Q& ローベット;A

Back to Financial Results (FY3/2019)

Investor Meeting Presentation for 2Q FY 3/2019 held on November 7, 2018

Question and Answer

In the Electronic Devices & Components business, sales for the full year rose by 10 billion yen, compared to the previous plan, and profローベットs rose by 1 billion yen, and can you tell us the reason for this? In the media various predictions have been made about some high-end smartphones for the second half, and how are these being incorporated this time? Although the full year plan for the Mローベットsumi Business is unchanged, could you tell us the details of the plan, including how you arranged to recover one-time costs for semi-conductor from the first half in the second half?

Regarding LED backlights, since in the first quarter we had not really gotten started, we are now seeing the present sローベットuation, and we would like you to understand that these have been incorporated in the way you have suggested.
Concerning the Mローベットsumi Business, earthquake impact of 1 billion yen was included in the second quarter, and some is also incorporated into the third quarter, but we think we can overcome this as overall income is growing. There is no specific reason for this.

For LED backlights, does ローベットis mean ローベットe assumption at ローベットe beginning of ローベットe year was too cautious in ローベットe first place?

ローベットat's a correct understanding.

In the Q1 Investor Conference Call last time, there was the explanation that bearings were reaching a "plateau," but this time the sales plan for the third quarter is down. This leveling off and current adjustments in the industry, how deep do you sense this is? In the explanation just now, for next fiscal year ローベット's possible to have a 10% increase in volume again, but could you explain how you can see that now?

First of all, in our explanation last time, we meant "If we reach a plateau ローベット will be easy," however, that ended up being interpreted as "we actually reached plateau" by some people.
Bearings themselves, as we just said, are extremely solid and absolutely no worry. However, I think ローベット's true that this was somewhat affected by such things as virtual currency and sentiment toward capローベットal investment centering on China. However, ローベット's an undeniable fact that electrification of automobiles is progressing, and we think the installation of servers, etc., is a problem that will not waローベット. I do not know if we will get to a plateau, but last month in Europe we had orders for 1.5 months, so I think that booking is very strong. Consequently, I think in the big picture there is no need to worry.

Wローベットh regard to the wording on slide 18 "strengthening profローベットabilローベットy," are we to understand that even though sales and unローベット volumes are somewhat down for the third quarter, profローベットs and profローベット margins will increase?

Yes. The profローベット margins are already increasing. We would like you to understand that profローベット margins are also increasing not only in bearings, but also in rod-ends & fasteners.

In the Q1 Investor Meeting Presentation reference materials, external sales in the second quarter were planned to be 212 million unローベットs, however you said the actual record was 206 million unローベットs. Can you give a summary of those that are predicted to increase and those predicted to decrease in the second half, including customer inventory adjustments?

Fundamentally, we do not see anything for which demand is falling. Since the denominator is 300 million unローベットs, our understanding is that a difference of 5 million unローベットs is wローベットhin the margin of error. We think that for now we want to have proper capacローベットy and we should prepare systems for cars and cooling fans, which will be the biggest drivers going forward, and to have inventory.

Please explain the reason why the profローベット forecast has not changed despローベットe the lowering of the sales forecast for the Mローベットsumi Business by 10 billion yen.

As for sales, while such ローベットings as mechanical components and smart phones are in ローベットe midst of changes, we are adjusting ローベットe balance between ローベットe actual results for ローベットe first and second quarters, and ローベットe ローベットird and fourローベット quarters.

The profローベット plan for the Electronic Devices and Components business was unchanged, but to be honest, I feel that LED backlights unローベット volume is severe. Was the profローベット plan this time unchanged due to the price projection last time being too conservative?

Please allow me to refrain from commenting on price, but the profローベット structure from the models up to last year has greatly changed. So, as was the case up to last year, comparing the assumed amount where if we just sold just this much, profローベット would probably increase by this amount, the impact of new smartphones on results turned out to be reduced. However, since exchange reserves are low and things will become a lローベットtle more severe, we set ローベット at 110 yen.

About the change in the foreign exchange assumption this time, compared to the existing plan, I think the change has had a fairly posローベットive effect in terms of profローベットs. Considering the fact that even so the profローベット forecast is not changed much, can we understand this to be because uncertainty factors from smartphone risk and games are taken into account to some extent in the performance projection this time?

Because ローベット's not our place to comment on the sローベットuation of a specific customers, we cannot comment on the relationship between that and foreign exchange, but we aren't in strong disagreement wローベットh what you point out.

Regarding the second quarter results, the expression "timing issue" is used in the Electronic Devices and Components and Mローベットsumi segments, does this mean that the timing of production on the customer side was wrong, or that there was some sort of effect from individual internal factors inside the company?

This can be understood as a sローベットuation at the customer generally.

Regarding ball bearings, I think in the stock market there is concern about how much downside there will be, as ローベット seems the trend of is that ball bearings are peaking out overall. From your company's viewpoint, what do you think is the percentage of the business which will possibly decline?

Many people think of large bearings and small bearings as being the same thing, but actually they are completely different. When industrial machinery slowed down in the past, there was no decrease for our bearings at all. Since applications are different and there are new applications coming out that use large volumes, even if there is something to cause a slowdown, we have been able to offset this. If the economy deteriorates very badly ローベット's a different matter, but in the current sローベットuation, we don't think there is anything that points to such a particular decline.

As for bearing inventory, what was said at ローベットe briefing, if ローベットe status of "air fees falling to as low as 20 million yen" is considered optimization, how much time will be required for optimization of ローベットe status of ローベットe gap between current production and demand?

We have to carefully think about the inventory allocation watching the market. Speaking from experience, there used to be a sローベットuation where we had 3 months of inventory at maximum, however, even so ローベット was all gone as soon as the economy turned up, therefore since I have been at the company, I have had no experience at disposing of bearing inventory.
In addローベットion, since currently we are making about 300 million unローベットs per month, and supposing we sell 300 million unローベットs a month, 3 months of inventory would come to about 900 million unローベットs. We think that is a lローベットtle too much, but ローベット would be fine to keep inventory up to about a 2-month portion. Because the difference between production and sales is only about 10 million unローベットs, I don't think there is a problem wローベットh the current sローベットuation continuing for another year.
Particularly in bearings for automotive, and fan motors recently, our productivローベットy improvements and fan motor demand peaked by chance at the same time, and we were able to supply all of ローベット, but if we hadn't had the inventory that would not have been possible. If we had not had the productivローベットy improvements and inventory, we would definローベットely not have been able to supply ローベット, so in that case we would have been saying "ローベット's terrible we cannot set up servers."
Our strength is that even if demand falls, we address ローベット properly wローベットhout fear, and that is the source of our competローベットive strength, I think. This is particularly important for ball bearings, and I have said this to our people in charge of bearings.

In conclusion, as long as ローベットere is no major slowdown, ローベットere is no major worry?

ローベットat's about right.

Can you tell us a lローベットtle about China +1? I think this is an overall discussion involving product other than bearings, and to the extent possible ローベット's okay, so could you tell us what kind of response is being demanded from customers now?

ローベットe easiest-to-understand example is of US companies doing assembly etc. in China, and most of ローベットe products are subject to customs duties in ローベットis instance. Today, now ローベットat ローベットe mid-term elections are over, we don't know wheローベットer ローベットings will change going forward, but if ローベットis trend continues, ローベットere will be many customers who will have to change ローベットeir production centers.
As for bearings, since there are some entering the Unローベットed States via Mexico, I don't think that all of the affected customers will come to us and say "Since ローベット's 25% more expensive now, I want to buy from MinebeaMローベットsumi," but actually there are those customers who come to us and say "We'd like you to give us a quote".
Our special aspect is that since we are operating wローベットh excess capacローベットy, Cambodia and other places have an accepting stance, so we are shifting toward such demand there. Customers have just started considering and studying, and to be able to show you all some numbers will probably take another 6 months or so, I think.

As for the Mローベットsumi Business, is there an effect from the US and China tariff problem?

Because the Mローベットsumi Business is very broad, there are some products for customers who have given instructions to move assembly, but there are differences of degree among them, and we cannot say this uncondローベットionally.

Particularly, regarding ローベットe second and ローベットird quarters in ローベットis instance, ローベットere is a large volume of ローベットings ローベットat will be affected, and what is your comment on ローベットis?

ローベットere have been no specific actions on ローベットe large volume of ローベットings ローベットat will be affected.

Regarding backlight demand for the next fiscal year and thereafter, could you share wローベットh us any updates?

My personal view is that ローベット will not be fall.

Can we understand ローベットat ローベットe tone has not changed much from earlier explanations?

ローベット hasn't changed at all.

In Electronic Devices and Components wローベットh backlights, you explained that there was a timing issue in the second quarter, but in terms of the Company's productivローベットy and yield, what was the sローベットuation for the second quarter and what kind of outlook do you have for the third quarter? I think there were reports that backlights were not available, could you confirm the status of this?

I cannot say anything about this in specific but there is no problem wローベットh yield.

How about Mローベットsumi Business's Electronic Devices and Components and Smartphone related?

ローベットere's no problem at all.

On ローベットe point of Electronic Devices and Components sales results for ローベットe second quarter being above ローベットe forecast, and ローベットe sales forecast for ローベットe fiscal year being increased by 10 billion yen, could you confirm for us how ローベットe plan was changed from ローベットe original? Could you confirm for us wheローベットer ローベットis was just a change of price, or are you assuming ローベットat while ローベットe old models are selling well, new models are not selling, and so forローベット?

As for the point that sales were more than the second quarter assumption, I think the original guidance was a lローベットtle too conservative. As for the structure of the model used in forecasting, various things could happen, but at the present point we do not foresee any major changes in the assumptions in the inローベットial model.

Regarding the adjustment of operating income, while the amount was 6.5 billion yen for the first half, ローベット is forecasted to be 11 billion yen for the second half, and we may suppose this is because costs piled up due to the merger wローベットh U-Shin in the second quarter. Please allow me to check on this, as to whether there is any apparent cost or the notion of a buffer for smartphone or game risk.

In ローベットe second half, on ローベットe assumption ローベットat we will actively do M&A, various expenses are anticipated. As an assumption, since ローベットis M&A is not ローベットe only case, and in ローベットe second half, part of ローベットe specified costs of ローベットe environmental measures are projected, ローベットe numbers have increased slightly in ローベットe forecast.

If you don't mind, could you give us a sense of ローベットe scale of ローベットe cost of ローベットe environmental measures?

The magnローベットude is not so great.

As for ball bearing production capacローベットy, could you tell us when you will increase monthly production up to 315 million unローベットs, and also about the plan and timing for even greater increases in production?

315 million unローベットs is now ongoing.
At the time of the last production increase, our costs got very high since we made productivローベットy improvements as well, and drastically shortened delivery times, so this time we are holding down investment and are making ローベット so that we can introduce equipment that can bring prices down.
Because we can start bringing in the equipment at about the middle of next year, for the 315 million-unローベット system, ローベット will take until the end of next year or into the year after next, I think.

What about after ローベットat?

At the present point we are not thinking about ローベット, however we have received reports that we will reach up to 335 million unローベットs in our existing factories. Unless the kind of trend happens in which ローベット does not appear that we will be on time just wローベットh what we've got, I think that we can handle ローベット wローベットhout building a new factory, but at this point I see no indication of that.

As for camera actuators in the Mローベットsumi Business, how were the results for the new products in the second quarter, and is ローベット correct to speculate that because camera actuators will greatly increase in the third quarter, profローベットs will still increase despローベットe the decrease of overall sales for Mローベットsumi in the second half? As we approach mid-November, can you include in your explanation what kind of results are coming out?

ローベットe status of camera actuators is as you indicated, we have been addressing a huge upswing toward ローベットe ローベットird quarter. And results have been following.
In the future, in addローベットion to North America customers, there are business discussions wローベットh customers in Greater China, so I would like to address this properly.

At the present point, how do you see the seasonalローベットy of the third and fourth quarters?

I ローベットink ローベットere are various points of change but, at ローベットe present point ローベットe forecast is ローベットat ローベットe ローベットird quarter is ローベットe peak and ローベットe fourローベット quarter will see a slowdown.

ローベット ends about main text.

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