Nidec Corp

TSE:6594

Earnings Call Transcript 2022-Q2

[Unknown Analyst]

Dear all, participants, thank you, very much for joining Nidec's Conference Call. I'm [indiscernible] General Manager, Cooperate 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 already in front of you. If not, please download the files on Nidec's homepage at this moment.

Please note, this call is being recorded, and the conference materials will be posted on the company's homepage for the coming week for investors and the analysts who are not able to join today's call.

Now I'd 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. First, Mr. Yokota will make a presentation. After his presentation, we will move on to the 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.

[Hidetoshi Yokota, executive]

Thank you, [indiscernible]. 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 statements, please see Slide 2 of our presentation material for details. Now I'm 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 JPY 910.7 billion, 21.1% higher year-on-year. The operating profit increased 30.4% year-on-year to JPY 90.2 billion. The quarterly operating profit ratio of appliance, commercial and industrial product 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 JPY 67.6 billion. Based on those achievements, we have made an upwards revision to the full year fiscal year 2021 guidance.

On Slide 5 and 6, we have a chart showing the net sales and operating profit year-on-year and quarter-on-quarter, respectively, by product groups with exchange-led effect, eliminations and structural reform expense. As you see on Slide 6, while the operating profit of small precision models, automotive products and electronic and optical components declined mainly due to the reduced sales caused by the lockdown in some Southeast ASEAN countries.

We have main -- our production sites are located and also due to one-off expenses caused by the emergency exchange of production sites. However, the net sales of all the segments made an increase despite semiconductor shortage and reduced sales caused by lockdown.

Please turn to Slide 8. As I explained just now, based on the September quarter's 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 electrification in plan and rapid EV shift is accelerated globally. As elaborated by the red circles, many of those OEMs have announced that during years between 2026 and 2040. They are going to make their new car sales 100% EV and Fuel Cell Vehicles, both of which are defined as 0 emission vehicles. The greatest opportunity has finally alive for our traction motors business.

Please see Slide 13. OEM companies in the world can be grouped into 3 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 OEMs, 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 -- for these companies, outsourcing traction motors will completely become the norm after fiscal year 2025.

Sitting somewhere between Type A and C are Type B companies, who are not heavily dependent on outsourced models, but less committed to manufacturing them in-house. These companies have established or are 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 outsourced orders, while Type A customers are expected to increase their outsourcing 1 to 2 years before or after the timing point.

Please see Slide 15. While establishing local production and supply chain -- supply in China, we are eying expansion of Europe and Americas in addition to 3 R&D centers in Japan. We have established 1 in China to speed up R&D for the Chinese market. And our production site in China, a geographically diversified into North center and South to build stable supply chain.

Please see Slide 16. We have steadily improved implementing in-house production of main components and equipment by bringing together over the production know-hows and technologies within Nidec Group. The pictures on this slide are showing example of in-house manufactured parts, such as die casting, precision machining, stamping/pressing and resin modeling as well as examples of in-house equipment, such as press machine, winding machine, grinding machine, gear shaper cutters and 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 models adapting our E-Axle has expanded to 9.

Please see Slide 18. As the tenth EV model adapting our E-Axle 200 kW Ni200Ex has been adopted in ZEEKR 001, the fast 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's E-Axles. However, ZEEKR is their 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 net meters or 0-100-kilometer sprint of 3.8 second maximum speed of 200-kilometer per hour. The sales of ZEEKR 001 in China start within 2021, while its global sales is set to start in 2022.

Please see Slide 19. Despite semiconductor shortage, material cost live and COVID-19, automotive existing business kept double-digit operating profit ratio for 5 consecutive quarters after bottoming out in Q1 of fiscal year '20.

Please see Slide 20. Paradigm shift from ICE vehicles to EVs is rapidly accelerated in 2 wheels and compact cars as well. In the mobility area, our electric 2-wheeled vehicle market formed mainly in India, China and ASEAN countries is expected to enter high-growth period driven by environmental measures. We are currently focusing on 2 major markets of India and China and have already started mass production of motors for major customers. In the mini EV area, we are receiving inquiries from multiple numbers of potential customers, mainly in the Chinese market, and eyeing for possible mass production for major customers.

Please see Slide 21. In Small Precision Motors segment, we are implementing a business portfolio transformation amid HDD motor market structural change and mobility and mini EVs, which belong to this Small Precision Motor segment are 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, air-handling, where structural change is occurring.

Please see Slide 23. ACI's operating profit ratio is steadily improving after bottoming out in Q4 fiscal year '19, and we have achieved record high net sales and operating profit in quarter 2.

Please see Slide 24. In other product groups, operating profit ratio is keeping high level with over 20% operating profit ratio in quarter 2 after bottoming out in quarter 4 fiscal year '19, and we have achieved record high quarterly net sales and operating profit in Machinery segment in quarter 2.

Last but not least, on behalf of entire management team, I would like to thank you, customers, partners, suppliers for their support and commitment as well as our shareholders.

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

[Unknown Analyst]

Thank you very much, Mr. Yokota-san. Now, we'd like to turn to the Q&A session. Mr. Seki and Mr. Yokota will be pleased to answer your questions.

[Unknown Analyst]

[Operator Instructions]

Our first question today is from James Pulsford of Alma Capital.

[James A. Pulsford, analyst]

Can I ask just a couple of things about the automotive side? And your -- in your presentation, you say that the mainstream OEMs, that's the sort of Type As. You expect the move them to be basically relying on internal production for the next sort of 4, 5 years, but then 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?

[Jun Seki, executive]

Thank you, James. Seki speaking. And then if we go back to Page 14. Yes. We cannot explain the detail of customers, but many of Type A is already looking for to move to Type A-. So at this moment, they are producing their motor by themselves. But we are receiving RfQ for like notice only or status only. So they purchased some components from us and then just to make a final assembly as motors that we are seeing.

And then as the case is from these 6 months. We like to -- taking order for hybrid. It's not a E-Axles for EVs, but it's already exceeding the 2 million only these 6 months. And then this is what's happening in there. They shift from hybrid to EV. And then hybrid is no longer their core product. They're intensively gathering their leases for EVs, then naturally, hybrid going out. So it's happening -- opening not only for OEM, but also Tier 1 suppliers, they're shifting to more EV.

That's why it's coming to Tier 2 side or asked out us. So to get the results to phenomenon, I think it's not extremely clear, but it's already starting. They are moving from Type A to type A-. And this is not from all of OEM, but some of OEMs. But with the next 4 years, I think many OEMs will move. That's what we are seeing.

[James A. Pulsford, analyst]

That's a very clear explanation. And I wonder, could you also update are there any significant new major contract developments or awards, things that have changed over the last 3 months in your E-Axle business. And 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 it a discount because it was a bit difficult to tell what was coming through. If you have changed to 3.5 million on what basis is the 3.5 million made, please?

[Jun Seki, executive]

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 a China EV and plug-in hybrid. We are adding plug-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, EV alone is 13.9%. So almost 1 out of 5 car is becoming EVs. 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 this, what I want to say is we didn't believe a number, quantity coming from our customers. It's always like a 50% off, sometimes 70% off. But now what's happening in China is, they are -- their requirement -- their original requirement is -- they are changing their original requirement even more.

So let's say, they requested the 50,000 in this second half, increasing to 100,000, which is very difficult to build because of the lack of semiconductors. But of course, we are welcoming this. Their required volume, it's much more reliable than before because of these EV rules.

So based on that, we changed the conversion ratio from current order and then very high desirable RfQs before we introduced like 50%. Currently, I'm 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, it's, let's say, like 3.1 million. But because of these conversions, I clearly say 3.5 million is very makable target. That's a background in orders.

[James A. Pulsford, analyst]

So the 3.5 million still includes some element of discount, but smaller than before, yes.

[Jun Seki, executive]

That's right. That's right. That's exactly right.

[Unknown Analyst]

Our next question is from Ramsai Neelam of State Street.

[Ramsai Neelam, analyst]

So to follow up the previous question, can you give a breakup of this 3.5 million units into like what is your percentage of the confirmed orders and the orders with the high probability. I think before it was 50-50. I mean, is there any change in the ratio for 3.5 million.

[Jun Seki, executive]

Just a moment. Ramsai, sorry, microphone quality is not effectively good. Can you repeat your question again?

[Ramsai Neelam, analyst]

Yes. Am I audible now? Is it better?

[Jun Seki, executive]

Yes, it's a little bit better.

[Ramsai Neelam, analyst]

Yes. So we have a revised target of 3.5 million units. So can you breakdown what is the confirmed portion of the orders and the orders with the high probability. I think for the previous target, we have 50% of the confirmed orders at 50% as orders with high probability. So is there any change in the mix for 3.5 million units?

[Jun Seki, executive]

Yes. Actual order we got is 2 million. And then besides that, we have about over 2 million very high probability RFQ and potential orders. And then we converted that to 150, 1.5 million. So 2 million on order, 1.5 million high possibility that makes 3.5 million.

[Ramsai Neelam, analyst]

That's great. And moving on to the Vietnam lockdown. So there's a huge impact on sales. I mean, can you give more 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?

[Jun Seki, executive]

Okay. First, let me answer your automotive area of questions. And then Yokota will explain you the bit on administrations. First, for automotive, let me tell you just average, okay? We are not living with average. We're much better than others, but automotive average in 2000 -- sorry, this fiscal year '22, it's around 82% compared with 2019. We don't compare with 2020 because it's extremely low.

But we originally expected it, it's almost similar to that of 2019. So it's about 18% off. And then we knew this up to June, and then we expected it will be better in July, August towards Q3. As you know, Malaysia, Vietnam, and Thai went to lockdowns because of the COVID-19 pandemic. And then we have a -- automotive sector has a huge supply for semiconductor of harness from Malaysia. And then it's completely 100% locked down. It takes -- it continued about 1.5 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 periods -- sorry, September, October periods. So it's still continuing. But sometimes -- definitely coming back, we stopped to see optimism for this way. So we are -- we intentionally forecasting volumes, very pessimistic, and then we're still squeezing our cost side that we are seeing. So everyone would say, Q4, it will come back, start to come back. It may take a longer time than we expected before.

So that's a semiconductor impact on the automotive side. But 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 '21. Second in automotive area, it's clearly you see loser and winners. We have more customers for winners side. Those 2 elements makes our volume better than average. That's our automotive area. Yokota for Vietnam?

[Hidetoshi Yokota, executive]

Yes. So the impact of Vietnam lockdown, we have disclosed the numbers in our -- the financial report. It was estimated like JPY 11 billion in operating profit. And the segment split is like JPY 8.5 billion is for Small Precision Motor and JPY 2.5 billion is for automotive. So out of this total JPY 11 billion, roughly, 40% to 50% is volume loss, let's say margin of profit loss and the less remaining cost is all the sourcing change or employee support expense or hotel, pass, rental, et cetera, et cetera, to maintain our workforce within in the factory.

So all in all, the cost was -- our operating profit impact was JPY 11 billion. Of course, we made a lot of counteraction to mitigate or offset this loss in the past time. So in the second half -- sorry, third quarter onwards, some of the cost is just onetime in second quarter. And the volume loss, we may try to recover as much as we can. That's what we can say now.

[Ramsai Neelam, analyst]

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

[Hidetoshi Yokota, executive]

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

[Ramsai Neelam, analyst]

Yes. The areas which are impacted due to lockdowns in Q2.

[Hidetoshi Yokota, executive]

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

[Ramsai Neelam, analyst]

Yes.

[Jun Seki, executive]

Ramsai is asking the capacity utilizations. Ramsai, in Vietnam, we have many products. Some are Precision Motors, some are electronics and some are like a bulk for transmission. 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 release of this pandemic, actual usage average 80%, 85%. It's not completely, think about that, 100%. Meanwhile, Thailand, it's mainly hard disk drive front. It's completely recovered as 100%. And then Malaysia, very similar to Vietnam. It's a, let's say, 80%, 85%. That's a recovery. Did that answer...

[Ramsai Neelam, analyst]

And one last question. Yes, yes, it's the same question I asked. Yes, and one last question, if I may ask. So we don't have -- I remember from the other call, we don't see much impact on ACIM segment from semi shortage. So is that status remained same in Q3 and going forward? Or are we seeing any kind of supply chain constraint on ACIM segment?

[Jun Seki, executive]

Answer is yes. But Ramsai because that segment is growing, we prioritize the sales. So even supplier requesting increased price, we mostly adopted, then we increased our sales, but our cost becoming high. So actually, without those at price up, probably our profit had -- would be much better we are facing. And then also, we are facing a very high logistics cost either 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 increased part was magnetic steel, we need those for our motors. That was peaked in Q2. In October, we are seeing a slightly coming down. It's not significant rate. So first, we already confirmed, we don't have a shortage, significant shortage, but we have been suffered by price increase of those. And then it will be soft, okay?

[Unknown Analyst]

Our next question is the second round questioner from Alma -- James.

[James A. Pulsford, analyst]

Can I just ask a brief on, first of all, on Machinery and then follow up on Precision. In the Machinery area, you had record levels for Q2 of 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 very strong demand and the sort of cost -- the sort of scale benefit as sales ramped up? Can you comment on that, please?

[Hidetoshi Yokota, executive]

Yes. Basically, the Machinery segment, our inspection machine or stamping machines, all of the business is in a very good shape, thanks to all the demand in the globe, especially China. So that is one of the biggest drivers that we could enjoy the sales and the profitability. And some profit, onetime, is included in operating profit actually. That is boosting the operating profit ratio a little bit higher.

[James A. Pulsford, analyst]

Can you tell me roughly how much was that?

[Hidetoshi Yokota, executive]

Roughly JPY 24.

[Jun Seki, executive]

James, this is Seki speaking. Not single reason, but majority of this good sales is based on high demand of semiconductors. So semiconductor-related stamping machine semiconductor-related measuring machines are all going very well. But same time, as I explained, we are suffered by semiconductors like those semiconductors. So it's plus and minus together.

[James A. Pulsford, analyst]

Okay. And could I just ask on the Precision area at the interim, you mentioned, I understand there are a lot of sort of one-off impacts sort of shutdowns. But the -- if we look at Precision profitability, how does profits, how does that breakdown between the spindle side and the HDD motor and the rest of the business, please? And sort of what were half 1 margins for the spindle side alone, please?

[Masahiro Nagayasu, executive]

Okay. So you said what the Q2, the September quarter results in terms of the profitability of the Small Precision Motor, right?

[James A. Pulsford, analyst]

Yes. And also then we can see the profitability of the other motors there as well, please?

[Masahiro Nagayasu, executive]

Yes. So we say roughly open margin for spindle, hard disk drive was 31.0% for the September quarter. Then the non-HDD ones are, at this moment...

[James A. Pulsford, analyst]

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

[Masahiro Nagayasu, executive]

Okay. The key point is we do not have so much of the impact because those lockdown is centering around the Vietnam Ottoman city. So that's not the place that we are making the motor for hard drive. That partly in Vietnam is non-HDD motor. So Yes. So thereby, roughly, we say 3.2%. Just a minute.

[Jun Seki, executive]

James, while Nagayasu get the numbers, 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 the pandemic level between those 2 countries were the same, but treatment of government is completely different. In a tie, they allow us to operate -- continue to operate our plant as long as we provide appropriate care to avoid pandemic -- sorry, clusters.

But meanwhile, Vietnam was crazy. If we have only 1 new patient out of 5,000 employees, they request us to shut down. Of course, we made many complaints, official complain even to President by [indiscernible]. Then now it softened much better. But that's why we don't have the damage for how this drive side, even in '18 in Southeast region.

[Masahiro Nagayasu, executive]

Okay. Already, we disclosed how much is the motor for HDD, how much is the non-HDD for Small Precision Motor then we say the HDD motor OP margin is roughly 31% and the non-HDD is only 3.4%.

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

[James A. Pulsford, analyst]

And sorry, the figures you quoted before of JPY 11 billion for the whole company and JPY 8.5 billion, is that for the first half or the second quarter alone?

[Masahiro Nagayasu, executive]

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

[Hidetoshi Yokota, executive]

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

[Jun Seki, executive]

Talk about the peak. Now we're still continuing but...

[Hidetoshi Yokota, executive]

Much...

[Jun Seki, executive]

Much better.

[James A. Pulsford, analyst]

Okay. 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, JPY 155.7 billion of other motors. Could you -- is it possible to give me a sales split for that, please? That includes CCI and vibration haptic and other things, I think.

[Jun Seki, executive]

Okay. So we usually divide in the Small Precision Motor into the maybe 3 segments in our so-called model, right? And at this moment, we can say how this drive already we announced the number of the top line, right? Which is something like JPY 26.4 billion -- no.

[James A. Pulsford, analyst]

That's for the Q2, yes?

[Jun Seki, executive]

Yes. So you need the Q1 plus Q2 or Q2 number? Whatever.

[James A. Pulsford, analyst]

Sorry, if you have the first half number, that would be good...

[Unknown Executive]

For the first half number is, yes, JPY 49.4 billion on the HDD and the OP margin is JPY 30.7 billion. Then we have second portion is DC motor fan and the other, okay? Which is going to include CCI because we have not separated CCI there. So JPY 139.1 billion for the first half and 5.0% OP margin.

The vast portion in this Small Precision Motor is a vibration haptic, JPY 16.5 billion top line and 6.1% OP margin. So those are the 3 segments under Small Precision hard disk drive, DC motors and the other and the haptic vibrations. So those are the numbers, okay?

[James A. Pulsford, analyst]

Okay. 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 elements within that, how much you're happy to disclose would be great, please?

[Masahiro Nagayasu, executive]

So we've been clearly in disclosing 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 spindle motor where a 2.5-inch high-end is 9.2 million and the near line, sorry, 2.5-inch high-end is 1.1 million, sorry, nearline is 9.2 million. 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 content 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 the -- our inventory adjustment by our former competitor FAULHABER may be affecting our business. This would be the last quarter for that, okay?

[James A. Pulsford, analyst]

And the figures you gave me are shipment figures, yes?

[Masahiro Nagayasu, executive]

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

[James A. Pulsford, analyst]

Yes, your shipment figures, yes, absolutely.

[Masahiro Nagayasu, executive]

Always, we are just in time. So our production number and shipment number is almost in line, especially in the case of hard disk drive spindle motor, okay?

[James A. Pulsford, analyst]

And 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 JPY 1.5 billion? Just looking at your flow chart. It showed an improvement of JPY 5.4 billion year-on-year. Is that correct?

[Hidetoshi Yokota, executive]

So the spending on quarter 2 is about 6.5. Yes. Yes. So you want to configure first half versus last half.

[James A. Pulsford, analyst]

No, that's absolutely fine. If you could give maybe Q2 figure that's enough. And in terms of the -- for the second half and for 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?

[Hidetoshi Yokota, executive]

Yes. Normally, we constantly make a destruction efforts by maintaining like JPY 2 billion constantly. But recently, spending is a little bit low because of all the supply chain confusion and there everything gets a bit stabilized, we will examine how much exactly we want to make a destruction. But roughly, I would say, JPY 2 billion average we spend per quarter.

[James A. Pulsford, analyst]

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

[Jun Seki, executive]

James, just additional from Seki. We had about EUR 10 million restructuring in Europe for appliance, commercial industry. But because the sales is growing too much intentionally stopped because we need people. Those are also mixed. Then meanwhile, I don't expect this pace is slowing down in H2. We may postpone to next year. We have some area we have to restructure, but because good sale flow from industry appliance side, we didn't spend.

[Unknown Analyst]

Our next question is from Hamish Chamberlayne of Janus Henderson.

[Hamish Chamberlayne, analyst]

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?

[Jun Seki, executive]

This is Seki speaking. First, background, why we acquired this company. If we go to vertical integration page for E-Axles, Page 16. So here, we have a vertical integration part side, which is upper side, die cast and then gears and plastics and 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 -- example of our vertical integration for equipment side, pressing machines and then wiring machine, wires and then some of testing equipment for multi itself. And then from second from right, that is gear machining machines. And then -- no, historically, automotive world had a lot of gear, particularly manual transmissions.

The manual transmission wasn't sensitive for noise because usually, people accelerate always. So noise was very often 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 clockwise revolutions, anti-clockwise revolutions. So matching phase need to be very careful for both sides.

So those are background why we need high technology for gear, while gear was used continuously from transmission errors. But -- so we looked for necessary technology to control this noise, vibration and harshness. And then Mitsubishi Heavy Industry had a very high potential. Just concern was the equipment is too high. The equipment is too high because their sales is extremely low with very high fixed costs.

That is a favorite of Nagamori-san, it's not always going to those very poor operated company and touches to its very low price and distract very quickly. Actually, we completely managed this company beginning of August. And in September, she made this company positive profit. So like magic. So he is expecting this company to go to 10% in last months of this fiscal year, which is March '21 -- '22. So usually, we don't believe it, but if he say she do, he does, probably she does anyway.

So that's what we are seeing. And then we are showing many of equipment initiative, 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 ideas because usually, that technology is going very fast, even we're 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 acquisitions. Is that answering your questions?

[Hamish Chamberlayne, analyst]

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?

[Jun Seki, executive]

Yes, yes. They didn't have any business with us. So the original sales, it's completely outside of the Nidec. That is maintained. And on top, they have sales to Nidec internally. And of course, we're expecting them to expand very rapidly. Actually, they are expanding very rapidly with very strong week by [indiscernible].

[Hidetoshi Yokota, executive]

This is Yokota speaking. The current turnover per month is between JPY 2 billion to JPY 3 billion. So as Mr. Seki mentioned, we start consolidation from August. So the contribution in our financial statement in the second quarter, the only -- the sales boost up is JPY 4.7 billion. Profit is almost neutral, as Mr. Seki mentioned.

Of course, we will -- our management will accelerate the PMR and the turnaround of this company. But in the past, this company is cash leading and we have a lot to do to fix the problem. So we are not too optimistic, but we are pushing so hard to make this company profitable towards the end of the fiscal. So roughly, yearly contribution on the turnover, you can match by JPY 2 billion to JPY 3 billion per month, like 8 months is like, I don't know, 200 -- JPY 20 billion or JPY 25 billion. That is our estimation.

[Hamish Chamberlayne, analyst]

Okay. Understood. And so just to be completely clear, the real value of this acquisition is what the technology it brings to your E-Axles business, your vertical integration strategy rather than growing the external sales of Mitsubishi tools?

[Jun Seki, executive]

Of course, both. Because I have a main responsibility for [indiscernible]. I prefer them to contribute the E-Axles business, particularly controlling NVH. But as a CEO of Nidec, I want them to grow very fast, and I wanted them to bring more money, yes.

[Hamish Chamberlayne, analyst]

And just while we're talking about acquisitions and I suppose it's been a quieter period since -- over the last couple of years, there are quite a number of acquisitions since 2019. And just wondering if I could get an update on how the integration has gone, and the contribution has gone from both the on Run Automotive Electronics Business. And the other sort of large acquisition you did in 2019, the Embraco Brazilian business compressor business.

[Hidetoshi Yokota, executive]

Embraco, right?

[Hamish Chamberlayne, analyst]

Yes, exactly. Embraco. Yes.

[Jun Seki, executive]

Yes. Thank you. Embraco was acquired quarter 1 in 2019 and then mobility, we call the company Mobility acquired from OMRON. It was done Q3 of 2019. And then both were around 2% to 3% OP margins when we acquired. And now both companies had completely double digit. So the PMI won't be finished until they become a 15%. That is needed, but for double-digit OPs, they easily reached that level.

Now they are moving from double-digit 10% level to 15% level. Only concern is, as I explained as appliance 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 [ 0.5 ] or 200% levels. Now they are doing best to mitigate this impact. They are around 10.5%, that is -- we are there. And OMRON side, of course, they reached double-digit by Q4 last year. But because of the current automotive area, volume down and then many price increase from materials. They are around 10%. So without those handicap, probably they are -- the other capabilities are around 11% and 12%. So those were there.

[Hamish Adam, analyst]

Okay. And just in terms of the sales performance, so you said the OMRON one 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 performance?

[Jun Seki, executive]

Can we go to Page 23. That is sales in left 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 this close. I don't have an exact number in my hand. And then on...

[Hamish Chamberlayne, analyst]

Okay. sorry. Yes.

[Jun Seki, executive]

In the Mobility side, maybe because it's similar to the overall behavior, we can use automotive sector pictures. If we go on 19. Please look at blue bar. Sorry, we should see green bar. Over next slide. So Q2 sales was almost same as Q2 2020, slightly better. Industry is much lower than this. So I think they are doing good job, but still impacted by this lack of semiconductor volumes. Is that, I think, your question I'm not sure.

[Hamish Chamberlayne, analyst]

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

[Jun Seki, executive]

Yes. they are kind of a benchmark, very fast fit as Nagamori-san as we call, very fast fit. And I'm not hearing huge turnover. Usually, average turn over in Nidec is 2% annually, probably there better than those. And then for commercial side, Embraco side, same. We have many company in Mexico turnover from GA, everything, General Appliance is always benchmark, much better than any other company around that. Even internally, as appliance industry commercial ACI, many -- our team is fast than them. So we're not rolling any of turnover from both of them.

[Unknown Analyst]

We have exhausted the planned conference time, but there seems to be one more question. And so this will be our last question for tonight. And Mr. Yoichi [indiscernible] of [indiscernible] Securities EMEA.

[Unknown Analyst]

One question from my side. On Page 7, we have CapEx plan revised down JPY 10 billion. Could you just let me know about a bit more detail of that background and then what sector will be affected about this revision?

[Hidetoshi Yokota, executive]

Thank you for the question. Actually, this revision is based on the natural cost-down effort for our investment in the first half and also based on some of the timing issues of the planned investment. So we adjusted. So this is not based on the particular reason of any project cancellation or any fluctuation in the capital expenditure amount. So this JPY 10 billion reduction is some timing issue and also a reflection of our CapEx control in the first half.

[Jun Seki, executive]

Thank you, everyone. Just before closing, I expected some question, but it didn't come. This time, we updated both sales and profit. And particularly for our sales side. Originally, our announcement was JPY 1.7 trillion. Now we updated to JPY 1.8 trillion. But usually, our second half sales is better than first half sales and the first half sales is already exceeding half of those.

So we're expecting a better than JPY 1.8 trillion base. Then 2022, as I said last time, at the beginning of Vision 2025, we have to achieve JPY 2 trillion, which is 2 years late from original Vision 2020s. That will definitely come. We are very confident. So that's first point.

And second point, as we demonstrated, we're spending on many pages, I think steadily of business for traction motor getting farm and pharma. 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 result in China. So those 2 points, I wanted to emphasize again before we're closing.

[Unknown Analyst]

Mr. [indiscernible], thank you for your question. And Mr. Seki, thank you very much for your supplemental explanation. 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 your sales representatives at Mr. [indiscernible], Morgan Stanley Securities. Again, thank you very much, and you may now disconnect.

[Jun Seki, executive]

Bye-bye.

[Hidetoshi Yokota, executive]

Thank you.