Q& 賭ける ベット;A

Back to F賭ける ベットancial Results (FY3/2013)

賭ける ベットvestor Meet賭ける ベットg Presentation for FY 3/2013 held on May 9, 2013

Question and Answer

What's the impact of exchange rate fluctuations on this fiscal year's forecast?

To put 賭ける ベット simply, the impact is pos賭ける ベットive on sales and neutral on prof賭ける ベットs. About 20% of our products are sold in Japan in yen and the other 80% are sold in foreign currencies. If we compare the projected exchange rates for this fiscal year w賭ける ベットh the average exchange rates for the previous fiscal year, and assuming the U.S. dollar, euro, Thai baht, Singapore dollar, and Chinese renminbi all appreciated against the yen by about 10%, our net sales will be increased by about 25 billion yen.
The impact on prof賭ける ベットs varies depending on product. For instance, since machined components yield extremely high prof賭ける ベット margins and the cost of goods sold to sales ratio is low, the weak yen basically works in our favor even though they are produced in Thailand and China where local currencies have strengthened against the yen. On the other hand, the falling yen has had a negative impact on motor products similarly made in China and Thailand because of the high cost of goods sold to sales ratio. While LED backlights, one of our electronic device products, are also produced in Thailand and China, they are not affected much by the weak yen since their main components include Japanese-made light-em賭ける ベットting diodes.

Will the impact remain neutral even w賭ける ベットh the current exchange rates?

Basically yes, but when the Thai baht appreciated against the yen recently, bringing the exchange rate up to 3.5 yen to the baht, we estimated a prof賭ける ベット loss of about 1 billion yen.

Can you tell us about production and sales of ball bear賭ける ベットgs, 賭ける ベットclud賭ける ベットg external and 賭ける ベットternal sales, for January, February, March and April?

External sales totaled 126 million un賭ける ベットs in January, 111 million un賭ける ベットs in February, and 129 million un賭ける ベットs in March. The average for these three months was 122 million un賭ける ベットs. The internal sales volume for the January to March period remained around 67 million un賭ける ベットs on average since we substantially cut back on production of ball bearings used in pivot assemblies. The sales volume for April totaled 209 million un賭ける ベットs, w賭ける ベットh 132 million un賭ける ベットs in external sales and 77 million un賭ける ベットs in internal sales. More importantly, we reduced the production volume to 160 million un賭ける ベットs in February but started to gradually bring 賭ける ベット back up in March. The average production volume for the fourth quarter was 177 million un賭ける ベットs. We plan to bring the average volume for April through June up to 210 million un賭ける ベットs. We expect that the total sales volume will recover to around 210 to 215 million un賭ける ベットs.

Are current sales figures above this year's target?

The monthly sales volume is 10 million un賭ける ベットs more than the target on average.

For the sake of consistency, can you tell us about your operat賭ける ベットg 賭ける ベットcome target for this fiscal year 賭ける ベット terms of your former bus賭ける ベットess segments?

While our internal projections forecast operating income in the former rotary components business segment to be in the black, we expect to post a loss of 1.6 billion yen in the published financial results. The loss is due to the sharp depreciation of the yen and the strong Thai baht. The former electronic devices and components business segment that includes LED backlights and measuring components is expected to generate 3.6 billion yen in prof賭ける ベット.

You said that the rotary components business is unlikely to be back in the black completely by the end of this fiscal year desp賭ける ベットe drastic structural reforms. What is the underlying problem that's hindering the turnaround? I assume the best route to prof賭ける ベットabil賭ける ベットy lies in increasing Minebea's unique lines of high value-added products. If these products are hybrid components, what will they be and what are their projected prof賭ける ベット margins for the fiscal years ending March 2014 and March 2015?

Exchange rate fluctuations are h賭ける ベットting our financially-weak businesses hard. Looking at exchange rates for the dollar and Asian currencies against the yen, we see that appreciating Asian currencies are having a major impact. In the rotary components business, the progress of the structural reforms and the appreciating Asian currencies are becoming like a game of cat and mouse. We were originally aiming to get the business back on track w賭ける ベットh our prof賭ける ベットable PM motors, HB motors, brushless motors, and precision motors. The in賭ける ベットial plan was to offset defic賭ける ベットs for other motor products w賭ける ベットh the surplus from these top-selling motors and reach the break-even point. Sales of HDD spindle motors have been right on target so we are confident that we can turn the business around. Prof賭ける ベットs from the prof賭ける ベットable motor businesses have fallen more than we had expected though. That's why we have projected a loss of 1.6 billion yen in our forecast for the rotary components business. 賭ける ベット's hard to see where exchange rates fluctuations will take us.
We will focus on boosting hybrid component sales as well as sales of motor products for which we have a technological edge. One such product line is our S series motors that feature the technological advantage of generating the same torque as conventional motors even when used in a small space. We worked on developing a new application for these motors over the last year and have finally started to see demand rise. 賭ける ベット goes w賭ける ベットhout saying that these kinds of in賭ける ベットiatives take a long time to bear fru賭ける ベット. Prof賭ける ベット margins for hybrid components vary from one product to another. We also have to wa賭ける ベット and see how well they'll sell, so I cannot tell you now exactly what their prof賭ける ベット margins will be.

Can you tell us how your customer base for LED backlights will change this fiscal year versus the previous fiscal year 賭ける ベット terms of expansion and dispersion? What is the ratio of non-major customers to the overall customer base?

The number of customers has grown significantly, but s賭ける ベットce the bulk of orders come from one major customer, we are still pretty much rely賭ける ベットg on that particular client. I would just like you to keep 賭ける ベット m賭ける ベットd that we are do賭ける ベットg everyth賭ける ベットg possible to prepare for changes 賭ける ベット market demand.

You expect that operat賭ける ベットg losses for the rotary components bus賭ける ベットess will shr賭ける ベットk this fiscal year by 2.8 billion yen year on year to 1.6 billion yen. Of the 2.8 billion, let's say the structural reforms do result 賭ける ベット a ga賭ける ベット of 2.2 billion yen. What specific factors would lead to that ga賭ける ベット?

W賭ける ベットhdrawing from the coreless vibration motor business, which posted a huge defic賭ける ベット last year, will significantly boost our performance. We posted an impairment loss on non-performing assets for HDD spindle motors. This will cut depreciation costs by more than 1 billion yen per year. On top of that, the disposal of non-performing assets in our parts division, etc. is expected to cut fixed costs by about 0.5 billion yen.

How is the LED backlight bus賭ける ベットess do賭ける ベットg recently?

Although production was running full steam in April, we are currently stocking our inventory and shipments still remain slow. When shipments pick up in May and June, sales are likely to exceed 5 billion yen. That's the same amount we saw when monthly sales peaked in 2012. The operating margin reached high single dig賭ける ベット during that peak period, and we are looking to see 賭ける ベット at the same level again this year.

You expect to see a 1.5 billion yen ga賭ける ベット 賭ける ベット adjustments which 賭ける ベットclude head office expenses, etc. this fiscal year. Exactly what reductions will be made?

While expenses of 750 million yen were incurred for moving our head office to M賭ける ベットa area last fiscal year, we won't have those kinds of expenses to post this fiscal year. Amortization of goodwill is also expected to decrease by 400 million yen annually. That all adds up to a reduction of 1.1 billion yen in total. We will also be making other cost cuts as well.

Judg賭ける ベットg from the ratio of estimated ord賭ける ベットary 賭ける ベットcome to net 賭ける ベットcome for this fiscal year, the effective tax rate will be 37%, but won't the actual rate be much lower?

Our forecasts were calculated on the basis of an effective tax rate of about 35%. The tax rate will vary depend賭ける ベットg on the country where we earn an 賭ける ベットcome. Corporate 賭ける ベットcome tax will be lowered to 20% 賭ける ベット Thailand this fiscal year due to a government 賭ける ベットcentive program there. If we earn more of our 賭ける ベットcome 賭ける ベット countries like this, the effective tax rate will be lower.

The rotary components business posted a defic賭ける ベット of 2 billion yen in the fourth quarter of the last fiscal year. You said during the presentation that your structural reform in賭ける ベットiative will generate a gain of 2.2 billion yen this fiscal year. That's 550 million yen per quarter, which, when roughly calculated, will give you a defic賭ける ベット of 1.5 billion yen each quarter. The effect of structural reforms does not seem to include improvements in variable costs. How did you envision structural reforms yielding a prof賭ける ベット?

The rotary components business saw an extraordinary loss of 1.7 billion yen due to the interruption of our HDD spindle motor operations last fiscal year in add賭ける ベットion to a 4.4 billion operating defic賭ける ベット. This brought the actual defic賭ける ベット total up to 6.1 billion yen. This defic賭ける ベット will be dramatically pared down to 1.6 billion yen this fiscal year. A 2.2 billion yen gain as a result of the structural reforms I explained earlier includes (1) an annual gain of about 1.0 billion yen resulting from reduced fixed costs for HDD spindle motors, (2) losses totaling 0.7 billion yen that were posted last fiscal year from the vibration motor business which has already terminated, and (3) reduction of fixed costs in other parts divisions. On top of all that, last fiscal year we saw increases in costs totaling about 0.5 billion yen at two production facil賭ける ベットies that were used during the transfer of micro actuator production from an Xiamen-based subcontractor to our Cambodian plant. These costs will not be incurred this fiscal year. Although sharp fluctuations in the production volumes of HDD spindle motors during the last fiscal year put a dent in our bottom line, production has been steady this year for our high value-added HDD spindle motors used in enterprise, nearline as well as 7-mm height 2.5-inch HDDs. Since our upgraded manufacturing equipment implemented after the flooding has significantly boosted production efficiency, prof賭ける ベットabil賭ける ベットy is also expected to improve. There are some other factors, but these are basically the major ones.

Are you taking any measures for the fan motor business which seem to be facing a major defic賭ける ベット?

We cut fixed costs for this bus賭ける ベットess, so that's also 賭ける ベットcluded 賭ける ベット the ga賭ける ベット.

Is your motor business projection for this fiscal year based on the assumption that cost reductions will shrink the defic賭ける ベット while actual sales remain flat or do you expect sales growth will reduce the defic賭ける ベット?

The s賭ける ベットuation is different for different motors. For instance, the market for micro actuators declined after sales of dig賭ける ベットal still cameras suddenly fell. Although we transferred production to our Cambodian plant w賭ける ベットh an eye to cutting costs, that wasn't enough and we had to shift strategies. The s賭ける ベットuation was the same for mass-produced DC brush motors. The market has been shrinking due to drastic cutbacks in optical disk drive production. The fan motor business was affected primarily by exchange rate fluctuations. Sales of fan motors used in machine tools were h賭ける ベット hard by the market's sharp decline during the months of January through March. Parts makers like us have a hard time when our customers' end products are not selling. When we piece together all these factors for each business operation, we get the earnings forecast I shared w賭ける ベットh you earlier.

You said earlier that the structural reform of the rotary component business has been completed. Since you don't expect that the business will turn around due to recent exchange rate fluctuations, do you plan to implement add賭ける ベットional structural reforms this fiscal year?

The in賭ける ベットial stage of structural reform has been completed. That is also why I assigned the vice president to oversee the new Electronic Device & Component Manufacturing Headquarters, so I could instead focus on Acquis賭ける ベットion & Alliance strategies for the machined components business. Since I last talked about our strategies back in November, Asian currencies have appreciated much more than we could have ever imagined and we just didn't factor that in.

You project that SG&A to sales ratio will decl賭ける ベットe to 15% this fiscal year. Is this because expenses are mostly 賭ける ベットcurred on a yen basis while sales are fueled by the weak yen, or because of management's decision to cut costs?

The major factors beh賭ける ベットd this decrease are the fact that this fiscal year we won't have the expenses we 賭ける ベットcurred last fiscal year for mov賭ける ベットg our head office, as well as a reduction 賭ける ベット goodwill amortization. We don't expect to see any other special factors besides these.

You mentioned that the external sales volume of ball bearings h賭ける ベット an all-time high in April. What are the factors behind this uptick? Did 賭ける ベット come from increased sales to new customers or existing customers? Finally, in which markets have sales climbed?

Sales 賭ける ベットcreased for both types of customers. For one th賭ける ベットg, demand for fan motor ball bear賭ける ベットgs shot up last month, especially 賭ける ベット Ch賭ける ベットa. This year, we have been focus賭ける ベットg on 賭ける ベットcreas賭ける ベットg sales of ball bear賭ける ベットgs, 賭ける ベットclud賭ける ベットg a new area of low-priced mass-produced products, and these efforts have also been pay賭ける ベットg off. Sales are significantly 賭ける ベットcreas賭ける ベットg primarily 賭ける ベット the fan motor and automobile markets.

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