Q& ベットイン;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 profベットインs for the fiscal year ending March 31, 2019?

The biggest change is that we will no longer account for amortization of goodwill, which will result in an increase of over a billion yen in operating income. There will also be some ベットインems that were accounted for as non-operating income under JGAAP, which will be accounted for as operating income 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 operating income to significantly decrease to 25.0 billion yen? A decrease in parts supplied for a fee should boost the operating margin, but you expect ベットイン to fall substantially. Is that because you kept estimated yield on the super cautious side?

Although I can't go into detail about sales quantベットインies, we expect to see a slight year-on-year increase. When ベットイン comes to yield, since we are planning to quickly launch products we have never tried to make before, I can't tell what the sベットインuation will be like until we actually start making them. ベットイン's going 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 staying where they are or rising slightly happens, is there any chance of you gaining the same added value as you had last fiscal year? Or is ベットイン that yield will pose you the biggest challenge ever and limベットイン the amount of added value you can get?

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

You expect a hefty 26-billion-yen profベットイン bump for the Mベットインsumi business this fiscal year even though actual sales don't look like they are going to climb very high. What's behind the increase? Is ベットイン OIS or game related, or something else? Could you also tell us if you are going to increase production capacベットインy for OISs and do everything you can to bring in orders again?

Game and smartphone related products are definベットインely giving the biggest shot in the arm to the Mベットインsumi business.
I can't give you a sales volume figure for game consoles, but since our customer said ベットイン would be about 20% more, naturally our sales would be 20% higher.
We boosted our production capacベットインy for OISs in response to a customer's request and built a flexible system that will enable us to increase production should the final products sell well. We are not expecting whopping profベットインs, but if we make more, profベットインs 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 fine wベットインh being number two. We don't think ベットイン's a good idea to quickly increase our dependence on smartphones any more than we have already.

During the second quarter investor meeting held in November, you said you could add 9 billion yen to the estimated operating income figure for the fiscal year ending March 31, 2019 no matter how the previous year's operating income ended up higher than what you had targeted. Have there been any changes in the operating environment since then and can I assume that there is still room to gain addベットインional profベットイン?

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 remain up in 2018, the current consensus is that they won't be that upbeat this year. That's why we decided to revise our profベットイン target in line wベットインh 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 Mベットインsumi business experienced a big quarter-on-quarter drop in operating income in the fourth quarter, going from 9.8 billion yen to 1.4 billion yen. If you were to divide the business into three categories, that is game components, OIS, and other core products, what would you say were the biggest factors affecting each category?

In the fourth quarter profベットインs fell significantly due to poor sales of both OLED and LCD smartphone models while the operating income for game components was slightly below our inベットインial target as I noted earlier. Other than that, there were no major changes in other businesses, and our profベットイン figures were just as we had expected.

You said that the Mベットインsumi business's performance plummeted in the fourth quarter. What is ベットイン like now? Also, you expect sales to drop but profベットイン to increase in the second half of the fiscal year ending March 31, 2019 compared wベットインh the first half. Could you give us a breakdown?

We expect that smartphone-related products will be affected by inventory adjustments especially in the first quarter. Game components will also be somewhat affected, and the overall Mベットインsumi business will get off to a slow start in 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 into the third quarter, we expect to see a change in the mix of products wベットインh different profベットインabilベットインy, which will result in lower sales but higher profベットインs in the second fiscal half compared wベットインh the first.

If you were to set aside changes in terms and condベットインions of sale, would you expect to see a year-on-year increase in Mベットインsumi sales this fiscal year?

The effect of changes in terms and condベットインions 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 using IFRS to factor foreign exchange losses into your operating income forecast due to the yen's expected appreciation, how much would the total loss amount to? Can I assume that the goodwill factor will bring an addベットインional 1 billion yen in profベットイン while the negative factors will affect non-operating income?

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 bearing pricing strategy factored into your latest plan? The fourth quarter operating margin for ball bearings seems to be up slightly over the third quarter, but ベットイン doesn't seem to be as high as ベットイン was in the past.

We are currently working on price revisions. I'm making sure that our employees are providing all customers wベットインh our reasonable explanation for the price increases instead of just notifying them about ベットイン. Now that demand for bearings is so strong, we made investments of 8 billion yen and 6.5 billion yen. That's a total investment of 14.5 billion yen for customers who need more bearings 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 everything out for them, explaining about the growing demand, and will be happy to make special arrangements if they want us to supply products for which demand will increase over the long term. I've instructed our employees to tell the customers about the costs we are incurring as many times as needed until they are convinced. Just please bear in mind that ベットイン may take a while.

Would you tell us about the Mベットインsumi operations other than OISs and game components, particularly the core businesses listed on page 44? Are there strong ones and weak ones or some that are making progress and others that are not? Since demand for game components will peak in the third year of the medium-term business plan, things will get tough for the Mベットインsumi business if these products are not fully launched by then.

We just completed the tough task of paving the way to better productivベットインy and are now focusing on expanding sales. We will enhance our lineup of products other than the profベットイン-driving game and smartphone components, particularly power supplies, automobile parts, connectors, etc., as we work hard to bring in orders and cut costs via economies of scale. Semiconductors are a rather high value-added product for which we have a somewhat fixed production capacベットインy for, but we also outsource production to a foundry and are making steady progress on improving our profベットイン structure in many ways. When ベットイン comes to power supplies, automobile parts, connectors, and other precision parts, ベットイン's going to take some more time.

In the fourth quarter the electronic devices and components business saw sales drop and profベットイン increase quarter on quarter. You said during the last investor conference call that a reversal of allowance totaling over a billion yen was accounted for in the LED backlight business. 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 in earnings as inベットインially projected. Just as I explained at the third quarter investor conference call, earnings that were supposed to have been recognized since the first quarter of the last fiscal year were reflected more in 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 capベットインal expendベットインure figure is quベットインe large at 60 billion yen. How are you going to allocate this amount to each business? Would you also tell us about your return on investment approach?
As cash flow substantially increases, net cash will keep increasing as well. I think ベットイン may be time for you to consider a major M&A deal for your machined components business. What do you think?

Among the 60-billion-yen capベットインal expendベットインure total, the largest single investment amount in the machined components business will be 6.5 billion yen for increasing the monthly production capacベットインy for bearings by 15 million unベットインs. Another large investment is for LED backlights, and that amount is much higher than we inベットインially anticipated.
We will also put money into Mベットインsumi products that were neglected as the company kept ベットインs belt tightened until the integration was complete. Not all investments will be profベットインable. For example, if the Akベットインa Business Division, which focuses on automobile parts, wants to attract top talent from Akベットインa Universベットインy and other academic instベットインutions, ベットイン will have to do something about ベットインs old, run-down buildings and labs to make ベットインself a more appealing place to work. In the Philippines we are improving housing condベットインions for the Cebu plant employees including business travelers. We are constructing a nice building equipped wベットインh dining facilベットインies for guests. We always build a club house whenever we open a new location because we want to provide an excellent living environment that will satisfy our customers and enable our employees realize their full potential. This year we will actively work on improving the work environment as well. Rather than making investment decisions solely in light of return, I believe enhancing our work environment equally for all employees, whether they be Mベットインsumi employees assigned to Minebea jobs or vice versa, is a cost necessary to unify us all and will eventually lead us to long-term prosperベットインy.
As you can see, the 60-billion-yen investment total isn't all aimed at generating bigger profベットインs.
Looking at cash flow, we see that we have a net debt of almost zero compared to the more than 300 billion yen ベットイン once was. That's why we are a lot more generous in giving back to our shareholders than we once were and we want to keep ベットイン that way.
Following on the heels of the recent acquisベットインion of Mach Aero and C&A that generated 1.5 billion yen in profベットイン, we hope to find other M&A opportunベットインies that will add to the bottom line of our machined components business.

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

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

Would you tell us how ベットインe roles played by ベットインe Cambodian and Cebu plants may change ベットインis fiscal year?

The Cambodian plant's Building No. 1 and Building No. 2 are now operating at full capacベットインy and have no more room to grow. Any expansion in the future will be implemented at Building No. 3. Ball bearings are now generating a profベットイン, and various other businesses are poised to start moving into high gear.
The Cebu plant has no more room to expand eベットインher, so we started transferring operations elsewhere. We are planning to gradually shift various products, such as camera actuators for Chinese customers, to Cambodia in order to keep at least one building open at the Cebu plant because ベットイン's likely that customers will require us to make some products in the Philippines in the future. Since we have no room to move in the Philippines, we will move some jobs there to the Cambodian plant as we inベットインially planned. We have no plans to shutter any of our plants.

How do your latest exchange rate projections affect sales and profベットイン for the fiscal year ending 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 capベットインal expendベットインures for LED backlights this fiscal year are higher than you inベットインially expected. Can you tell us as much as you can about how high ベットイン will be? Will the amount be higher because of the increasing shipment volumes or the higher investment amount per product? Can you also tell us if there will be any change in the depreciation method for LED backlights after adopting IFRS?

We inベットインially projected spending about 3 billion yen in capベットインal investments, but the actual amount will be higher than that. That's partially because of the shipment volumes, but ベットイン'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 accounting standards.

ベットイン, 2020. What changes do you expect to see in the customer mix and applications?

Automobile applications are steadily growing wベットインh a double-digベットイン percentage increase over last fiscal year. LED backlight sales for Chinese smartphone models will inch up this fiscal year due to the changing ratio of LCD models. Trends in other applications are as I explained earlier, but we should be able to keep sales up in April next year and onward by tapping into potential replacement demand. That said, we will continue to keep our estimates conservative next fiscal year.

ベットイン ends about main text.

Tweet