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Edited Transcript of 6479.T earnings conference call or presentation 2-Aug-19 8:30am GMT

Q1 2020 Minebea Mitsumi Inc Earnings Call

Tokyo Aug 8, 2019 (Thomson StreetEvents) -- Edited Transcript of Minebea Mitsumi Inc earnings conference call or presentation Friday, August 2, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Katsuhiko Yoshida

MinebeaMitsumi Inc. - Managing Exec. Officer & Deputy Chief of Tokyo Head Office

* Yoshihisa Kainuma

MinebeaMitsumi Inc. - CEO, COO, Chairman & President

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Conference Call Participants

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* Akihiko Uchino

Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst

* Daiki Takayama

Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst

* Fumihide Goto

Mizuho Securities Co., Ltd., Research Division - Senior Analyst

* Manabu Akizuki

Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director

* Shingo Hirata

UBS Investment Bank, Research Division - Director and Analyst

* Shoji Sato

Morgan Stanley, Research Division - Analyst

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Presentation

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Managing Exec. Officer & Deputy Chief of Tokyo Head Office [1]

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My name is Yoshida. Today, I would like to explain about the consolidated financial results for the first quarter of the fiscal year ending March 31, 2020. And then Mr. Kainuma, Representative Director, CEO and COO, will explain about the highlights, including business updates.

Please turn to Page 2. Consolidated net sales for the first quarter totaled JPY 204.425 billion, a decrease of 4.0% year-on-year, but an increase of 10% quarter-on-quarter. Operating income was down 74.4% year-on-year and down 47.6% quarter-on-quarter to a total JPY 3.663 billion. Profit for the period attributable to the owners of the parent decreased 78.9% year-on-year and 74.8% quarter-on-quarter to total JPY 2.297 billion. Currency fluctuations brought net sales down, an estimated JPY 0.1 billion quarter-on-quarter and up JPY 1 billion year-on-year. It also brought operating income up JPY 0.1 billion quarter-on-quarter and up JPY 0.6 billion year-on-year.

Also, on April 10, we acquired a 76.2% of controlling interest in U-Shin Limited, making it our subsidiary. Since we included U-Shin in the scope of consolidation as of that day, we added the U-Shin business to our reporting segments.

Please go to the next slide. This is a quarterly trend in net sales, operating income and operating margin. The bar graph on the left is net sales, and the one on the right is operating income along with a line chart for the operating margin. The operating margin for the first quarter was down 1.8% and was down 4.9 percentage points year-on-year and down 2.0 percentage points quarter-on-quarter. However, expenses related to retirement benefits and business integration costs of U-Shin, totaling approximately JPY 4 billion, were -- are accounted for as a special factor in the first quarter, otherwise, operating margin would be 3.8% if these expenses were excluded.

Also, please note that figures for the fiscal year-ended March 2018 are based on JGAAP and are provided for your reference so they can look at the past figures. The same applies hereinafter.

Moving on to the next slide. This slide shows the difference between the initial forecast as of May and the actual results for net sales and operating income by business segment for the first quarter. While net sales for the Machined components business segment were almost on par with the forecast, sales for the Electronic devices and components business segment, mainly electronic devices, were lower than forecasted. The MITSUMI business's sales were higher than projected, mainly due to increased shipments of smartphone-related parts. The U-Shin business saw a lower-than-expected sales due to a slowdown in automobile production worldwide. While operating income for the Machined components business segment was lower than projected, due largely to the decline of sales volume of ball bearings for fan motors, operating income for Other segment was about the same as projected.

Going to the next slide. Now let's take a look at the results by segment, starting with the Machined components business segment. On the left is a graph indicating quarterly net sales trends, and on the right is a graph with a bar chart indicating quarterly operating income trends along with a line chart for operating margins. Net sales for the first quarter rose 1% quarter-on-quarter to total JPY 46.1 billion. Ball bearing sales rose 1% quarter-on-quarter to total JPY 29.8 billion. External shipments of ball bearings totaled 179 million units per month on average. While demand for ball bearings used in fan motors slowed down, it remained solid in the automobile market. Sales of rod-ends and fasteners totaling JPY 10 billion were down 1% over the previous quarter. Business for the aircraft industry, especially small and medium-sized aircrafts, remained steady. Sales of pivot assemblies increased 4% quarter-on-quarter to reach JPY 6.2 billion. Pivot assemblies steadily contributed to our bottom line, as we held on to an 80% plus market share. Operating income for the quarter totaled JPY 10.7 billion, and operating margin was 23.2%. While this represents a 0.3 percentage point decrease in the operating margin, there was a little quarter-on-quarter change in operating income.

Looking at the results by product. We see that profits for ball bearings, rod-end/fasteners, and pivot assemblies remained almost unchanged quarter-on-quarter.

Please go to the next slide. Now let's take a look at the Electronic devices and components segment. Net sales decreased 17% quarter-on-quarter to reach JPY 77.6 billion. By product, motors sales increased 2% quarter-on-quarter to hit JPY 45.8 billion, while electronic devices were down 43% quarter-on-quarter at JPY 22.4 billion. This decline was primarily due to the seasonality of the smartphone market. Sales of sensing devices were about the same as the last quarter at JPY 8.3 billion. The segment recorded an operating loss of JPY 0.6 billion.

Looking at the results by product. We see that operating income for motors and sensing devices remain steady despite an operating loss incurred for electronic devices. From this first quarter, the battery module products that were included under the MITSUMI business were transferred to the Electronic devices and components business. With this transfer, we have changed the business segment classification between Electronic devices and components and MITSUMI business. For your reference, figures of the fiscal year-ended March 2019 and before are presented based on the classification before the change. The same applies hereinafter.

Moving on to the next slide. Let's look at the performance of the MITSUMI business segment. Net sales increased 7% quarter-on-quarter to total JPY 49.7 billion. This was a result of an increase in net sales of mechanical components, camera actuators and semiconductors despite the decrease in automotive product sales due to the transfer of the battery module products business. Operating income was just about the breakeven.

Next slide, please. Finally, let's look at the U-Shin business segment, including its pre-merger performance. Net sales totaled JPY 30.7 billion. Operating income hit JPY 1 billion and putting the operating margin at 3.3%. U-Shin was included in the scope of consolidation on April 10 for 9 days. From April 1 to 9, net sales totaled JPY 4 billion and operating income was breakeven.

Next slide, please. The bar graph here shows trends in profit attributable to owners of the parent, while the line graph chart are changes in the profit for the period [per] share. The profit for the period was JPY 2.3 billion. Earnings per share was JPY 5.5.

Next slide, please. This graph shows the quarterly inventory trend. At the end of the first quarter, inventories totaled JPY 174.4 billion, which is JPY 33 billion more than what it was 3 months ago. U-Shin's inventory of JPY 15.4 billion was included because of its consolidation to the company.

Next slide, please. This graph contains a bar chart showing trends in net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents and the line chart indicating free cash flows. At the end of the first quarter, net interest-bearing debt totaled JPY 91.5 billion, which was up JPY 69.8 billion from the previous year. This is mainly attributable to the payment for TOB of U-Shin, JPY 25.1 billion; net interest-bearing debt of U-Shin, JPY 26.4 billion; and the payment of E-Ship distribution, JPY 4.3 billion; in addition to the payment of dividend and bonuses.

Next slide, please. This is a summary of the forecast for the fiscal year ending March 31, 2020. While the first quarter results were slightly below our forecast, we expect our net sales in the second quarter to increase due to the seasonality of products. However, in light of market uncertainties caused by trade frictions, currency movements, among other things, we decided not to change the initial first half and full year forecasts. The exchange rate is assumed to be JPY 110 to USD 1.

Next slide, please. This slide shows the forecast by business segment. We did not make any changes to our initial forecast by business segment, either.

This is all for my presentation. Thank you for listening.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [2]

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So this is Kainuma. And I would like to give you some highlights of today's presentation -- or the results.

So looking at the overall economic situation, we are seeing a slowdown in the macroeconomic situation. And I think we are thinking that this will continue longer than initially expected. But mainly in the Electronic devices and components and MITSUMI business, I think we are expecting a huge recovery from second quarter onwards. And -- actually 2 days before, the sales that was closed in for July, it was more than JPY 89 billion. So last year, you have -- and U-Shin is not included, well, July was JPY 70 billion. So U-Shin is about JPY 11 billion sales. So even through the U-Shin's business, about -- it's about JPY 8 billion more. Under this condition, we have seen an increase of sales by JPY 8 billion. So maybe we feel that we have hit the bottom, but we can't be too optimistic. I think we should be careful about [reserving] about the future outlook.

In terms of the Machined components for the aircraft business, it is still very steady. Against the plan, we have been able to increase the profit. However, as I said previously, the ball bearings that is among all of the products, this is the most -- I think, reflects the economic trend of the market, overall, because we have a high share. So currently, the ball bearings, I think, is weaker than projected, and that is currently the fact that we're looking at.

For the Electronic devices and components in MITSUMI business, overall, because of this -- there's impact from the U.S.-China trade issue, but we have a diversified portfolio. So in terms of risk diversification, I think we've been able to do so, as initially planned. So for the second quarter, these products, I think, support our overall performance.

So U-Shin, which has been consolidated from this year, the worldwide automotive market has slowed down. It's affected by this. So China has seen a 20% sales volume go down. And Europe, I think the situation is not that bright. But that said, this U-Shin European business through operational improvement, we have supported that. But in terms of the quality improvement in Europe has been able to be conducted in a very speedy manner. And just the other day, a certain major automotive maker has said that this is excellent. They said they never expected that the quality would be improved in this short period of time, and we were praised for that improvement.

So the overall automotive market outlook, I think this is uncontrollable from our side, but U-Shin's performance improvement or the quality improvement, this is going forward as planned, and I think that for that point, I can report to you.

For the other topics, it is just as shown here. But ball bearings, I think, what is going down is the fan motor for the data centers, that is. So the drop in this area is substantial. So the automobile from -- compared to the first quarter of last year, it has slightly increased -- basically flat. So that is how it is trending currently. So this fan motors for data center applications and for the home appliance business, it has slowed down a bit. Maybe that is a one source of a headache for us.

But in the previous business results, we have said that in the following 10 years, we want to target a sales of JPY 2.5 trillion and out of which JPY 500 billion to JPY 800 billion is going to be conducted through M&A because [-- JPY 500 billion to JPY 800 billion] is going to be M&A. I think based on this announcement, a lot of companies and businesses has approached us. That's the situation I can't go into detail currently. But in terms of the share buybacks, this is one major reason that we cannot conduct the share buybacks in a timely manner. So in terms of share buybacks, we have conducted no share buybacks.

So that ends my presentation. Thank you.

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Questions and Answers

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Operator [1]

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We would like to begin Q&A session. The first question is from Mr. Takayama of Goldman Sachs.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [2]

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My first question is as follows. About bearings, April to June and July to September, you gave us external sales numbers. And could you share with us the forecast for sales. And July, September onwards, the timing of bottoming out, what is your projection? Well, I think in the past, you shared with us the projection made by salespeople. What kind of slope will be there? That is my first question.

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Managing Exec. Officer & Deputy Chief of Tokyo Head Office [3]

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First of all, I, Yoshida, would like to share with you the numbers. And then with regards to the second half of the question, Kainuma will respond. Please give us a moment.

First, April to June external sales. First quarter average, 179 million; and the second quarter average is 180 million. This is the projection. And July, actual, 183 million, which is slightly above the second quarter average projection. Internal sales, Q1 average, 65 million; and Q2, 65 million as well. So external and internal combined Q1, 244 million and Q2 245 million. That is the projection.

Next, Kainuma will respond.

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Yoshihisa Kainuma, MinebeaMitsumi Inc. - CEO, COO, Chairman & President [4]

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So when the situation will start to pick up, our initial projection is things will pick up starting in July. That was our initial projection. Having said that, however, after that, many things happened. The Chinese economy is not picking up, and the data center investment is not recovering from July. So things pushed back a little bit. But 5G -- so new technologies. We know what kinds of new technologies will emerge going forward. There may be some time lag, but in the second half of this year probably things will recover. Bearings, take, for example, the customers are holding inventories to some extent. And therefore, unless inventories are consumed to some level, we cannot expect a full-fledged recovery.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [5]

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I see. Understood. My second question is about U-Shin. Page 4 of the slide, so the sales were below JPY 5.8 billion. However, the profit was in line with the projection. And the reasons for that, in the July to September, the automotive will continue to have difficult time, but faster than expectation, the internal efforts such as cost reduction has been effective. Is that because -- is that the reason why your profit was in line with the projection?

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Unidentified Company Representative, [6]

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First of all, about the numbers -- the breakdown of the numbers, I would like to explain the sales. There were positives and negatives. And we were able to hit the -- not so bad number. And the Q1 operating profit, we had a conservative view to begin with. And the special factors, I think I reported at the outset, the JPY 4 billion, that includes the U-Shin integration-related expenses of JPY 300 million or almost JPY 400 million. And that -- almost half of that occurred on U-Shin side at the Thailand fraudulent accounting, so on and so forth. We hired professionals in order to work on those problems. And excluding those factors, we had slight increase in Q1 organic number.

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Unidentified Company Representative, [7]

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So going to the automotive business, I think you know more than myself, but the China automotive volume sales -- volume is going down. So the type of products that U-Shin make, for instance, you have 4 door handles, so you have 4 door handles for 1 unit. So if these sales volume -- volume goes down, their business would go down, but for the ball bearings because there's a lot of electrification happening in the vehicle. So even if you see a decline in the volume, you'll be able to maintain the sales volume for the ball bearing. So even if it's a automotive product, there is a difference. So U-Shin more than expected, their business is going down for the automotive area. But that said, in terms -- there are model changes. There are some decline due to these model changes. So I think we have to look at this situation carefully. But in any case, we are the -- this is the first year that we are being engaged with the U-Shin business. But if you look at the past trend -- so from going past August and September, the volume tends to go up after August or September, and I think that has been the past trend for the business. Whether this is going to go as planned, it's very difficult to say from this point -- from now that is, but we will look and [reserve] the situation.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [8]

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So this is confirmation. In terms of sales, the environment is not that good, but the bottom line, the profit, you have been looking this in a conservative manner. So the bottom line, even if the top line goes down -- I'm talking about U-Shin, that you'll be able to secure the bottom line. Is that the correct way to understand? But in -- because the [details] is tough, with the profit of U-Shin, is it -- going forward, is it going to be tough? So what is the nuance?

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Unidentified Company Representative, [9]

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From the April to June, I think, basically, we have been conservative. Even if the sales goes down, I think we'll be able to secure the bottom line. But going forward, so we are assuming that the same-level profit is going to be generated this year. And at the same time, including some improvement that we are going to implement, that will be affected. So in terms of the same number of units and the same level of profit is the intention. But if that goes down, if that base goes down, there is a -- maybe you're going to see a lower profit level.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [10]

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And lastly, I would like to ask you about the backlight ramp up for this July to September. And I don't think there are no major model changes compared to last year. So maybe that will have more contributions to the profit. So for the backlight business, are there any changes in terms of your outlook?

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Unidentified Company Representative, [11]

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So in terms of the launch, it will be the last month from the first quarter, and it has -- we have been able to smoothly ramp up this business. So from our point of view, currently, we have been able to smoothly ramp up this business. Against initial forecast, there is no major deviation from that.

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Daiki Takayama, Goldman Sachs Group Inc., Research Division - MD, Co-Head of Japan Equity Research & Equity Research Analyst [12]

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Understood. So the first quarter -- in terms of electronic components business, in terms of the sales outlook, you won't be too concerned. Well, because I think the first quarter outlook was less than we had expected, we were anticipating for the older models. With the first quarter -- the end of the first quarter to the second quarter, is that the case that for the new models we have seen -- it's not the case that we are seeing any changes there.

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Operator [13]

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Morgan Stanley, MUFG, Mr. Sato.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [14]

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This is Sato. I have 2 questions if possible. The April, May, June and July ball bearing external sales and internal sales numbers, please give me? In addition to that, ball bearings, the transit inventories, you may -- you say you have a lot of them, but when do you think such transit inventories will be consumed?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Managing Exec. Officer & Deputy Chief of Tokyo Head Office [15]

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I, Yoshida, would like to give you numbers. April, May and June, external and internal sales, the unit is in million, 187 million. This is April, and 179 million, 172 million. And the Q1 average is 179 million. And internal sales, 65 million, 66 million, 64 million. Average, 64 million.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [16]

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July? What about July?

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Katsuhiko Yoshida, MinebeaMitsumi Inc. - Managing Exec. Officer & Deputy Chief of Tokyo Head Office [17]

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July, external, 183 million and 176 million and 182 million is the September number. And 64 million, 65 million and 64 million, these are the internal sales numbers.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [18]

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Inventories, the consumption, when is it going to be?

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Unidentified Company Representative, [19]

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Probably, it will be pushed back as well.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [20]

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So initially, we thought it will be the second half of the year?

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Unidentified Company Representative, [21]

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Probably after the end of the summer, but the trend is May. As you heard, the external sales are 178 million and 172 million. July is 183 million. And August and September, if this trend continues, probably recovery is starting. I think I can say that. But at this point in time, it's difficult to say. But last month and this month, 11 million pieces increase in bearings we [saw.]

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Shoji Sato, Morgan Stanley, Research Division - Analyst [22]

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My second question is, from Q2, electronics and MITSUMI are to make a great recovery. I think I understand that. But the full year plan, the weight is in the second half rather than the first half in terms of the profit. At this point in time, to what extent the recovery in the second half is visible?

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Unidentified Company Representative, [23]

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Well, I am not a fortuneteller or a god, but our initial forecast is in this first half due to various factors, including trade war. The macroeconomic situation will not be good. So in the second half, things will start to improve gradually. And the main scenario remains the same after the midterm election, things will start to progress once again. That is what we think. And all companies seem to be damaged according to the press report I read every day. So if the current trend persists -- or I think it's still premature to judge whether or not the current trend is to continue.

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Shoji Sato, Morgan Stanley, Research Division - Analyst [24]

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So looking at your projection, the electronics and MITSUMI plus U-Shin in the second half, the huge improvement will be brought about. But at this point in time, you do not think you need to change that projection?

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Unidentified Company Representative, [25]

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That is right. The new game consoles, how things will turn out for them, at this point in time, I think it's still premature to make a solid judgment. After the products are released in the market, we will see actual reactions and the new smartphones, the market reactions for the new models. So we don't know at this point in time, and therefore, pricing strategies, so on and so forth. So we need to look at in order to make a solid judgment.

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Operator [26]

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Nomura Securities, Akizuki-san.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [27]

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This is Akizuki. So first of all, so with the ball bearings production volume for the April to June, would you please give me the number and the outlook for the July to September quarter? And by application, we always talk about the sales trend and the quarter-on-quarter, year-over-year trend. Can you give me that?

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Unidentified Company Representative, [28]

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So in terms of production for ball bearings April -- so from April, 254 million; 258 million; 253 million; 255 million on average for the first quarter.

It was 253 million for July, 233 million for August, 240 million for September, 242 million average for the second quarter. That's the production for the ball bearings. And please hold on.

And next is with the ball bearings -- first quarter, can I refer to the first quarter?

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [29]

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Yes.

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Unidentified Company Representative, [30]

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First quarter, by application, automotive, 19%; aircraft, 35%; home appliance, 4%; OA, 5%.

[PC related] products, 2%; peripheral products, 2%; motors, [2 -- 13%;] amusement, 1%; others, 21%. This is percentage that I'm talking about.

So quarter-on-quarter and year-over-year, is that what you asked?

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [31]

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So maybe year-over-year would be better, maybe?

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Unidentified Company Representative, [32]

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So year-over-year automotive, plus 1%; aircraft, plus 12%; home appliance, plus/minus 0%; OA, plus 4%; PC/peripheral, plus 5%; motors, minus 19%; amusement, plus -- excuse me, 0%; others, plus/minus 0%.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [33]

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So motors is dropping. Is that -- is the fan motor that you have referred to?

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Unidentified Company Representative, [34]

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Yes.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [35]

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So in terms of the production compared to the sales, I think production is more than the sales. I think this was the same from January to March quarter. So I think at that quarter, you said that there was a lack of inventory. To be -- smooth-out the inventory, you have -- I think, basically, you produced intentionally. So April to June, the production is more than the sales. Is that intentional? Or from -- are you assuming that from July onwards the -- assuming that it will pick up, so you didn't reduce the production. Can you explain the background of this?

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Unidentified Company Representative, [36]

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Well, production and sales volume, there is a -- maybe you -- are you referring to the products is not going down in line with the sales. But I think this is a marginal -- margin of error level of numbers that we're talking about. There's no reason behind this, specifically.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [37]

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So it is not the situation that you have to reduce the production to reduce inventory?

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Unidentified Company Representative, [38]

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No, no. Basically, inventory is as we have anticipated. I think what we are saying is that we should not try to reduce the inventory.

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Manabu Akizuki, Nomura Securities Co. Ltd., Research Division - Senior Analyst and Executive Director [39]

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Another point is that on the MITSUMI business, the actuator business, I would like to ask you a question about that. So for the first quarter, I think, basically, this was good. The new production has been launched. in terms of the profit, it has improved. Is that the right direction?

The second quarter, I think there have been new products that are going to be ramping up in the major customers. So I would like to look -- ask about the outlook of the MITSUMI business, actuator business, that is?

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Unidentified Company Representative, [40]

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For the April to June quarter, initially, so for the -- in the Chinese smartphone market, we were expecting a big business opportunity. And because of this United States and China trade friction has been -- we have been affected. So the -- in the middle of the first quarter, I think there has been some adjustments. Whether it has been good or bad, it was not that as good as we have expected. I think that is the actual results for the first quarter. In terms of the second quarter onward, the North American customers production is -- we are just starting that. We do not think that there are any issue here.

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Operator [41]

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Next question is from Mr. Goto of Mizuho Securities.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [42]

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Can you hear me?

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Unidentified Company Representative, [43]

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Yes. Please begin.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [44]

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Roughly speaking, next year's sales, how do you plan to grow next year's sales? That is my question. Last time, you talked about midterm outlook. But once again, at this point in time, top line for next year, what is your outlook in a qualitative way by segment, if you can share with us the information? That is one thing. And the second question is, so you said that the current situation doesn't allow you to carry out the share buybacks. But mergers and acquisitions, you're thinking about the mergers and acquisitions for this year and next year. What is the thinking?

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Unidentified Company Representative, [45]

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To confirm your stance, next year -- next year's picture that we are drawing, first of all, economy -- we expect economy to recover. So machined products, external sales will exceed 200 million and aircraft demand shall be robust, remain robust. So the Machined products is a cash cow. Just like last year, it will be strong again. Motors, not just the fan motors, but the demands for various products are going down and the volumes are going down, but we have secured sales for application to automotive. And next year, we will get them, too. And therefore, electronic products, the profitability of motors is likely to recover. And backlights, as I get questions every year, according to our scenario, it will not disappear. And according to the press report, the customers will be supporting LCD. So this type of picture remains the same. And in addition, thanks to [sales] products, we can solidify growth for next year. That is what we think. And comprehensive or integration activities that we have been conducting. Next year, we shall be able to deploy new rounds of activities.

Your second question about the share buybacks. It's, as stated here, frankly as it reached JPY 1 trillion, we would like to rest for a while. That's what I said in May, but the people don't allow us to take a break, but we have been approached by many. But at a certain stage because of the legal requirements, we cannot touch our shares, and therefore, at this point in time, we cannot buy back shares. Please understand it that way because I cannot give you any more information than that at this point.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [46]

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Okay. So I'd like to talk about the future possibility. If there's any progress. So with the -- what is -- in [terms of] the resources, proceeding with the PMI, is that -- will that be a bottleneck? So Mr. Kainuma will be involved. And I think, basically, very much involved by yourself in terms of PMI. So do you see European operation -- I think, basically, you are spending a lot of resources. So that is what, at least, I'm assuming. In this kind of situation, for this year or the first half of next fiscal year, if you are going -- is it practically possible to have new types of initiatives?

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Unidentified Company Representative, [47]

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Yes, it's possible because this is just if you have [observed.] So in a certain area, we just -- even I don't have any resources. For instance, there are concerns that we won't be able to have resources for PMI. But for other areas, we have a certain number of resources. So what we are focusing on, in terms of the area, this is an area that we think that we'll be able to allocate resources. We are focusing on that specific business area. I think that's the way to understand that. I will not go into details.

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Fumihide Goto, Mizuho Securities Co., Ltd., Research Division - Senior Analyst [48]

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So when you say this area, it's a business area? Application area? So that's your implication area?

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Unidentified Company Representative, [49]

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So that's a business area that I'm talking about. If you look at the current business portfolio -- within our business portfolio where we can have, well, some capacity or resources. In some business areas, we don't have enough resources. So there's a difference in terms of the available resources. So right now, we are -- in terms of the business areas, that we think that we have more or less capacity for resources. This is an area that we're conducting various deliberations.

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Operator [50]

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Let's go to the next question. Hirata-san from UBS Securities.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [51]

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This is Hirata from UBS Securities. So I would talk about the MITSUMI and the Machined components. So one question is, for the MITSUMI business, so this is a simple question, in this year's plan, this new product, this is the machined business, is this included? Or in terms of the -- and for the production site, you are -- there is some reporting -- media reporting that you're going to transfer the products from China to Vietnam. So I would like to confirm about your stance about the production sites.

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Unidentified Company Representative, [52]

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So it is very difficult to say specifically about this thing. We haven't mentioned about this specifically, but towards the customers, we want to fully support our customers. So that includes the old models and new models. So we're going to go forward under that concept. And in terms of production site, in newspapers, I think the [voting] has been conducted that we're going to be producing in Vietnam. But as we have been saying from before, so Cambodia, we have a big production set in Cambodia. And this -- by -- basically, we want to utilize the Cambodian production site, and we're discussing this with the customers.

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Unidentified Company Representative, [53]

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So just to add up. So in Cambodia, there are various inquires that are coming for Cambodia. So we do not want to use up that capacity by transferring our internal production capacity. So it will not be a positive [so it] just placing something from one place to another. So we want to use the Cambodian site so that we'll be have a positive impact on our sales.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [54]

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Just let me confirm. So our conventional products and new products for the customers, you say that you want to take care of that. And so that is already reflected in your initial assumptions?

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Unidentified Company Representative, [55]

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Yes.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [56]

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The second question is about the profit for the Machined components is JPY 51 billion. It seems quite high. But for the ball bearings, they have been doing productivity improvement activities. So the volume is stable. I think maybe the cost is going down because of this stability, and you are putting priority and utilizing the low-cost production area, maybe rearranging the lines. So what is your initiative for the second quarter? [On machine] what type of contribution can -- are you expecting through this?

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Unidentified Company Representative, [57]

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So at the beginning of this fiscal year, what I have said that in terms of the putting priority, we want to have a full utilization of where the production costs is lower. And in terms of -- over time, I said to everyone to reduce that as much as possible, and that is our policy. But it's not the case that all the production sites have changed. It's not the case. There are a lot of things that we still have to do. In the second half of this year -- by the second half of this year, I think this transition will be completed. That's what I have heard.

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Shingo Hirata, UBS Investment Bank, Research Division - Director and Analyst [58]

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So for the second half, the effect will start to show up?

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Unidentified Company Representative, [59]

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Yes.

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Operator [60]

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Mitsubishi UFJ Morgan Stanley, Mr. Uchino.

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Akihiko Uchino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [61]

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This is Uchino. I have 2 questions, as well. The first one. The first quarter MITSUMI actuator business. China, so the business opportunities have been delayed. Could you elaborate on that? And Q2 onwards, what is your outlook for China? That is my first question.

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Unidentified Company Representative, [62]

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I would like to respond. The actuators for China, according to our forecast, it should be doing great, but as I said in May, due to U.S.-China trade war is intensifying again, it's becoming more aggressive. So the numbers we expected were not realized.

Initially, Q1, we thought would improve. That was our forecast. But actually, the numbers did not turn out according to our expectation and the pop-up -- motors for camera is in the same situation, but now the demand is coming back. In August and September, probably volumes will increase. So in the latter half of Q2, we will probably see a recovery in volume.

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Akihiko Uchino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [63]

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My second question is sort of a follow-up question to the other person. The production sites had to be transferred due to U.S.-China trade war because of this sector, and you have even more expectations for Cambodia. And is it going to be realized within this year? The fourth round may trigger this issue of production sites. So actions regarding this year, if you could share with me?

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Unidentified Company Representative, [64]

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So people are not completely believing it. So some companies have started to transfer production sites, but some others are not yet worried to that extent. And we are getting various soundings. So first come, first served, not -- instead of just grabbing any opportunity that is presented in front of us because we have secured space from many years ago. We would like to use it effectively instead of grabbing and jumping on any opportunity. So at this point in time, I cannot say for sure that something like this will be installed in this month, something like that, but transfer of a production site is becoming a reality.

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Akihiko Uchino, Mitsubishi UFJ Morgan Stanley Securities Co., Ltd., Research Division - Senior Analyst [65]

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I think you are formulating a plan at this point, but if things become even more aggressive, that may create a positive impact. Am I right?

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Unidentified Company Representative, [66]

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At this point in time, I cannot say yes or no, but the sense of speed, a bit later, probably, we will be required to be even more agile.

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Operator [67]

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So this ends the Q&A session. This brings us at the end to this telephone conference. Thank you very much for your participation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]