As the time has come, we would like to start this meeting. Today, thank you very much for coming to our MinebeaMitsumi Inc. business results fiscal year end of March 31, 2018 meeting, despite your busy schedule. I would like to introduce a couple participants from our company. To your right, we have the Representative Director, CEO, and COO, Mr. Yoshihisa Kainuma. Next is the Managing Executive Officer, Mr. Katsuhiko Yoshida. I am the MC for today, and Yahiro from the IR division. Thank you. First, Mr. Yoshida will explain about the financial results, and Mr. Kainuma will explain about the policy and strategy. After that, we would like to have a Q&A session. We are planning to end this meeting by 7:00 P.M.
In terms of the financial, we have some financial explanatory materials, supplementary financial data, and we have the brief report of financial results. We have a press release in terms of the notice of personal changes and organizing changes. 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. This is a great opportunity to bring us some feedback through your questionnaire. Please leave your questionnaires on the table afterwards. Including the Q&A and this presentation, this will be live broadcasting on the internet. We are recording this image to upload it to the website. Please understand. Please refrain from taking photos or recording the audio in this room. Mr. Yoshida, please.
Hello, I am Yoshida.
From my side, I would like to explain the consolidated financial results for the fiscal year ended March 2018. Consolidated net sales for the fiscal year ended March 31, 2018 totaled JPY 879.139 billion, while operating income reached JPY 79.63 billion, and net income hit JPY 59.382 billion. These figures represent year-on-year increase of 37.6%, 61.5%, and 44.3% respectively, with net sales, operating income, net income, as well as ordinary income hitting record highs. This jump in earnings comes from the contribution of the MITSUMI business, which was integrated in January of last year, as well as the steady performance of our main products, such as ball bearings, motors, and LED backlights. Currency fluctuations brought up net sales up an estimated JPY 23.5 billion year-over-year, and operating income down an estimated JPY 1 billion year-on-year. Please go to the next slide.
In the fourth quarter of the previous fiscal year, net sales were JPY 224.211 billion, operating income JPY 14.773 billion, and net income JPY 7.827 billion. Year-on-year, net sales were up 14.1%, operating income up 3.3%, and net income down 51.8%. Despite quarter-on-quarter decreases of 0.7% in net sales, 34.2% in operating income, and 54.7% in net income, net sales reached a record high for any fourth quarter. Since this fourth quarter, we have changed the contract with customers for the OEM business in the MITSUMI business segment, and this resulted in an increase in net sales, which amounted to JPY 24.2 billion. Excluding this impact, the sales would have dropped 11.5% quarter-on-quarter.
In the fourth quarter, operating income includes JPY 0.7 billion of expense increase associated with the purchase price allocation process for the acquisition of C&A Tool Engineering in the U.S. and Mach Aero in France, and hereinafter referred to as the PPA impact. The net income includes JPY 5.4 billion of impairment losses for the business assets and JPY 1.1 billion of loss on disposal of fixed assets. Impact from foreign currency translations is estimated to result in year-on-year decreases of JPY 4 billion in net sales and JPY 3.3 billion in operating income, as well as estimated quarter-on-quarter decreases of JPY 3.4 billion in net sales and JPY 1.8 billion 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 recorded a new high of JPY 879.1 billion by a wide margin.
The forecast for the fiscal year ending March 31, 2019 is shown by segment. 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 GAAP, but these figures are presented alongside for your reference. The same applies to the forecast figures for each subsequent 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 JPY 224.2 billion. Please go to the next slide. The bar graph indicates yearly changes in operating income, while the line graph charts changes in the operating margin.
In the fiscal year ended March 31, 2018, the MITSUMI business contributed significantly to earnings. On top of that, our main products, including ball bearings, motors, and LED backlights performed well. As a result, operating income rose 61.5% to hit JPY 79.6 billion , marking a record high by a wide margin. Going to the next slide. As in the previous slide, the bar graph shows quarterly trends in operating income, while the line graph charts changes in operating margin. Fourth quarter operating income totaled JPY 14.8 billion. This makes it the sixth consecutive quarter that profits were up year-on-year. Please go to the next slide. Let's take a look at the results by business segment, starting with machined components.
On the left is a bar graph for yearly sales trends, and on the right is a bar graph for the operating income, along with a line chart for the operating margin. You can see net sales jumped 13% for a record high total of JPY 176.4 billion. C&A Tool Engineering and Mach Aero, which were just consolidated in the third quarter, fall under the machined components segments category of other. Sales of ball bearings increased 13% to reach JPY 105.9 billion. This uptick was fueled by strong demand across a wide range of industries, with ball bearings for automobiles 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 million units.
Revenue from rod ends and fasteners was up 8% from the previous fiscal year to a total JPY 31.9 billion, while revenue for pivot assemblies fell 3% from the previous fiscal year to a total JPY 31.5 billion. Our ability to hold on to over 80% of the market share has guaranteed stable earnings. Operating income came to a record high of JPY 42.7 billion in the fiscal year in March 31st, 2018, as operating margin hit 24.2%, 49% year-on-year increase in operating income, and a 0.8 percentage point decline in the operating margin. If we were to exclude the JPY 0.7 billion of PPA impact, operating income would have been JPY 43.4 billion, and the operating margin would have been 24.26%. Excuse me, 24.6%.
Looking at the results by product, we see that the profit of ball bearings and pivot assemblies increased year-on-year, while profit of rod ends and fasteners dipped slightly. In this fiscal year, we anticipate a jump in sales of ball 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 and profits for rod ends and fasteners, as well as lower sales and profits for pivot assemblies as the HDD market continues to shrink. 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. Going to the next slide. This slide shows the quarterly trend in the machine components segment.
In the fourth quarter, net sales were up 1% over the previous quarter for a record high total of JPY 47.3 billion. Sales of ball bearings increased 4% quarter-on-quarter to hit JPY 27.8 billion. The volume of ball bearings sold outside the group hit 198 million units per month on average, marking a year-on-year increase for the 22nd quarter in a row. The production volume reached a record high of 288 million units in March. We achieved our target of increasing monthly production capacity to 285 million units by April this year. Revenue from rod ends and fasteners were up 10% over the previous quarter to a total of JPY 8.7 billion. Even though revenue from pivot assemblies dropped 9% from the previous quarter to hit JPY 7.5 billion, our ability to maintain 80% share of the market has generated stable earnings.
Operating income for the fourth quarter was down 5% from the previous quarter to a total of JPY 10.5 billion, while the operating margin decreased 1.5 percentage points to reach 22.1%. If we were to exclude the JPY 0.7 billion of PPA impact, operating income would have been up 1% from the previous quarter to a total JPY 11.2 billion, and 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 and fasteners rose, while profits for pivot assemblies fell. Please go to the next slide. Let's take a look at the electronic devices and components segment. In the fiscal year ended March 31st, 2018, net sales were up 2% year-on-year to total JPY 451.5 billion.
Looking at the results by product, we see that the sales of motors increased 16% year-on-year to reach JPY 184.2 billion, mainly due to automobiles. Electronic devices sales dropped 5% year-on-year to hit JPY 227.8 billion. Demand for our ultra-thin LED backlights remained strong, surpassing initial targets despite declining sales of final products of LCD models sold by our major customers. Net sales of sensing devices decreased 7% year-on-year to total JPY 35.7 billion. Operating income climbed 42% year-on-year to reach JPY 31.2 billion, while the operating margin rose 1.9 percentage points to reach 6.9%. Looking at the operating income by product, we see that 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 profits due to the continued increase in demand, mainly for automobiles, and a decrease in sales of electronic devices due to a drop in parts supplied for a fee. We also anticipate a slight increase in sales of sensing devices and improvement in profitability. Next slide, please. This shows the quarterly trends in the electronic device segment. Net sales decreased 9% quarter-on-quarter to hit JPY 101.7 billion. Looking at the sales by product, we see that motors remained almost unchanged from the previous quarter at JPY 46.9 billion, with demand from the automotive industry continuing to drive results up. Electronic devices decreased 19% quarter-on-quarter to total JPY 45.2 billion after the demand period peaked out. Net sales of sensing devices decreased 3% quarter-on-quarter to hit JPY 8.7 billion.
Operating income rose 36% quarter-on-quarter to hit JPY 7.5 billion, while the operating margin rose 2.4 percentage points to reach 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 41% to total JPY 250.6 billion in the fiscal year ended March 2018. If we were to exclude the JPY 24.2 billion of sales increase due to contractual changes with the customers, they would represent a 27% year-on-year increase. This bump was mainly due to a large increase in shipments of new game consoles during the peak demand period and an increase in camera actuators for major customers.
Year-on-year operating income improved to JPY 32.1 billion, and even after the adjustment of inventory write-downs increased to JPY 19.7 billion to total JPY 21.5 billion, while the operating margin reached 8.6%. This jump was due to a significant improvement in overall productivity and an increase in shipments of new game consoles and camera actuators. In the fiscal year ending March 2019, net sales are expected to rise due to increase in shipments of new game consoles and actuators for cameras. We anticipate approximately JPY 100 billion 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 contractual changes, the operating margin should see a growth as well. Next slide, please. MITSUMI business segment quarterly trends is shown here.
Net sales for the fourth quarter were up 12% from the previous quarter to total JPY 75 billion. If we were to exclude JPY 24.2 billion of sales increase due to contractual changes, we would see a 24% quarter-on-quarter drop in the net sales due to seasonal factors. Operating income was JPY 1.4 billion, and the operating margin was 1.8%. Operating income decreased 86% quarter-on-quarter, while the operating margin declined 12.9 percentage points. Next slide, please. The bar graph here shows the trends in net income, while the line graph shows the changes in net income per share. Net income rose 44% year-on-year to reach a record high JPY 59.4 billion. Net income per share was JPY 41.1. Next slide, please.
Here you can see the quarterly trends. Net income decreased 55% quarter-on-quarter to total JPY 7.8 billion. Net income decreased 55% quarter-on-quarter to total JPY 7.8 billion. Also, as I said earlier, the net income for this quarter includes JPY 5.4 billion 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&A expenses, while the line graph charts changes in the SG&A expenses to sales ratio. SG&A expenses rose JPY 0.6 billion quarter-on-quarter to hit JPY 25 billion, while the SG&A expenses to sales ratio remained virtually flat from the previous quarter at 11.1%. Next slide, please. Let's turn to the quarterly changes in inventory.
At the end of the fourth quarter, inventory totaled JPY 150.1 billion, which is virtually the same as it was three months ago. Next slide, please. The left 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 54.2 billion, and depreciation totaled JPY 31.6 billion. In the fiscal year ending March 2019, capital expenditure is expected to increase to JPY 60 billion, mainly due to investments for ramping up production capacity to meet future demand. Accordingly, depreciation is expected to increase to JPY 40 billion as well. Next slide, please. The bar graph shows the trend in 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 52.5 billion, which is JPY 18.4 billion down from March 2017. Although capital investments are expected to increase in this fiscal year, free cash flow will improve thanks to the increased profit, and the net interest-bearing debt is expected to decline further. At the same time, we will continue to pursue an aggressive M&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 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 are expected to increase due to such factors as strong demand for ball bearings, the anchor product of our machine components business, and an expected 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 operating income will increase to JPY 83 billion, due mainly to a steady increase in production and shipments in all businesses across the board, including ball bearings, rod ends, fasteners, and motors, despite the uncertainties for foreign exchange as well as smartphone market trends. Since we have adopted IFRS at the beginning of this fiscal year, we will no longer indicate ordinary income forecasts. Our assumption for exchange rate is JPY 105 to a USD.
Next slide shows the forecast for each business segment. Next slide, please. Now let's turn to our shareholder return policy. As we explained at the second quarter financial results briefing last November, we significantly increased our dividend to JPY 26 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. Mr. Kainuma, please.
From my side, I would like to explain about the management policy and business strategy. As has been explained, thanks to your support, we have been able to end the last year at a good note. For instance, machine components, electronic devices and components, we saw an increase of the earnings. But I think our peak was in 2015, March 6, was JPY 61.1 billion. Machine components and electronic devices and components, this is the former Minebea business. It's basically above the last peak. The MITSUMI business has been able to have a turnaround. But the Minebea business, they have been able to go over the JPY 60.1 billion. In that sense, I think that is a good achievement. Machine components, March 2015 was JPY 39.7 billion. JPY 30.7 billion was for the electronic devices and components.
It was JPY 42.7 billion, JPY 31.2 billion this year, respectively. We talked about the PPA contribution or the impact. JPY 43.4 billion and JPY 31.2 billion, was we have been able to achieve. I think this was a good achievement. There has been some irregularity, maybe some people say that it's not 100%, but 99%. This JPY 0.7 billion PPA, we haven't been expecting that. The smartphones and games, to be honest, from February, they have been putting on the brakes of a poor performance, more than we have expected. That's my honest opinion of our situation right now. As always, there are a lot of components that we produce. The market condition is different and the competition is different. This year's biggest increase of the profit, where we should look at, is the smartphone volume and LED backlights yield.
I think we should focus on these two areas. Smartphones, people are saying that it has plateaued, it's not growing. I think the newspapers report that. I think personally, this year's model is going to sell well. That's my personal opinion. In terms of our assumptions, our forecast, we are keeping it conservative. To be honest, the price has not been decided yet. It means that towards our major customers, basically they are using one company. There are some uncertainty in the outlook. This is basically why we are taking that into consideration to make this forecast. In terms of sales is different by segment. Electric components going down, MITSUMI has gone up. Is going to go up, that is.
MITSUMI, basically there is a change in the contract because of the change of the business conditions, and this is going to contribute increase of sales. In terms of the LED backlight sales, there will be a cost for the customer provided parts. It's a coincidence, but there has been an increase of sales and decline in sales. It's the same magnitude on company. These will be offsetting each other. I guess this will be a good way to understand what's happening in the changes in the sales composition. This year, what stands out is that the second half is a second-half heavy business performance for us. That is slightly different from the previous year. In November last year, we have brushed up our medium business plan. On the left, the gray bar is the previous year.
Initially JPY 56 billion, that was the initial announcement. In the third quarter, we revised it up to JPY 80 billion, but actually it was JPY 89.2 billion. Next year and the year after that, initially we thought it was JPY 63 billion, but we revised it up to JPY 82 billion. This year we think it will be JPY 83 billion. There's some currency issues, et cetera. The currency level in November and currently, these are quite different. That's the reason why it looks this way. Going to next fiscal year. JPY 1 trillion and JPY 100 billion. These will be the targets that we want to achieve for next fiscal year. Initially JPY 80 billion has been revised up to JPY 90 billion.
Again, we revised up to JPY 92 billion, and we would like to fill the gap through M&A to reach this JPY 100 billion target. For the machine components, well, this has recovered in outstanding way, and MITSUMI's improvement has ended. For the first time since I entered this company, I have basically been engaged in offering advice to improve their performance. Thankfully, there has been a lot of achievements, results that have been coming through this. There's a lot of talk about the miniature ball bearing at our IR meetings. People will say that, "Please explain it more simply." Why is there a difference between the medium and large size bearings? Why are the miniature and small size bearings better? I am often asked.
I would like to spend a lot of time, or I have spent a lot of slides to explain why these miniature and small size bearings, this is less than 22 millimeters in diameters. Why are these drawing a lot of attention? Let's look at the results. There's the gray bars. Per FY 2013, JPY 137 million went to JPY 145 million. Excuse me, JPY 137 billion, JPY 145 billion, and JPY 155 billion. This is 2017 average. It came to 190 million units . This year, JPY 209 million is what we are targeting. As I've said time and time again, we have in the midst of investing in two phases. This fiscal year, 200 million units per month. The next fiscal year, we want to increase the production capacity up to 315 million units per month.
We have keywords, phrases, automobiles, data centers, drones, industrial inverters, and robot controllers. These will be the drivers of this business. This diagram here is in automobile business. Why does miniature bearings is increasing in the automobile business? In 2015, the worldwide automobile shipment by units was this. In 2020, it will be about 100 million units. Each year, gradually, this will be going up. However, if you look at this diagram, basically, a lot of things is going to transition to the luxury class. A lot of things that's only used in the luxury class automobiles. We divided the compact, middle class, and luxury. You can see that a lot of devices are being introduced. Basically, it is about JPY 1.4 billion in terms of TAM. In this following five years, I think it's going to go up to JPY 2.2 billion.
This is more as symbolic. Why does ball bearings increase if we go to EV? People ask this all the time. We have analyzed this, and this is a chart showing the results of the analysis. The internal combustion engines, they use 45, or about 45. They use 45 ball bearings. It's going to go up to 68 if we go to EV. These are the very detailed chart in terms of where it's going to go up and where it's going to go down. I would hope that it would take a look of this. Mainly, this is for the battery-related areas. Because they don't have engines, doesn't rotate, the pump-related components would be replaced by motors, meaning that the water or the fuel or the oil, because including the hydraulic control.
For instance, for hybrid, if the engine isn't running, the motors will be applying the pressure. These were the areas that the ball bearings will be used. Again, I have explained this time and time again. This will be the cooling fans for data centers. The data centers are increasing explosively, and I don't think I will have to explain in more detail further than this. I think drones. We have a supply 100% of our products to the biggest drone company in the world. The specs is the same as automobiles. From the cold environment to the hot areas, you have to ramp up the rotation in a very quick period of time. If the bearings are not as precise and high-end as us, you cannot be able to ramp up the rotation to that level.
If the bearings break, of course, that means the drones will drop. You have to have high reliability in terms of the components. You'll have more than 90% of share in this specific area. Drones, there are many ways that drones are utilized. I think this will be the type of business that will drive the ball bearings business going forward. That was more or less about the ball bearings. Well, in terms of the aircraft components business, I have explained this multiple times. C&A, Mach Aero, there has been a JPY 1.5 billion profits in contribution. NHBB, they have been able to stage a comeback. The profits were up by 35%. This fiscal year, I think they'll be able to achieve a more than 10% of increase in profit. I think what I'm looking forward to is the offset business.
We call it the offset business. In India, Mach Aero plants are located. Inquiries in India has gradually increased. Mach Aero, they are renting the second plant. It's full, actually. The third plant that's next to it, we're going to put in the equipment there. The C&A, Mach Aero, and NHBB, these companies, going forward, is going to create a lot of synergy. That's what I expect. Going to the pivot assembly. Again, I think we were lucky in a sense. Pivot assembly, I thought that it's going to disappear. In terms of there has been an increase in the data volume. If you go over a certain volume, you have to use two pivots, and bearings, you have to use four. If you go further up, you have to need to use four pivots.
The hard disk drive makers, a company producing HDDs have already announced that on their website. Maybe you can refer to what they have been saying. I think you have been noticing. SSD, basically, when you have to retrieve data quickly, you need SSD. If you basically can take more time retrieving the data, you can use HDD. It means that the electronic components per device is going to increase. I think basically we're going to see opportunity. We have been told that there will be more and more usage of mechanical components. I think these are the areas that will contribute to a certain level to our bearings business. Going to the electronic devices and components targets. Personally, I think that they're going to do well, this is my personal opinion.
In terms of the forecast, it's going to be conservative, the price is not decided at all, we don't know at this point how much losses it's going to have when we reach the ramp-up stages. We have not been able to run a simulation yet. That's the reason why we're having this level of forecast. Actually, last year, we thought there was JPY 20 billion something, we were able to reach JPY 31.2 billion, we don't know. Basically, our forecast is conservative. Motor business. In the Slovakia plant, at the end of May, we have been able to complete the construction, for this will be the automobile motors. We will be producing these motors in Slovakia. We have been able to go JPY 284.2 billion. This year, at least JPY 200 billion minimum. I think we'll be able to achieve that.
Our motor division has reported as such. There's a lot of inquiries that are coming to us. For instance, there's large inquiries that are coming. 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.
The technical center in China shall be opened. You can see the photo here. In October, it will be opened. We are preparing for that. As you can read here, not just the motors, but bearings, LED backlights, semiconductors, connectors, antennas, coils. In other words, there is a heavy dependence upon automotive applications. At one site, we should be able to showcase all of our technological capabilities as well as products. In Suzhou, we are building this. The reason why we picked that location is because it's close to Shanghai. There are many technical universities in the neighborhood. We shall be able to hire many excellent young people. For MINEBEA and for MITSUMI products, should be showcased at one site. We would like to create something similar in Europe as well.
In the future, as MINEBEA MITSUMI, we would like to present the scale of the company to the customers. 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's as stated here. As for the next generation product in the supply chain, it's a competition against OLED. We are now starting the R&D activities. OLED consumes lots of power. Battery burden is high. Game players, when they use the machine for a long time, it's likely to be burned. What is lacking with OLED is the black color, how it shows. The second generation are using the new supply chain. We would like to launch something that will compete against OLED effectively at an earliest possible time.
MINEGE™, things are going well. We are getting positive feedbacks. Having said that, however, there are so many samples, or some customers require so many samples. We are having some problems with the machine installation, so on and so forth. Therefore, the start of the operation of Tsuji plant is pushed back. In October onwards, a big volume of samples will be produced at Tsuji. Please bear with us for a little more time. MITSUMI business, the game consoles and OIS, the dependence on these two businesses is quite high, to be quite frank with you. MITSUMI automotive connectors and battery businesses that we need to expand scales. Productivity improvement is progressing very quickly. Therefore, we need to widen our product line. For that end, we need to make proactive sales activities.
That shall be one of the important themes for this year. As for the upsize, as you can see here, we have expanded the production capacity for OIS and game consoles up to the number of lines have been increased by 50%. Game consoles and smartphones, various analysts have expressed their views. 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 the time restriction. These new products are shown at the bottom of this page. JPY 10 billion shall be generated by these new products. These will be eye-catching going forward, starting this year. The New Product Trio. Fortunately, our SALIOT showroom. Since the SALIOT showroom was opened, every week, lots of customers are coming, giving us inquiries.
Staff, it is sort of understaffed, the showroom is. How should I put it? The building has to be constructed, and therefore, it takes a lot of time, and therefore, we cannot expect a quick startup like smartphone parts. I personally feel very positive reactions. Bed sensor, this will be in July. Quite honestly, it is because of Ricoh's Saba preparation has been delayed. It has been decided that the bed sensors will be launched into the market in July this year. The bed sensors, this is going to be phase II, the possibility for expansion. Various sensors can be combined with a bed sensor. In phase II, we would like to have more detailed tracing or tracking of a heartbeat, so on and so forth. With MINEGE 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 a service, well, in an environment where temperature can go up to 35 or 40 degrees Celsius, where humidity is also high. We have conducted various testing and experiments, and things can be connected or can be established wireless, almost automatically. We now have a system like that in place. In the countries where we have offices like China, Thailand, Cambodia, Philippines, and Slovakia, we will make top sales. In other words, I myself will be engaged in sales activities. You have something to look forward to. This shows the midterm business plan, our targets for three years from now. These are the targets we have. The cash. We have been able to generate lots of cash. Finally, profit sharing, 20% payout ratio.
This year, we will be adopting IFRS, and JPY 65 billion net income, then JPY 30 dividend payout shall be pretty possible. In any case, what we need to do is make sure that things will start up smoothly. That is all from me. Thank you for listening. Let us go to the Q&A session. First, we will limit the questions to the institutional investor analysts. Please state your company name and your own name before your question. We will bring the microphone around. Please raise your hand. On the very front row, the gentleman without a tie, please.
Thank you. I'm Takayama from Goldman Sachs. I have three questions. First, this is about the change to the IFRS in terms of accounting. March 2019 performance, in terms of the previous Japanese GAAP, to compare to Japanese GAAP, how are you going to show it? For instance, depreciation has been a kind of fixed line depreciation. First of all, I would like to ask what the impact of the change of the accounting standard has been. In terms of the biggest change, there'll be no goodwill amortization, so there'll be JPY 1 billion-plus impact. Next is that when we were applying JGAAP, under the line of the non-operating, they will be included in the OP. Some will be recategorized as OP, but basically, that's the change. In terms of the goodwill amortization, you're not going to do that? That's a positive impact?
Yes. Yes, that's true. The second question I have here is that in terms of the electronic components and device business, I think it's page 12 in the forecast for this fiscal year. The LED backlights 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? In terms of volume, what is the assumption that you are having? Because basically you're not providing it by fee, that means that the operating profit should go up, but it seems that you're forecasting that it's going to go down. Is it basically only to the yield situation? I would like to ask the assumption or the process that you have arrived to the forecast of JPY 25 billion.
I can't go into volume, but basically it has gone up slightly, year-over-year that is. If you compare year-over-year, the volume has gone up slightly. That's number one. In terms of yield, we are trying to go to a very rapid ramp-up that we have not been able to do before. Basically, we have to wait and see in terms of how this turns out. We don't know what's going to happen in terms of yield. I want to say that we'll have to take a bit more time to get the whole picture. This is a very conservative forecast that we are having in this area. I think that will be my answer to your question.
If we have a best case scenario, the volume is flat or a slight increase, but in terms of the added value that you can capture, it will be the same level as last year? The yield, last year it was a kind of the same thing as the previous year. Even though you're challenging a difficult ramp-up, how much added value will you be able to get? Yes. Basically, the customers are looking at this. From our point of view, through our own efforts at a certain level of yield, we want to ramp up very rapidly. That's the only way we can express our business. Of course, from my point of view, it's not necessary to put this much effort when we can't expect any profits. If things go well, of course, we are expecting rewards.
That's the level that I can say. The last question, the third question I have is that in the MITSUMI business, this fiscal year's composition that is. 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 billion. Is it from OIS, or from the game consoles, or the other products? Where is the contribution coming from in terms of the increase of the operating profits? The OIS strategy, 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? To be honest, MITSUMI's biggest contribution will be twofold, that is, the game consoles and smartphone-related business.
That's the way that I should express this, I do not want to go into the number of units, but the customers have specifically said that it's going to increase the volume by 20%, meaning that for our business, it's going to increase by 20%. That would be the natural assumption that we should make. That's one background. In terms of OIS, there has been strong requests coming from the customers. We have increased the capacity according to their request. If we are able to sell these products, then we can sell that. We basically have a system that we can respond flexibly. For OIS, we are not assuming a huge level of profit here, but of course, if the volume goes up, then the profit will go up as well.
The OIS, as before, it's not the case that you're chasing share, but
Yes, we don't mind to be the second player in the OIS market. We don't mind it at all. To my people and staff, I've communicated that clearly. We do not want to increase the reliance on the smartphone business even more than this. Thank you so much.
The person in the front row. Sato from Morgan Stanley.
Thank you for your presentation. I would also like to ask you three questions. The first one is, six months ago, when you explained about the midterm plan, you said that the profit margin in 2018 shall be JPY 9 billion up from 2017 upside. What kind of changes in the business environment have you observed since then? Assuming from that, do you still think that there is a further upside? First of all, the Forex is one factor.
Thai baht has appreciated, but now it's weakening. It's USD 1 to 31 Thai baht, but today it hit 31.9 and towards 32 Thai baht it's moving. Thai baht has appreciated since then. Inclusive of that, the Forex USD/JPY has changed significantly. Second of all, to be quite honest with you, game consoles are enjoying a boom, or so I heard. Maybe we will keep making such products forever. Actually, we are now seeing corrections, which was sort of unexpected. Another thing is smartphone related. We have a conservative view on volume, and back then, I think I said that smartphone business would be quite robust in the following year. The following year, meaning this year, you may think that the smartphone business may not be so strong if that is a consensus.
In line with that, probably we should estimate our revenue and profit accordingly. That is the reason why we came up with these results.
Regarding smartphones, backlight, and OIS plan, comparing them, which one is more conservative, if there's any such thing?
In that sense, backlight. The yield, as I said, yield is unknown, and pricing has not been determined yet. That is probably the largest factor, biggest factor. That may be even more conservative.
My second question is about the MITSUMI business. From Q3 to Q4, the operating income has dropped from JPY 9.8 billion to JPY 1.4 billion. 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. Therefore, the profit in those businesses shrunk significantly. Other MITSUMI business, no major changes. More or less as expected, with some impact of seasonality. 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 business was slightly below the original plan. 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, you seem to have a plan for decreased sales and increased profit. As you may already know, the first half, particularly Q1, the smartphone will be impacted from inventory adjustment. Likewise, the game consoles will be impacted as well. In Q1, we had a slow start. Q2 onwards.
The new models will be started. Therefore, we are expecting a huge growth in Q2 onwards. I hope I answered your question.
First half and second half, why are you expecting the decreased sales and increased profit?
You mean the first half or to second half? The plan for this year, the first half, the sales shall be JPY 184.4 and second half JPY 164.6. The operating profit, the first half JPY 11.1 and second half JPY 14.9.
What is the breakdowns behind this?
Particularly, the mix of revenue level, I mean, a difference in revenue level is the reason.
My last question is, as it was asked by previous person, excluding the changes in the terms of business for MITSUMI, year-on-year, do you expect an increase in Q4? The sales, JPY 24.2 billion impact was seen, but in 2018 as a whole, how much impact are you anticipating?
If you could turn to page 14. This year, MITSUMI's revenue is JPY 250.6 billion, out of which JPY 24.2 is what you have just said. Excluding that, it will be JPY 226.4, next year will be JPY 349, JPY 24.2 equivalent should be JPY 120 or JPY 100.6. It is going to be about JPY 50 billion if I make apple-to-apple comparison.
Let us go to the second row.
Tanabe from SMBC Nikko Securities Inc. The first question I have is about the change on the accounting standard to IFRS. Normally, when extraordinary loss about JPY 1 billion has been booked, dividend and interest, basically, there is no difference, it is neutral. In terms of the losses and gains, in terms of the Forex losses, I think basically you calculate by yen. How would that be impact?
In terms of the Forex, we do not disclose that information. I would just ask you to assume by yourself. The profit in terms of goodwill, about JPY 1 billion has gone up. In terms of the non-operating item, there is a negative factor. In terms of Forex, that will be the reason?
Okay, understood. In terms of the bearing or bearings price strategy, President Kainuma has been talking about that strategy. In this year's plan, how are you looking into this pricing?
In terms of profitability, the third quarter to fourth quarter has moved slightly, but it has not been able to recover to the previous level. Please would you comment on that? Well, in the pricing negotiations, we're doing that. I have the salesperson who come background a certain country, has made a report. I'm 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 bearings demand is so robust and we have JPY 8 billion to JPY 6.5 billion, so JPY 5 billion is the investment that we have made. Why we have made this investment? Is that we invest because the customers want more.
For those customers, basically, we want them to bear the certain level of burdens for the investment. That's our logic that we're using this time around. You have to explain that clearly and logically. Basically, I have been told that you have to explain more clearly why the miniature ball bearings are better. We have to explain that to the customers as well. In terms of this, if the supply is necessary, of course, we'll be happily being ready to prepare the supply. In turn, we'd like to explain this is the cost that we are spending. We have to negotiate multiple times. That's what I'm saying to the salespeople. Maybe it'll take some time, but steadily, we are doing this type of negotiation with various customers.
I hope they will be bearing with us a bit more for this to actually bear results.
Understood. Thank you so much. The third point is that, this is about the OIS and game business besides that for MITSUMI, besides OIS and game consoles, I would like you to explain about that. That will be on page 44. This has been the slides that you've been showing from before. Can you share with us, is there some businesses that are progressing well, maybe not that well?
In the third year of the midterm plan, the game business will peak out. I think this business will have to start showing results or else the MITSUMI business will be struggling. Well, to be honest, we have been improving the productivity, we have been able to finish that.
The next phase is expanding sales. Expanding sales is the theme that we are focusing on. I said clearly in my presentation, the game consoles and smartphones, this has been the drivers of the MITSUMI business, for the other business, that would be power sources or smart supplies or automotive parts and connectors included, the product lineup should be expanded and they should be able to get orders more aggressively and reduce costs by leveraging the scale merits. These are the topics that I'm telling them to do. Semiconductors, this will be more high-end semiconductors, the capacity is already fixed more or less. We are utilizing foundries in this business. The semiconductors, this is actually going very well. 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? 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 at 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 billion, and how did it turn out? What was the actual number? I would like to have an explanation, because the revenue seems to be declining. C&A and Mach Aero, to what extent they are included? The bearing and rod and the fasteners, how it's allocated, if you could tell me more detailed numbers, I would be appreciative of.
Backlight, one of expenses, it's in line with our anticipation, and we have been able to recognize the profit that we anticipated. Last quarter or two quarters ago, this profit should have been recognized, but it was pushed back and the explanation remains the same as since last time. C&A and Mach Aero, the sales is about JPY 10 billion at C&A, CIO, or the ball bearings, and the profit more than JPY 1 billion as Kainuma has given you rough ideas. Mach Aero, the plan is JPY 3 billion.
Thank you very much. My second question is, this is for Mr. Kainuma, maybe. JPY 60 billion CapEx, this is quite aggressive. Business by business, what kinds of allocation are you thinking of? I think you are okay because your profit margin is rather high, and therefore, the payback period should be okay, but what is your anticipation? This is another question for Mr. Kainuma. You have lots of cash flow, and if you leave it as is, the net cash flow will keep accumulating. Machined components type of business you are very good at, and maybe it is the right time to think about M&A in this area.
As you wish, I would like to respond to those questions. JPY 60 billion investment is quite huge. However, our revenue is becoming quite big as well. If you look into it, the largest in machined components is a bearing and 12 million units and JPY 6.5 billion investment. I mean, 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, which happens almost every year. They will pay for investment, and the depreciation period is 2 years, we are not concerned about that. MITSUMI related
By the end of the day, we or MITSUMI has not made any investment whatsoever. They have been so frugal. Therefore, in our view, we need to correct some areas, and therefore we are making investment. 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. There is Akita University, and excellent young people are there. In order to employ them, if the lab is so old and deteriorated, that we won't be able to attract excellent talents. Capitalizing on the local capabilities, we need to grow. The environment is so poor, like where people eat. There wasn't a nice facility, but we are building a nice facility.
Everywhere we go, we build something like a clubhouse so that our employees and the customers will be able to enjoy a nice environment. Working conditions and a working environment that we are trying to improve. A renovation. If it is merely a renovation, you may think it is unnecessary, but in order for MINEBEA and MITSUMI to become one corporation, this is a necessary expenses. Former MITSUMI employees will be engaged in MINEBEA business and vice versa. Therefore, we would like to achieve the same level of working environment, which, in my view, shall lead to long-term prosperity. Sizable profit. Some investments are for the purpose of making sizable profit and some are not. In total, we are spending JPY 60 billion. The net cash flow, every year you seem to be surprised to see there's so much net cash flow.
Net debt is decreasing. When I joined this company, there were more than JPY 300 billion net debt, but it's been decreasing, and one way is to enrich shareholder returns. M&A opportunities, as I always say, we are always open for such opportunities as IFRS has been introduced. About the goodwill amortization, we always started from that, but this year onwards, I am relieved somewhat. I'm not saying we will be paying excessively high price for an M&A, but of course, we give due consideration to the appropriate pricing. The Mach Aero and C&A, JPY 1.5 billion. There are many other good candidates, the companies that are profitable in machined components areas. There are many opportunities for M&A, and we will remain aggressive in this area.
On the very front row, please.
Goto from Mizuho Securities. I have three questions. First, about the backlight, LED backlights. For the full active type, you are challenging the full active type, basically, that it is difficult to produce. I would like to ask, what is the difficulty? I do not think you will be able to divulge the details, but can you explain in layman terms what is the difficulty? If you are able to overcome those difficulties, what will be the potentiality? Compared to the conventional backlights, what is the difference that we can expect? Would you please elaborate on that? 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 is my first question.
I have not said one time that I am challenging the full active type. This is our LED backlight new product. This is a thing that we had never produced in the past. It is very challenging. Where is it challenging? I cannot disclose all the details, so please bear with me on that point. Under MINEBEA MITSUMI, we have passion to create value difference. This has been a theme, and we have been trying to establish that in this company. Because we want to differentiate
I want to create a certain value through this differentiation. This new product is basically this type of product. This is the type of product that other companies will never be able to produce. I am very certain of that. 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. 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 a thing that had never been done in the past. That is the reason why we have to be conservative in our forecast.
Does that answer your question?
Understood. 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 changing in Cambodia, how it's going to change, and Cebu for MITSUMI. You said that you were sorry that you were not able to take a video. How are there going to be changes in this specific plant?
In terms of the plants, for Cambodia, if you give the example of Cambodia, the first and second plant is already full. The building is full, and there's no space available. There are three buildings, and the third building, in terms of the ball bearings that they produce, they have been able to earn a steady profit. For the businesses besides ball bearings, they'll be setting up partitions and start activities.
The Philippines, the capacity is full, no capacity left. We are already starting to transfer some of the capacity from the Philippines. There will be actuators for the Chinese market, and various other products gradually is being shifted and transferred to Cambodia. Cebu, maybe one building in Cebu can be vacated. For instance, if the customers says that they want their products to be produced in Cebu, in some cases, they request that. Currently, the Philippines, we don't have any flexibility. As we have been having the strategy from the best, we will transfer some of their equipment facility from the Philippines and put it into Cambodia. There's no plan for closure of the other plants, et cetera. Yes.
My third question is that in terms of the assumption of the Forex. The FY 2018 impact of the fluctuation, sales, and profit, how much will be the sensitivity? If Forex fluctuates going forward, maybe can you give us the sensitivity of the Forex by each different currencies?
This year's assumption is, as I've explained previously, JPY 105 to the dollar. For baht, it's 31 Thai baht per US dollars. That's our outlook. In terms of sensitivity, sorry to say, as before, in terms of the sensitivity, 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.
The next one, the person in the second row in the right-hand side.
Thank you for your presentation. This is Hirata from UBS Securities. About CapEx, you explained. The backlight didn't grow as much as you thought it would. How big investment are you planning? Also, is it only because the volume increased, or is it that the investment per unit is increasing? Because IFRS has been adopted, was there any changes made to the depreciation of a backlight investment?
Changes in the accounting principles did not change the depreciation of the investment. It is a two years depreciation, and eventually, the customers will pay for the investment. As for the size, I think it is sizable. I cannot say how much, exactly how much. The other day, I think I said a JPY 3 billion investment. It is likely to be bigger than that. Because in a nutshell, it is rather difficult to do things with the existing machines. Therefore, we need a new one. 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 next fiscal year, I think you have a plan to increase revenue. What is the expected customer base? Could you elaborate on that? What are the reasons why you are expecting increase in revenue? North America and others, and automotive double-digit. Automotive, it is seeing solid growth, but double-digit growth. Smartphones in China, due to the model change, it is slightly above flat. It is flattish, but slightly up. The rest should come from North America. The volume implication is as explained by Yoshihisa Kainuma. The reason why I am 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?
Things are pushed back, the product launches are pushed back. That would be the starting point. Next fiscal year, starting on April the 1st, I think this will be able to drive growth. I am sure different people have different opinions, but there is a latent demand for replacement, and how we manage to stimulate such a demand would be the most important thing. Pricing and the value for the money you pay performance-wise, and our products this time around should be quite good in that sense. As I said previously, repeatedly, we have taken a conservative view, but this shall continue into next fiscal year. Thank you very much.
Maybe one more question because we are running out of time. No other questions? If that is the case, I would like to close this meeting.
After the outside of this room, [inaudible], we have a display of [inaudible], a very high-end distortion component. Sorry. Thank you so much.