This is Yoshida. I would like to explain about the Q1 results of fiscal year-ending March 2018. Consolidated financial results for the first quarter of the fiscal year-ending March 2018 totaled JPY 193 billion, 204 million. That figure is up 60.6% year-on-year, down 1.6% quarter-on-quarter. Operating income increased 2.4 times year-on-year, and 19.3% quarter-on-quarter to total JPY 17 billion, 62 million. Net income was up 4.5 times year-on-year and down 12.6% quarter-on-quarter to hit JPY 14 billion, 181 million. Net sales, operating income, ordinary income, and net income were all first quarter record highs. This achievement was due to the higher-than-expected shipment volume of smartphone parts on top of the strong performance of the ball bearings and motor businesses. Currency fluctuations brought net sales down an estimated JPY 3.4 billion quarter-on-quarter and JPY 0.1 billion year-on-year.
Foreign exchange rates also brought operating income down JPY 1.4 billion quarter-on-quarter, up JPY 0.1 billion year-on-year. Next slide, please. First quarter net sales hit an all-time high. LED backlights and camera actuators for smartphone and other applications are expected to drive sales up in the second quarter when demand is usually high. Next slide, please. First quarter operating income was also the highest ever. For three consecutive quarters, we saw operating income rise year-on-year. The second quarter operating income should exceed the first quarter results as demand for LED backlights and camera actuators for smartphone pick up. Next slide, please. This slide shows the results for the Machined Components segment. First quarter net sales were down 2% quarter-on-quarter to total JPY 40.6 billion, while operating income was up 3% to reach JPY 10.4 billion, and the operating margin grew 1.1 percentage points to hit 25.6%.
Although production and shipment volume of ball bearings remained high, the appreciation of Thai baht against the U.S. dollar had a negative impact. Even though ball bearings sales remained the same as the previous quarter at JPY 25.2 billion, profits increased. The average monthly external shipment volume, which increased year-on-year for 19 consecutive quarters, was 181 million units. We are making steady progress with our efforts to boost the production capacity by improving productivity, as we explained in May. The monthly production volume for May and June hit an all-time high of 267 million units. Due in part to the strong yen, sales of rod-ends and fasteners totaling JPY 7.5 billion were down 3% quarter-on-quarter. Profits also declined quarter-on-quarter. Sales of pivot assemblies dropped 6% quarter-on-quarter to hit JPY 7.9 billion. Although the shipment volume fell 7% quarter-on-quarter, pivot assemblies yielded steady profits as we held over 80% of the market share.
Please have a look at the next slide. This slide shows the results for the Electronic Devices and Components segment. First quarter net sales were down 9% quarter-on-quarter to total JPY 104.4 billion. Operating income rose 22% to a total JPY 6.8 billion, and the operating margin edged up 1.7 percentage points to reach 6.6%. Motor sales steadily grew mainly in the automotive market, totaling JPY 44 billion for a 5% quarter-on-quarter increase. Net sales of electronic devices dropped 13% quarter-on-quarter to total JPY 51.3 billion. While sales for last fiscal year's first quarter were affected by special circumstances where the smartphone market underwent inventory adjustments, demand in the first quarter of this fiscal year remained within the usual range of ups and downs, and production of LED backlights for our major customers kicked off without a hitch.
Both sales and profits will grow even further in the second quarter as demand peaks. Sales of sensing devices totaled JPY 8.3 billion. This figure would be about the same as the last quarter's if you were to disregard the one-time consolidation of an additional three months of Minebea Intec. Formerly Deltorios Mechatronics, T&H financial performances in the previous quarter. Next slide, please. This slide shows the results for the MITSUMI business segment. The first quarter net sales totaled JPY 48.1 billion, operating income totaled JPY 3.8 billion, and operating margin reached 7.9%. The factors driving the segment's good performance included a significantly improved productivity for camera actuators, the launch of a new game console, as well as a further enhanced profitability of precision components, power supplies, in-vehicle products, semiconductors, et cetera, which all added to the bottom line.
We expect that both net sales and the profits to increase in the second quarter as demand shall remain high. Next slide, please. First quarter net income also reached an all-time high. Although net income declined quarter-on-quarter, if we were to exclude a gain on negative goodwill and the loss from the redemption of bonds, which were respectively recognized as an extraordinary gain and loss in the last quarter, we would see a large increase substantially. Next slide, please. Quarterly SG&A expenses rose JPY 0.5 billion quarter-on-quarter to a total JPY 23.8 billion. The SG&A expenses to sales ratio grew 0.4 percentage points from the previous quarter to reach 12.3%. Next slide, please. Inventories at the end of the first quarter were up JPY 13.6 billion from what they were three months ago to total JPY 134 billion.
The increase was due mainly to the inventory of components for new smartphone models and game consoles held prior to the shipment. Inventory should reach an optimal level as shipment volumes increase further in the second quarter. Next slide, please. Capital expenditures for the first quarter totaled JPY 10.7 billion, while depreciation amortization amounted to JPY 7.2 billion. We expect capital expenditures as well as depreciation amortization for this fiscal year to be higher due mainly to the MITSUMI business segment's camera actuators. Next slide, please. At the end of the first quarter, net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents, was down JPY 18.4 billion from the end of the previous fiscal year to a total JPY 52.5 billion. This fiscal year, we expect free cash flow to increase significantly as profits grow and net interest bearing debt decreases even further despite increasing capital expenditures.
In the meantime, we will continue to actively pursue M&A opportunities with an eye on medium-term growth. Next slide, please. This is a summary of a forecast for the fiscal year ending March 2018. We expect net sales, operating income, ordinary income, and net profit to hit record highs this fiscal year. In the first half of this fiscal year, we expect increased external shipment volumes of ball bearings continuing from June quarter. In addition to higher sales of LED backlights, camera actuators, and game consoles due to the peak demand period. Based on our best estimation of the total impact of the current market conditions or other factors will have on our operations, we made upward revisions to our forecast. We decided to make no revisions to the second half forecast due to the uncertainties in the currency market and unforeseeable customer demand. Next slide, please.
This slide shows the forecast by business segment. Please go to the next slide. This slide shows the current performance of miniature ball bearings, our anchor product line. External demand for miniature ball bearings is quite strong. The external shipment volume for the first quarter has grown year-on-year for the last 19 quarters in a row and hit a monthly record high of 187 million units this June. This increase is mainly due to strong demand for automobiles, high-end home appliances, and servers. We expect demand to steadily grow. On the other hand, internal demand for ball bearings, which are mostly used for pivot assemblies and motors, currently has also remained steady overall, despite recent slowdown in the HDD market. The total shipment volume for external and internal sales combined has continued to exceed the production volume since September 2016.
That is why we had to urgently boost production capacity.
We have been making steady progress in our efforts to increase production capacity by improving productivity, which we explained at the investors meeting for the previous fiscal year, held in May. The production volume hit a record high of 260 million units in May and June. As for the capacity expansion by capital expenditure, we announced at the investors meeting for the third quarter of the last fiscal year in February, we are going to put off installing new equipment as much as possible. For the time being, we'll prioritize on improvement of productivity within the existing capacity. If we should start operating the equipment that we have invested in for the capacity, our production capacity should reach 300 million units per month by May 2018. Please go to the next slide. Let's now move on to look at the status of our LED backlight business.
Production of LED backlights for our major customers got off to a smooth start this first quarter, as demand remained within the usual range of ups and downs, which was not the case last fiscal year. Boasting high quality and low cost, orders for our LED backlights remain steady. We are going to finish the accelerated depreciation for production equipment of LED backlights by the end of this fiscal year. This means that the financial impact has been minimized, even if we see a decline in the future for this business. We assume it should be a bit too premature to decide how the trend of smartphone displays in the future will be, we will prioritize on expanding sales of LED backlights, mostly for high-end automobiles, even further.
For the smartphone market, at the same time, we will keep developing full-screen type LED backlights, since we assume there could be demands for LED backlights to some extent in the next year as well. Please go to the next slide. Moving on to the MITSUMI business. We saw operating income for the first quarter substantially outperform our initial projection and increase quarter-on-quarter. The factors behind this increase of MITSUMI's business profit includes the better-than-expected demand for camera actuators and new game consoles, which we categorize as sub-core business at the investors meeting in May. In addition, we saw significantly improved profitability for sensors, connectors, switches, power supplies, wireless products, and analog semiconductors, which are the core business and make up the Eight Spears of MinebeaMitsumi.
The MITSUMI business will ride the current market wave as it will buoy shipment volumes of camera actuators and new game consoles in the second quarter. We will continue to work on improving productivity for other operations as well as ensuring a steady stream of revenue for the MITSUMI business. We are in good shape strengthening the core business while generating cash from sub-core businesses. Next slide, please. Now, I would like to touch on the joint business development agreement with Ricoh to commercialize a Bed Sensor System, which we announced on May 18th. Being marketed first to nursing care facilities, our Bed Sensor System combining MinebeaMitsumi's sensor technology with Ricoh's group's data collection technology, we can measure a patient's weight, body location, respiratory status, and other data in real time.
We are aiming to earn JPY 3 billion from sales to nursing care facilities in Japan during the fiscal year ending March 2021. Moving forward, we are leveraging MITSUMI's technologies to develop IoT-related products, not only for the healthcare market, but also for automobile and social infrastructure applications with an aim to make them our number three profit generator. That's all from me. We would like to move on to the Q&A session. If you have a question, please press star key and one, and wait for the message that says confirmed. If you wish to cancel, please press star key and two, and you should hear a message that says canceled. When your name is called, please mention your affiliation. Please ask one question at a time. We have the first question from Mr. Takayama of Goldman Sachs Japan. Mr. Takayama, please go ahead.
This is Takayama. Thank you very much for this opportunity. Hello, can you hear me?
Yes. Thank you.
First of all, Electronic Devices and Components. You made an upward revision. JPY 43 billion of net sales, this has been revised, and this is probably mostly the backlight. Could you elaborate on that? In other words, the former models, the older models, continue to do well in April to June period, and the next LCD models, the demand for LCD models come in ahead of the schedule, or the pricing-related factors? Could you be more specific? First of all, the main reasons are for North America, the backlight. Demand for backlights in North America is very good. That is the biggest and probably the only reason, and there are no pricing-related reasons. In that sense, this change from JPY 184.3 billion to JPY 220 billion, this is a huge difference. Is volume going to grow significantly? Do you say that the demand is so strong?
We do not know what is the share that our competitors have, but we seem to enjoy a good demand in all segments. It's not the old model. Well, new models is included partially, but new models will grow significantly in second quarter onwards. Understood. The reason why I asked you that question is the customers volume expectation remains more or less the same. The reason why you made an upward revision, is it because your original forecast was conservative, or are you taking away share from your peers? If I may repeat. We do not know what is the volume or orders that our competitors have. However, the overall size of the pie remains the same. Likewise, the MITSUMI's budget changed, or forecast changed. The sales is JPY 15.4 billion. What is the background?
Is it the game consoles or actuators and this upside in profit? It's like a JPY 4.6 billion increase. What is the biggest factor contributing to this number? The sales, overall, the situation is quite positive, particularly game consoles had the biggest positive impact vis-à-vis the original forecast, I see. Others, like actuators, the sales forecast, am I right in understanding that the sales forecast remains about the same, but the profitability improving? Well, as you may know, in China, it's slowing down a little bit and it had an impact, and that is included. Optical devices, regarding that segment, there was a negative impact because of that. For confirmation. April to June and July to September, it's going to be JPY 2 billion up from JPY 4.8 billion, but I would assume there should be a bigger increase.
Is that because of the restriction on capacity inclusive of game consoles, the second quarter sales should increase even more? Is that because of the limitation on capacity, production capacity?
No limitation. There is no limitation on the production capacity. Basically, we can make products to fulfill orders. As you rightly said, game consoles and so forth in Q2, we are expecting to see a huge increase in demand. We are preparing steadily for such an increase in demand.
Understood. Thank you very much.
Thank you very much. Let's go to the next question. This is Morgan Stanley MUFG, Sato-san. Mr. Sato, please.
Sam Sato from Morgan Stanley Securities. Thank you for taking my question. I have three questions. Number one, in terms of upward revisions- For the first quarter to second quarter, the sales are JPY 50 billion increase. That's the plan. On the other hand, there's a JPY 3.2 billion increase. The profitability. The reason for the improvement of profitability, is there any special reason behind this? Or in terms of the forecast of the second quarter, do you have a conservative outlook? The electric component's profitability, the reason the profitability is declining in the same quarter, would you please explain that? That's the first question. Let me answer that. In the first place, for our major product manufacturing sites, Thailand. That's Thailand.
The THB is a bit strong. That is the difference from the first quarter. For that, if we reflect that change, that is assumptions that we are placing for second quarter outlook. That said, from the second quarter onwards, the currency assumptions is not changing. Is that right? Yes. In that sense, let me clarify. The assumed THB, or, excuse me, for the currency assumption for the business plan, it is unchanged. The THB appreciation has been slightly reflected. I think that's the way we see it. Understood. Besides that, there's no special reasons behind this? No. Understood. Thank you. The second question is that, for the MITSUMI business, for the camera actuators productivity improvement, how is this progressing?
I would like to hear that, especially the conventional, rather than the conventional models, for the new smartphones, the productivity improvement is going to proceed further. Can we expect that? Or maybe that's placing too much expectations. How should we interpret that? First of all, in the previous financial report meeting, we have explained for the MINEBEA MITSUMI integration, since this has been decided, our management and other people have been striving to improve the profitability of the MITSUMI business, and as a result, the productivity has improved by threefold. I think that's three times. That has been the actual situation. Through the daily efforts, bit by bit, we have been proceeding on the productivity improvement. In terms of the difference for the new models, basically, we have been able to horizontally deploy the know-how.
In this type of momentum, we think we'll be able to further improve the productivity. Thank you. The productivity improvement by 3 times, it's only for the camera actuator, or for the MITSUMI overall productivity has improved by that level? Well, this is for the camera actuator productivity improvement. That's what I'm referring to. Understood. If that is the case, as MITSUMI overall, besides smartphones and game consoles, it's actually contributing to the stabilizations above the profitability. It's been 6 months into integration of the business. What has already been executed, and what other challenges remain? What is your acknowledgment? In terms of the management integration, we have conducted that, and we have seen improvement in some short-term areas. For instance, with the joint procurement of materials has led to the cost reduction, or logistics integration that has led to cost reduction.
I think on a short-term basis, there has been some things that we have been able to improve. I think for that type of improvement, we have been able to progress nicely. On the other hand, we have conducted integration with MITSUMI and our business portfolio has expanded. Developing hybrid products or commercializing these hybrid products has been the major target of this management integration. In these areas, in terms of when the result is going to come out, I think basically it'll take longer time. For this aspect, currently, we are conducting efforts. Thank you. Understood. Thank you. This is my last question. The first quarter, the effective tax rate is 18.4%, it's low. Is it because the MITSUMI business is low, on a consolidated basis, the effective tax rate is low?
For the second quarter onwards, for the next fiscal year and next fiscal year, what is your outlook on the effective tax rate? Please hold on. This group, from this fiscal year, in Japan, including MITSUMI Group's subsidiary, we have started the consolidated tax reporting. For the MITSUMI business, there has been an accumulated loss from a tax perspective. Through that tax carry-forward, the overall effective tax rate has gone down. For going forward, I think because we have the accumulated loss from a tax perspective from the MITSUMI business, that will contribute for the effective tax rate. Will, I think, be in the range on the lower side going forward. More specifically, how much would be this effective tax rate will be? How should we assume? Can you give us any hints?
In the first quarter, effective tax rate, compared to that, it will be slightly higher, maybe a little over 20%. I think basically that will be the range. Understood. Thank you so much. Thank you very much. Let's move on to the next question. SMBC Nikko, Mr. Watanabe, please go ahead.
This is Watanabe from SMBC Nikko. Thank you very much. About foreign currency, I would like to confirm a few things. In Q2, the impact of Thai bahts is already included, you say, but for the second half, you have not included assumptions. Am I right in understanding that there may be some impact of Thai bahts in the second half?
Yes, you are right.
About the sensitivity. You have disclosed the sensitivity, and it has not changed significantly from what you disclosed.
Yes. As I briefly explained to you previously, quarter on quarter, the impact of foreign currency or FX is about JPY 1.4 billion. Various currencies fluctuate, and therefore, in order to avoid misleading, we do not estimate in dollar-denominated, and therefore, I would like you to make an assumption on your part.
Another point is regarding MITSUMI business. I would like to confirm once again that in Q1, profit in Q1, when it's seeing quarter-on-quarter, the factors for variance, what had the positive impact and what had a negative impact? Would you explain more in detail? For example, actuator volume declined, the game consoles will grow probably or grew Q1 to Q, other factors I didn't understand or I don't know, please explain.
I do apologize, we do not disclose the profit and loss or detail the profit and loss for each segment. Overall, things are improving. In particular, as you may know, as we explained, in quarter-on-quarter, optical devices such as OIS and the mechanical parts were really robust.
Understood. That is sufficient. About the tax rate. The deferred tax losses, for how many years is it going to continue? Because it's quite an amount, you may not be able to use it completely, for how many years do you think it's going to continue? That is my last question.
Nine years it can be deferred, we are assuming for five years. In five years' time, we are planning to use it up.
Understood. You are planning to use the entire amount?
Yes. At this point in time, I cannot say for sure, we are hoping to use it entirely.
That is all. Thank you.
Thank you very much. I'd like to inform you once again. Please press star one and cancel, star two when you want to cancel. Star one for questions, star two for cancel. Thank you for waiting. I would like to go to the next question from Mizuho Securities, Goto-san. Mr. Goto, please.
Hello, can you hear me?
Yes, hello.
I have some questions. First of all, for the backlight business. Currently it's doing very well. I think that's the correct understanding. The shift to OLED, I think basically, it's going to accelerate from the January to March quarter. Even if it has been a follow-in for the first half, maybe in the second half, maybe this will be a negative factor. In the second half outlook, maybe have affected that element.
In the second half plan, whether this will return as a negative impact, what is your take on that? Well, whether, how things are going to transpire in the second half, we have not had substantial information in deep in the first half. It has been a good situation, but that decelerating largely in the second half. Currently, we're not anticipating that. Understood. Again, this is a question about the backlight business. In today's material presentation, I think it's on page 16, you explained about the backlights. You're saying that for next fiscal year, you anticipate some shipment for the smartphones. When you think about a midterm plan for next fiscal year, the North American client may shift to. The shift to OLED is going to accelerate. I think that has been the assumptions.
In this presentation, has there been any change from your conventional thinking or maybe some LCD model will remain into 2018? That's some people are arguing. Have you taken into that consideration? Well, I have to apologize. I have explained this presentation currently, but you're asking the question, I cannot comment about this at the present time. Please understand. Understood. This is my third question. For the camera actuator business, productivity improvement and quality improvement has been conducted. Has there been any change from the evaluation from the customer side in terms of the allocation? Has there been some improvement or is the possibility of the improvement of the allocation? Can you expand on that? Well, in the previous investors meeting, I think Mr. Kainuma explained about this.
Because our share to get share in this business, we do not have a basic policy to reduce price to get share. For this business, we will be a good second supplier. We will be maintaining that position for this business. When we secure this position, deliver accurately with a good quality, and if we're able to deliver products in that manner, maybe we'll get a better allocation. Currently it is not the case that we are assuming that happening. Understood. For this year model, for the mass production for the actuators for this year's model, currently, are there any bottlenecks or obstacles right now? Everything is going smoothly? For the North American models, the productivity has improved substantially, including that aspect. As the manufacturing sites are doing a smooth ramp-up of bearing for a ramp-up, there has been no issues.
Understood. Thank you so much. Thank you very much. The next question will be from Mr. Akizuki of Nomura Securities. Mr. Akizuki, please.
Hello. Good evening. Thank you very much. This is Akizuki. Excellent results. Electronic Devices and Components, quarter-on-quarter, JPY 10 billion decrease we're seeing. However, the segment profit increased to JPY 1.2 billion, decreased the revenue and increased the profit. Why you had this result? Would you be able to provide me with more detailed information?
First of all, motor business, it's going quite well. That is all I can say. If that is the case, electronic devices like backlights made a huge improvement. This model, we are accumulating a lot of knowledge and experiences which were reflected upon improvement of productivity. Inventory increased QoQ.
You are producing the components for the new model, and you have absorbed fixed cost, which may be one of the reasons for improvement, because the startup in the Q2 is expected to be quite sharp. You are asking me about backlight?
Yes.
The backlight inventory increased as the sales increased. Accumulating inventory, I mean, the incremental, the inventory, that is not the case. It's within the normal range. I see. It's purely the productivity improvement which generated improvement in profitability. Is that right for electronic devices?
Yes, that is correct. Thank you. My second question is about ball bearings, the ratio of each application as well as year-on-year growth, if you could share with me. Ball bearing ratio, automotive 20%, the aircraft 32%, aircraft and space 32%, home appliances 4%, office automation 6%, PC and peripherals 3%, motors 17%, others 17%.
You want to know year-on-year growth, right? Yes. Year-on-year growth rate. First, automotive 10%, aerospace -5%, home appliances +21%, office automation +12%, PC and peripherals -17%, motors +11%, others +5.9%, in total, +5.2% positive, +5.2%. Thank you very much. Finally, ball bearings profitability. The home appliances, probably air conditioners are growing, but maybe you are using air freight, which is, of course, costly. When shipment volume increases and production capacity catches up, can I expect further improvement in ball bearings profitability? Well, in Machined Components segment, the total profit is JPY 10.4 billion, out of which ball bearings, the profitability has been improving significantly. On the other hand, I briefly touched upon, during my presentation, rod ends. The margin declined or the profit declined as well as the sales.
The rod ends are declining, that is because the production of a wide-body aircraft is declining. Also, in the rod end segment, defense-related works are included, that is also decreasing. Rod end profitability is worsening a little, that is the reason why we had this final number. The capacity is increasing, but the inventory is still at the low level, the ball bearings. Therefore, basically, there is a room for improving productivity. Other than that, our basic ability to generate profit has been improving.
Understood. Thank you very much.
Thank you.
I would like to inform you once again. If you want to ask a question, press star and one. If you want to cancel your question, press star and two. Thank you for waiting. Let's go to the next question from UBS Securities, Hirata-san. Hirata-san, please.
This is Hirata from UBS Securities. Hello. This is a question. This is about the MITSUMI business. After the revision plan, the Q1 sales is JPY 48.1 billion, and the Q2 is JPY 60.7 billion. There's a JPY 12.6 billion increase of sales. What is the contents? How should we think about that?
As I've explained previously, between Q1 and Q2, major changes is the optical devices, like OIS. In terms of the orders, it's reaching a peak.
In terms of the game console related business, there has been a major production increase. That will be compared to Q1, the reason why the Q2's sales is going to increase substantially. In terms of contribution, which will have a higher contribution among these two? Well, the game console will have a bigger contribution. If that is the case, in terms of your actuator for your major client, the plan for the major clients, from the beginning of the year, there has been no major change. Is that correct? Overall, I think the trend is on the positive trend, as you know, the Chinese smartphone players, it's going to be a slight slowdown. For the North American players, it has increased. It's a kind of an offsetting situation. I think that's the way to understand this. Understood.
My second question is that, I talked about the game business. There's no issue about capacity. That said, demand is more than your outlook. What is your initiative so that actually there's no issue right now? What you have done? Well, first of all, of course, the demand is increasing. In the past, we have the knowhow of researching these situations, or in terms of game consoles, we have had experience. In terms of what we are making, it's quite different. Because we have the knowhow, in terms of manufacturing sites, they have that knowhow. Then, this is a new type of game consoles, we have increased capacity for these specific manufacturing capacities necessary for these new types of products. By doing so, we have been able to answer to those type of increased demands. Thank you for your answer.
Lastly, again, this is about the numbers. You talked about your monthly numbers. For the ball bearings for April to June, internal sales trend, and the pivot assemblies April to June trend in terms of production and shipment, can you give us the numbers? Please hold on. Ball bearings, sales, is only sales okay? Yes, for the internal sales. Yes, please. For internal sales, April, by millions, JPY 85 million. May, JPY 88 million. June, JPY 87 million. Those are the April, May, June figures. In terms of production, can you give the production numbers? For production, April 250, May 267, June 267. Pivot assemblies, that's again, the sales and production. Pivot production, April 30, May 30, June 29. Sales, April 25, May 29, June 25. Thank you so much.
Thank you.
Thank you very much. We would like to end the Q&A session. Finally, Mr. Yoshida of MINEBEA MITSUMI would like to say a few words. Thank you very much once again for participating in this conference call.