Earnings Call: Q4 2018

May 8, 2018

So, as the time has come, we'd like to start this meeting. Today, thank you very much for coming to our Mindyrium Mitsubishi Inc. Business results fiscal year ended March 31, 2018 meeting despite your busy schedule. So I would like to introduce the participants from our company. So to your right, we have the President of Director, CEO and COO Mr. Yoshista Kainuma, And next is the Managing Executive Officer, Mr. Katuhiko Yoshida. So I am the MC for today and Yajiro from the IR Division. So thank you. So first, Mr. Yoshida will explain about the financial results and Mr. Kainuma, will explain about the policy and strategy. So we are planning to end this meeting by 7 pm. So in terms of the financial, we have some financial exmonetary materials of our mental financial status, and we had the Bifu point of financial results. And we have a press release in terms of the notice of personal changes in organizing changes. And we have another press release about the difference of the parent financial results and the difference from the last year's actual results and we have some questionnaires. So this is a great opportunity to give bring us some feedback to your questionnaires. So please leave your questionnaires on the table afterwards. So including the Q And A in this presentation, this will be live broadcasting on the internet and we are recording this image to upload it to the website. So please understand and please refrain from taking photos or recording the audio in this room. Mr. Yoshida, please. So hello. I'm Yoshida. So for base side, I would like to explain the consolidated financial results, but fiscal year ended March 2018. So consolidated net sales for the fiscal year ended March 31, 2018, totaled JPY 879,139,000,000,000. Operating income reached JPY 79.1.6 1,000,000,000 and net income hit 1,000,000,000. These figures represent year on year increase of 37.6%, 61.5% and 44.3%, respectively, the net sales operating income, net income as well as ordinary income hitting record highs. This jump in earnings comes from contribution of the Mitsubishi business, which was integrated in January of last year, well as a steady performance of our main products, such as full bearings, motors and LED backlights. Currency fluctuations brought up net sales up an estimated JPY 23,500,000,000 year over year and operating income down an estimated JPY 1,000,000,000 year on year. Please go to the In the fourth quarter of the previous fiscal year, net sales were 1,000,000,000 operating income JPY 14,773,000,000 and net income JPY 7,827,000,000,000. Year on year, net sales were up 14.1%, operating income up 3.3%, and net income down 51.8 percent. Despite quarter on quarter decreases of 0.7% in net sales, 34.2% in operating income and a 54.7% in net income net sales reached a record high for any 4th quarter. Since this fourth quarter, we have changed the contract with customers with the OEM business in the Visume business segment. And this resulted in an increase in net sales, which amounted to 24,200,000,000 gain. Excluding this impact, the sales would have dropped 11.5% quarter on quarter. Also in the 4th quarter, operating income includes JPY 0.7000000000 of expense increase associated with the purchase price allocation process for the acquisition of CNA toll Engineering in U. S. And Mach Aero in France. And hearing after we referred to as the GPA impact, and then an income includes 5,400,000,000 of impairment losses for the business assets and 1,100,000,000 of loss and disposable disposal of fixed assets. Impact from foreign currency translations is estimated to result in year on year decreases of JPY 4,000,000,000 in net sales and JPY 3,300,000,000 in operating income as well as estimated quarter on quarter decreases of JPY 3,400,000,000 in net sales and JPY 1 point 8,000,000,000 yen in operating income. Please go to the next slide. This graph shows an annual sales trend. In the fiscal year ended March 31, 2018, we record a new high of JPY 879,100,000,000 by a wide margin. The forecast for the fiscal year ended March 31, 2019 is shown by segment. Also, as we have decided to voluntarily adopt international financial reporting standards, IFRS, from the current fiscal year, The forecast has been calculated based on IFRS. For this reason, we cannot directly compare the results with those of the previous fiscal year. Which were applied under the Japanese gap, but these figures are presented alongside for your reference. The theme applies to the forecast figures for each of sequence slide. Please go to the next slide. This graph shows quarterly trends in net sales. In the fourth quarter, we reached a record high for any fourth quarter of 1,000,000,000. Please go to the next slide. The biograph indicates yearly changes in operating income while the line graph charged changes in the operating margin. In fiscal year ended March 31, 2018, the Mitsubishi business contributed significantly to earnings. On top of that, I mean, products, including ball bearings, motors and LED pack flights performed well, as a result, net income rose 61.5 percent to hit JPY 79,200,000,000 marking a record high by wide margin. Going to the next slide. As in the previous slide, the paragraph shows quarterly trends in operating income while the line graph charts changes in operating margin. 4th quarter operating income totaled JPY 14,800,000,000. This makes it the 6th consecutive quarter that profits were up year on year. Please go to the next slide. Now let's take a look at the results by business segment, starting with machined components. On the left is a biograph for yearly sales trends and on the right is a biograph for the operating income along with the line chart for the operating margin. You can see net sales jumped 13 percent for a record high total of JPY 176,400,000,000. So CNA tool in generic and Mark Aero, which we just consolidated in the 3rd quarter, all under the Machine Components segments category of Other. Sales support bearings increased 13% to be JPY 105,900,000,000. This up was fueled by strong demand across a wide range of industries with war bearings, bottom fields, and fan motors using data center servers, making up the bulk of shipments as the average monthly external sales volume rose 11% to reach 190,000,000 units. Revenue from Broad ends and fasteners was up 8% from the previous fiscal year to total JPY 31,900,000,000, while revenue for cable assemblies fell 3% from the previous fiscal year to total JPY 31,500,000,000. Our ability to hold on to over 8% of the market share has guaranteed stable earnings. Operating income came to record high of JPY 42,700,000,000 to the in the fiscal year, in March 31, 2018, as operating margin hit 24.2 percent, 49% year on year increase in operating income and a 0.8percentage. Decline in the operating margin. If we were to exclude the 1,000,000,000 of PPA impact, operating income would have been 1,000,000,000 and the operating margin would been 24.26 percent, excuse me, 24.6%. Looking at the results by product, we see that the bulbariancyclical assemblies increased year on year while profit of rod end capacitors dipped slightly. In this fiscal year, we anticipate a jump in sales of bearings due to a continued increase in external sales volumes and an improvement in the profit margin resulting from the reduction of special expenses such as air freight change charges. We also expect to see higher sales in profits worth and some passengers as well as lower sales and profits for assemblies as the HDD market continues to shrink. CNA tool engineering has been included in ball bearings and back arrow has been included in rot ends and fasteners beginning this fiscal year. Now going to the next slide. This shows a quarterly trend in the Machine Components segment. The 4th quarter net sales were up 1% over the previous quarter for a record high total of JPY 47,300,000,000. Sales of Borbearings increased 4 percent quarter on quarter to hit JPY 27,800,000,000. The volume of bull bearing sold outside the group hit 198,000,000 units per month in average. Marking a year on year increase for the 22nd quarters in a row. The production volume reached a record high of 2 88,000,000 units in March, and we achieved our target of increasing monthly production capacity to 285,000,000 units by April this year. Building from Front End And Fasteners were up 10% over the previous quarter to total JPY 8,700,000,000. And even though revenue from pivot assemblies dropped 9% from the previous quarter to hit JPY 7,500,000,000, our ability to maintain 80% share of the market has generated stable earnings. Operating income for the 4th quarter was down 5% from the previous quarter to total JPY 10,500,000,000, while the operating margin decreased 1.5% points to reach 22.1%. If we were to exclude JPY 0.7000000000 of PPA impact, operating income would have been up 1% from the previous quarter to total JPY 11,200,000,000 operating margin would have been up 0.1 percentage points at 23.7%. Looking at the results by product, we see that profits for ball bearings throughout and fasteners rose while profits were pivot assemblies fell. Please go to the next slide. Now let's take a look at the Electron Devices And Components segment. In the fiscal year, ended March 31, 2018, net sales were up 2% year on year to total JPY 151,500,000,000. Looking at the results by product, we see that the sales of motors increased 16% year on year to reach 184,200,000,000, mainly due to automobiles, while electronic devices, sales dropped 5% year on year to hit 227,800,000,000. Demand for our ultra thin LED backlights remain strong, surpassing initial targets despite declining sales of final products of LCD models, sold by your major customers. Net sales of sensing devices decreased 7% year on year to total JPY 35,700,000,000. Operating income climbed 42 percent year on year to reach 1,000,000,000 while the operating margin rose 1.9 percentage points to reach 6.9%. Looking at the operating income by product, we see that the electronic devices were up substantially, sensing devices were down and motors remained steady. In this fiscal year, we anticipate an increase in motor sales and profit due to the continued increase in demand, mainly for automobiles and a decrease in sales of electronic devices due to a drop in parts applied for a fee. We also anticipate a slight increase in sales of sensing devices and improvement in profitability. Next slide, please. This shows a quarterly trends in the Electronic Device device segment net sales decreased 9% quarter on quarter to hit JPY 101,700,000,000 looking at the sales by product we see that the motors remained almost unchanged from the previous quarter at JPY 46,900,000,000 with demand from the automotive industry continuing to drive results up. Electronic devices decreased to 19% quarter on quarter to total of JPY 45,200,000,000 after the demand period peaked out net sales of sensing devices decreased 30 percent quarter on quarter to hit the JPY 8,700,000,000 operating income rose JPY 36 percent quarter on quarter to hit JPY 7,500,000,000, while the operating margin rose a 2.4 percentage points to 7.3%. Looking at the results by product, we see that the operating income increased in electronic devices and remained steady in motors and sensing devices. Next slide please. Finally, let's look at the performance for the Mitsumi business segment including the figures before the merger Net sales increased to 41 percent to total to JPY 50,600,000,000 in the fiscal year ended March 2018, if we were to exclude the JPY 24,200,000,000 of sales increase due to contractual changes with the customers, they would represent a 27% year on year increase This pump was mainly due to a large increase in shipments of new game consoles during the peak demand period and increase in camera actuators for major customers. Eoneea operating income improved to JPY 32,100,000,000 and even after the adjustment of inventory write downs increased JPY 19,700,000,000 to total 21,500,000,000, while the operating margin reached 8.6% that this jump was due to a significant improvement in overall productivity and an increase in shipments of new game consoles and camera actuators year ending March 2019, net sales are expected to arise due to increase in shipment of new game consoles and actuators for cameras. Also we anticipate approximately JPY 100,000,000,000 of sales increase due to contractual changes with the customers, operating income is expected to get a boost from an increase in shipments. And if we exclude the impact of above mentioned sales increase due to contractor changes, the operating margin should see growth as well. Next slide, please, Mitsumi Business segment quarterly trends is shown here. Net sales for the 4th quarter were up 12% from the previous quarter to total JPY 75,000,000,000. If we were to exclude the JPY 24,200,000,000 of sales increase, due to contractual changes, we would see a 24% a quarter on quarter drop in the net sales due to seasonal factors. Operating income was JPY 1,400,000,000 and the operating margin was JPY 1.8%. Operating income decreased percent quarter on quarter, while the operating margin declined 12.9 percentage points. Next slide, please. The bar graph here shows trends in net income, while the line graph shows changes in net income per share, Net income rose 44 percent year on year to reach a record high JPY 59,400,000,000. Net income per share was JPY 141.1. Next slide, please. Here, you can see the quarterly trends. Net income decreased 55 percent quarter on quarter to total 1,000,000,000. So net income decreased to 55 percent quarter on quarter to total 7 1,000,000,000. Also, as I said earlier, the net income for this quarter includes 5 400,000,000 of impairment losses for the business assets. Net income per share was JPY 18.7. Next slide, please. The bar graph here shows quarterly trends in SG And A Expenses why the line graph charts changes in the SG and A expenses to sales ratio SG and A expenses rose point 6,000,000,000 quarter on quarter to hit JPY 25,000,000,000 while the SG and A expenses to sales ratio remained virtually flat from the previous quarter at 11.1%. Next slide, please. Now let turn to the quarterly changes in inventory. At the end of the 4th quarter, inventory totaled JPY 150,100,000,000, which is virtually the same as it was 3 months ago. Next slide, please. The lift bar graph shows trends in capital expenditure while the one on the right shows depreciation in the fiscal year ended March 2018 capital expenditure amounted to JPY 54,200,000,000 and depreciation totaled JPY 31,600,000,000 in the fiscal year ending March 2019, capital expenditure expected to increase to JPY 60,000,000,000, mainly due to investments for ramping up production rate to meet future demand. Accordingly, depreciation are expected to increase to JPY 40,000,000,000 as well. Next slide please The bar graph shows the 20 net interest bearing debt calculated by subtracting cash and deposits from the total interest bearing debt while the line graph shows free cash flow. Net interest bearing debt as of March 2018 amounted to JPY 52,500,000,000, up which is JPY 18,400,000,000 down from March 2017. All the capital investments are expected to increase in this fiscal year. Our free cash flow will improve, thanks to the increased profit and the net interest bearing debt is expected to decline a further. At the same time, we will continue to pursue an aggressive M and A strategy and other initiatives that will lead to medium term growth. Next slide please. This is a summary of the forecast for this fiscal year. In this fiscal year, we expect the net sales, operating income and net income to reach record highs. Although sales in electronic devices and components segment are expected to decline. Overall sales and expected overall sales are expected to increase due to such factors as a strong demand for ball bearings, the anchor product of our machine components business and an affected a business increase in sales brought by a ramp up in production capacity as well as the sales increase due to contractual changes with the customers. For this fiscal year, we are forecasting that the operating income will increase to JPY 83,000,000,000 are due mainly to a steady increase in production and shipments in all business across the board, including both bearings, rod end, the fastener and motors. So despite the uncertainties for foreign exchange as well as smartphone market trends. Since we have adopted IFRS beginning at fiscal year, we will no longer indicate ordinary income forecast. Our assumption for exchange rate is JPY 105,000,000 to a dollar Next slide that shows the forecast for each business segment. And the next slide, please, and now let's turn to our shareholder return policy. As we explained at the 2nd quarter financial results, a briefing last November, we significantly increased our dividend to per share for the fiscal year, the total return ratio, including the share buyback program implemented last year, was about 33%. This concludes my presentation. So from my side, I would like to explain about the management policy and business strategy. So as has been explained, thanks to your support, we have been able to end the last year at a good note. So for instance, machine components, electronic devices components, we saw AI increase of the earnings. But, I think a peak was in 2015 March of 1,000,000,000. So machine components and electric devices and components, this is a former Minabia business. So it is basically above the last peak. So the Mitsumi business, has been able to have a turnaround but the Mini Bear business, so he has been they have been able to go over the JPY 60,100,000,000. So in that sense, I think that is a good achievement. So machine components, so March 2015 was 39,700,000,000, So $3,700,000,000 was for additional devices and components. So he support $2,700,000,000 or $31,200,000,000 this year, respectively. So we talked about the TPA or the impact. So $43,400,000,000 $31,200,000,000, was we have been able achieve. So I think this was a good achievement. So there has been some irregularity. So maybe some people say that it's not 100% but 99% But this $700,000,000 PPA, we haven't been expecting that, but the smartphones in games, to be honest, from February, it has been they have been putting on the brakes of a performance more than we have expected. So, that's my honest opinion. Of our situation right now. So as always, there are a lot of components that we produce. And, the market condition is different and the competition is different. So this year's biggest increase of the profit, where we should look at is the smartphone value and Ellie, the backlight yield, I think we should focus on these two areas. So smartphones, people are saying that he has plateau, it's not growing. I think these papers reports, that, but, I think personally this year's model is going to say, well, that's my personal opinion. But in terms of our assumptions, our forecast, we are keeping it conservative. To be honest, the price has not been decided yet. So it means that so towards a major customer is basically they are, using one company. So there are some, invisibility in the outlook. So this is basically, why we are taking that into consideration to make this forecast symptoms of sales is different by segment. So electric components going down, Mitsumi has gone up. It's going to go up. That is So, Mitsumi, basically there's a change in the contract because of the change of the business conditions and this is going to contribute increase of sales. But in terms of the LED pack of sales, there will be cost for the customer provider parts. So it's a coincidence, but there has been an increase of sales and decline in sales it's the same magnitude on company. So these will be offsetting each other. So I guess this will be a good way to understand what's happening in the changes in the sales composition. So, this year, what stands out is that the 2nd half is a 2nd half heavy, business performance for us So that is slightly different from the previous year. So in November, last year, we have a stock permits and business plan. So on the left, the gray bar, is the previous year. So initially 56,000,000,000 with that was initial announcement. And in the third quarter, we revised it up to 1,000,000,000, but actually it was 1,000,000,000. So next year and the year after that, Eventually, we thought it was 1,000,000,000, but we decided up to 1,000,000,000, but this year, we think it will be 1,000,000,000 So there's some currency issues, etcetera. So, the currency level at November, and currently, these are quite different. So that's the reason why it looks this way. So going to next fiscal year, so 1,000,000,000,001,000,000,000,000 So these will be the, targets that we want to achieve for next fiscal year. So initially, JPY 80,000,000,000 is going to be rise up has been revised up by JPY 90,000,000,000. So again, it was up to 92,000,000,000 yen. And, we would like to fill the gap through M and A to reach this 100,000,000,000 target. So for the machine components, well, this has been, this has recovered in a standing way, and Mitsumi's, performance improvement has ended. And I have for the first time since I entered this company, I have basically, been engaged in offering advice to improve their performance. And thankfully, there has been a lot of, achievements. Results have been coming through this. So, there's a lot of talk about the, Mitchell bowling at our IR meetings. People will say that please explain it more simply. So why is there a difference between the medium, large size bearings? So why are the mutual small size bearings better? So I am often asked. So I would like to spend a lot of time or I have spent a lot of, flight to explain why, these major small this is less than 22 meters in diameters. Why are these, drawing a lot of attention? So this outlook as a result is the gray bars per F5 2013,137,000,000 went to 1,000,000. So, 1000000,145000000000145000000000 5,000,000,317 average. So it came to 190,000,000. So this year, So 29,000,000 is what we are targeting. And as I've said the time and time again, So through we have in the midst of investing in 2 phases. So this year, fiscal year, 10,000,000 units per month. And next fiscal year, we want to increase the production capacity up to 315,000,000 units per month. So So, we have keywords phrases, automobiles, data centers, drones, industrial inverters, and robot controllers, these will be the drivers of this business. And this diagram here is in automobile business, why does miniature bearings, is increasing in the automobile business in 2000 and 18 and the worldwide automobile shipment unit by units was this until the 2020 will be about 100,000,000 units. So each year gradually, this will be going up. However, if you look at this diagram, the basically, a lot of things is going to transition to the luxury class. So a lot of things that's only used in the luxury class, automobiles So we divided the compact middle class and luxury. You can see that a lot of devices are being introduced. So about, and basically it is about 1,400,000,000 In terms of TAM, in this world, following 5 years, I think it's going to go up to 2,200,000,000. So this is more as symbolic. So why visible bearings increase if you go to EB? People ask this all the time. So we have analyzed this and, we this is a, chart showing the results of the analysis analysis. So the internal combustion engines, they use 45 or about 45, these 45 were bearings, but it's going to go up to 6 if we go to EV. So these are the very detailed chart in terms of where it's going to go up and where it's going to go down. So I would hope that it would take a look of this. Mainly this is, for the battery related areas. And because they don't have engines doesn't rotate, the pump related, components would be replaced by motors, meaning that so it is, the water or the fuel or the oil because it include the hydraulic control. So for instance, for hybrid, if the engine isn't running, the motors will be applying the pressure. So these were the areas that the ball bearings should be used. And again, I have explained this time and time again. So this will be the cooling fans for data centers. Good data centers are increasing explosively. And I don't think I will have to explain in more detail, further than this. And I think, drones. So we have to the biggest drone company in the world. So the specs, is the same automobiles from the cold environment to the hot areas You have to ramp up the rotation in a very quick period of time. So So if the bearings are not as precise and high end as us, you cannot be able to ramp up the rotation to that level. So the bearing, if the bearings break, of course, that means that drones will drop. And so you have to have a high reliability in terms of the components. You'll have more than 90% of share in this specific area. So drones, there are many ways that drones are utilized. So I think, this will be the type of business that will drive the bullbearings business going forward. So that was more or less about the ball bearings. Well, in terms of the aircraft components business, I have explained this, multiple times. So So CNL, Mac Aero, there has been a JPY 1,500,000,000 in profits in contribution. And HBB, they have been able to, stage a comeback. So the power were up by 35%. And this fiscal year, we I think they'll be able to achieve a more than 10% increase in profit And I think what I'm looking forward to is the offset business, we call it the offset business. So in India, McAero plants are located So inquiries in India has gradually increased. And Mackero, they are, renting the 2nd plant. So, but, it's full actually. And the 3rd plant that's next to it, we're going to put in the equipment there. So the CNA, Macquero and NHBB, these companies going forward, is going to create a lot of synergy. That's what I expect. So going to the pivot assembly, again, I think we were lucky in a sense because people in assembly, people I thought that it's going to disappear But, in terms of there has been an increase in the data, volume. So if you go over a certain volume, you have to use 2, few lots and bearings will have you have to use 4. So if you go further up Then you have to need, to use 4 pivots. So the hard disk drive, makers, some company, producing HCDs have already announced that on their website. So maybe you can refer to what they have been saying. And I think you have been noticing So the SSD basically, when you, you have to achieve data quickly, you SSD, but, if you basically don't are not can we take more time achieving the data? You can use a HDD. So it means that the electric components per devices is going to increase. And I think basically we're going to see opportunity. We have been told that there will be more and more usage of mechanical components So I think these are the areas, that will contribute to a certain level to our Boyd Bearings business. Going to the electronic components devices and components targets, Well, personally, I think that, they're going to do well, but this is my personal opinions, but in terms of the forecast, it's going to be conservative. And the price is not decided at all. And I haven't been able to, go up. We don't know at the at this point, how much, losses is going to have, when we reached the ramp up stages, we had not been able to run a simulation yet. That's the reason why we're having this level of forecast. But, and actually, last year, we saw that there was a CHF 20,000,000,000 something, but we were able to reach CHF 31,200,000,000 we don't know, but basically our forecast is conservative. So motor business, the Slovakia plant. At the end of May, we have been able to complete the construction. And, of course, this will be the automobile motor and we will be producing these motors in Slovakia. So we have been able to go 184,200,000,000 this year, at least 200,000,000,000 minimum, I think we'll be able to achieve that. So a motor division has reported as such there's a lot of inquiries that are coming to us. For instance, there's a large inquiries that are coming. So we would like to get these orders steadily means that the motor business, especially for the automotive business, will be able to, increase and grow in this specific area. Technical Center in China shall be opened. And you can see the border here. In October, it will be opened and we are preparing for that. As you can read here, not just the motors, but bearing and LED backlights, same eye contactors, connectors, antennas, coils. In other words, there is a heavy dependence upon automotive applications. So At one site, we should be able to showcase all of our technological capabilities as well as products. So in Sushi, we are building this and the reason why we picked that the location is because it's close to Shanghai and there are many technical universities in the neighborhood and we shall be able to hire many excellent, young people and Foma, Minivea, and Foma, a Mitsubishi products that should be showcased at one site and we would like to create something similar in Europe as well. And in the future, as Mina Bea, Mitsumi, We would like to present the scale of the company to the customers and I am sure that this center will make a great contribution turning to LED Backlight this was problematic in the past, but, at this point in time, it adds, stated here, And, as for the next generation product in the supply chain, at a competition against OLED, we are now starting the R and D activities So OLED, consumes lots of Baba, and a Barry Burton is high, and, game players when they use the machine for a long time, it's likely to be a burnt. So what is lacking with OLED is the black color, how it shows So the 2nd generation, using the new supply chain, we would like to launch something that will compete against OLED effectively at an earliest possible time manage, the things are going well. And we are getting positive by feedbacks. Having said that, however, there are so many samples or some customers require so many samples. And we are having some problems with the machine installation so on and so forth. And therefore, the start of the operation of Batsugi plant is pushed back, but in October onwards, big volume of samples will be produced at Suki. So please bear with us for a little more time. And, Mitsumi business, the game of consoles and OIS, the dependence on these 2 businesses, is quite high to be quite frank with you, but Mitsumi Automotive connectors and battery businesses that we need to expand, scales. Productivity improvement is progressing very quickly And therefore, we need to widen our product line. And for that end, we need to make a to sales activities that shall be one of the important themes for this year. As for the upsides, as you can see here, we have expanded the production capacity for OIS and a game of consoles. After the number of lines have been increased by 50% and game, consoles and smartphones, various analysts have expressed their views And if this year turns out to be a good year, as they say, it will be, our sales shall increase and we are fully prepared for that. I cannot go into details because of time restriction. However, these new products are shown at the bottom of this page, JPY 10,000,000,000, Shelby generated by these and new products. And these will be eye catching going forward. Starting this year. So, the new product trio fortunately are Sallyov, showroom, since Sallyov Assurum was opened, every week, lots of customers are coming, giving us inquiries. Staffs, it's sort of understaffed. The showroom is so how should I put it? Because the building has to be constructed and therefore, it takes a lot of time and, therefore, we cannot expect a quick startup like a smartphone parts, however, personally feel a very positive, reactions. And that sensor, this will be in July, quite honestly, it's because of, Arrico's Saba preparation has been delayed. However, it's been decided that the bid census will be launched into the market in July this year. And the sensors, this is going to be phase 2. So the possibility for expansion various sensors that can be combined with a bit sensor. And in phase 2, we would like to have, a more detailed, tracing or tracking of a heartbeat so on and so forth, so with the Minage. And Smart City, fortunately, the billing business has been started, the barriers that people told us that it was going to be quite difficult to charge this type of service, well, in an environment where temperature can go up to 35 or 40 cell chairs where humidity is also high. We have conducted the various testing and experiments and, things can be connected or, can be established wireless, almost automatically, and we now have a system like that in place. And, in the countries where we have offices like, China, Thailand, Cambodia, Philippines, and Slovakia. We will make, on top, sales. In other words, I, myself, will be engaged in sales activity so you have something to look forward to. This shows the midterm business plan, our targets for 3 years from now, these are the targets we have and cash, we have been able to generate lots of cash And finally, profit sharing, 20% payout ratio. So this year, we will be adapting IFRS and 65,000,000,000 yen on net income, then a 30 yen dividend payout shall be pretty possible. So in any case, what we need to do is make sure that that things will start up smoothly. So that is all from me. Thank you for listening. So let's go to the Q And A session. So first, we will limit questions to the institutional investor analysis. Please state your company name and your own name. Before your question. So we will bring the microphone around. Please raise your hand. So on the very front row, the prayer gentleman with that in Thai, please. Thank you. I'm Takayma from Goldman Sachs. I have three questions. First, this is about the change to the IFRS in terms of our accounting. So March 2019, performance, if in terms of the previous Japanese gap to comparison Japanese gap, how are you going to show it? So for instance, depreciation has been a kind of a fixed line of depreciation. But first of all, I would like to ask what the impact of the change of the accounting standard has been. So there's not been well in terms of the biggest change, there'll be no goodwill amortization the $1,000,000,000 plus impact. And next is that we are when we are applying J gap, So under the line of the, actual, non operating, So there will be included in the OP. Some will be we categorize the OP, but basically that's the change. So in terms of the goodwill amortization, You're not going to do that? Is that a positive impact? Yes. Yes. That's true. And, the second question I have here is that in terms of internal components and device business, I think it's page 12 and a forecast for this fiscal year. So the Backlight business, I think the president said that you're quite conservative, But if you look at the volume, is it going to go up or going to go down? So in terms of volume, what is the assumption that you're having? And because basically you're not providing it by fee end up means that the operating profit should go up, but it seems that you're forecasting it's going to go down. So is it basically only to the yield situation? So I would like to ask the assumption or the process that you have a right to forecast of JPY 25,000,000,000. So I can't go into volume, but basically has gone up slightly. Year over year. That is if we compare year over year, the one has gone up slightly. So that's number 1. And in terms of yields, we have we are trying to go to a very rapid ramp up that we have not been able to do before. So basically, we have to, wait and see in terms of how this turns out. So we don't know what's going to happen in terms of yield. So I want to say that, we'll have to take a bit more time to get the whole picture So this is a very conservative forecast that we are having in this area. So I think that will be my answer to your question. So Well, if we have a best case scenario, so the volume is a flat slight increase, but in terms of the added value that you can capture, it'll be the same level as last year or the yield, you're going So last year, it was kind of the same thing as the previous year. So but even though you're challenging a ramp up, a difficult ramp up, how much Advair that we'll be able to get? Well, yes, basically the customers are looking at this and But from our point of view through our own efforts, at a certain level of yield and we want to ramp up very rapidly. So that's the only way we can express our business. So of course, from my point of view, it's not necessary to put much this much efforts when we can't expect any proper So if things go well, of course, we were expecting rewards. So that's the level that I can say. So the last question, the third question I have is that in the mid to mid business this fiscal year's composition that is. So in terms of the sales increase, in a pure level because the hurdle was high. But in terms of profit, it's going to increase by JPY 26,000,000,000 So is it from OIS or is it from the game consoles or the other products? So what is the contribution where is the contribution coming from? The increase of the operating profits. So the OIS tragedy, you're going to increase the capacity. Are you going to be more aggressive in trying to get that business. Would you please elaborate on that? So to be honest, Mitsumi's biggest contribution will be a twofold that is. So game consoles and smartphone related business. So that's the way that I should express this. And I do not want to go into the number of units, but the customers have specifically said that they is going to increase the volume by 20%, meaning that for our business is going to increase 20%. That will be the natural assumption that we should make. So that's one background. In terms of OIS, So there has been strong requests come from the customers, then we have increased their capacity according to their request. And if we are able to sell these products, then we'll be able to we can sell that. And we have basically have a system of that. We can respond flexibly. So for IS, I do not think that, we are not assuming the huge level of profit here, but of course, if the volume goes up, then the profit will go up as well. So the OIS, so as before, So it's not the case that you're chasing a share, but so yes, we have this, we don't mind to be the 2nd player in the OES market. We don't mind it at all to my people and staff. I communicated that clearly. So we do not want to increase the reliance on the smartphone business even more than this. Thank you so much. So the person in the front row Sata from Morgan Stanley. Thank you for your presentation. I would also like to ask you three questions. The first one is 6 months ago, when you explained about mid term plan, You said that the profit margin in 2018 shall be JPY 9,000,000,000 up from 2017 upside. So what kinds of changes in the business environment have you observed since then. And assuming from that, do you still think that there is a further upside? First of all, the ForEx is one factor. Since then Thai bars has appreciated, but now it's weakening. It it's a dollar to 31 bps, but today it hit 31.9 and towards the 32, it's moving. So tie bars has appreciated since then. Inclusive of that, the ForEx, the dollar yen has changed significantly. And second of all, to be quite honest with you, game consoles are enjoying a boom or so I hired So maybe we will keep making such products, if ever, But actually, we are now seeing corrections, which was, sort of unexpected Another thing is smartphone related So, we have a conservative view on volume. And back then, I think I said that a smartphone business would be quite robust in the following year and the following year, meaning this year, the smartphone, you may think that the smartphone business, may not be so strong if that is second sense us. In line with that, probably, we should estimate our revenue and profit accordingly, and that is the reason why we came up with these results. Regarding smartphones, back light and OIS plan comparing them, which one is more a conservative if there's any such thing. In that sense, backlight back light, the yield, as I said, yield is unknown and the pricing has not been determined yet. So, that is probably the largest factor, biggest factor. So that may be even more conservative. My second question is about the Mitsumi business. From Q3 to Q4, the operating income has dropped from 9,800,000,000 to 1,400,000,000. The camera actuators and OIS and other core business if, classified into those three segments, what was the situation if you could explain, please? As you know, Q4 the smartphone related OLED and LCD both had poor results. And therefore, the profit in those businesses shrunk significantly. Another Mitsumi business, no major changes So more or less, as expected, with some impact of a seasonality, So that is how you should interpret. Regarding game consoles, was it mainly in line with the plan. As I explained to you previously regarding Q4, The game of business was slightly below the original plan and Mitsumi business after it plunged in Q4, what is the more recent situation And the plan for the first half and second half, looking at the plans, so you seem to have a plan for decreased sales and increased profit. As you may already know, the first half, particularly, at Q1, the smartphone will be impacted from inventory adjustment. Likewise, the game consoles will be impacted as well. And Q1 we are we had a slow start and Q2 onwards The new models will be started. And therefore, we are expecting a huge growth in Q2 onwards. I hope I answered your question. So first half on second half, why are you expecting a, the decreased sales and increased profit. You mean 1st half or 2nd half? So the plan for this year, the first half the sales shall be 184.4 and 2nd half 164.6 and the operating profit, the first half, 11.1% and second half, 14.9%. What is the breakdowns? Behind us. And particularly, the mix of revenue level I mean, a difference in our revenue level is a reason. And my last question is, as it was asked by previous person. Excluding the changes in the terms of business for mid May, why or why year on year, do you expect an increase in Q4 the sales, JPY 24,200,000,000 impact was seen, but in 28 18 as a whole, how much, impact are you anticipating? If you could turn to page 14 this year, Mitsumi's revenue is $250,600,000,000 out of which, 24.2 is what you have just said. And excluding that, it will be 226.4 and next year will be $349,200,000,000 and the $24,200,000,000 equivalent should be 120 or 100.6 So, it's going to be about $50,000,000,000 if I make apple to apple comparison. So let's go to the 2nd row. Tana Wei from NCPC and Eco Securities. So the first question I have is about the change of the County Center to IFRS. So normally when extra ordinary loss about a 1,000,000,000 yen has been booked and So a dividend and interest, basically, there's no difference. So it's neutral, but in terms of the losses and gains in terms of the Forex losses and losses. I think basically calculate by yen. So how would that be impact? In terms of the Forex, we do not disclose that information. So, I would just ask you to, assume by yourself. So the profit, if in terms of, goodwill, About JPY 1,000,000,000 has gone up. In terms of the non operating impairment, it's going to, let's say, negative factors. So in terms of ForEx, that will be the reason? Okay, understood. In terms of the bearing or bearings price strategy, So, Paris and Kaanuma has been talking about that strategy. So in this, this year's plan, how are you looking into this pricing So the interest of profitability in the 3rd quarter to 4th quarter has moved slightly, but it has not been able to recover to the previous level. So, please would you comment on that? Well, in the pricing, negotiations, we're doing that. So I have the salesperson had come back from their certain city, a certain country has made a report, but I saying that you can just not say unilaterally that we say that we're going to raise prices. You have to explain because the ball bearing demand is so robust. And we have $8,000,000,000 to $6,500,000,000, so $14,500,000,000, so investment that we have made. So why we have made this investment is that the customers, we invest because the customers want more. So for those, customers, basically we want we want them to bear the certain level of burdens for the investments. So that's, our logic that we're using this time around. So you have to explain that clearly and logically. So basically, I have been told that you have to explain more clearly why the ball bearings, the miniature ball bearings are better. So we have to explain that to the customers as well. So, in terms of this, if the supply is necessary, of course, we'll be happily being ready to prepare the supply, but in turn, we'd like to explain this is the cost that we are spending. So we want to have to negotiate, multiple times And that's what I'm saying to the salespeople. So maybe it'll take some time, but steadily, we doing this type of negotiation in various of various customers. So I hope they will be bearing with us a bit more for this to actually bear result Understood. Thank you so much. So the third point, is that. So this is about the OS and game, business besides that for me to meet besides OIS and game consoles, I would like you to explain about that. That will be on Page 44. So this has been deprecised that you've been shown from before. So can you, share with us some businesses that are progressing well, maybe not that well. So in the 3rd year or the mid term plan, the game business will peak out. So I think this business will have to, start showing results where also the Mitsubishi business will be struggling. So well, to be honest, we have been improving the productivity, so we have been able to finish that and the next phase is expanding sales. So expanding sales is the theme that we are focusing on. And I said clearly in my presentation, the game consoles and smartphones, this has been the drivers of the Mitsumi business, but for the other business. That'll be power sources or wire supplies or automotive parts and connectors included that your product lineup should be expanded. And, the orders, this be able to get orders more aggressively, and reduce costs by leveraging the scale merits. So these are the topics that I'm going to do. So semiconductors, this will be more high in semiconductors. The capacity is already fixed more or less. And we are utilizing foundries in this business. So the semiconductors, this is actually going very well. And in terms of the improvement of the profitability is already going ahead, to be frank, the automotive parts, power supplies and, precision parts, including connectors, these areas, I think we have to take some more time to actually see, more results coming out of these businesses. Any other questions? So the person in the second row towards the right hand side. Akizuki from Nomura Securities. I have two questions. One, it's rather a detailed question. Please tell me some numbers from Q3 to Q4. The electronic devices, quarter on quarter, I think the revenue declined and last, conference, backlight business, I don't remember what is the wording you used about reversal of a provision amounted to more than JPY 1,000,000,000, And, how did it turn out, what was the actual number? I would like to have our explanation be caused the, revenue seems to be declining on CNA and, arrow to what extent that they are included in the bearing and rod and the partners, how, it allocated that if you could tell me more detailed numbers, I would be appreciative of So backlight, one of our expenses, it's in line with our anticipation and we have been able to recognize the, the profit that we anticipated. And, last quarter or 2 quarters ago, this profit, should have been recognized about it was pushed back and that the explanation remains the same since last time. And CNA and Mac era, the sales is about JPY 10,000,000,000. I see an CIO or the ball bearings and the profit more than JPY 1,000,000,000 as Kainuma has given you a rough ideas and the mark. The plan is JPY 3,000,000,000. Thank you very much. My second question is, this is for Mr. Kai Numa, maybe. 60,000,000,000 CapEx. This is quite aggressive. And business by business, what kind of allocation are you thinking of? And So I think you are okay because your profit margin is rather high. And therefore, the payback period, that should be okay. But what is your anticipation? And this is another question for Mr. Kai Numa. You have lots of cash flow. And if you leave it as is, the net cash flow will keep accumulating and the machined components type of business you are very good at. And maybe It is the right time to think about, M and A in this area. So as you, which I would like to respond to those questions. So JPY 60,000,000,000 investment is quite huge. However, our revenue is becoming quite big as well. If you look into it, the largest in machine components is a bearing and the 12,000,000 units, 6,500,000,000 yen investment I mean, the that is the number of orders for this year. Another major investment is for backlight. Vis a vis the original forecast, the backlight, the number is growing fitch happens almost every year. And, they will, pay for investment and the depreciation period is 2 years. So we are not concerned about that. Then Mitsumi related By the end of the day, we or Amitumi has not made any investment, but so ever they have been so frugal. And therefore, In our view, we need to correct some areas and therefore, we are making investment And, not all of those investments are for increasing profit, for example, in Akita Prefecture, The, main office building, is to be built. This is for automotive business. The current building. It's so, outdated. It's so deteriorated, but there is Akita University and, excellent young people are there. So in order to employ them, if the lab, it's so old and deteriorated that we won't be able to attract, excellent talents But, capitalizing on the local capabilities, we need to, grow. So the 7. I mean, that environment that it's so poor, like, where people eat, there wasn't a nice facility, but we are building a nice facility. So everywhere we go, we build something like a clubhouse so that our employees and the customers will be able to enjoy a nice environment So working conditions and a working environment that we are trying to improve. And, a renovation, if it is, merely a renovation, you may think it is unnecessary, but in order for Minabaya and Mitsumi to become 1 corporation, this is a necessary expenses. And, Fuma, Mitumi, employees will be engaged in Mini Bear Business and vice versa. And therefore, we would like to achieve the same level of working environment, which, in my view, shall a lead to long term prosperity. So sizable profit. Some investments are for the purpose of making sizable profit and some are not So in total, we are spending JPY 60,000,000,000 and net cash flow, every year you seem to be surprised to see there's so much on the cash flow. Net debt is decreasing. When I joined this company, and there were more than JPY 300,000,000,000 net debt, but it's been decreasing. And one way is to, enrich a shareholder returns. And M And A opportunities, we are as I always say, we are always open for such opportunities as IFRS has been introduced about the goodwill amortization, I mean, we always started from that, but this year, onwards. I am relieved, somewhat, I'm not saying that we will be paying excessively high price for an M and A, but of course, we give due consideration to the, appropriate pricing, but the MARCO ARO and CNA. 1,000,000,000. So, there are many other, good account dates the companies that are profitable in machined components areas. So there are many, opportunities for M And A and we will remain aggressive in this area. So on the very front row, please. We'll talk for missile securities. I have three questions. First about the backlight, LED backlights. So for the full active type, you're challenging, the full active type, you see that, which are difficult to produce. So I would like to ask what is the difficulty. I don't think we'll be able to divulge details, but can you explain an arraignment terms, what is the difficulty? And if you're able to overcome those difficulties, what would be the potentiality compared to the conventional and backlights, what is the difference that we can expect? Would you please, elaborate on that? So in terms of the TAM, in terms of OLED and LCD, how this is going to change, how your share is going to look like? That's my first question. So I have not said, once time that is I'm just trying to do a proactive type. This is our LED backlog new product. So this is a thing that we had never produced in the past. So it's a very challenging, it's very challenging. So where is it challenging but I cannot, disclose all the details. So please, bear with me on that point, but So, under Minneapolis to me, we have passion to create a value, passion to create value difference. This has been a theme and we have been trying to establish that in this company. So because we want to differentiate and we want to create certain value through this differentiation. So these new products is basically the type this type of this is the type of product that other companies will never be able to produce. So I'm very certain of that. So if we are able to overcome these challenges. If that time comes, of course, it means that they will contribute to a certain level of profit. And if that is not the case, we will not be able to sell the product in the first place. However, as I said, multiple times, this is the thing that has never, been done in the past. So that is the reason why we have to be conservative in our forecast. Does that answer your question? Understood. And the second question is about, in terms of the factories and this year's changes or the change of the roles of each of these plants for Cambodia, I think, the situation of changing in Cambodia has going to change and sebble in for Mitsumi So you said that you were sorry that you were not able to take a video. So how are they going to be changes in this specific plan? Well, in terms of the plant, well, Cambodia, if you give the, get the example of Cambodia, so the first and second plant is already full, building is full, and there's no space available. So it's going to be, there are 3 buildings, And the 3rd building, in terms of the overall bearings that they produce, they have been able to be, earn a steady profit. So for the businesses, besides of bullbearings, they'll be setting up partitions and start activities. So the Philippines, the capacity is full, no capacity left. So there are we are really just starting to transfer some of the capacity from the Philippines. So that will be actuators for the Chinese market and various other products gradually is being shifted and transferred to Cambodia. So the Sebbos maybe one building in Seville can be vacated. So for instance, if the customers says that they want their products to be produced in civil. In some cases, they request that, and currently, the Philippines who don't have any flexibility. So as we have been having this strategy from the best, we will, transfer some of their equipment facility from the Philippines and put it into Cambodia. And there's no plan for closure of the other plants, etcetera. Yes. My third question is that in terms of the assumption of the ForEx, so the FY18 impact of the effects of fluctuations, sales and profit, how much would be the sensitivity and if they, if ForEx fluctuates going forward, so maybe, can you give us the sensitivity of the ForEx by each different currencies? Well, this year's assumption is, as I've laying in the previously $105,000,000 to the dollar and four Bats is 31 Bats per U. S. Dollars. That's our outlook. In terms of sensitivity, so sorry to say, as as before, so in terms of the sensitivity of which if you can refer to the actual sensitivity that has come out from the results, maybe you can assume what's going to happen this fiscal year. Next one, the person in the 2nd row in the right hand side. Thank you for your presentation. This is Hirota from UBS Securities. About CapEx, you explained, and the backlight didn't grow as much as you thought it would. And how big investment are you planning? And also, is it only because the volume increased or is it that the investment per unit is increasing And because, IFRS, has been, adapted, was there any change changes are made to the depreciation of our backlight investment. So changes in the accounting principles, did not change the depreciation of the investment. So it's a 2 years depreciation. And eventually, the customers will pay for the investment. As for the size, I think it's sizable. I cannot say how much, exactly how much the other day, I think I said that JPY 3,000,000,000 investment But it is likely to be bigger than that. Well, because, in a nutshell, it's rather difficult to do things with the existing machines. Therefore, we need a new one. So that is as far as I can go at this point. My second question is about the backlight in the medium term business plan period, the backlight business, towards the net the fiscal year, I think you have a plan to increase customer base, could you elaborate on that? So what are the reasons why you are expecting increase in revenue? So, North America, and others and, automotive, automotive, double digit. Automotive, it's seen solid growth. Of a double digit growth. And, smartphones in China the model due to the model change, it's slightly above flat. It's flattish, but slightly up. And the rest should come from North America. And the volume implication is as explained by, Kainuma. The reason why I'm asking this question is I fully understood about this fiscal year, but Next fiscal year, March 2020, of course, there are many uncertainties, but what is your assumption at this point in time? So things are pushed back. I mean, the product launches are pushed back. So that would be the starting point Next fiscal year, starting on April 1st, I think this will be able to drive growth. I'm sure different people have a different opinions, but there is a latent demand for replacement and how we manage to stimulate such demand, that would be the most important thing, pricing and, the value for the money you pay, performance wise and, our product this time around should be quite good in that sense. But as I said previously repeatedly, we have taken a conservative view, but this I'll continue into next fiscal year. Thank you very much. So maybe one more question because we are running out of time. No other questions. So if that's the case, I would like to close this meeting. So after the outside of this room, diminish, we have a display of diminish, a very high end distortion component sorry. So thank you so much.