Q&A

Latest Update : Nov.18, 2016

Back to Financial Results (FY3/2017)

Investor Meeting Presentation for 2Q FY 3/2017 held on November 2, 2016

* Some parts have been added and modified to make them easier to understand.

Question

Question and Answer

Since we signed the business support agreement with MITSUMI, I have been making monthly visits to MITSUMI factories in China, the Philippines, and other Asian countries with the Minebea executive officer in charge of business support for MITSUMI. I take a look at MITSUMI's factories with my own eyes and make decisions right then and there on sending the right Minebea personnel from the right department to where MITSUMI needs assistance in order to help improve its operations. We are also discussing the materials Minebea and MITSUMI should buy as well as who gets a better deal on what with an eye to cutting procurement costs. We still have a lot of work ahead of us and are still two separate companies but once we get the go-ahead at MITSUMI's extraordinary general shareholders meeting, Minebea will be free to take further steps in assisting MITSUMI. Personally I hope to take the business to at least the break-even point in the next fiscal year. I should be able to give you more details about the business plan of the new entity that will be MINEBEA MITSUMI at the investor meeting in May. That will be after Minebea's people, including myself, have joined the MITSUMI team and gotten a closer look at how things have gone in January of next year and afterwards. At this stage it's just too early for me to say a lot about it.
Assembly products are another product category we need to work on. They have manufacturing sites in places like Cebu and Bataan in the Philippines; Qingdao, Tianjin, Suzhou, and Zhuhai in China as well as Malaysia and Taiwan, but they don't seem big enough to do the job right. We eventually need to do something about that.
We expect depreciation and amortization costs for LED backlights to substantially fall once again next fiscal year. In addition to the big drop in capital expenditure on LED backlights, we'll only need to make small investments in Minebea's other operations, so we can use the amount we'll be saving to invest in MITSUMI. After seeing MITSUMI's factories, I got the impression that much of the machinery they are using is old, although I don't know exactly how old since I don't have that kind of detailed information in hand right now.
Its floor area is about 400 square meters. We picked Yaesu as the location due to its accessibility. People from all over can get there to see our products and that's a big plus. The reason why we opened a showroom in the first place is that we wanted people to actually experience our products. For instance, in addition to showing them that SALIOT is a lighting device that moves, we wanted them to see how it uses our optical technology to generate beautiful colors. The showroom is geared more toward designers and store owners than general consumers. A florist who does business with us, for example, told us they loved SALIOT because it really illuminates the beauty of the flowers, though they may have just been being polite. While I have been emphasizing the mobility and connectivity of SALIOT, it's actually the color rendering, made possible by our optical technology, that we are really good at. So we should have a facility where we can sit down and talk about that with lighting designers and others.
We are anxious to get the official go-ahead at MITSUMI's extraordinary general shareholders meeting so we can work together in implementing various measures as an integrated entity. Starting on January 27 rather than March 17 will give us a head start toward making improvements in the coming year. And that is crucial.
First of all, MITSUMI has a world of technologies we don't have. That is the main reason behind the business integration. These technologies are currently being discussed by a working group by the both parties. Take SALIOT for example. They will give us the ability to add a function that would enable it to follow a person. If I had a chip, SALIOT could follow me as I walked around talking. SALIOT lights could follow a bride and groom as they walked down the aisle or automatically illuminate your products on display at an exhibition without the need to operate individual lights. All you would need to do is put a chip on each product. All these things can be made possible by MITSUMI's technology. These are just a few examples, but we have a number of other projects like them on the drawing board and MITSUMI's technological capability never fails to impress me. Secondly, MITSUMI has top-notch people. And while Minebea already has top-notch employees of its own, it's a great bonus. We should be able to make a big impact by changing MITSUMI's corporate culture. Thirdly, MITSUMI has many manufacturing sites, and that will give our location strategy a boost. The integration with MITSUMI will give us a big leg up in all these different aspects.
We spent about 0.6 billion yen during the last fiscal year to prepare for the integration. We expect to spend a little less than 2.0 billion yen this fiscal year. This figure includes 1.0 billion yen spent during the first half and about 0.9 billion yen to be incurred during the second half.
The figures for July were 165 million units in external sales and 70 million units in internal sales. The figures for August included 167 million units in external sales and 73 million units in internal sales. The figures for September were 181 million units in external sales and 77 million units in internal sales.
I haven't made any decision yet. Honestly India is geographically preferable, but I will look at various areas and internal sales volume trends for mainly pivot assemblies, and make a decision within the next couple of years.
We have several options to choose from but I'm afraid I can't give you any details just yet. One strategy, for instance, would be to focus on building a new factory and aggressively pursue soaring demand, or we could go in other directions. Minebea doesn't cater to customers who are simply looking to buy the cheapest available products. We still have time to pause while we think long and hard about aggressively reaching out to customers in the market for low-priced but not quite dirt-cheap products. Retired Minebea vice president executive officer Hiroharu Katogi used to say new ball bearing factories always seem to be jinxed, with profitability dipping temporarily within the first few years of construction. I will consider the matter carefully but will also be careful about making a timely decision.
We have been working on M&As for a long time, even in the face of the major floods that hit Thailand. In my time up at bat I've taken a swing at more than 20 different M&As but have only gotten some hits. Sometimes the price wasn't right or maybe the other party just walked away. I've been through it all over the last eight years but I'm not giving up. Even if I'm up to my ears with work, I'll still be on the lookout for opportunities as we go forward with the business integration with MITSUMI. The Electronic Devices and Components business will ultimately wind up accounting for the bulk of our operations, hovering around 80%. Even though the Machined Components business will take up less of the whole picture, we will reinforce and of course cherish it as the foundation upon which we have built our business. There's also the aircraft industry, so when it comes to bearings, the horizon of possibilities expands when you look around the world. We could also consider a machining company. Given our long-term goal of 1 trillion yen in net sales and/or 100 billion yen in operating income, I have a responsibility to leave no stone unturned and I can't walk away from it.
When it comes to our share price, the higher it is, the happier I am as president. Our directors' bonuses are based on the performance and growth rate of our share price compared against the Nikkei average as well as earnings per share and other factors. If we can really demonstrate the ability to maximize our corporate value not just over six months or a year but over the long haul, our share price will naturally go up. It could reach 2,000, 3,000, or 4,000 yen. I simply don't know exactly how high it could go. The road of life is full of ups and downs and the same goes for the life of a company. As I travel the road of life, I sometimes wonder if I'm going in the right direction. After hearing the MITSUMI's announcement today, some people may be thinking Minebea is O.K. or not, but to me it's a mountain we must climb. As we rise to meet this challenge, so too will our share price eventually. I can fully appreciate why someone would have a hard time understanding what I'm trying to do. It's like we're in a battle but as long as I'm the commander, I will stick to my guns.
I always tell our employees that our share price is our report card. While school report cards often use a five-point scale, the evaluation on a share price report card doesn't have an upper limit. Rank us according to any of the various indexes used across the globe, such as earnings per share, and you see that our share price isn't very high. It may not be a beauty contest, but it does mean that we don't look that attractive in the eyes of the public just yet. But in many ways we are taking Minebea to new heights as we try to live up to your expectations.
We saw external ball bearing sales hit 181 million units in September, and one thing we can tell for sure is that Chinese home appliance manufacturers are very enthusiastic about improving quality. In other words, they need precision, high quality parts. Just like the vacuum cleaner with the 100,000 rpm motor that I talked about earlier, hot new products are being pulled apart and studied around the world. I'm quite sure that lots of Chinese home appliance manufacturers already know that the ball bearings used in these products are Minebea's. Our sales are growing, especially in China. Since I'm always urging our employees to achieve a monthly sales volume of 180 million units ASAP, those working on the shop floor tend to get ahead of themselves. I can't blame them for going a little overboard. However, in terms of product mix, relatively large sized ball bearings were sold well, and material costs increased. I plan to take a deep breath and think about what strategy we should use. I don't think it's wise to continually be sounding the trumpet and leading the charge to build new factories. The fact that we achieved 181 million units in September is a very positive development, but our inventory is temporarily running low so our factories have to frequently change the setup of their machines in order to quickly produce products. Of course things will eventually slow down and we can always opt to be selective about the orders we take. When we reach the point where we are steadily selling 180 million units a month and still have room to produce an extra 20 million units per month, I will carefully assess the situation and decide on what strategy to take. I don't see any problem right now since there's no sign that our market share or profits are in danger of nosediving.
I need a little more time until I can give you a definite answer. The segment is still generating an operating margin somewhere in the mid-twenties percent range, but we will have to think about a specific strategic direction.
Since we make extremely small products, some products are suited to automation but others are not. Automobile parts are now required to be traceable, so we ship them and maintain their records in ways that are totally different from how things were done in the past. The systems used today are also different. The problem is that we make a wide variety of parts in small quantities and different sizes, so it's impossible to make them all with robots that are connected to the Internet. We will have a total of 100,000 employees, including 65,000 from Minebea and 35,000 from MITSUMI. Even if we were to change the production system or implement Industry 4.0, it wouldn't be that easy to reduce the number of employees since machines can't do the work they do. However, the manufacturing process will eventually be automated for some products somewhere down the line. Now that the trend is shifting to automation, even for ball bearings, we are looking into changing our production system. It all depends on the product.
I'm sorry but I can't give you any further details at this time.

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