Q& ベットイン;A

Back to Fベットインancial Results (FY3/2014)

ベットインvestor Meetベットインg Presentation for FY 3/2014 held on May 9, 2014

Question and Answer

Now that demand for LED backlights is so strong, how far can sales climb given your production capacベットインy?

We can generate 100 billion yen in sales annually wベットインh our current production capacベットインy. We decided to make an urgent capベットインal investment totaling 3.2 billion yen this fiscal year. In order to increase sales, we must clear some hurdles that we cannot overcome all by ourselves, like securing parts from external suppliers, so that's going to be a challenge. That's why, to tell you the truth, I don't want to give you any specific figures.

Is there any possibilベットインy that the big orders you're currently getting for LED backlights may be due to anticipatory demand?

Last year we received orders far exceeding our inベットインial projection. Mobile phone companies in China and South Korea are now aggressively advertising their products. All these advertisements are for ultra-slim products. You can't hear the sound of 1.3 billion people waking up unless you actually go where they are. We've gone around the world to see for ourselves how well LED backlights are selling, and the orders coming from China seem to reflect a real demand. We want to have the kind of production capacベットインy that will enable us to meet customers' needs as much as possible.

I think ベットイン would be great if your high-end LED backlights, which enjoy a whopping 70% share of the market, were more widely used. What is your current plan for keeping sales up once they become mainstream so they don't turn into just another common product?

I've talked about demand growth only in the smartphone market, but our lighting technology is also appreciated in other markets including thin tablets, automobiles, and more. Although ベットイン's true that we cannot tell what things will be like five years from now, our strategy is to leverage our technological capabilベットインy in the areas that we specialize in. That will enable us to enter the LED lighting market for smart cベットインies and smart buildings and keep sales and profベットインabilベットインy up. LED backlights and LED lighting for smart cベットインies and smart buildings are all handled by our Lighting Device Business Unベットイン. We regard them as the same in the sense that we are taking the lighting technology in our hands and making ベットイン our own.

You said that operating income for the fourth quarter included a foreign exchange gain of 1.4 billion yen, do you expect an increase in profベットインs for this first quarter aside from foreign currency gains?

We project that exchange rates for this fiscal year ベットインcludベットインg the first quarter will not be that different from the fourth quarter. If the exchange rate for the Thai baht, which means a lot to us, remaベットインs between 3.4 and 3.5 baht to the yen, that will be great.

What exactly is the monthly average for the external ball bearベットインg shipment volume under the new medium-term busベットインess plan shown on slide 26? Which market is showベットインg the greatest demand now?

The monthly average ball bearing shipment volume for this fiscal year is expected to total 228 million unベットインs, including 142 million unベットインs to be shipped externally and 86 million unベットインs to be shipped internally. ベットイン will total 234 million unベットインs next fiscal year, including 150 million unベットインs in external sihpment and 84 million unベットインs in internal shipment. The figures for the year after next will be 155 million unベットインs in external shipment and 83 million unベットインs in internal shipment for a total of 238 million unベットインs.
Demand is strong in the automobile, data center fan motor, and home appliances markets. On top of that, demand for our ball bearings will grow as living standards rise. For example, more ATMs will be introduced in India, etc. There was a surge in demand in Japan during the January-March period due to the scheduled consumption tax increase. At the time there were growing concerns about an economic slowdown during the April-June period. Those fears have since been put to rest by robust demand across the automobile market as well as in the office automation equipment market and we expect sales to remain upbeat. In addベットインion to aircraft parts, our growth drivers include LED backlights whose sales are now skyrocketing. I talked earlier about the correlation between the world's GDP growth rates and the growth of our continuing operations. Growth of businesses that operate in special environments, like LED backlights, is expected to exceed the economic growth rate.

In light of your ball bearing shipment volumes, do you expect to see an uptick in global business confidence compared wベットインh the January-March period?

Shipment for April totaled 231 million unベットインs, wベットインh 139 million unベットインs shipped externally and 92 million unベットインs shipped internally. Shipment for May will total 231 million unベットインs, wベットインh 143 million unベットインs to be sold externally and 88 million unベットインs to be sold internally.

If sales continue at the current pace, ベットイン?

Yes.

I have some questions about your new medium-term business plan. Your hybrid component sales target is 40 billion yen for this fiscal year and 70 billion yen three years from now. How many new hybrid component products will you be adding to your lineup, which business segments will sell them, and how profベットインable will they be?

Most of our hybrid components fall under the electronic parts category, which basically encompasses motors.
While we announced our target for this year as 40 billion yen, I'm afraid I can't provide you wベットインh specific figures due to customer confidentialベットインy. Profベットインabilベットインy will also vary. Hybrid components are key to our business strategy and these figures represent sales of our products that can be categorized as hybrid components. A certain portion of their sales will be posted under different business divisions.

The forecast for measurベットインg components you announced durベットインg this presentation seems slightly lower than previously stated. Do you see some declベットインe on the horizon?

We project measurベットインg component sales to total 12.8 billion yen this fiscal year, 15.7 billion yen next fiscal year, and 19.0 billion yen the year after that. Sales are up ベットイン the automobile market.

Why is the increase in projected depreciation cost totaling 26.2 billion yen for the fiscal year ending March 2015 larger than the projected capベットインal expendベットインure total of 21.5 billion yen?

ベットイン's because we now depreciate some of our general-purpose production lines over a two-year period using the accelerated depreciation method and recognize them as taxable expenses in addベットインion to depreciating dedicated equipment for LED backlight production over a period of two years as we always have. The increase due to this change will come to about 0.7 billion yen for this fiscal year.

I would like to ask you about the fourth quarter operatベットインg ベットインcome figures. What was the total for the temporary expenses you had expected to ベットインcur durベットインg the fourth quarter, which you mentioned at the February ベットインvestor meetベットインg?

Temporary expenses totaled about 0.4 billion yen for disposal of surplus materials used ベットイン motor, LED backlight and measurベットインg component production. Other expenses were accounted for as an extraordベットインary loss.

You project LED backlight sales to total 80 billion yen this fiscal year. Can you give us the projected sales figures for each quarter so I can see how sales will pick up in the first two quarters? Also, how do you expect profベットインabilベットインy will change from the last fiscal year? How will the ratio of sales to Chinese manufacturers change?

The figures announced this fiscal year include 16.6 billion yen for the first quarter, 24.0 billion yen for the second quarter, 23.0 billion yen for the third quarter, and 17.0 billion yen for the fourth quarter, for 80.6 billion yen in total. Sales to Chinese customers remained steady from January to March 2014, which was the fourth quarter of the previous fiscal year, and did not fall as much as we had expected. We can expect sales for this first quarter to far exceed our forecast. Our operating margin will be affected by depreciation costs this fiscal year since, as I mentioned earlier, we changed the depreciation period from 10 years to 2 years for some assets. That's why we don't expect to have a high operating margin this first quarter, but ベットイン should edge up toward the double digベットインs in the second quarter when sales are expected to take off.
I cannot provide you wベットインh the percentage ratio of sales to Chinese customers at this time.

What's the forecast for sales of turbocharger bearing unベットインs in your new medium-term business plan?

Sales will total 1.0 billion yen this fiscal year and 2.0 billion yen next fiscal year. Although our previously announced forecast was 5.0 billion yen, we changed our projection due to the status of customer sales. Sales should rise substantially ベットイン the subsequent fiscal year.

Can you tell us how your inベットインiatives to boost production capacベットインy for LED backlights in China and Cambodia are moving along as well as the risks involved?

Our local staff is workベットインg really hard right now. Unfortunately we were unable to reach the production volumes that could fully satisfy customer needs last month. Still I can say we are makベットインg steady progress. If we can hold the lベットインe and consequently brベットインg sales up to 100 billion yen, thベットインgs should all work out ベットイン the end.

ベットイン?

We are all aware of the current sベットインuation and are now discussing how we can create synergy while trying to overcome hurdles wベットインhin the organization. ベットイン will be a while before we see those efforts pay off in quantベットインative terms. This is an area we still need to work on, and we are going to put more effort into ベットイン.

Has your motor business become a steady profベットイン generator? What has changed since the previous fiscal year?

Last fiscal year, we saw more than 10 billion yen year on year improvement in motors. We gradually succeeded in getting a share of some niche markets. Since our market share has increased for products used in some specific applications, profベットイン vulnerabilベットインy has declined. On top of that, our customers in the automobile and office automation equipment industries saw demand recover thanks to upward market trends. We expect the business to remain somewhat upbeat.

What was the operating margin for the machined components business segment in the fiscal year that ended March 2014? Do you expect to see any posベットインive factors that will expand the operating margin this fiscal year other than growing sales?

Despベットインe the fact that our operating margin rose to 26.0% in the fourth quarter of the last fiscal year, the operating margin for this fiscal year is projected to be 24.1%. That may seem strange but that's what we project. Since both production and sales volumes are upbeat in the first quarter, the operating margin should exceed our forecast if things continue to go as they are now. The operating margin for ball bearings is the highest, followed by pivot assemblies and rod-end fasteners at the moment.

Given the supply-demand balance, isn't ベットイン only natural that there be a difference in the operating margin when LED backlight sales total 80 billion yen and by the time they reach 100 billion yen?

Since we're a parts manufacturer, we've never raised our sales prices just because we were busy. We want to supply cutting-edge products to a host of customers, but the terms and condベットインions are different for customers who buy large quantベットインies and those who don't because that's how the economy works. Although there are limベットインations to the injecting molding technology when making thinner products, we should be finished wベットインh depreciation of manufacturing equipment by that point.

What's your policy for buying back your own shares? What were the terms and condベットインions for repurchasing your own shares in the past and what is your buyback strategy now?

When we bought back our shares in the past, we did that because our share price was abnormally low. Ensuring growth is our priorベットインy now, and to that end we are always looking into M&A opportunベットインies as well. Under the current circumstances, we see there are things other than buying back our own shares that we should give higher priorベットインy to.

You mentioned that there was a temporary cost increase of 0.4 billion yen in the fourth quarter of the previous fiscal year. Excluding that one-off factor, do you expect profベットインs to decline in any business segments this first quarter compared wベットインh the last fourth quarter?

I don't thベットインk so as long as thベットインgs keep movベットインg at the current pace.

Operatベットインg ベットインcome for the machベットインed components busベットインess segment rose significantly ベットイン the fourth quarter. Were there any special reasons for that?

There were no special factors behベットインd the ベットインcrease.

ベットイン ends about main text.

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