Q&A

Back to Financial Results (FY3/2017)

Investor Conference Call for 1Q FY 3/2017 held on August 2, 2016

Question and Answer

Could you tell us your sales estimate for LED backlights for the September quarter? If you don't feel comfortable about giving us a specific number, please provide us with an index for the preceding three month period, assuming that the actual sales amount of LED backlights was 100. We would also like to know what you think the chances are of achieving 7.1 billion yen in operating profit for Electronic Devices and Components as originally planned for the first half of this year, given the sluggish performance for the first quarter.

For LED backlights, the launch of the parts for new model was later than we originally expected. Despite that, we remain optimistic about the sales of LED backlights at this point in time, given that shipments started to take off in late July. Based on that, we expect Q2 will be well above Q1 in terms of LED backlight sales.

Could you be a little more specific about that, such as providing with us with some figures?

We expect LED backlight sales for Q2 to be around twice as large as sales in Q1.

Operating profit for the Machined Components business remained strong in Q1. Is this only a reflection of the segment's organic growth in business, and does it exclude any non-recurrent gains or losses related to unrealized profit or inventory revaluation?

We didn't have any one-time adjustments factored into the Q1 profit for the Machined Components segment.

It seems that your guidance for this fiscal year remains the same on both the half-year and full-year basis. While the Machined Components business progressed well, Electronic Devices and Components did not. It is not clear whether Electronic Devices and Components will recover in Q2. Is it correct to assume that you believe you can achieve your overall business result estimates?

Just as you said, at this time the overall guidance for the fiscal year remains the same on both the half-year and full-year basis. Having said that, we believe changes in the currency exchange rates have the greatest impact on our performance. Our assumption for yen-dollar exchange rate remains 1USD=105JPY, which is the same as it was at the beginning of the current fiscal year. We find it very difficult to predict changes in the currency value in light of the significant volatility in the recent currency market. In addition to the currency factor, changes in demand for LED backlights will also have a significant impact on our overall performance.

I see that the aim of the Business Support Agreement you concluded with MITSUMI ELECTRIC Co., Ltd. today is to boost your profit quickly on a consolidated basis following the completion of the business integration with MITSUMI next March. Do you expect the Business Support Agreement to have an impact on MITSUMI's business before the end of the current fiscal year? If so, when and how much do you expect to see this impact?

We intend to start working out the specific details of the Business Support Agreement soon. The first thing we will provide will be manufacturing support, and next will be support for sales expansion. We aim to achieve noticeable results as quickly as we can.

Despite the disappointing results for Q1, MITSUMI has not changed its full-year guidance. Maybe this is a question that should be asked to MITSUMI directly, but do they have a sense of urgency in trying to make a quick business recovery in the first three to six months after the second half begins? Or are they still in the process of working out a business plan that focuses on the next fiscal year? If that is the case, do you think it will be difficult for them to produce immediate results this fiscal year?

I am not in a position to comment on that because we are not involved in working out MITSUMI's guidance for this fiscal year. With the Business Support Agreement in place now, I hope that we can act on this sense of urgency and make great things happen quickly.

Could you tell us the actual sales figures, both for the external and internal sales volume, for ball bearings in the June quarter and your expectations for the September quarter?

External sales of ball bearings came to 159 million units, with another 64 million units sold internally in April. In May, external sales were 162 million units, and internal sales were 63 million units. In June, external sales were 168 million units, and internal sales were 66 million units. We expect to sell 162 million units externally and 69 million units internally per month during the July to September period. In July, external sales of ball bearings came to 165 million units, which was higher than the plan.

Have the sales of ball bearings been strong for the same reasons as they were before?

Demand for our ball bearings is firm mainly from auto manufacturers.

Likewise, please tell us about the actual sales volume and outlook for pivot assemblies.

Sales of pivot assemblies came to 24 million units in April, 27 million units in May, and 25 million units in June, with an average of 26 million units per month for the quarter. We are expecting average sales of 26 million units per month for the July to September period. In July, sales of pivot assemblies came to 28 million units, which also exceeded the plan.

It seems that the inventory adjustment for LED backlights had a negative impact on profit for the quarter. Could you tell us more about the degree of this impact? Do you feel that no adjustments are required for the current level of inventory?

The current level of inventory is at 87 billion yen, down 16 billion yen from the end of the preceding quarter. This mainly reflects the completion of inventory adjustment for LED backlights and the currency impact. We believe that the LED backlight inventory is now down to its lowest level for this year.

Do you think a negative impact on operating profit has occurred since the production was paced down to adjust the inventory to the current level?

It is true that the capacity utilization of LED backlights was quite low.

Is it correct to assume that the rising sales volume of LED backlights which pushes up the capacity utilization in the September quarter will have a certain positive impact on profit?

Yes, that's right.

You said earlier that you expect Q2 to be around twice as high as Q1 in terms of LED backlight sales. In the Q&A session held when the business results for the previous fiscal year were announced in May, you stated your outlook for Electronic Devices and Components, forecasting 32.9 billion yen in sales for Q1 and 56.7 billion yen for Q2 of this year. The momentum you indicated today seems to be stronger compared with the initial forecast. Is that a result of gaining a higher market share, or just the effect of rounding the number?

It is true that the demand for LED backlights will increase due to seasonality, but we still find it hard to accurately forecast the demand.

So, you don't see any reason for needing to change the original guidance made at the beginning of the current fiscal year?

The original guidance for this fiscal year still remains largely unchanged.

You said earlier that the strong operating profit achieved in the Machined Components segment did not reflect any one-time and non-operational adjustments. Considering the fact the currency impact was a negative 900 million yen on a quarter-to-quarter basis, it seems that the segment's strong operating profit for Q1 made a major contribution to the overall profit for the quarter. Were there any particular events that factored into the segment's strong operating profit for Q1?

Strong external sales of ball bearings in units have contributed to the segment's operating profit.

Was the reason behind the strong sales of ball bearings an improvement to the product mix or something similar?

No, there has been no major change in the product mix for the segment. The strong operating profit primarily reflected the growth in sales volume.

What impact did NHBB have? Did NHBB and fewer negative factors affect the segment's operating profit in any way?

Yes, that is another reason behind the strong operating profit for the segment.

Motor sales for the first quarter achieved quarter-to-quarter growth, though it was small. It looks like the pace of growth in the office automation equipment market has slowed recently, along with the negative impact of the stronger yen. You achieved growth in motor sales for the quarter, despite these conditions in the market. Were there any changes to motor products that led to growth in sales?

Demand from auto manufacturers remained steady. Demand from office automation equipment manufacturers also remained steady, in contrast to your assumption.

Did both brushless motors and stepping motors enjoy strong demands from office automation equipment manufacturers?

Not necessarily. Stepping motors were the main player here.

What is the reason behind the improved profitability of motor business including Moatech? Are there any new initiatives underway there?

Moatech improved its profitability thanks to consistent efforts made over the last couple of years, such as closing a factory in China and making other business restructuring moves.

You said earlier that the launch of LED backlights for new model was later than usual. Would you mind telling us the reason for that? Do you expect to see problems with incompatibility similar to what happened last year?

The reason behind the later launch was related to delayed order placements of customers. We know nothing more than that.

Do you mean there are no troubles on the Minebea side?

Whenever we make a ramp up of production for a new product launch, we normally experience minor issues of some kind. To date, there have been no noteworthy problems.

Please tell us the sales breakdown for bearings for the first quarter in terms of percentage by area of application. I would also like to know the respective year-on-year growth in percentage.

I'd like to answer your question by giving you data in terms of sales value, not in volume. Looking at total sales of bearings made to customers, auto manufacturers accounted for 19%, aerospace for 35%, home electrical appliance industry for 4%, office automation equipment manufacturers for 6%, PCs and peripheral equipment industry for 4%, motor manufacturers for 16%, and customers in other industries for 17%. Sales to auto industry grew 6% year-on-year, which was followed by aerospace up 4%, home electrical appliance unchanged, office automation equipment down 21%, PCs and peripheral equipment down 9%, motors down 8%, and others down 15%. Overall, bearing sales were down 3% in yen value on a year-on-year basis.

Is the year-on-year decline in bearing sales value related more to currency fluctuations than to factors regarding unit prices?

Yes, that's right.

What was the amount of one-time expenses in Q1 for starting up the LED backlight launch? What differences are there from last year's model in terms of specification and unit price?

We launch new products for new models every year. There are no major differences this year. We are not able to say any more about unit prices and product specifications because of non-disclosure agreements with our customers.

There have been no substantial drops in prices, correct?

No.

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