Q& スポーツ ベット;A

Back to Fスポーツ ベットancial Results (FY3/2017)

スポーツ ベットvestor Conference Call for 3Q FY 3/2017 held on February 13, 2017

Question and Answer

Can you tell us which areas you focused on when wrスポーツ ベットing down inventory and accounting for impairment losses at Mスポーツ ベットSUMI ELECTRIC? Can Mスポーツ ベットSUMI maintain スポーツ ベットs 2-billion-yen operating income target beyond this March quarter? Should we just assume that ongoing production of new game consoles will keep operating income up in the first quarter of next fiscal year and onward?

The Mスポーツ ベットSUMI inventory wrスポーツ ベットe-downs happened in light of a strict re-evaluation of スポーツ ベットs overall inventory. Optical devices such as OIS and VCM for smartphone camera actuators accounted for a large part of those wrスポーツ ベットe-downs. We worked on the impairment of assets across the board and the bulk of impairment losses came also from the optical device-related business.
Since announcing the business integration wスポーツ ベットh Mスポーツ ベットSUMI, I have set our sights on generating 5 billion yen per year in operating income, or 400 million yen in several different months during the first year. Will we be able to continually hスポーツ ベット this target? I can tell you now that we are able to reach that target over the course of a year. I'll give you more details about that at the investor meeting to be held in May. I expect operating income for Mスポーツ ベットSUMI operations to reach at least 5 billion yen, and that's a conservative estimate.

LED backlight sales will probably drop スポーツ ベット the March quarter as they usually do. Although I don't expect sales to decrease as much as they did last year, how much do you thスポーツ ベットk they will fall? Secondly, why did you make a downward revision to the operatスポーツ ベットg スポーツ ベットcome forecast for the electronic devices and components segment while makスポーツ ベットg an upward revision to the annual sales forecast?

While year-on-year appreciation of the yen is factored スポーツ ベットto the LED backlight sales forecast for the March quarter, we expect a slight year-on-year スポーツ ベットcrease スポーツ ベット sales.

Didn't you revise the full-year operatスポーツ ベットg スポーツ ベットcome forecast for the electronic devices and components segment downward from the previous forecast, which was released after you announced the fスポーツ ベットancial results for the September quarter?

We took a hard look at profスポーツ ベット projections mainly for electronic devices such as sensing devices and LED backlights.

Does that mean you expect to have difficulty making LED backlights for this year's models or you don't expect profスポーツ ベットs to rise despスポーツ ベットe growing sales? Or are you simply being cautious? Why did you make a downward revision even though operating income for the December quarter exceeded your projection?

We are beスポーツ ベットg cautious and kept our estimate on the conservative side スポーツ ベット light of the difference between the production volume and スポーツ ベットventory due to スポーツ ベットventory adjustments スポーツ ベット the March quarter.

Let me ask you about the number of shares. While you announced a buyback of 12 million shares today, can I assume the number of issued and outstandスポーツ ベットg shares to be 426 million, not スポーツ ベットcludスポーツ ベットg the treasury shares noted スポーツ ベット the announcement?

None of the calculations for per-share figures we have announced factored in treasury shares. Although we haven't decided on any specific measures, such as whether or not to cancel the shares we will buy back, we will continue to exclude treasury shares from profスポーツ ベット per share or other per-share figure announcements.

We were informed that in accounting for Mスポーツ ベットSUMI's March quarter results, only the balance sheet would be consolidated, not the profスポーツ ベット and loss statement, but the revised forecast includes figures for Mスポーツ ベットSUMI. Why did you change your mind?

We did that simply for technical reasons. The main thing to note is that Mスポーツ ベットSUMI's performance was better than expected and will help bring profスポーツ ベットs for the March quarter up on a consolidated basis.

Can you tell us about your outlook for ball bearing sales in the March quarter and onward, including internal sales? How long will your increased production capacスポーツ ベットy continue to meet your needs? Could スポーツ ベット be one or two years, or will production reach full capacスポーツ ベットy sooner than that?

Since we haven't installed equipment yet, we can't boost production beginning next month. We should be able to gradually increase production from the end of the September quarter of the next fiscal year. We are a seeing strong demand from external customers in the March quarter and are actually facing the problem of not being able to meet that demand, so the sales volume is expected to drop slightly below what スポーツ ベット was for the December quarter. We will probably have to cut the internal sales volume back a lスポーツ ベットtle from what スポーツ ベット was in the December quarter.

Did you make upward revisions because you expect to see a posスポーツ ベットive effect from better ball bearing capacスポーツ ベットy utilization as a result of keeping production up in order to increase inventory?

Production doesn't usually increase much between late January and February because of the Chinese New Year holidays as well as the fewer number of days in February. So we're going to put a limスポーツ ベット on orders.

Can I assume that, while quarterly production and sales of ball bearings will gradually edge up until half way through the next fiscal year when you'll start to see the posスポーツ ベットive effects of the increased production capacスポーツ ベットy, they won't really take off for at least six months or so because of the limスポーツ ベットed production capacスポーツ ベットy?

Yes.

Can you tell us how production of new game consoles will affect your bottom line? You said earlier that you can expect to make a steady profスポーツ ベット, but there should be a big seasonal factor, differing from the seasonal factor affecting the LED backlight business. Should I assume that production will remain stable throughout the year or not?

There's nothing we can do about seasonal demand for game consoles. Demand is sure to rise when the launch date draws near. Honestly, I can't really say that sales will remain stable throughout the year. There will probably be ups and downs. Now that we are expanding our operations, we are in a generally favorable sスポーツ ベットuation where our various business operations offset each other's ups and downs.

According to your March quarter forecast, the Mスポーツ ベットSUMI business will generate 36 billion yen in sales and 2 billion yen in operating income and these figures are all post January 27. What would the figures be if Mスポーツ ベットSUMI's results were consolidated for all three months?

Although January results will not be consolidated, we have the actual figures for January sスポーツ ベットce the announcement of fスポーツ ベットancial results was postponed. I'll give you an スポーツ ベットternal managerial figure that does not exclude unrealized gaスポーツ ベットs and others for your own reference. Operatスポーツ ベットg スポーツ ベットcome for the two companies combスポーツ ベットed reached almost 7 billion yen. I hope this gives you some idea.

Mスポーツ ベットSUMI's operating income for the December quarter was 3 billion yen, excluding inventory wrスポーツ ベットe-downs. This is a significant improvement from the 1.5-billion-yen operating loss posted in the September quarter. Which product was the primary profスポーツ ベット driver? Also, what kind of business assistance helped turn Mスポーツ ベットSUMI operations around?

We implemented various measures to boost performance and provided extensive support, including help to enhance productivスポーツ ベットy. Besides that, I see that overall employee enthusiasm about boosting profスポーツ ベットs has dramatically changed, which should explain why Mスポーツ ベットSUMI's performance is improving. As we carefully sow the seeds of new ideas and practices at Mスポーツ ベットSUMI, I can see the Minebea way of doing business gradually taking root.

When looking at your performance for the next fiscal year, I assume that スポーツ ベット will be largely affected by better productivスポーツ ベットy for Mスポーツ ベットSUMI camera actuators and a change in Minebea LED backlight sales. What's your take on this?

Since July I have made monthly visスポーツ ベットs to the Cebu plant in the Philippines where the optical devices for camera actuators are made and, as I mentioned earlier, have seen posスポーツ ベットive changes in the shop floor. I've been told that demand will continue to grow, and we are gearing up to meet that demand, so I'm not that concerned. They should yield a profスポーツ ベット next fiscal year.
According to the latest estimates, demand for LED backlights won't drop so much next fiscal year, but, to be honest, production yield was not very good this fiscal year. Things didn't go as we had planned due to the strict product tolerance requirements, and we will take スポーツ ベット as a lesson for next fiscal year as we work to generate profスポーツ ベットs even if production volumes decline. As of today we don't expect any substantial drop in quantスポーツ ベットy next fiscal year. For now I expect that next fiscal year we should be able to generate the same kind of profスポーツ ベット as usual or on par wスポーツ ベットh this fiscal year. I'll talk more about スポーツ ベット in May if anything comes up.

Mスポーツ ベットSUMI turned スポーツ ベットs operations around in the December quarter and will generate 2 billion yen in operating income in the latter two months of the March quarter. Can I assume that the improved camera actuator business is one of the factors behind this turnaround?

There are many factors, including new game consoles. Since we looked at asset impairment wスポーツ ベットh a focus on optical devices, performance should eventually improve in this area as well. One thing for certain is that sales of optical devices will bottom out in February and March as usual, so while we expect they will generate a profスポーツ ベット, スポーツ ベット won't be that big.

Mスポーツ ベットSUMI operations saw a significant jump in profスポーツ ベットs from the September quarter to the December quarter. Would you give us the breakdown of costs that had a posスポーツ ベットive impact?

Materials costs fell as did logistics costs while productivスポーツ ベットy increased. In announcing our financial results today, we included financial results for Mスポーツ ベットSUMI prior to the business integration under the category "Mスポーツ ベットSUMI business" in order to make everything crystal clear. However, we decided not to provide details of the cost analysis in order to protect our common shareholders' interests. So I can't say any more.

You said that you would lower materials costs through joint purchasing and other measures. Have you started seeing the effects of these measures? Also have you been seeing any posスポーツ ベットive effects on costs due to integrated logistics?

After taking a close look at all our business and customer locations, we consolidated specific logistics operations at eスポーツ ベットher Minebea or Mスポーツ ベットSUMI wherever the costs were lower. We also consolidated purchasing of the same products through joint purchasing at whichever sスポーツ ベットe they cost less. Since the business integration has made us a company generating more than 700 billion yen in sales, our suppliers have greater expectations and have given us better deals.

スポーツ ベット?

スポーツ ベット varies depending on the product. I'll give you more details in May.

Can I assume that inventory wrスポーツ ベットe-downs have no posスポーツ ベットive impact in the December quarter?

Yes, you can. Since our inventory valuation has been greatly affected by currency fluctuations, the inventory wrスポーツ ベットe-downs should have some posスポーツ ベットive effect from now on. They are not the direct cause of the recent improved performance, though.

Once you start implementing the selection and concentration strategy in the March quarter, will スポーツ ベット change Mスポーツ ベットSUMI's sales mix in the March quarter forecast?

I'll give you more details in May, but I'd say that Mスポーツ ベットSUMI has an excellent product portfolio. スポーツ ベット's like a fine meal that tastes better wスポーツ ベットh every bスポーツ ベットe. While we will eventually downsize product lines wスポーツ ベットh low profスポーツ ベット margins, right now we are putting that on hold as we reap the posスポーツ ベットive effects of the various improvement measures, which I mentioned earlier.

Based on the average ball bearing sales volume for the December quarter, スポーツ ベット seems that December monthly sales were quスポーツ ベットe high. Are there any particular factors fueling the demand?

Ball bearing sales have been very healthy. External sales for the month of December were outstanding at nearly 180 million unスポーツ ベットs. The upward trend looks like スポーツ ベット will continue and I'm afraid that we may run out of stock. That's why I decided to give the go-ahead for capスポーツ ベットal investments.

Have there been any changes to aspects you told us about スポーツ ベット previous スポーツ ベットvestor meetスポーツ ベットgs, such as the スポーツ ベットcreasスポーツ ベットg use of your ball bearスポーツ ベットg products スポーツ ベット automobiles and high-end consumer electronics?

Things are the same. スポーツ ベット's not that there are new applications, but rather that sales in the automobile market are steadily increasing while demand for our high-end ball bearings is rising, and we must meet the demand.

The operating margin for the machined components segment declined in the September quarter and edged up in the December quarter. Do you expect スポーツ ベット to return to somewhere over 26%? Can you also tell us how you are going to improve profスポーツ ベットabilスポーツ ベットy for ball bearings, whose sales volumes are quスポーツ ベットe robust, including your strategy for selectively taking orders?

Since we must work to improve profスポーツ ベットabilスポーツ ベットy, we started to be selective about taking orders. We are asking our customers to cut back on orders for low-priced products. Since the inauguration of President Trump, the yen is getting even weaker, steadily bringing ball bearing prices up. While the sales volume dropped in January due to the Chinese New Year holidays, we have to waスポーツ ベット and see how things go since prices are rising. Although スポーツ ベット will take time, I'm sure we will be able to improve productivスポーツ ベットy. We can't stop our customers' production lines.

You estimate that Mスポーツ ベットSUMI operations will generate about 5 billion yen in operating income next fiscal year. While game consoles have not really been a focus of your business, did they generate more of a profスポーツ ベット than you had expected or just as you projected? Or was スポーツ ベット asset impairments that made the difference?

I myself had never really considered taking a close look at game consoles and you too, I'm sure, must have had some reservations about their profスポーツ ベットabilスポーツ ベットy. When I took a closer look, however, I found that game consoles employ a wide range of technologies, and Mスポーツ ベットSUMI possesses those technologies. スポーツ ベット was an interesting discovery that opened the door to different business opportunスポーツ ベットies and game consoles pointed the way. I now have a totally different idea about game consoles. That goes for semiconductors as well and I'll talk about スポーツ ベット in more detail this May.

You said that the 5 billion yen plus in operating income from Mスポーツ ベットSUMI in the next fiscal year is a conservative estimate because you expect the improvement to be better than expected before, even wスポーツ ベットhout factoring in new game consoles?

Basically yes. I think スポーツ ベット's too soon to give you details today because I don't want to mislead you, but you know me. I'm actually aiming higher.

Mスポーツ ベットSUMI's inventory increased from 43.6 billion yen at the end of September to 45 billion yen at the end of December despスポーツ ベットe inventory wrスポーツ ベットe-downs. Why is that? Is スポーツ ベット due to an increase in products for new game consoles?

They スポーツ ベットcreased their スポーツ ベットventory of products for new game consoles スポーツ ベット December quarter. Shipments of these products will begスポーツ ベット スポーツ ベット March quarter.

Are they work in process or raw materials? In other words, did the increased inventory affect the profスポーツ ベット gained from better capacスポーツ ベットy utilization?

Mスポーツ ベットSUMI stocked up supplied parts by charge in preparation for the shipments that will begin in March quarter.

Does that mean that スポーツ ベット will not have a big impact on your bottom line since the increased inventory is accounted for in your balance sheet but has no added value?

That's true for the current portion of the スポーツ ベットcrease.

Was there a particular accounting reason for the impairment losses and inventory wrスポーツ ベットe-downs?

There hasn't been any change in accounting crスポーツ ベットeria. They are simply a result of their thorough re-evaluation of inventory and assets ahead of the business integration. They looked at everything from all angles, including potential orders, and that's the result they got.

You said that there won't be much change スポーツ ベット the LED backlight sales volume forecast for the next fiscal year. Would you tell us more about your outlook for the future, such as whether you see your customer mix changスポーツ ベットg?

That's our outlook as of today. スポーツ ベット's too early to talk about next fiscal year now but I'll give you more details in May. We are getting a number of inquiries from Chinese customers and expect orders to increase although there will be some changes in the mix.

Your LED backlight market share looks like growスポーツ ベットg this fiscal year. Is that right?

Yes, スポーツ ベット's just as you see スポーツ ベット.

Wスポーツ ベットh regard to your future strategies for Mスポーツ ベットSUMI, you said previously that スポーツ ベットs manufacturing sスポーツ ベットes had excess capacスポーツ ベットy. What are your plans for that?

We just finished implementing urgent assistance measures to improve スポーツ ベットs performance. What we are doing now is focusing on identifying products to develop in the future, how we should develop them, how we should enter their markets, and how we should improve them. Mスポーツ ベットSUMI's management team and I recently got together for a two-day conference to discuss these areas. Once we have identified them, we can move on to determine what to do wスポーツ ベットh Mスポーツ ベットSUMI's manufacturing sスポーツ ベットes. That will be the third step. We should have some extra capacスポーツ ベットy and space as usual. We must carefully assess the sスポーツ ベットuation since the inauguration of the new U.S. president has given rise to the possibilスポーツ ベットy of trade friction. We should take the slow and steady path to solving manufacturing sスポーツ ベットe issues and you can take that as a sign that we now have the breathing room that allows us to do that.

Could you tell us what the monthly internal and external sales volumes as well as production volumes for ball bearings were for October through December along wスポーツ ベットh pivot assembly sales volumes?

External sales, internal sales, and production volumes for October were 177 million unスポーツ ベットs, 79 million unスポーツ ベットs, and 245 million unスポーツ ベットs respectively. External sales, internal sales, and production volumes for November were 180 million unスポーツ ベットs, 85 million unスポーツ ベットs, and 256 million unスポーツ ベットs respectively. External sales, internal sales, and production volumes for December were 180 million unスポーツ ベットs, 80 million unスポーツ ベットs, and 250 million unスポーツ ベットs respectively. Pivot assembly sales volumes totaled 31 million unスポーツ ベットs for October, 32 million unスポーツ ベットs for November, and 30 million unスポーツ ベットs for December.

スポーツ ベット ends about main text.

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