commercial industry.

Because the sales is growing too much, I intentionally stopped, because we need peoples. Those are also mixed.

Then new – I don’t expect this pace is slowing down in H2. We may postpone to next year.

We have some area, we have to restrict, because could sell from industry appliance side, we didn’t spend. Okay.

Okay. Thank you.

That’s very clear. Thank you very much.

Thank you very much, James. Our next question is from Hamish Chamberlayne of Janus Henderson.

Hamish, please go ahead.

Thank you. Good evening, everyone.

Thank you for taking my question. So my first question is to do with the recent acquisition of Mitsubishi Heavy Industries Machine Tool.

And I was wondering if you could just perhaps go into a little bit more detail in the background to this acquisition, its strategic fit and the financial impact.

Okay. Thank you, Hamish.

This is Seki speaking. First, background, why we acquired this company.

If we go to vertical integration page for E-Axle Page 16, so here we have a vertical integration part side, which is upper side, the die-cast, gears and plastics. Usually some Tier 1 or Tier 2 motor company outsource of those.

But we don’t hesitate to invest and even our investment become higher, we are prioritizing cost lower. And then on top lower side is our vertical – example of our vertical integration for equipment side, pressing machines and then wiring machine of copper wires and then some of testing equipment for motor itself.

And then from second from right, that is gear machining machines. And then historically automotive world had lots of gear, particularly manual transmissions.

But manual transmission wasn’t sensitive for noise because usually people accelerate always. So those were very usual.

But in case of EV, EV itself is very quiet and on top, usually manual transmission gear only match with one side, for EV side, we have a clockwise revolution, anti-clockwise revolutions, so matching phase need to be very careful for both sides. So those background why we need high technology for gear, while gear was used continuously from transmission eras.

So we looked for necessary technology to control this noise, vibration and harshness and then Mitsubishi Heavy Industries had a very high potential. Just concern was their equipment is too high.

The equipment is too high because their sale is extremely low with very high fixed costs. That is a favorite Nagamori-sen, always going to those very poor operated company and patches to very low price and distract very quickly.

Actually, we completely imagined this company beginning of August and in September she made this company positively profit. So like a magic.

So she’s expecting this company go to 10% in last month of this fiscal year, which is March 2021 – 2022. So, usually we don’t believe it, but if she say, she’d do, she does, probably she does anyway, so that we are seeing.

And then we are showing many of equipment in here but this is not last. We have some missing puzzle.

We have to fill one by one. So we will continue.

Only hesitation we are considering is like semiconductor areas because usually that technology going very fast, even we prepared, maybe invested equipment may just waste. So for that area, we will be very careful.

But other area, we positively continue this investment and margin the acquisitions. Is that answering your questions?

Yes. And just to follow-on from that.

So just to understand, so this is not going to be a completely internal acquisition in the sense that the sales are to internal as part of your – to other Nidec operating units within the E-Axle business. There are some external sales and end markets here.

Is that right and what are they?

Yes, yes. The [Technical Difficulty]

[Technical Difficulty] there were quite a number of acquisitions in 2019. And just for investors to update on how the integration has gone and the contribution has gone from both the Omron Automotive Electronics business and the other sort of large acquisition we did in 2019, the Whirlpool business and a compressor business.

Embraco, right? Embraco.

Yes, Embraco. Embraco, yes, exactly, Embraco.

So Omron and Embraco, yes.

Yes. Thank you.

Embraco was acquired quarter one in 2019, and then Mobility, we call the company Mobility acquired from Omron it was done Q3 of 2019. And then both are allowing the 2% to 3% op margins when we acquired.

And now both company has completely double-digit. So the PMI won’t be finished until they become a 15% that is Nidec criteria.

But for double-digit ops, they easily reached that level. Now they are moving from double digit 10% level to 15% level.

The only concern is as I explained, as appliance in industry and commercial side. For Embraco side, we have a very high market share for refrigerator compressors for both personal use and commercial use.

They are the one heavily impacted by price up of magnetic steel. And then as I said, it was peak in September, now slightly better, but still exists.

So there – if without those, probably they already reached 10.5% [ph] or 12% levels. Now they are doing best to mitigate this impact.

They are around the 10.5% that is we have there. And Omron side, of course they reached a double digit by Q4 last year, but because of current automotive area volume down and then many price increase from materials.

They are around 10%. So without those handicap probably the other capabilities around 11% and 12%.

So those were there.

Okay. Thank you.

And just in terms of the sales performance, so you said the Omron that has been impacted by the automotive industry downturn. But are there any other comments you can give for both Embraco and Omron in terms of the organic sales performance or sort of R&D and new market for?

Can we go to page 23? That is a sales in left, a profit in light, and then main contributor of this sales increase coming from Embraco.

Their sales in China, Europe and Brazil, particularly Brazil very strong. So they are really leading their disclose.

I don't have a exact number in my hand. And then, or…

Okay, sorry, yes.

In the mobility side, maybe because it's similar to overall behavior. We can use automotive sector pictures.

If we go 19, please look at blue bar, sorry. We should see green bar, organic side.

So Q2 sales was almost same as Q2 2020, slightly better, but industry is much lower than this. So I think they are doing a good jobs, but still impacted by this lack of semiconductor volumes.

Is that answering your questions? I'm not sure.

I think that's very good. Just in terms of the employee turnover in those acquisitions, any sort of perspectives there in terms of the Omron you saying that they had some very talented engineers and they would be a good cultural fit with Nidec, or just how has that gone?

Yes. They are kind of a benchmark very fast fit as [indiscernible], very fast fit and I'm not hearing a huge turnovers, usually average turnover in Nidec is 2% annually, probably there [indiscernible] side, Embraco side same.

We have many company in Mexico and Brazil, turnover from GA, we say General Appliance, is always benchmark much better than any other company around them. Even internally as Appliance Industry Commercial, AIC, [ph] many other – our team is possible them.

So we're not rolling any of turnover from both of them.

Thank you very much.

Thank you very much, Hamish. We have exhausted planned conference time.

But there seems to be one more question. And so this will be our last question for tonight and Mr.

Yasushi Annaka of MUFG Securities EMEA. Mr.

Annaka, please go ahead.

Hi. Thank you very much for the presentation.

One question from my side. On Page 7, we have a CapEx plan revised down ¥10 billion.

Could you just let me know about a bit more detail of the background and what sector will be affected about this revision? Thank you very much.

Yes. Thank you for the question.

Actually this revision is based on the nutshell posted down effort for our investment in the first half, and also based on the – some of the timing issues of the planned investment. So we adjusted.

So this is not based on the particular reason of any project or cancellation or any fluctuation in the capital expenditure amount. So this 10 million deduction is some timing issue and also deflection of our CapEx control in the first half.

Okay. That's very clear.

Thank you very much.

Thank you. Thank you, everyone.

Just before closing, I expected to some question, but it didn't come. This time we updated both sales and profit and particularly for sales side original of our announcement was ¥1.7 trillion.

Now we are updated to ¥1.8 trillion. But usually our second half sales is better than first half sales, and then first half sales is already exceeding half of those.

So we are expecting better than ¥1.8 trillion. Then 2022 as I said last time as beginning of vision 2025, we have to achieve ¥2 trillion which is two years late from our original vision 2020s.

That will definitely come. We are very confident.

So that's first point. And second point, as we demonstrated, we spending on many pages, I think steadily of business for traction motor getting form and former.

So we just demonstrated 3.5 million as our new target. But besides those I think everybody understood our strengths of cost by vertical integrations and then actual sales results in China.

So those two point I wanted to emphasize again before we closing. Orikasa?

Mr. Annaka, thank you for your question and Mr.

Seki thank you very much for your supplemental explanations. Now, we'd like to conclude the conference call today.

I’d like to appreciate your active participation. Should you have any further questions, please do not hesitate to contact Nidec Corporation or U.S.

sales representative at Mitsubishi UFJ Morgan Stanley Securities. Again, thank you very much.

And you may now disconnect.

Bye-bye.

Thank you.