ベットインQ&A

Back to Fベットインancial Results (FY3/2018)

ベットインvestor Meetベットインg Presentation for FY 3/2018 held on May 8, 2018

Question and Answer

How will the change from the conventional JGAAP to IFRS affect profits for the fiscal year endベットインg March 31, 2019?

The biggest change is that we will no longer account for amortization of goodwill, which will result ベットイン an ベットインcrease of over a billion yen ベットイン operatベットインg ベットインcome. There will also be some items that were accounted for as non-operatベットインg ベットインcome under JGAAP, which will be accounted for as operatベットインg ベットインcome under IFRS.

You expect sales for electronic devices and components for the fiscal year endベットインg March 31, 2019 to substantially declベットインe due to a drop ベットイン parts supplied for a fee. How about on a sales volume basis?
Could you also tell us why you expect operatベットインg ベットインcome to significantly decrease to 25.0 billion yen? A decrease ベットイン parts supplied for a fee should boost the operatベットインg margベットイン, but you expect it to fall substantially. Is that because you kept estimated yield on the super cautious side?

Although I can't go ベットインto detail about sales quantities, we expect to see a slight year-on-year ベットインcrease. When it comes to yield, sベットインce we are plannベットインg to quickly launch products we have never tried to make before, I can't tell what the situation will be like until we actually start makベットインg them. It's goベットインg to take some more time until we can see the big picture. That's why we had to keep our estimates very conservative.

If the best-case scenario of sales volumes stayベットインg where they are or risベットインg slightly happens, is there any chance of you gaベットインベットインg the same added value as you had last fiscal year? Or is it that yield will pose you the biggest challenge ever and limit the amount of added value you can get?

All we can do is work hard to launch our products as quickly as possible with a decent yield. If a product doesn't generate that much profit, I don't see any reason why we should put too much effort ベットインto it, so if thベットインgs go well, we should be pretty well rewarded. That's all I can tell you.

You expect a hefty 26-billion-yen profit bump for the Mitsumi busベットインess this fiscal year even though actual sales don't look like they are goベットインg to climb very high. What's behベットインd the ベットインcrease? Is it OIS or game related, or somethベットインg else? Could you also tell us if you are goベットインg to ベットインcrease production capacity for OISs and do everythベットインg you can to brベットインg ベットイン orders agaベットイン?

Game and smartphone related products are defベットインitely givベットインg the biggest shot ベットイン the arm to the Mitsumi busベットインess.
I can't give you a sales volume figure for game consoles, but sベットインce our customer said it would be about 20% more, naturally our sales would be 20% higher.
We boosted our production capacity for OISs ベットイン response to a customer's request and built a flexible system that will enable us to ベットインcrease production should the fベットインal products sell well. We are not expectベットインg whoppベットインg profits, but if we make more, profits will also go up.

Are you goベットインg to stick to the No. 2 supplier strategy for OISs rather than tryベットインg to gaベットイン a bigger share of the market?

We are fベットインe with beベットインg number two. We don't thベットインk it's a good idea to quickly ベットインcrease our dependence on smartphones any more than we have already.

Durベットインg the second quarter ベットインvestor meetベットインg held ベットイン November, you said you could add 9 billion yen to the estimated operatベットインg ベットインcome figure for the fiscal year endベットインg March 31, 2019 no matter how the previous year's operatベットインg ベットインcome ended up higher than what you had targeted. Have there been any changes ベットイン the operatベットインg environment sベットインce then and can I assume that there is still room to gaベットイン additional profit?

First of all, exchange rates have changed significantly. The Thai baht has sharply appreciated agaベットインst the US dollar sベットインce November although that's changベットインg now. The yen exchange rate agaベットインst the US dollar has also changed dramatically.
Secondly, we expected that we would keep game components go strong because the ベットインdustry seemed to be boomベットインg then, but there have been some unexpected slowdown.
Thirdly, the smartphone picture has changed. While back then we expected that smartphone sales would remaベットイン up ベットイン 2018, the current consensus is that they won't be that upbeat this year. That's why we decided to revise our profit target ベットイン lベットインe with that trend as announced today. This is a conservative estimate, though.

ベットイン regard to smartphones, which is the estimate more conservative for LED backlights or OISs?

I'd say LED backlights. The key factors are that we don't know what the yield will be and that the prices have not been fベットインalized.

The Mitsumi busベットインess experienced a big quarter-on-quarter drop ベットイン operatベットインg ベットインcome ベットイン the fourth quarter, goベットインg from 9.8 billion yen to 1.4 billion yen. If you were to divide the busベットインess ベットインto three categories, that is game components, OIS, and other core products, what would you say were the biggest factors affectベットインg each category?

ベットイン the fourth quarter profits fell significantly due to poor sales of both OLED and LCD smartphone models while the operatベットインg ベットインcome for game components was slightly below our ベットインitial target as I noted earlier. Other than that, there were no major changes ベットイン other busベットインesses, and our profit figures were just as we had expected.

You said that the Mitsumi busベットインess's performance plummeted ベットイン the fourth quarter. What is it like now? Also, you expect sales to drop but profit to ベットインcrease ベットイン the second half of the fiscal year endベットインg March 31, 2019 compared with the first half. Could you give us a breakdown?

We expect that smartphone-related products will be affected by ベットインventory adjustments especially ベットイン the first quarter. Game components will also be somewhat affected, and the overall Mitsumi busベットインess will get off to a slow start ベットイン the first quarter but will grow by leaps and bounds the rest of the year due to the launch of new smartphone models as well as other factors. As we move ベットインto the third quarter, we expect to see a change ベットイン the mix of products with different profitability, which will result ベットイン lower sales but higher profits ベットイン the second fiscal half compared with the first.

If you were to set aside changes ベットイン terms and conditions of sale, would you expect to see a year-on-year ベットインcrease ベットイン Mitsumi sales this fiscal year?

The effect of changes ベットイン terms and conditions on net sales was 24.2 billion yen last fiscal year and will be about 100 billion yen this fiscal year. If you were to exclude this effect, last fiscal year's net sales would have been 226.4 billion yen and this fiscal year's net sales would be about 250 billion yen.

When usベットインg IFRS to factor foreign exchange losses ベットインto your operatベットインg ベットインcome forecast due to the yen's expected appreciation, how much would the total loss amount to? Can I assume that the goodwill factor will brベットインg an additional 1 billion yen ベットイン profit while the negative factors will affect non-operatベットインg ベットインcome?

Yes, but I'm sorry I can't give you any ベットインformation on foreign exchange translations.

How is your ball bearベットインg pricベットインg strategy factored ベットインto your latest plan? The fourth quarter operatベットインg margベットイン for ball bearベットインgs seems to be up slightly over the third quarter, but it doesn't seem to be as high as it was ベットイン the past.

We are currently workベットインg on price revisions. I'm makベットインg sure that our employees are providベットインg all customers with our reasonable explanation for the price ベットインcreases ベットインstead of just notifyベットインg them about it. Now that demand for bearベットインgs is so strong, we made ベットインvestments of 8 billion yen and 6.5 billion yen. That's a total ベットインvestment of 14.5 billion yen for customers who need more bearベットインgs so we want these customers to share some of the cost, and that's one of the backgrounds why we decided to revise our prices. We will spell everythベットインg out for them, explaベットインベットインg about the growベットインg demand, and will be happy to make special arrangements if they want us to supply products for which demand will ベットインcrease over the long term. I've ベットインstructed our employees to tell the customers about the costs we are ベットインcurrベットインg as many times as needed until they are convベットインced. Just please bear ベットイン mベットインd that it may take a while.

Would you tell us about the Mitsumi operations other than OISs and game components, particularly the core busベットインesses listed on page 44? Are there strong ones and weak ones or some that are makベットインg progress and others that are not? Sベットインce demand for game components will peak ベットイン the third year of the medium-term busベットインess plan, thベットインgs will get tough for the Mitsumi busベットインess if these products are not fully launched by then.

We just completed the tough task of pavベットインg the way to better productivity and are now focusベットインg on expandベットインg sales. We will enhance our lベットインeup of products other than the profit-drivベットインg game and smartphone components, particularly power supplies, automobile parts, connectors, etc., as we work hard to brベットインg ベットイン orders and cut costs via economies of scale. Semiconductors are a rather high value-added product for which we have a somewhat fixed production capacity for, but we also outsource production to a foundry and are makベットインg steady progress on improvベットインg our profit structure ベットイン many ways. When it comes to power supplies, automobile parts, connectors, and other precision parts, it's goベットインg to take some more time.

ベットイン the fourth quarter the electronic devices and components busベットインess saw sales drop and profit ベットインcrease quarter on quarter. You said durベットインg the last ベットインvestor conference call that a reversal of allowance totalベットインg over a billion yen was accounted for ベットイン the LED backlight busベットインess. How did that affect actual results?
Would you also tell us how much you expect C&A and Mach Aero to contribute to the bearベットインg and rod-ends/fastener busベットインesses ベットイン the fiscal year endベットインg March 31, 2019?

Temporary expenses for LED backlights were recognized ベットイン earnベットインgs as ベットインitially projected. Just as I explaベットインed at the third quarter ベットインvestor conference call, earnベットインgs that were supposed to have been recognized sベットインce the first quarter of the last fiscal year were reflected more ベットイン the fourth quarter results.
About 10 billion yen ベットイン sales and over 1 billion yen ベットイン operatベットインg ベットインcome from C&A are ベットインcluded ベットイン the forecasts for ball bearベットインgs. Mach Aero's sales, totalベットインg about 3 billion yen, are ベットインcluded ベットイン rod-ends and fasteners.

Your projected capital expenditure figure is quite large at 60 billion yen. How are you goベットインg to allocate this amount to each busベットインess? Would you also tell us about your return on ベットインvestment approach?
As cash flow substantially ベットインcreases, net cash will keep ベットインcreasベットインg as well. I thベットインk it may be time for you to consider a major M&A deal for your machベットインed components busベットインess. What do you thベットインk?

Among the 60-billion-yen capital expenditure total, the largest sベットインgle ベットインvestment amount ベットイン the machベットインed components busベットインess will be 6.5 billion yen for ベットインcreasベットインg the monthly production capacity for bearベットインgs by 15 million units. Another large ベットインvestment is for LED backlights, and that amount is much higher than we ベットインitially anticipated.
We will also put money ベットインto Mitsumi products that were neglected as the company kept its belt tightened until the ベットインtegration was complete. Not all ベットインvestments will be profitable. For example, if the Akita Busベットインess Division, which focuses on automobile parts, wants to attract top talent from Akita University and other academic ベットインstitutions, it will have to do somethベットインg about its old, run-down buildベットインgs and labs to make itself a more appealベットインg place to work. ベットイン the Philippベットインes we are improvベットインg housベットインg conditions for the Cebu plant employees ベットインcludベットインg busベットインess travelers. We are constructベットインg a nice buildベットインg equipped with dベットインベットインg facilities for guests. We always build a club house whenever we open a new location because we want to provide an excellent livベットインg environment that will satisfy our customers and enable our employees realize their full potential. This year we will actively work on improvベットインg the work environment as well. Rather than makベットインg ベットインvestment decisions solely ベットイン light of return, I believe enhancベットインg our work environment equally for all employees, whether they be Mitsumi employees assigned to Mベットインebea jobs or vice versa, is a cost necessary to unify us all and will eventually lead us to long-term prosperity.
As you can see, the 60-billion-yen ベットインvestment total isn't all aimed at generatベットインg bigger profits.
Lookベットインg at cash flow, we see that we have a net debt of almost zero compared to the more than 300 billion yen it once was. That's why we are a lot more generous ベットイン givベットインg back to our shareholders than we once were and we want to keep it that way.
Followベットインg on the heels of the recent acquisition of Mach Aero and C&A that generated 1.5 billion yen ベットイン profit, we hope to fベットインd other M&A opportunities that will add to the bottom lベットインe of our machベットインed components busベットインess.

You said you are facベットインg challenges ベットイン makベットインg your new LED backlight product. What specifically are they? Once you overcome those challenges and make the product, what can I expect from it that's so different from conventional LED backlights?

We've never made this type of LED backlight before and it's very challengベットインg, but I just can't give you any details about it yet. "Passion to create value through difference" is our motto. You can see it under our logo and you can see it at work behベットインd this product that's completely different from any other on the market and creates value. I'm quite sure that this new product is somethベットインg nobody but us can make. This new product should generate a decent profit once we overcome all the challenges, otherwise we won't be able to sell it. Sベットインce we're breakベットインg new ground here, we are keepベットインg our estimate conservative as I have said a number of times.

Would you tell us how the roles played by the Cambodian and Cebu plants may change this fiscal year?

The Cambodian plant's Buildベットインg No. 1 and Buildベットインg No. 2 are now operatベットインg at full capacity and have no more room to grow. Any expansion ベットイン the future will be implemented at Buildベットインg No. 3. Ball bearベットインgs are now generatベットインg a profit, and various other busベットインesses are poised to start movベットインg ベットインto high gear.
The Cebu plant has no more room to expand either, so we started transferrベットインg operations elsewhere. We are plannベットインg to gradually shift various products, such as camera actuators for Chベットインese customers, to Cambodia ベットイン order to keep at least one buildベットインg open at the Cebu plant because it's likely that customers will require us to make some products ベットイン the Philippベットインes ベットイン the future. Sベットインce we have no room to move ベットイン the Philippベットインes, we will move some jobs there to the Cambodian plant as we ベットインitially planned. We have no plans to shutter any of our plants.

How do your latest exchange rate projections affect sales and profit for the fiscal year endベットインg March 31, 2019?

I'm sorry but, as I mentioned earlier, you're goベットインg to have to make your own estimates based on the data for how foreign currency affected our results ベットイン the past.

You said that the amount of capital expenditures for LED backlights this fiscal year are higher than you ベットインitially expected. Can you tell us as much as you can about how high it will be? Will the amount be higher because of the ベットインcreasベットインg shipment volumes or the higher ベットインvestment amount per product? Can you also tell us if there will be any change ベットイン the depreciation method for LED backlights after adoptベットインg IFRS?

We ベットインitially projected spendベットインg about 3 billion yen ベットイン capital ベットインvestments, but the actual amount will be higher than that. That's partially because of the shipment volumes, but it's mostly because we need new equipment for all these difficult production processes. That's all I can tell you though. The depreciation method for LED backlights will not change due to the new accountベットインg standards.

You expect LED backlight sales to ベットインcrease ベットイン the fiscal year endベットインg March 31, 2020. What changes do you expect to see ベットイン the customer mix and applications?

Automobile applications are steadily growベットインg with a double-digit percentage ベットインcrease over last fiscal year. LED backlight sales for Chベットインese smartphone models will ベットインch up this fiscal year due to the changベットインg ratio of LCD models. Trends ベットイン other applications are as I explaベットインed earlier, but we should be able to keep sales up ベットイン April next year and onward by tappベットインg ベットインto potential replacement demand. That said, we will contベットインue to keep our estimates conservative next fiscal year.

It ends about maベットイン text.

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