This is Yoshida speaking. I would go over the consolidated financial results for the first quarter of the fiscal year ending March 31st, 2019. Mr. Kainuma, Representative Director, CEO, and COO, will give the updates on machine components, electronics and devices, and the MITSUMI business. Please note that starting this quarter, some information, such as changes in inventory and SG&A expenses, have been attached as reference pages and will not be included in the explanation. The consolidated results for the first quarter were, net sales were up 9.2% year-on-year and down 5% quarter-on-quarter, at JPY 213.038 billion. Operating income was down 14.4% year-on-year and up 2.2 times quarter-on-quarter, at JPY 14.291 billion. Profit for the period attributable to the owners of the parent was down 13.6% year-on-year and up 6 times quarter-on-quarter, at JPY 10.886 billion. Net sales were the highest ever for a first quarter.
In addition to steady performance in the ball bearing, motor, and other businesses, a contract change in the fourth quarter of the previous fiscal year pushed up the sales of MITSUMI business. Currency fluctuations brought net sales down an estimated JPY 2.4 billion quarter-on-quarter and JPY 2.5 billion year-on-year, and brought operating income down JPY 0.7 billion quarter-on-quarter and JPY 2.6 billion year-on-year. We adopted International Financial Reporting Standards, or IFRS, instead of Japanese standard, JGAAP, from the current fiscal year. The differences between JGAAP and IFRS for the full year and the first quarter of the last fiscal year are shown on pages 16 and 17, respectively. If we apply IFRS for the full year of the last fiscal year, the operating income would be JPY 68.9 billion, down by about JPY 10 billion from JPY 79.2 billion, mainly due to such temporary factors as shift from extraordinary loss.
On the other hand, non-temporary factors include JPY 1.2 billion increase due to reversal of goodwill amortization, which is included in SG&A, and JPY 0.3 billion increase due to shift from non-operating profit and so on. If we apply the JGAAP to this first quarter, operating income would be JPY 0.3 billion less, due mainly to the difference in accounting treatment for goodwill amortization. That is up JPY 0.3 billion due to IFRS adoption. Please move to the next slide. Here you can see the 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, and the line chart is the operating margin, which for the first quarter was down 2.1 percentage point year-on-year, but up 0.1 percentage point quarter-on-quarter, at 6.7%.
Compared to two years ago, net sales and operating income have almost doubled, while the operating margin improved roughly one percentage point, reflecting a huge contribution from the integration with MITSUMI. Please note that figures of the fiscal year ended March 2018 and before are based on JGAAP and are provided for your reference. The same applies hereafter. Next slide. Here you can see the results by segment, starting with machined components business segment. On the left, quarterly net sales trends, and on the right, a bar graph showing quarterly operating income trends and a line chart for operating margins. Net sales for the first quarter remained at the same level quarter-on-quarter at JPY 47.3 billion. Ball bearing sales rose 9% quarter-on-quarter to total JPY 30.4 billion.
The average monthly external shipment volume hit an all-time high of 203 million units, marking a year-on-year increase for the 23rd quarter in a row. The monthly production volume for May hit an all-time high of 296 million units. Sales of rod ends and fasteners totaling JPY 8.9 billion were up 2% quarter-on-quarter. Sales of pivot assemblies increased 5% at JPY 7.9 billion, 5% increase quarter-on-quarter. Our ability to hold on to over 80% market share has generated stable earnings. Previously recorded under other
C&A Tool Engineering has been included in ball bearings, and Mach Aero has been included in rod ends and fasteners beginning this fiscal year. Operating income for this quarter hit a quarterly record high of JPY 11.7 billion, bringing the operating margin at 24.8%. Operating income rose 12% quarter-on-quarter, and the operating margin was 2.7 percentage points higher quarter-on-quarter. By product, profits were higher for ball bearings, rod ends, fasteners, and pivot assemblies in all. Next slide. In electronic devices and components segment, net sales declined 10% quarter-on-quarter at JPY 91.7 billion. By product, steady sales, mainly in the automobile market, kept motor sales at the same level quarter-on-quarter at JPY 47 billion. Sales of electronic devices were down 24% quarter-on-quarter at JPY 34.5 billion, mainly due to the weakness of the smartphone market.
Sales of Sensing devices grew 5% quarter-on-quarter to hit JPY 9.1 billion. Operating income was JPY 1.9 billion, bringing the operating margin at 2.1%. Operating income decreased 75% quarter-on-quarter, and the operating margin declined 5.2 percentage points. By product, motors and Sensing devices remained steady, while electronic devices' operating income decreased due to an inventory adjustment in the smartphone market and one-time cost increase for the new production launch. Next slide. Finally, let's look at the performance for the Mitsumi business segment. Net sales was JPY 73.9 billion, which remained roughly the same from the previous quarter. This was the result of net sales of mechanical parts declining slightly, while net sales of Camera actuators increased. The impact of the sales increase due to contract change with customers was JPY 24.2 billion in the previous quarter, and JPY 23.9 billion this quarter.
Operating income was JPY 3 billion, putting the operating margin at 4.1%. That means operating income increased 2.2 times compared to the previous quarter, while the operating margin grew 2.3 percentage points. Next slide, please. This is a summary of the forecast for the fiscal year ending March 31st 2019. The full-year profit forecast has been revised upward to partly reflect the better-than-expected profit in the first quarter. Operating income for the full year has been revised upward by JPY 2 billion from JPY 83 billion to JPY 85 billion, and net income has been revised upwards by JPY 1 billion from JPY 65 billion to JPY 66 billion. Due to remaining uncertainty of the foreign exchange and the smartphone markets, conservative estimates has been used in the forecast. The exchange rate is assumed to be JPY 105 to the U.S. dollars. Moving to the next slide. This slide shows the forecast by business segment. Next slide.
Let me explain about the shareholders' return policy. The dividend per share was increased significantly last year to JPY 26, but this year, we plan to set the dividend at a payout ratio of around 20%. Next slide, please. I would like to talk about two recent topics concerning our ESG initiatives. The first is that beginning in June 2018, we have been included in the MSCI Japan Empowering Women Index. We believe that this is an indication of how a promotion of diversity and proactive disclosure of information have been recognized as being good. The second is that we plan to publish an integrated report aiming to provide a clear explanation of our mid-to-long-term growth strategy and value creation story. We hope that it will help you understand our strengths and our ideas on how to achieve sustainable growth.
We will provide a separate notice when it's published, we hope you will be able to read this. That's all from my explanation from Yoshida. I would like to hand over the microphone to Mr. Kainuma. Good afternoon. My name is Kainuma. From today, for the second quarter to fourth quarter telephone conference, I will participate. Maybe there has been some speculations about that, but there's no special announcement that I want to make. If you look at page 11 of our presentation, overall, it seems that we have been able to have a much better than expected start. What's different from last year is that this year we are more focused skewed on the second half.
Last year, I think the first half, we were able to show good performance with the LED backlights and the game console business is different from this year to last year. I think basically, our performance is more or less focused on the second half of this year. The first quarter operating profit, JPY 10 billion was the assumption, but I think basically we have been able to achieve JPY 14 billion. Going forward, we have three quarters left for this year. There's some uncertainty going forward. About out of the JPY 4 billion, we allocated the JPY 2 billion for the upward revision of our forecast. I am going to mention it later, but the mechanical components is showing a very good performance, and this is in line with our expectation. LED backlights, in terms of the manufacturing technology related issues we have been able to overcome.
We have had a little concern about this, I think basically we have able to see a good outcome. Let's go to page 12. This is about the ball bearing business. As mentioned in the presentation, the first quarter, for the 23rd consecutive quarter on a year-on-year basis, we saw an increase of external shipment. I don't think that we see this kind of products, and this growth is not stopping actually. In July, 250 million external shipment has been able to be achieved. Basically, this is another record broken. In terms of the ball bearing production, we thought that in August and September, we would be able to reach the 300 million units, but we have been able to exceed that 300 million. 301 million units were achieved in July. That was record high level.
JPY 294 million, including we have some internal business as well. This is the actual external shipment in terms of ball bearings in terms of July. In terms of demand and supply, we have been able to expand both. In July next year, we're going to achieve JPY 315 million in July next year. The investment that we made for the PVC equipment is going to start operation in next fiscal year. Going forward, the demand supply balances will remain a concern, according to our forecast, maybe there will be some plateau around that period of time. However, every time I think that there will be a plateau in this quarter, for instance, we have been saying that we'll be able to reduce the air freight cost, we have not been able to reduce that.
Last month, we have spent about JPY 100 million of air freight. I think this plateau has to continue or else it's difficult for us to reduce the air freight cost. On the other hand, there has been some impact of increasing prices. Gradually, we have been able to reflect that to our performance from October onwards. I think, basically, the JPY 100 million and more of the impact coming from the price increase will start to show. What has been strong out of our expectations is the C&A that which we had acquired. The New Hampshire Ball Bearings group, maybe I should call it by that name. The profitability of this company has been improving dramatically.
The major reason behind this is that the LTA, long-term agreement, in the, I think Well, depending on the customer, the company, it will run for 2 to 3 years, the LTA was concluded under bad conditions. It has started to transit to a better LTA conditions, the market is becoming better, the selling price has started to improve. The LTA renewal, by progressing the LTA, the progress of the LTA renewal, meaning that at NHBB, the high level of the margins will be achieved in their aircraft-related business. Mach Aero at the center, the office business at India, there has been a lot of good reports coming from that business. The acquisition that we conducted last year for the following couple of years, I think there'll be a good supplement to a strong profitability that we can expect.
For the fastener business, to Fujisan, I'm saying it to my each month, the profitability has started to improve, it's completely in the black right now. Basically, this is in line with the expectations. In terms of Mechanical components segment, it has shown strong results. JPY 49.5 billion operating profit is our forecast for this fiscal year. I think we'll be able to achieve this. This Mechanical components business, if they are able to achieve JPY 50 billion of profit, that means our profitability will improve furthermore. Next, going to page 13. The LED backlights, I think a lot of people are concerned about this business, the share prices reflected that concern, it was moving down. Thankfully, these LED backlights, in terms of the technical difficulties, I think we'll be able to overcome the difficulty.
We were expecting this to be delayed, more or less, it is moving faster than we expected, and we are launching lines every week. I don't know how many new products is going to be sold, but this LED backlight business, the launch of this business, I don't think we have to worry about this anymore. The motor business continues to perform well. Beginning of June, we had a groundbreaking or the start of operation the Slovakia factory. A lot of European manufacturers are putting a lot of expectations on this factory. The Slovakia factory will certainly, within these two to three years, will become a good weapon for our expansion of business. Going to page 14, this is the MITSUMI business. Compared to what we have expected, the performance was higher than our expectations.
The optical devices business has started to contribute to the performance, among which for the Chinese smartphones, their higher specs are required. That trend has started, meaning that a lot of inquiries are coming to us. In the other MITSUMI business, there has been a lot of improvement. Analog semiconductors, they are performing strongly. These various businesses' profitability improvement has started to contribute, and I think that's a thing that I can say surely. That said, the pillar of MITSUMI business is the optical devices and the game business. That is a source of their profit. We have to look at what's going to happen going forward. For the game business, maybe we have started to see some delay, but in terms of the customers' outlook, are still strong.
We will continue to manufacture the volume that the customers are requiring, and so that we can hope the good business to happen in the second half of this year. This has been a very brief presentation, that's all from me. Thank you.
We will now take questions. If you have any questions, please push the star key on your phone and wait for the message acknowledging your question. If you want to cancel, please push the star key twice and wait for the cancellation message. When your name is called upon by the moderator, please state your name and your affiliation, and please limit the number of your question to one. First question from Goldman Sachs, Mr. Takayama.
Thank you. My first question on electronic devices. You did explain the LED backlight business, in terms of selling price, I know this is a sensitive matter, are you already finalizing the selling price? What you said, Mr. Kainuma, I think you do get the feeling, or at least my impression was that your projections have been satisfied. Am I hearing you correctly?
Yes, I think so. Of course, selling prices have been determined because we have started the operation.
I see. With that, the Electronic Devices, I think you do have the expectation for the second quarter with increased projection for the first half.
Well, earlier than projection, the ramp-up has begun, albeit just slightly, but that is being reflected.
Thank you. My second question about your MITSUMI business. On the full-year basis, the operating income projection has not been changed, but for the first quarter, there was a sizable upside, and same for the second quarter. Are you just being conservative? You did talk about the game console business, indicating that there is some delay. Towards the second quarter, do you get the feeling that it's going to be lower than your projection?
I guess we are making a conservative projection.
I see. Got it. My last question, a technical question about the adjustment.
First quarter was rather small, limited. Maybe that was the reason for the upside. Whereas for the second quarter onward, again, there's going to be a quite sizable amount.
What are the factors? Why is it that the adjustment was small in the first quarter, and why is it that you did not change the second quarter projection?
First quarter IFRS adoption makes a difference. The goodwill amortization reversal, as was explained earlier. In addition, the changes following the adoption of IFRS. Things that were previously recognized elsewhere is now assigned to different businesses. Previously, they were the corporate expense. Although this is really hard to say, usually, mergers and acquisitions and other things are being considered, and associated expenses were not incurred during the first quarter. That's another reason. During the first quarter, the bonus payments to the executives were made, so there was a change in reserves as well as the actual payment. There was a gap between the two, resulting in the first quarter adjustment amount being smaller. There are some special factors. In a full-year forecast, 16 billion JPY is being projected, and we believe that this is the adequate level, assuming ordinary operation.
In that sense, we have not changed the projection.
For the second quarter, minus 4.9 billion JPY in your revised forecast. Are you already seeing those adjustment amounts being visible? Again, are you being conservative?
Again, very difficult to explain, generally speaking, the expenses in the second quarter, many things are being visible.
I see. Thank you.
I would like to go to the next question. Morgan Stanley MUFG Securities, Sato-san, please.
Hello, this is Sato. I have two questions. First is the Mitsumi Camera actuator first quarter situation. The sales has increased, you say, but what is the background of this? What is the change in each of the markets? The second quarter Mitsumi operating profit, from JPY 3 billion was the first quarter, and the second quarter is going to increase substantially to JPY 8 billion. If you break it down between games and Camera actuators, which is the bigger contributor? Could you please explain as far as you can? Well, for the Camera actuator business, sales has increased, but it's not a substantial increase in terms of if you look at the numbers. If you are pressed to say whether it has increased or decreased, it has increased.
That's the range of sales increase that we are looking at. In terms of the change, the fourth quarter of the last fiscal year, the operation has been at a low level. The first quarter, basically, we have been able to see more operation. For the Camera actuators, exactly. If we're talking about the Camera actuators, that's the biggest difference. Besides major clients, we have started to see more utilization of our lines, and I think that's some of the contribution coming to the sales increase. For the first quarter and the second quarter operating profit of JPY 3 billion in the first quarter increasing going to the second quarter, going to your question about that. I cannot specifically say what it's coming from, whether it be games or not. In terms of the machine parts, I think basically, that's what the contribution is.
First quarter against the second quarter, what's going to drive this growth will be more or less the mechanical parts.
Excuse me. Understood. Thank you. Well, my second question is that, the LED backlight for the new smartphones, the production startup, you said that it has been earlier than planned. If you look at the utilization, first quarter, second quarter to third quarter, what will be the trend that we should be looking at? Would you give me some hints? When will be the peak of the utilization? In terms of the LED backlights and the Mitsumi's Optical device business, or that will be the Camera actuator business. In terms of the ramp-up of the operation is there any difference in terms of how the peak will be in each of the start?
In terms of the LED backlights, currently, just now we are starting this, the third quarter will be the peak for LED backlights. In terms of what level that we're talking about, there are very sensitive matters that are involved. I think basically, we are assuming that the peak will come in the third quarter. Based on that, we are announcing our guidance. In terms of the launch of the Optical devices, compared to the LED backlights, maybe it'll be slightly earlier. That's the overall preparation that we're making. With discussions with our clients, we are trying to formulate the latest startup schedule. As a major trend, I don't think that there's no difference. Slightly earlier than the LED backlights, I think basically, a peak will be coming in the second and the third quarter.
If that is the case, for the Mitsumi business, the increase of profit in the second quarter is coming from the mechanical parts business. I think that has been the explanation. In terms of the Optical devices, you mean that starting from the second quarter, the sales will start to be booked? I'm not mistaken to make that assumption? Yes. That's correct. Thank you. Once again, if you have any questions, please push star one, and if you're going to cancel, please push star two. Next person from SMBC Nikko Securities, Watanabe-san.
Thank you. Watanabe from SMBC Nikko. Slide 13 shows the organic LED OLED. To the extent possible, can you talk about the things that you are working on now? That's my first question.
This is Kainuma speaking. We have already given you the information to the extent possible. The consumed power consumption, and durability, OLED, we are confident is better. The difference, things that we have not yet caught up is the contrast. That is how you show the black part being black. If we can improve that performance to the comparable level, LED backlights, we believe, will continue to be used for quite some time. Therefore, initially, when we worked with the supply chain partners, the innovation in terms of design to be realized with LCD was what we worked on. Now we are focusing on the black performance. Happen is that yesterday, I did see the work in progress, and I've noticed that it's really very good in terms of the black representing performance. I think we are doing a very good job.
I see. My second question is on ball bearing. You said that maybe it is going to plateau soon. Still, you are seeing an upside in terms of volume due to the efforts made by the field. This 300 million to 313 million, is that still possible, do you think? Or do you think there is room for upside, or is it hitting the limit?
I don't think there's much margin left. Meaning that should there be more going forward, the price is going to go up. Therefore, we are hoping that the plateau will come. It's not magic. The number of manufacturing units is limited. We have worked on the productivity improvement, so new machines. In July, we are in the beginning of August. By the end of this month, all of the new machines will be installed and the operation will start. Even with the upside, we're just talking about millions of units. I think it's safe to say that's just about the size of the upside. It depends on the number of operating days, of course.
I see. For the industry, the small ball bearing utilization rate is, I think, high. It could become the bottleneck of the manufacturing overall. Maybe you can make a compromise in terms of having the lower priority products pushed back. How are you going to satisfy your supply responsibility?
We want to satisfy, fulfill our responsibility as supplier as much as possible. It's really hard to foresee. For now, we're showing this is our capacity, this is the maximum capacity that we have. I don't think it makes much sense to talk on the hypothetical basis. Currently, we feel that the plateau is going to come sooner or later. That's what the sales and marketing people say. Because of the Bitcoin situation being where it is today.
I see. Thank you.
Next question, please. Nomura Securities, Mr. Akizuki. Mr. Akizuki, please.
Thank you for taking my question. I have some several questions. First of all, for the motors business, I would like to ask questions about that. For the full year, compared to the full-year plan, the first quarter sales, I'm questioning how much the progress is going. I think basically assumption is the sales is going to grow more in the second half. The first quarter progress, maybe that's appropriate based on the assumption. You refer to Bitcoin. Though this fan motors or ball bearings, maybe it's slightly impacted by that? I would like to ask about how much the progress is going for this business. Well, the motor business, in terms of sales, at the beginning of this fiscal year, compared to that number, maybe the sales had a slight shortfall against our initial forecast.
If you look at the most recent situation, basically, I don't think there is a major concern about this business. For the second quarter, various motors will start to generate sales. I think basically, for the full year, I think we'll be able to see those sales to be online with our assumptions. In terms of the question about the Bitcoin, well, the ball bearing business, basically, we have a high market share. For the Bitcoin business, we are engaged in those type of businesses. For the other businesses, like fan motors, for instance, whether the impact of the Bitcoin is coming or not, we do not disclose those type of information. The Bitcoin slowdown, does it have a big impact on the motor sales? Basically, our numbers actually have already reflected that impact, and we have disclosed our numbers reflecting that impact.
Understood. Thank you. My second question is about the inventory quarter-on-quarter. It has increased by JPY 109.9 billion. For instance, because you have to parallel or increase the manufacturing for the game business because before the summer season. In terms of utilization, does it have any impact? Can you give us the information about the impact on the first quarter? In terms of the inventory, where is it increasing?
I think towards the second quarter, there's some seasonality products that we are producing beforehand. Inventory, strategically, in some cases, we hold inventory.
In terms of the first quarter, how much that the operation gains are coming?
If you look at the Mitsumi quarter-on-quarter performance, I think basically you'll be able to understand that. Some at the fourth quarter, some were not utilized, actually we start to see the utilization go up. Some of the utilization gains is being reflected in the first quarter. I think that's all I can say about that. Thank you.
My third question is that maybe you're suffering from some reputational adverse impacts, for the new models for the smartphones would be OLED. There's some rumor, I think, in Taiwan, they have some reports about that. I think that kind of rumors recurs constantly. The new model for next year, well, LCD will still be used. That's the basic understanding.
Well, I cannot go into detail about this, but as you have mentioned, well, this is basically a kind of a negative impact coming from rumors. That's all I can say. We have to do something about this. I would like to sue them. This is rumor, and we are being negatively impacted by it.
Thank you very much for a very strong message. That's all from me. Thank you.
Thank you. Once again, from the moderator, if you have any question, please push star one. To cancel your request for a question, please push star two. The next person from UBS Securities, Hirata-san.
Thank you. Hirata from UBS. I have two questions. First, on Mitsumi business. Earlier in your response to one of the earlier questions, you said that for the first quarter it was better than your projection, but for the second quarter, you do have conservative view. Can you elaborate? For the mechanical components, is that where you're being conservative, or is it optical device on which you have the conservative projection? Can you elaborate?
Again, as you know, this is the B2B business, it's hard to give you the details. Guidance-wise, in both areas, we have somewhat conservative projections. It's not a question of which, it's really for both.
Understood. Related question for optical device. You have conservative forecast. Is it because of rather a sluggish smartphone, or is it the market share or the yield factors?
Market share, yield. So far, we do not see much changes, especially regarding the market share. For yield, looking at the current ramp-up, it's going very smoothly.
Thank you. My second question, this is a really general question, I apologize. Looking at the U.S.-China trade friction, since you are operating many different regions, do you see any impact, and what countermeasures are you envisioning?
As you know, in China, we do have major plant operations, and in North America as well, especially for the aerospace and ball bearings, we do have our operations. The products in China being shipped to North America, U.S. Our North American operations do have the supplies from China. There is no direct impact of the friction. I wouldn't say there is zero impact, but the impact is quite limited. Of course, we are the parts manufacturers, so our customers might be affected by this trade friction between the two countries. We don't know the extent of that effect. Our strength is that in areas other than China, we do have operations doing manufacturing. We'll leverage that diversity in our regional operations so that we can flexibly respond to the current environment.
Thank you.
Again, please press star one for your question. To cancel your question, please press star two. Because time is limited, we'd like to declare the next question to be the last. Going to the next question from Mizuho Securities, Goto-san, would you please ask your question?
This is Mizuho Securities, Goto speaking. This is related to the question about risk. In terms of the FA industrial equipment, machinery business, there are some manufacturers that are saying that the orders is declining. For the ball bearings and the motors business, robotics for the industrial machinery business, is there any impact from the deceleration of this market, or in terms of the potential of deceleration, do you have any view on this? That's my first question. Another question, but I would like you to answer this question first.
Well, of course, in terms of what we can see is that after the customers change the manufacturing plans or they adjust the inventory. In terms of the numbers that we have seen, it's not the case that we are seeing a plateau in this overall business. In these types of businesses, we will continue to observe what's happening and then decide what we'll do going forward.
Another question I have is that you talked about the China smartphone high spec. We're going to more high spec. There's a positive impact on your business. You have this dual-camera, triple cameras, the more high function cameras. What's your opportunity? How does your opportunity change with this high spec? In terms of the triple cameras, the North American customer, well, in the major brand customers, what will be the opportunities? Can you comment on this?
I cannot comment on specific customers and specific models. Basically, so this very precise OIS or VCM will be necessary in this kind of trend. We consider this a positive development. If there are more and more models going to this more higher spec, there'd be more business opportunities for us. I think basically what you have pointed out is true. Yes. Please hold on. Well, actually, there has been a more increase in inquiries, and we have started to see inquiries coming. This trend for us is not bad at all. Understood. Thank you. That's all from me. Thank you. I would like to repeat. Please press star one for your questions, star two for cancels. Once again, if you have questions, please press star one. To cancel your request, press star two.
Looks like there are no further questions, so we're going to complete the Q&A session. Going to ask Mr. Kainuma for the closing remarks.
Well, ladies and gentlemen, thank you for your participation. We are going to do our best for this fiscal year as well, so I ask for your continued support. Thank you.