NIDEC (6594) FY2026 Q3 Earnings Report

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Executive Summary

For the cumulative third quarter of the fiscal year ending March 2026, Nidec reported higher revenue but an operating income decline of nearly 30%, while a sharp increase in the tax burden led to a substantial drop in net income. Revenue was ¥1,986.36B (+2.4% YoY), and operating income was ¥115.73B (down 28.7% YoY). As the company reports under IFRS, ordinary income is not used; profit before tax was ¥137.44B (down 17.6% YoY). Profit for the quarter attributable to owners of the parent was ¥39.12B (down 69.3% YoY), while consolidated profit for the quarter was ¥26.42B (down 79.0% YoY). The primary causes of the decline were higher research and development expenses (+44.0% YoY) and higher SG&A expenses (+13.2% YoY). In addition, income tax expense increased to ¥110.97B (from ¥41.07B in the prior-year period). Prior-year figures have been restated following the discovery of improper accounting.

Factors Affecting Performance

【Revenue】Revenue increased ¥45.86B YoY, with MOEN as the main driver. MOEN grew to ¥500.69B (+19.4% YoY). Meanwhile, Group Companies Business (-4.2%), ACIM (-4.9%), and Machinery Business (-3.0%) reported lower revenue. Revenue growth was concentrated in a limited number of segments.

【Profit and Loss】Gross profit was ¥402.76B, with the gross margin declining slightly to 20.3% from 20.6% in the prior-year period. The operating margin declined by 2.6pt, from 8.4% to 5.8%, mainly due to increases in SG&A expenses of ¥201.29B (+13.2% YoY) and research and development expenses of ¥85.74B (+44.0% YoY). MOEN recognized a liability of ¥16.479B in connection with the settlement of a claim for reimbursement from a supplier, a one-time factor. Foreign exchange gains and losses improved to a gain of ¥14.77B from a loss of ¥4.39B in the prior-year period, supporting profit before tax. Between profit before tax and profit for the quarter, the increase in income tax expense (effective tax rate of approximately 80.7%) weighed on net income. In summary, revenue increased while profit declined.

Segment Analysis

Segment operating income increased only at SPMS; other segments reported declines or losses. SPMS recorded revenue of ¥295.26B (-0.2% YoY), operating income of ¥45.36B (+40.3% YoY), and the highest margin at 15.4%. Group Companies Business reported operating income of ¥53.03B (-8.8% YoY), with a margin of 11.9%. Despite higher revenue, MOEN recorded operating income of ¥27.85B (-44.8% YoY), affected by the settlement liability. AMEC’s revenue was ¥270.06B (+2.3% YoY), but it swung to an operating loss of ¥5.52B from operating income of ¥4.65B in the prior-year period. ACIM’s operating income was ¥14.59B (-38.7% YoY), while Machinery Business recorded just ¥0.16B (-96.9% YoY). Eliminations or Corporate amounted to -¥19.73B (compared with -¥12.06B in the prior-year period), indicating a greater burden. The main components of corporate expenses are basic research expenses and head office administration expenses.

Key Financial Metrics

【Profitability】The operating margin was 5.8% (8.4% in the prior-year period), annualized ROE was 2.5%, and research and development expenses as a percentage of revenue increased to 4.3% (from 3.1% in the prior-year period). Higher expenses are weighing on margins. 【Cash Flow Quality】Operating Cash Flow (OCF) was ¥174.82B (+1.9% YoY), exceeding profit attributable to owners of the parent of ¥39.12B. Income tax paid (¥42.74B) was below income tax expense (¥110.97B), reflecting the fact that much of the tax expense relates to deferred taxes. 【Investment Efficiency】Capital expenditures (acquisitions of property, plant and equipment) were ¥97.68B, exceeding depreciation and amortization and related expenses of ¥75.65B. Free cash flow was ¥71.97B (OCF + investing cash flow). 【Financial Soundness】The equity ratio declined to 36.4% from 42.5% at the end of the previous fiscal year. Short-term borrowings surged from ¥59.65B to ¥596.54B. Goodwill was ¥373.96B, equivalent to approximately 26.6% of net assets.

Cash Flow Analysis

OCF was ¥174.82B, roughly on par with the prior-year period, while the significant increase in cash at period-end was mainly driven by borrowing. Within OCF, an increase in inventories resulted in an outflow of ¥28.03B, while an increase in trade payables generated an inflow of ¥45.28B. Investing cash flow was -¥102.85B, resulting in positive FCF of ¥71.97B. Financing cash flow was +¥507.27B, primarily reflecting a net increase of ¥502.13B in short-term borrowings. Bond redemptions of ¥50B and dividend payments of ¥22.93B were sources of outflow. Foreign currency translation increased cash by ¥71.32B, and cash and cash equivalents rose from ¥246.25B at the end of the previous fiscal year to ¥896.81B. Since much of the increase was supported by borrowing and foreign exchange, the cash balance should be considered together with repayment maturities.

Earnings Quality

Current-period earnings include volatile items such as foreign exchange gains and the settlement liability. Foreign exchange gains and losses were a gain of ¥14.77B, an improvement of ¥19.16B from a loss of ¥4.39B in the prior-year period, boosting profit before tax. MOEN’s settlement liability of ¥16.48B was a one-time factor that increased operating expenses. Financial income of ¥26.81B accounted for approximately 1.3% of revenue, a small proportion. The sharp increase in income tax expense and a loss attributable to non-controlling interests of ¥12.69B contributed to the decline from profit before tax to net income. OCF exceeding profit attributable to owners of the parent reflects, among other factors, timing differences between tax expense and payment and an increase in trade payables. Of comprehensive income of ¥161.11B, other comprehensive income was ¥134.69B, of which ¥127B was attributable to foreign currency translation differences for foreign operations. Comprehensive income substantially exceeded net income of ¥26.42B, but this was primarily due to foreign currency translation and does not indicate an improvement in earnings power. In addition, a third-party committee investigation identified issues including premature revenue recognition and overstatement of inventories, resulting in the restatement of prior-year figures. According to the disclosures, the effects of undetected misstatements have not been reflected in the financial statements.

Earnings Forecast and Guidance

There were no revisions to the earnings or dividend forecasts during the quarter. The full-year forecast dividend per share is ¥0.

Shareholder Returns

The dividend for Q2 was ¥0, and the full-year forecast is also ¥0. Meanwhile, dividends paid to shareholders of the parent during the cumulative period totaled ¥22.93B (¥45.97B in the prior-year period). Dividing this payment by profit attributable to owners of the parent of ¥39.12B gives a reference payout ratio of 58.6%. Share repurchases were ¥0.002B, bringing the Total Return Ratio to approximately the same level. FCF of ¥71.97B was approximately 3.1 times dividend payments; however, given the sharp increase in short-term borrowings, the capacity for shareholder returns cannot be assessed based solely on the cash balance.

Risk Factors

1. Financial reporting and internal control risk: The third-party committee identified issues including premature revenue recognition, understated provisions, and overstated inventories. The audit opinion for the fiscal year ended March 2025 was a disclaimer of opinion, and according to the disclosures, the amount of the effects of undetected misstatements has not been determined. Uncertainty remains in interpreting the financial figures.

2. Short-term borrowings and liquidity risk: Short-term borrowings were ¥596.54B, an increase of ¥502.83B from the end of the previous fiscal year. Including long-term debt due within one year of ¥177.84B, the total was ¥774.38B. The current ratio was approximately 1.36x, and cash of ¥896.81B was approximately 1.5x short-term borrowings. The company’s funding position is highly sensitive to changes in refinancing conditions.

3. Profitability and tax burden risk: The operating margin declined to 5.8%, and the effective tax rate reached approximately 80.7%. AMEC recorded an operating loss of ¥5.52B, while research and development expenses increased 44.0% YoY. The recovery in profit depends on monetizing increased expenses and normalizing the tax burden.

Industry Benchmarks (Reference; Compiled by the Company)

The operating margin is below the industry median but within the IQR, while the net profit margin is below the median and close to the lower quartile.

The revenue growth rate is slightly below the median but within the IQR.

※Source: Company compilation

Key Points to Note in the Results

1. The most notable feature is that revenue growth has not translated into higher profit. Revenue increased by ¥45.86B, but operating income declined by ¥46.6B. This reflects higher research and development and SG&A expenses, compounded by AMEC’s loss and MOEN’s settlement liability.

2. The sharp increase in cash at period-end was supported by borrowing. Cash increased by ¥650.56B, while short-term borrowings increased by ¥502.83B. Although OCF and FCF remained positive, attention should be paid to repayment maturities and the decline in the equity ratio.

3. The fact that the figures have been restated, together with the disclosures concerning internal controls, is an important premise for interpreting the financial metrics. Future disclosures should be monitored alongside the normalization of the tax burden and progress in corrective measures.

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This report is an automatically generated earnings analysis produced by AI based on XBRL earnings data. It does not recommend investment in any specific security. Industry benchmarks are reference information compiled by the company based on publicly available earnings data. Investment decisions should be made at your own responsibility and, where necessary, after consulting with a professional.

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