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  "docSlug": "9e3d3c9dc613",
  "documentTitle": "Nidec Corp. (6594 JP)",
  "authorId": "51_Muddy_Waters",
  "authorName": "Carson C. Block",
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  "presentationDate": "2016-12-13 00:00:00",
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  "notes": "The slide uses a forensic accounting approach to challenge management's narrative on profitability improvements post-acquisition.",
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      "kind": "callout",
      "text": "On the surface, the OP margin jump in FY 2015 is very impressive. However, the information we have makes this jump seem unlikely – if not impossible.",
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      "text": "OP Margin: 14.7%",
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      "text": "In March 2014, Nidec acquired Elesys from Honda. Elesys produces electronic control units for automobiles. One oddity about how Nidec treated Elesys right after the acquisition is that during its first two quarters as part of Nidec (Q1 and Q2 FY 2014), Nidec classified Elesys as part of the All Others operating segment. In Q3 2014, Nidec transferred Elesys to the Nidec Motors & Actuators segment. At the time it was transferred to Motors & Actuators, it appears to have been grouped with an unknown business that had also been in All Others. The unknown business seems to have been generating roughly JPY 5 billion in revenue per quarter. (The foregoing is based on the assumption that Elesys was generating JPY 8 billion to JPY 9 billion in revenue at the time.) The foregoing might (or might not be) pertinent to our concerns about Elesys's stated OP margins.",
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      "text": "On the surface, the OP margin jump in FY 2015 is very impressive. However, the information we have makes this jump seem unlikely – if not impossible. Investor relations attributed the jump in FY 2015 to Elesys taking advantage of Nidec's scale to purchase semiconductors at lower prices. Importantly IR also stated that Nidec does not purchase semiconductors for Elesys centrally – Elesys purchases from suppliers directly. This means that the jump in OP margin would be reflected in financial statements for the various Elesys entities. The information we have on China and Japan does not match the jump. (According to IR, China is about 20% of sales, Japan 40%, and the U.S. 40%.)",
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      "text": "We obtained financials for Elesys China from SAIC. We have Japan financial information from a Japanese credit bureau, Teikoku Databank. The piece that is missing is the U.S., but IR confirmed that Honda accounts for substantially all of Elesys's volume company-wide, and that the OP margins in the U.S. are similar to those of Japan and China.",
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      "kind": "quote",
      "text": "Yes, actually, before our acquisition of Elesys, their profitability was like average of automotive components business as you may know. And since then, we have been improving their profitability at least twice, in some cases, 3x before the acquisition. So that's the contribution from Elesys.",
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      "kind": "quote",
      "text": "Yes, actually, before our acquisition of Elesys, their profitability was like average of automotive components business as you may know. And since then, we have been improving their profitability at least twice, in some cases, 3x before the acquisition. So that's the contribution from Elesys. — Masuo Yoshimatsu, Chief Financial Officer, First Senior Vice President and Director",
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      "kind": "source-note",
      "text": "54 The data is available from the State Administration of Industry and Commerce. 55 https://www.tdb.co.jp/english/company/index.html",
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      "text": "FY 2014: 10.24%, FY 2015: 13.26%, Q1 FY 2016: 13.58%, Q2 FY 2016: 14.7%",
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