6268.T6268.TJPX
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Operator: Now we will start the Fiscal 2023 Results Briefing. Again, please refrain from recording during the session. Presentation material is available on the top page of our website www.nabtesco.com/en. Please note that today's conference is being recorded. First, let me introduce today's speaker, Mr. Atsushi Habe, Representative Director, Senior Managing Executive Officer, Corporate Planning, Accounting & Finance, Information Systems, and Corporate Communication Department; Mr. Yasushi Minegishi, General Manager of Corporate Communication Department. Mr. Habe a will give a presentation followed by a Q&A session.
Atsushi Habe: Hello, everybody, my name is Atsushi Habe. Thank you for joining and I'm more than happy to give you the brief and for your better understanding after this I go through interpreter. [Foreign Language] Good afternoon. Thank you. Good afternoon and thank you very much for joining today. [Foreign Language] First of all, I will give you a presentation based on the distributed material. Let me touch upon the results for the fiscal year 2023. Please go to page three. [Foreign Language] As for the cells, on the far left, you see the results for fiscal year 2022. On the far right, you see results for fiscal year 2023. In fiscal year 2023, sales increased by 24.9 billion yen year-on-year to 333.6 billion yen. [Foreign Language] As for the sales, sales of component didn't increase but the sales for transportation and accessibility was strong that's why we achieved this result in sales. [Foreign Language] I will move on to operating income or page four. [Foreign Language] As for operating income, impact of one-time factors and drop in profit of component and solution was very big. As a result compared to operating income of 18.1 billion yen in 2022, in 2023 operating profit was 17.4 billion yen. [Foreign Language] Let me talk about the one-time factors and behind profit decrease and also the details of components solution business. [Foreign Language] First of all, let me talk about the one-time factors. First of all, in transport solution business, overall in the business, automotive sales was sluggish as a result the plan was not achieved, so we booked impairment loss for overall. And then Accessibility Solutions, we booked again on exchange on land and the other things. In addition to that in ACB business, at [Indiscernible] Switzerland at the Gilgen, material cost and personnel cost increased, so we reduced the plan and we booked impairment loss of their goodwill. And in manufacturing, there we sold a subsidiary called TS Precision. In total, profit was down by 800 million yen from those factors. [Foreign Language] Let me move on to the component on page five. [Foreign Language] Page five, and I will there talk about the Component Solutions business only first of all, and this shows a factor analysis between the 2022 and 2023 and the biggest factor is indicated here. Sales changed a lot. And in particular in precision reduction gears, in the first half there was high demand, but in a second half, demand [Indiscernible] dropped, so there was the very impact there of sales change. [Foreign Language] In addition to that, procurement costs increased as well. We did activity to pass on cost increase on the product prices, but we were not able to do that 100%. [Foreign Language] Let me move on to forecasts for 2024. Please go to page seven for the market forecast. [Foreign Language] And in 2024, we expect business environment for the transportation, transport solution, accessibility, manufacturing will be good. The problem is Component Solutions business and as for the precision reduction gear, I think it will be in 2025 or after when we will be able to see the recovery and also hydrochloric equipment, we expect sluggishness in China that will continue. So for CMP we expect the challenging situation will continue. [Foreign Language] Page eight please. [Foreign Language] This shows full year forecast. Sales forecast is 322 billion yen. Operating profit forecast is 12.8 billion yen. Very difficult conditions are the expected, however, we want to maintain the dividend per share at 80 yen. [Foreign Language] I will talk about the situation by segment, so please go to page nine. [Foreign Language] On the top you see sales, on the bottom you see operating profit. As you can see there we expect drop in sales of CMP, both precision reduction gears and hydraulic equipment will be faced with difficult situation. We want you to offset the drop in sales of CMP with sales increasing TRS and the manufacturing but we cannot do that perfectly, so, in total, we expect sales will be down. [Foreign Language] Please look at on the operating profit on the bottom. For CMP, the sales drop impact there is significant of course. In addition to that, we expect their cost will increase, so we will not be able to enjoy the volume effect that would have the impact on profit. So, in total, we expect operating profit of 12.8 billion yen. [Foreign Language] Page ten please. [Foreign Language] And in this situation, it is difficult for us to explain to investors if things have -- will not be changed. We need to do something. With that in mind, here we launched, and now it is called, Profit Improvement Plan, Project 10 and CEO is the person in charge. The CEO is leading these activities. And so on page 11, I'll touch upon the details of this project. [Foreign Language] And in 2021, our operating profit margin was 10%. We wanted to recover operating profit margin to this level as soon as possible. We intend to get back to this level in 2026. In order to do that, we are working on three measures; first of all, the margin improvement on existent business; secondly, optimization of fixed costs; and thirdly, contribution from the new businesses. We are there promoting those three project activities [Foreign Language] And I will go into the details. First of all, the number one, margin improvement on existent businesses. To do this and it is indispensable to improve margin of the CMP. So I will focus on precision reduction gear of industrial robots in CMP on page 12. [Foreign Language] There are two gloves on this page and these gloves indicates outlook of industrial robots or their market forecasts for the EV or usage ratio of automation in each country, and total demand is expected based on those. We think that the automation there will progress more in various countries in the world. And I think the demand for industrial robot will continue to grow. I believe in that. [Foreign Language] Next page please. [Foreign Language] I would like to share our analysis of precision reduction gears, and this page shows trends of order of precision reduction gears since 2007. [Foreign Language] And I will talk about the three major points, which are indicated on the top. First of all, demand has grown at CAGR of 8% with fluctuations and, number two, 100 points exceeds the previous peak in five-year increments and that means expected to reach 500 points in 2027; and then thirdly, in consideration of the current fluctuation, I think it will be in 2025 or 2026 when the peak will reach a level of 2021 or 2022. [Foreign Language] Our share is not declining. I am certain that the big waves or big fluctuation will come again in 2025 or 2026. [Foreign Language] Next page please. [Foreign Language] In order to improve profit of the precision reduction gears, there are three items we need to walk on. First of all, their price pass through. And in this initiative our top management is doing negotiation with customer. They're hoping that our customers will accept our offer or our request for price increase. Number two, the cost reduction that will we ensure a comprehensive cost reduction in the project. Number three, we want to regain and from an utilization ratio where market theory covers in preparation for that we already are making the maximum use of the automation line and doing various things and we want to achieve recovery of operating profit margin to 11% in 2026. [Foreign Language] Next page please. [Foreign Language] And this shows the numbers three point of Project 10, contribution of their new businesses. Under the current medium-term management plan, we are sowing seeds and seeding in phase we are in right now. And we are planning for studying phase as well. Currently we are sowing various seeds and we want to the harvest them by 2026. [Foreign Language] On this page, you see Field A, Field B and Field C. First of all in Field A we are working on the new products in existing market. Field B is existing products for new market. Field C will have new products in new market. We are making preparation therefore all those three fields. Because of time constraints, I will not go into the details but we are sowing various seeds. We are beginning to see the effect. So please put expectation on these activities. [Foreign Language] I will skip detailed explanation and I will now move on to the portfolio explanation on page 20. [Foreign Language] Last year, in 2023, officially internally there we launched their portfolio, their project. We visualized and evaluated their 36 business units. [Foreign Language] As you can see there, for example, in rebuilding the businesses we already achieved some results. For example, in Aircraft Equipment, the situation was difficult in the past but the currently and there is a big wave, I mean, both commercial aircraft and the defense business are growing as well. And then those businesses are moving to the upper, the right hand side in this table. And as for the Railroad Vehicle equipment, we are working on the new project and those are driving our growth. And for OVALO, we change the content of business and we are moving in this business into the new race. [Foreign Language] On the other hand, for TS Precision, we divested this business to best owner. And regarding the portfolio management, it will be one year in July. So based on the level we do, we will like to explain the situation in an easy to understand manner to investors going forward. That concludes my presentation. [Foreign Language] Thank you so much.
Operator: Now let's move on to the Q&A session. [Operator Instructions] Yes, I have one question from Mr. William [Phonetic]. Could you unmute yourself?
Unidentified Participant : Okay, I have two questions. The first is about your exposure to China robot makers. If you do have exposure, what was the peak and what is the current exposure as a percentage of robot gear sales? That's my first question. And my second assumption will be about railroads, but shall we do one question at a time?
Operator: Yes. So we will answer your question one by one. Is that okay?
Unidentified Participant : Yes.
Atsushi Habe: [Foreign Language] First of all, regarding Precision Reduction Gear, our exposure to China is not so high because we are only there doing business targeting high end robotics manufacturer. Of course there are many robots manufacturers but we are not dealing with their low end manufacture. So I think to the total Precision Reduction Gear sales, China robot manufacturer accounts for only 5% or 6%, I think.
Unidentified Participant : Okay. Thank you. What about material handling? If you divide your robot gear sales between material handling and robots, what is the breakdown?
Atsushi Habe: [Foreign Language] First of all material handling is for logistics or distribution. First of all, I would like you to understand that some of them have shapes of robots and others do not have shapes of robots.
Unidentified Participant : Okay. But is material handling a fast growing area for you or are you in higher end? But is material handling considered high end or is it just a lower end?
Atsushi Habe: [Foreign Language] I think that's the application of material handling itself is growing very significantly and it will continue to increase. [Foreign Language] And also it depends on application, even if we say material handling in a word. For example, material handling and moving goods or products, they are from left to right and this is not high end at all. But on the other hand material handling is utilized to move things. Precision is material for semiconductor as well. For such application, high-end robot is utilized, so it is very difficult to say whether a material handling itself is high end or low end.
Unidentified Participant: Okay, just one last question on this but you intend to keep supplying both, the entire material handling or will you focus more on the complex robots or are you going to supply everything going forward, if you have a strategy, a strategic emphasis?
Atsushi Habe: [Foreign Language] We aim at both and basically the robot business is the extension of the conventional strategy. Of course we will want to continue to grow the material handling as well as the application -- other application, for example, there, FAD as well and many applications and products are changing but we want to customize products to meet the needs of customers.
Unidentified Participant: Okay. I was going to finish this but automotive is larger than material handling alright, as a need for robotic, for you? I just want to confirm that. As the largest user, robotics is the largest and then material handling is a second largest?
Atsushi Habe: [Foreign Language] Yes and if you look at our sales for the robots, the number one is automotive, about 50% goes to automotive; number two is welding and material handling.
Unidentified Participant: Okay. I understand. Thank you. Okay. So moving on to railroads, you said you have new projects coming. Are these -- what is the percentage of projects in Japan and percentage of projects overseas? Can you give me any indication of what the breakdown is between domestic projects and overseas projects for rail?
Atsushi Habe: [Foreign Language] Please wait. [Foreign Language] First of all, in railroad vehicle equipment business, we are mainly targeting Japan and looking back on last year 2023, 20% were for China. [Foreign Language] And we have a subsidiary in Italy that accounts for about 10%. [Foreign Language] We introduced to you an order that we received in Indonesia and that is a business for rolling stock manufacturer local -- Indonesian local rolling stock manufacturer. This is our first time to deliver so big volume of the business to that manufacturer. We want you to expand such projects going forward.
Unidentified Participant: Okay, so Indonesia is this year, not last year? Yeah, that's this year. And then my last question is what about India? There was a lot of talk about Japan supplying India for their rail, for Mumbai.
Atsushi Habe: [Foreign Language] First of all we newly received orders from Indonesia and supply or delivery there will be starting in the second half of this year and delivery will continue in 2024, 2025 and 2026. Regarding India, I know that India is a big market, there we would like to do the approach India as well, but we haven't received orders yet in India.
Unidentified Participant: Okay. And then my last question, I'm sorry for asking so many questions. This is really the last one. For manufacturing, for packaging machinery, you have many good customers and there should be much demand for packaging, automated packaging, but your sales don't increase? Is there a problem?
Atsushi Habe: [Foreign Language] Sales are gradually increasing but in packaging machine business, we are involved in food packaging. And in particular, we are focusing on high end pouches or spouts for example, and those high end products are not accepted by all other countries yet. In some countries, low priced packages are fine. But going forward, I think people's consciousness about sanitation that will increase going forward, so I think we will be able to grow this business. So demand itself has not been mature yet.
Unidentified Participant: Okay, thank you so much. That's it. I'm fine. Thank you.
Operator: [Operator Instructions] So we have still plenty of time, if you have any questions, please let us know. Yes, thank you. [Indiscernible], please mute yourself and ask your question.
Unidentified Participant: Yeah, thank you for taking my question. Referring to slide 14, you mentioned price transfers, and this being occurring slowly for overseas manufacture. I'm a bit surprised, I would have thought that raising prices with overseas manufacturer would be easier than for domestic manufacturers considering the difference in trade customs, basically. So could you elaborate on why is it more difficult to raise prices to these overseas robot manufacturers and what it says about your competitive position there? Thank you.
Atsushi Habe: [Foreign Language] First of all, there is difference between Japanese customers and overseas customer. With Japanese domestic customers, there we have an annual contract, meaning that we renew prices there every year. So every year we can do the negotiation with changing prices. On the other hand, with overseas manufacturer, we have the multiple-year contract, meaning for three to five years their prices are fixed. So in this situation, we need to ask them to accept our request for price increase despite the existence of their multiple-year contract, but overseas, the customers are not willing to accept our request for price increase.
Unidentified Participant: [Foreign Language]
Operator: No, no, please go ahead.
Unidentified Participant: May I ask additional question. I'm looking at page 12 indicating industrial robot markets, and gradual increase is expected every year and there is the adjustment as well. But do you think that demand for gear there will decline and by looking at the graph, it is a little bit difficult to understand this volatility?
Atsushi Habe: [Foreign Language] On page 12 and please look at the graph on the upper left hand side and this is based on the data of IFR. And IFR announced the general demand forecast. So their demand forecast is right from a long-term perspective, but IFR does not consider a short-term changes. [Foreign Language] For example, looking at the situation of this year and there is a certain extent of the robotics demand. However manufacturer -- robot manufacturer have also high level of inventory because of that and the procurement -- the volume of gear from our company is declining. IFR and data, they are doesn't show in these the perspective, so more than the fluctuation of robotic manufacturer, our fluctuation is higher.
Unidentified Participant: Thank you
Operator: We still have a few more minutes, if you have any questions please let us know. [Indiscernible], please ask your question.
Unidentified Participant: The platform door business is very high -- it used to be very high margin for you but because of costs, you said that it will be difficult in the future. But how can you lower your costs or what is your plan for the platform door business? Will you have to exit the business or is it because of costs that you cannot compete? What will happen to this business?
Atsushi Habe: [Foreign Language] As for their platform door business, there is difference in strategy between our domestic Japanese platform door business and platform door business overseas done by Gilgen. [Foreign Language] And first of all they asked for the Japanese platform door business and it's been a very stable business and partly due to the government administrative guidance and there are project to increase automatic platform to door. Riding on the waves of this trend, we can expect their steady growth in this business in Japan. [Foreign Language] On the other hand, they are looking at the oversees the business and Gilgen is doing business in Switzerland and as you know exchange rate, ForEx, the Franc appreciated a lot and so because of that there was the exchange rate impact in businesses other than Switzerland in other countries, personnel costs increased, material costs increased. As a result, the situation there became very challenging. We are there trying to reduce cost and we are there scrutinizing the each project basically there it is case by case. But in some cases we make judgment not to take orders in some countries. For example, we are very selective in taking the orders, sometimes we make decision not to receive orders.
Unidentified Participant: Okay. My last question is just what was Gilgen’s sales last year for you or just a general indication of what the importance of Gilgen is to the Auto Door division?
Atsushi Habe: [Foreign Language] Last year sales of automatic doors was 96 million yen. Out of 96 million yen, 35% of the sales came from Gilgen. [Foreign Language] Regarding the importance of Gilgen for us, in Japan, we are enjoying high market share in automatic doors, but in the past, there was no access to European markets, so we acquired Gilgen in 2011. We are doing business in Switzerland and also we acquired a sales company in France as well, and utilizing them we are expanding sales in Europe. And Gilgen in Europe, not just platform door, we are also selling automatic doors for buildings.
Unidentified Participant: Okay. So platform doors for Gilgen, what percentage of their sales is the platform doors or for Europe, what percentage is platform doors?
Atsushi Habe: [Foreign Language] Last year sales of total platform doors were 7.9 billion yen, out to 7.9 billion yen, overseas sales were 60%. That 60% was almost out of sales of Gilgen.
Unidentified Participant: Okay, thank you. That was very useful. Thank you.
Operator: Thank you very much. It's almost time to finish. Next will be the last question. If there are no more questions, we will close this meeting. If you have any questions? We see any further -- we don't have any further questions, so we will close this meeting. Thank you for joining us today.
Atsushi Habe: Thank you. [Foreign Language] Thank you very much
Operator: Thank you. Bye. Have a nice day.