MINEBEA MITSUMI Inc. (6479) Earnings Call Transcript & Summary

So the time has come to start the meeting. Thank you very much for participating for the business results of MinebeaMitsumi for the fiscal year ending in March 31, 2022. First, I would like to introduce today's participants. Representative Director, CEO and COO, Yoshihisa Kainuma; Director, Senior Managing Officer, Katsuhiko Yoshida; Chief Green Officer, Masahito Fukami. Thank you very much. First of all, Yoshida will explain about the financial results, followed by Kainuma, who will explain about the management policy and the business strategy. In terms of the environmental related topics, Fukami will explain. After that, we will go into Q&A session. We're planning to end today's meeting by 6 p.m. In terms of the details of the financial statements, on the website, we have the financial data, brief report of the financial results. Please refer to these as well. And on the screen that you are watching, we have a link to a questionnaire. This will be a very precious feedback to our IR activity. So we will appreciate your feedback. In today's presentation, including the Q&A session, we will be recording it because we want to upload it to our website. Please be aware of that. Mr. Yoshida, please.

This is Yoshida. Today, I would like first to explain about the consolidated financial results for the fiscal year ended March 31, 2022. Next slide, please. Consolidated net sales for the fiscal year March 2022 was JPY 1,124.14 billion, while operating income was JPY 92.136 billion, and profit for the period attributable to the owners of the parent was JPY 68.935 billion. These figures represent year-on-year increases of 13.7%, 80.1% and 77.9%, respectively. The net sales, operating income, et cetera, and all hit record highs. Operating income includes special expenses of approximately JPY 3.2 billion incurred due to the impact of COVID-19. Foreign currency exchange rates are estimated to have a year-on-year impact of plus JPY 50.9 billion in net sales and plus JPY 12 billion in operating income. Next slide, please. Consolidated sales for the fourth quarter of the fiscal year March 2022 was up 15.4% year-on-year and down 4.9% quarter-on-quarter to total JPY 289.532 billion, hitting a record high for the fourth quarter. Operating income increased by 2x year-on-year and down 16.1% quarter-on-quarter to JPY 21.671 billion. Profit for the period attributable to owners of the parent increased by 2.2x year-on-year and down 15.8% quarter-on-quarter to JPY 15.488 billion. Operating income for this quarter includes -- in terms of the net sales and operating income was a record high level. And operating income for this quarter includes special expenses of approximately JPY 0.9 billion incurred due to the impact of COVID-19. We estimate that the foreign currency translations have year-on-year impact of plus JPY 17.3 billion in net sales and plus JPY 4.8 billion in operating income. Quarter-on-quarter impact was plus JPY 3.9 billion in net sales and plus JPY 0.4 billion in operating income. We made a slight retrospective changes to last fiscal year's financial statements due to the PPA for ABLIC. Please note that the figures on the following pages are revised figures. Next slide, please. This is the annual trend in net sales, operating income and operating margin. The bar graph on the left is net sales, and the one on the right is operating income along with a line chart for the operating margin. The operating margin for the fiscal year ending in March 2022 was 8.2%, up 3.0 percentage points year-on-year. Next slide, please. This is the quarterly trend for the net sales, operating income and operating margin. The operating margin for the fourth quarter was 7.5%. This was up 3.2 percentage points year-on-year and down 1 percentage point quarter-on-quarter. Next slide, please. This shows the difference between the forecast as of February and actual results for net sales and operating income by business segment for the fourth quarter. Although sales in the Machined Components segment were impacted by semiconductor shortages and strong sales of mainly bulk bearings for fan motors meant that overall sales were largely in line with our forecast. In the Electronic Devices and Components segment, although sales of electronic sensing devices fell below our forecast, sales were higher than projected, thanks to strong overall performance in motors. The MITSUMI business enjoyed higher-than-projected sales overall, predominantly thanks to mechanical components, optical devices and semiconductors. Sales in the U-Shin business were overall higher than projected, mainly due to strong performance in Europe. Operating income in the Machined Components segment was slightly lower than the forecast due to a less favorable product mix. Operating income in the Electronic Devices and Components segment fell below our forecast, mainly due to lower capacity utilization rate caused by the lockdowns of some plants in China and the impact of shortage of semiconductors. In the MITSUMI business, operating income exceeded projections, thanks to strong sales of optical devices and semiconductors and improved profitability. Operating income in the U-Shin business was marginally higher than forecast. Next slide, please. Now let's take a look at the results by segment, starting with machined components segment. On the left is a graph indicating yearly net sales trends, and on the right is a graph with a bar chart showing yearly operating income trends along with the line chart with the operating margins. In the fiscal year March 2022, net sales were up 12.7% year-on-year at JPY 177.5 billion. Sales of ball bearings increased 17.3% year-on-year to reach JPY 128 billion. The monthly average of bearing sales volume totaled 238 million units, an increase of 14.2% year-on-year. Looking at the sales by application, there was an overall increase, particularly in data centers and automobile applications. Sales of rod-ends and fasteners were down 3.1% year-on-year at JPY 27 billion. Sales assemblies increased 9.8% year-on-year to total JPY 22.5 billion. Our share was held at 8% and steadily contributing to the bottom line. Operating income for the fiscal year March 2022 was JPY 45.7 billion, putting the operating margin at 25.8%. We saw operating income increase 46.4% and operating margin rise 6 percentage points year-on-year. Looking at the year-on-year results by product. We see that profits for ball bearings, rod-end fasteners and pivot assemblies all rose. For the fiscal year ending March 2023, we expect an increase in sales for ball bearings due to continued increased system demand in a wide range of applications, mainly for automobiles and service, as well as strength in the production capacity. In our aircraft-related business, including rod-ends and fasteners, we expect recovery in the second half of this fiscal year. For pivot assembly, we anticipate a decline in the demand as the HDD market shrinks. Next slide, please. This slide shows the quarterly trend in the Machined Components segment. Fourth quarter net sales increased 6.8% quarter-on-quarter at JPY 46 billion. Sales of ball bearings increased 6.7% quarter-on-quarter to JPY 33 billion. The monthly external shipment volume was down 0.4% quarter-on-quarter for an average of 231 million units. Although sales to data centers remained robust, they were affected by the shortage of semiconductors, particularly in the automobile sector and the lockdown in China. Sales of aircraft bearings remained sluggish due to the segment market. Sales of rod-end/fasteners totaling JPY 7.6 billion were up 19.2% over the previous quarter. Sales of pivot assemblies decreased 6.5% quarter-on-quarter to total JPY 5.4 billion. Operating income for the quarter was JPY 11.3 billion, and operating margin was 24.5%. On a quarter-on-quarter basis, operating income decreased 2.9%, while the operating margin dropped 2.5 percentage points. Looking at the results by product. We see that profits for pivot assemblies fell along with the sales decrease, while rod-ends and fasteners rose. Operating income for ball bearings remained almost unchanged. Next slide, please. Now let's look at the Electronic Devices & Components segment. In the fiscal year March 2022, net sales were up 2% year-on-year to total JPY 371 billion. Looking at the results by product, the sales of motor increased 32.3% year-on-year to reach JPY 267.2 billion. This increase was due to the sales of spindle motors for HETs as well as expansion of applications for motors in automobile and the launch of new products. Electronic device sales were down 48.5% year-on-year to JPY 64.2 billion. This is due to the decline in number of sales units of models that use LED backlights at major customers in addition to the impact from changes to the business segments as well. Net sales of sensing devices was JPY 35.4 billion, increasing 8.5% year-on-year. Operating income was JPY 21.6 billion with operating margin of 5.8%. Compared to the previous fiscal year, operating income increased by 22.3% and operating margin rose by 1 percentage points. Looking at the results by product, we see that operating income was up for motors and sensing devices but down for electronic devices. For fiscal year March 2023, we anticipate accelerated growth for motors due to the recovery in the automobile market, an increasing number of locations and the launch of new products, and we expect a significant increase in both sales and profit. For Electronic Devices, we expect a decrease in sales and profits due to the decrease in the number of unit and models that use LED backlights. Sales of sensing devices will also be almost flat but profits are expected to increase due to improved profitability. For reference, figures shown for the fiscal year ended March 2021 and before are based on the classifications used before changes to the business segments were made. Please note that the same applies to the rest of the presentation as well. Next slide, please. This slide describes the quarterly trends in the Electronic Devices & Components segment. Net sales increased 6.1% Q-on-Q to reach JPY 96.2 billion. Looking at the results by product, we saw that sales of motors increased 5.9% quarter-on-quarter, to reach JPY 70.4 billion. This was because sales of motors in the automotive application remained steady. Sales of electronic devices were up 8.1% from the previous quarter to total JPY 15.4 billion. This was due to the launch of models that use our LED backlights by our key customers. Sales of sensing devices totaled JPY 9.1 billion, up 1.6% from the previous quarter. Operating income came to JPY 3.9 billion, and the operating margin was 4.1%. On a quarter-on-quarter basis, operating income increased by 5.2%, while the operating margin remained unchanged. Please turn to the next slide. Now we're looking at the performance of the MITSUMI business segment. Net sales increased 18.9% year-on-year to total JPY 429.1 billion in the fiscal year ended March 2022. This increase was driven by the strong sales growth in Optical Devices and continued strong performance of analog semiconductors. Operating income came to JPY 41.8 billion, and operating margin was 9.8%. These figures represent a 2.1x year-on-year increase in operating income and 4.3 percentage point year-on-year increase in the operating margin. Profits for Optical Devices and analog semiconductors significantly increased while other businesses saw a decrease. For the fiscal year ending March 2023, despite having a conservative outlook for mechanical components, we anticipate continued growth, mainly in optical devices and semiconductors, and expect further increase in sales and profit. Now please turn to the next slide. This slide is showing the MITSUMI business segment's quarterly trend. Net sales decreased 20.2% quarter-on-quarter to total JPY 107.2 billion. While sales of analog semiconductors increased, sales decreased for other products, primarily mechanical components and optical devices as the peak demand period has passed. Operating income totaled JPY 10.2 billion, while the operating margin was 9.5%. Operating income decreased 33% and operating margin declined 1.8 percentage points quarter-on-quarter. This was due to the decrease in profit caused by decreasing sales of optical devices and mechanical components that I've mentioned earlier. Next slide, please. Lastly, I would like to explain the U-Shin business segment. Net sales increased 38.5% year-on-year to total JPY 145.6 billion in the fiscal year ended March 2022. This was due to an increase of approximately JPY 30 billion resulting from a change in the business segments as well as recovery in sales towards the domestic automotive market. Operating income came to JPY 700 million, and operating margin was 0.5%. This was a 2.3 percentage point improvement year-on-year. For the fiscal year ending March 2023, in addition to recovering automotive market, we anticipate positive effect from the fixed cost reduction achieved by structural reforms in Europe that we announced in March 2021 and we expect an increase in both sales and profit. Please turn to the next slide. This slide explains the U-Shin business segment's quarterly trends. Net sales increased 10.3% Q-on-Q to hit JPY 39.9 billion. This was due to partial recovery in automotive production, although the level of recovery varied by regions and customers. Operating profit came to JPY 1.2 billion, and the operating margin was 2.9%, improving by 3.8 percentage points Q-on-Q. This was mainly due to the improvement in the product mix. Please turn to the next slide. The bar graph here shows the trend in profit attributable to owners of parent, while the line graph describes the changes in earnings per share. The profit for the period was JPY 68.9 billion. Earnings per share was JPY 170.08. Please go to the next slide. Here is the quarterly trend. The profit for the period was JPY 15.5 billion. Earnings per share was JPY 38.2. Moving to the next slide. Here, I would like to explain the quarterly trend for inventory. At the end of the fourth quarter, inventory totaled JPY 219.3 billion, which was JPY 5.3 billion less than 3 months ago. This was due mainly to the fact that we were able to consume the inventory that we have built up strategically. Please move to the next slide. The bar graph on this page is showing trends in net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents as well as line graph showing the free cash flow. At the end of the fourth quarter, net interest bearing debt totaled JPY 86.9 billion, which improved by JPY 2.5 billion year-on-year. Despite planned expenditures on the new headquarter building acquisition, the cash position is expected to improve in the fiscal year ending March 2023, thanks to our strong ability to generate cash. Moving on to the next slide. This is the summary of the forecast for the fiscal year ending March 2023. Net sales, operating income and profit attributable to owners of parent are all expected to reach record highs this fiscal year. Overall, net sales are expected to increase to JPY 1.2 trillion with businesses growing, mainly in ball bearings, motors and semiconductors and optical devices, compensating for falls in sales in LED backlight and mechanical components. Despite various risks, including the Ukraine issue, operating income is expected to exceed JPY 100 billion, thanks to growth in the businesses that I have just mentioned, as well as through thorough cost reduction measures across all businesses. The exchange rate is assumed to be at JPY 115 to the U.S. dollar. Next slide, please. This slide shows the forecast by business segment. And this completes my explanation.

Next, Mr. Kainuma, please.

So from my side, I would like to talk about the management policy and business strategy. Next slide, please. So the previous year -- so this was the 70th anniversary since the foundation and the 60th adversary since we have listed. So it was a very year -- commemorative year. But as you can see, there were various headwinds. But we have been able to exceed JPY 1 trillion of the sales. So I think 3 is a magic number in terms of speech. So for 2 years, about JPY 20 billion or so short of this JPY 1 trillion mark, as this was a better experience. However, although we were facing headwinds, we have been able to achieve JPY 1 trillion. From my side, it was a very meaningful achievement. So specifically, the contribution coming from MITSUMI was excellent. In 2017, we have integrated the management. And in the space of 5 years, we have conducted this. So they were suffering from JPY 5 billion of loss back at that time. But in the previous year, they were able to generate JPY 43 billion of profit. So JPY 48 billion, close to JPY 50 billion of improvement of the performance is what they have been able to achieve. I think this is because we have been focusing on M&A, and we have been focusing on PMI. And I think this was a great contributor. And within MITSUMI, so the contribution of ABLIC was great as well. That is my judgment at this point. Next slide, please. So in terms of the forecast for this fiscal year in terms of performance, well, this is very difficult. So every year, the initial -- the forecast for the initial stage for the fiscal year is very, very difficult. And this year, various factors are combined. And I think that is actuality. We have the Ukraine situation, and more recently, in the -- for instance, for the past 1 or 2 months, there were some things that we never imagined. A lockdown in Shanghai, for instance, and then we have this COVID situation. So these very uncertain factors are occurring. And against this backdrop, to be able to make a forecast of what's going to happen in next year, this is very difficult. But that said, we have to release a forecast, and I will talk about this in more detail afterwards. Based on various perceptions, we will be announcing our forecast for this fiscal year, JPY 1.2 trillion of net sales, operating income of JPY 102 billion. That will be our forecast this fiscal year. So this year's theme, the major theme for this year will be price revisions. So various things -- the price of various things are increasing. For instance, not only materials, logistics costs, for instance, a certain shipping company, we're able to get JPY 1 billion profit. So this basically is passed on to the users. We have to pay more. So we have to think how we're going to pass on the increased cost to the prices, and I think this is the focal point. And in various industries, we do businesses in various industries, ball bearings, motors. We do business in various industries. But I think overall, the big challenge for this year will be against the rise of raw materials and what type of behavior are we going to -- or type of actions are we going to take. So I think that this cost of the raw materials is going to continue for the mid- to long term. So from our point of view, we have to revise price. We have to pass on the cost of the prices. And I think -- I imagine that other industries, people working in other industries will take the action. And I think that's the right thing to do. So that is the theme that we have to focus on for this fiscal year. So in terms of the details of how we're going -- have considered about the process for this fiscal year, this is on the next slide. So I think maybe you remember, 2 years ago, when COVID emerged and the lockdown has happened, whether it be in Europe, in China, all the countries locked down. And then when we thought what we should be doing. So the intrinsic profit that we should be generating, we should show that and how much stress that we should give on that. So basically, that proved to be true. So this, in the 14th year, when we announced this forecast at the beginning of the fiscal year, so more than 100 -- against the initial forecast, the actual result, was the performance on average is more than 100%. So we want to achieve more than 100% against the initial forecast, and we took the same methodology to set out our targets. So we are talking about the 3 spares, Plus One with ball bearings is the core, and aircraft-related products in terms of machine -- that machined components business. And the analog semiconductors, motors, this is the 3 spears among the 8 spears. And we're talking about Plus One, this is OIS and U-Shin. In this sense and last year was due to the shortage of semiconductors. The production at the customer side decreased. And so they suffered from this headwind. But this year, the semiconductors will be resolved. So if things go as we plan, I think this will be some of the positive factors that we can consider. And of course, negative factors, we have to take into account of that as well. So minus JPY 5 billion. You say -- we saw it in the very -- below the slide. So the gaming-related sales will decline. LED backlights would go down slightly, or these 4 -- excuse me, say, 5. Besides the 5 products, combine it all together and then we'll be able to maybe achieve better. Well, maybe if everything go combined, it will be minus JPY 5 billion. So what we are looking -- so -- and including all of this, it's plus JPY 15 billion. So JPY 170 billion, and then put a JPY 5 billion of stress is what we are thinking about. Of course, we have to go through the first half of the year or else we won't be able to actually see what's going to happening. So the China 0 COVID policy, we don't know how far they're going to take it at this point. So the initial forecast is what we have here. But this is what I want to say. But the message is that we're going to achieve more than JPY 100 billion. That is the message that I want to communicate with you, that we are quite determined to achieve this target. In terms of ForEx, Mr. Yoshida talked about this. So JPY 115 is the assumption. So the analog semiconductors, if JPY 130 continues, then basically, we'll be able to achieve better. Anything basically, you can imagine this happening. So this plus and minus, well, it's not -- we're not just selling ball bearings, we're not just selling motors, and there will be some ups and downs depending on the product segment. But basically, this will be the overall outlook, and I think this will not be so far off the mark. So this is the slide that I have shown you to make my point about this. The next slide is another major message to you from myself. So COVID, essentially, basically, I think is easing its impact. So if all around the world, the restrictions against COVID, excluding China, that is, it has been relaxed dramatically. So the M&A deals that has been moving has started to move forward. And we are now able to go to due diligence to various countries and the various sites and the various companies are able to receive us. And our plants, we can show our plants to people who visit them. So in the past 2 years, basically, these M&A deals did not move. So one happened, that is the Shiga factory that we acquired from OMRON that was the sole case. But I think going forward, it will go back to a normal pace. So this is the yellow portion that I'm talking about. The blue bar is the current midterm management plan. Plus, as I was saying, organic growth plus the M&A is the 2 wheels that we have. And we have been growing from these 2 initiatives, and we have been able to see the pipeline. And there are cases in the pipelines. And I don't know how many are going to close the deal. I don't know. I don't think everything is going to be successful. But the image that I have here is this type of add-on is what we are thinking about. So when you look at this, the image that we have in 2 years' time would be that we will come close to JPY 1.5 trillion in terms of net sales. And we are showing this type of number to you today because we do have a certain level of confidence, and you can understand it in that way. Now for this fiscal year, in the dotted line, above 102, there is a dotted box. And this is the gain from the sale of a Mita building. So these are some of the additions that we have reflected here. And to the right, the yellow portion, is purely due to add-ons from M&As. So we should be able to come to a result within that type of the bandwidth, if you like. And frankly speaking, in regards to bearings, and we do have a factory Shanghai. And so we are impacted by the lockdown in China. We expect a return in June. So it will return to where we were for sure. But right now, we are being impacted. And so how to catch up here is going to be important going forward. And we note on the next slide, and JPY 365 million and JPY 365 million. These are the numbers that we have shown. But -- and the accumulate the orders that we have received from customers right now, we should make further additions. And so we are going to build up our ability to produce up to JPY 370 million. So we're going to do that. But as far as the orders are concerned or the domestic demand is concerned, it's quite strong right now. Next page is showing aviation or aircraft. As we have already mentioned to you already, from the second half of the year, we are expecting a level of recovery to 70% to pre-COVID level. And this is based on the data from our sales operation, then this has been reflected as a graph. And as you can see from this, we expect a return to a 70% level. And we are just saying with this slide that our assumptions remain unchanged. Electronic Devices & Components, the 3 growth drivers are shown backlight model. Right now, due to the semiconductor issue, the production level has come down slightly. But we are using product mix to overcome various headwinds. We've been saying this from the past quite clearly. And so for the growth this year, it will be modest, mainly for automotive application and also resonant devices. And on the next page, this is something that we show each time. And we do sell motors, but the active drill actuators and the one on the far right, stepping motor. These are likely to be a significant driver for us. And we want to target JPY 300 billion this fiscal year. And see, Minebea-Matsushita Motors, I used to be a president of that company. And JPY 60 billion to JPY 70 billion sales were achieved for motors back then. And spend back then was about JPY 20 billion in total, slightly less than JPY 100 billion was the level. But we are now in a position to be able to target JPY 300 billion. Next is in regards to the MITSUMI business. And here, too, is, as you can see on the slide and moving to the next slide, the analog semiconductors. This fiscal year, the weekend and the start-up of the Shiga plant. And these are 2 major factors, the weekend that will enable us to generate greater profit since we are producing a product in Japan. And we don't have the results for April as yet. But we are seeing the yen depreciate quite significantly. And so that is likely to have a notable positive impact. Next slide is the optical device. And we want to solidify our position, our #1 position in the market. We've been saying this from the past. I'm not going to repeat. Next page is the U-Shin business. So how will the automotive sector recover? That is going to be the key. So if the automotive recover and if they are able to come up with production plan, and if they were able to produce the product in the next month, based on customers' demand, then that would lead to profit without question. The structural reform in Europe is making progress steadily. And the recovery in the automotive sector is going to be the key here. And if things go well, JPY 5 billion. Our plan right now is JPY 4 billion, but we may be able to reach that level. And for the next page we want to explain our initiatives towards carbon neutrality. We have 3 slides. And Mr. Fukami from our company, is with us. And so I will ask Mr. Fukami to talk to you directly. And if there are questions from you in this area, we'll ask Mr. Fukami to also respond. So Mr. Fukami, over to you.

So matters related to the environmental issues, myself, Fukami, achieved green office award. First challenges was carbon neutrality. About -- in regards to the greenhouse emission, about 90% is related to electricity usage. And so decisively important that we secure renewable energy. For this purpose, we are working on initiatives to install solar panels for our usage. And we will endeavor to secure renewable energy by utilizing power purchase agreements such as corporate PPA. Next slide. We are contributing to reducing greenhouse gas emission of our customers who use our product under the initiative we named MMI Beyond Zero. This initiative we started to announce numbers from last fiscal year, and we now have the numbers for fiscal year 2021. So it was 1.759 million tons in fiscal 2020 and in 2021, the level came to 2.489 million tons. In fact, we have been able to make significant improvement of 43%, which is 730,000 tons. The reason for this increase is that we have seen an increase in sales volume of those products, which are subject to the program as well as a buildup of contribution from new product that we started to sell and also our contribution from product that was missing from calculation last fiscal year. So we were able to pick up on all these, which has led to this improvement. We will continue to contribute towards reducing the emission of greenhouse gas around the world by expanding sales of our products, which have a high energy saving performance. Next slide. In order to promote these challenges towards carbon neutrality as well as MMI Beyond Zero, we are currently planning to issue a green bond. And we were making preparation to issue a green bond at a secure fund to invest in production and R&D as well as to procure decarbonized electricity to manufacture ball bearings, which are highly -- which have high energy SAP performance as well as revolutionary precision improvement as well as those ball bearings used for -- as main motor for the electric vehicles. And so we're making the preparation there. This ends my explanation. Thank you.

Thank you. So we are now at the last page. In regards to the dividends for this fiscal year, as we say each time, payout ratio of around 20%. And this is what we have been showing to you. And last fiscal year, we paid JPY 36 per share. And if we achieve more than JPY 100 billion this fiscal year, we'd like to target around JPY 40. And so the shareholders in our company to be able to increase the dividend stably is something I'm sure the shareholders are expecting and we are fully aware of this, and we'd like to proceed accordingly. So that is my explanation regarding strategy. And so I would like to conclude my -- the explanation here.

Next, we'll go into a Q&A session. Those who will be asking questions will be the institutional investors and analysts who have registered beforehand for the telephone conference system. [Operator Instructions] The first question from Goldman Sachs Securities, Takayama-san.

Well, thank you very much. Can you hear me?

Yes, we can.

I have 3 questions. First of all, Mr. Kainuma. Mr. Kainuma talked about price revisions and price pass-ons. And in terms of material costs and logistics costs, how much is it going up? And how much are you going to pass it on, in which products? Can you elaborate on that? And these pass-ons, price pass-ons, is it kind of a one-off request? Or are you going to change the business customs and we're going to set up a scheme that enables you to change the business scheme? Can you elaborate on that? That's my first question.

So yes, I will answer your questions one by one. And I'm Kainuma to answer your question. So from our side, we sell a lot of products. So it's not a kind of umbrella situation that everything is all the same. But for instance motors, they are facing a spike of material costs. So well, I'm not talking about surcharges. But when the cost goes up, we want to pass on the increase. We want to show the increased cost to the customers and then ask the price to raise prices. And when the cost goes down, of course, we will reduce the prices. We want to conduct those kinds of negotiations, and we have started that.

So -- and a follow-up. My impression is that the motors, the impact on motors seem substantial. And if you look at the competitors in terms of the pass on, basically, they're trying to pass it on 100%. So for the motor business, is that what you're aiming for?

Yes. To be -- for the industry to grow in a healthy manner, I think we have to increase the prices. So I don't know how the competitors are going to behave. But from our point of view, this will be a legitimate request that we're going to make because you look at automobiles, and the newspapers says that Tesla has increased the prices by $10,000, a certain Tier 1 company with a certain director Tier 1 company, I talk with them. And ultimately, Japanese cars will have to raise their prices as well. And the Tier 1 Director of the Tier 1 company said so. So I think basically, that will be the trend that we will have to consider.

My second question is compared to the first half to the second half, in terms of the profit, I think there's a difference in terms of the profit is showing different. I think on Page 22, so U-Shin, I think it's skewed to the second half. But electronic components, MITSUMI, for those businesses, the second half seems to generate more profits. What's the reason? Is it the price pass-on is going to contribute to that? Or is negative factors such as the lockdown that happens in the first quarter? So can you talk more in detail between the balance between the first half and the second half?

This is Kainuma speaking. I will answer your question. So normally, seasonality exists. So the second half normally, sales tends to be higher and the profit tends to be higher. So that's seasonality. And of course, that's what we're looking at. For this fiscal year, the China lockdown situation around Shanghai, that will be the main reason. And the customer supply chain is disrupted. So it's very unclear what's going to happen surrounding the situation. But once this situation ends, the customers will start producing a certain level of volume. So this is, I think, as semiconductor industry because they're not selling as much as expected because they're in inventory. So when they start producing again, there is a possibility that the components will be there. So maybe they'll be more skewed in the second half in terms of the sales. So that's what we are anticipating right now. Understood. So the fourth quarter of last fiscal year, JPY 21.7 billion of operating profit that you have been generated. And the first half is JPY 40 billion -- JPY 41 billion. So the first quarter is a little down, and I start from that level.

Yes, yes. I think that's what we're looking at. Understood. So my last question, again, Mr. Kainuma, I would like, maybe you're the person that's going to answer. In terms of M&A. So MITSUMI was a very great success. On the other hand, U-Shin has been able to generate profit at last. But the impact of the contribution coming from the M&A, whether the full contribution is being enjoyed, I think it's been little late. In terms of M&A, for your perspective. So what were the lessons learned? And what would be the best way to improve the profitability or the PMI will go smoothly. So for your next M&A and you're preparing for the next M&A, what is your perspective?

For U-shin, well, to be frank, it was kind of an accident the semiconductor -- the choice of semiconductor and whatever business has strike and nobody anticipated this happening. So if the orders were coming in a normal manner, the profit should have been better. Actually, if the companies are looking -- doing only for the automotive sector, the performance is poor. So using, again, the same situation, they are in that kind of environment. So it's unavoidable. But our strength is that automotive is one of our businesses. So it's one product, one business that we are engaged in. It's not our lifeline, so to speak. So I think that is a strength of our product mix. So if the production volume comes -- recovers again, U-Shin will be profitable once again. So we're talking about JPY 4 billion, JPY 5 billion, we're being conservative. But if you look at the strength of U-Shin, I think basically, they'll be able to overachieve these numbers. So it's just the external environment that is hindering them.

Well, so based on that in terms of the next M&A perspective, so you have been talking about you want to strengthen machined components business. But with the MITSUMI at the center, you're able to acquire -- can increase share in where you didn't have a high share. So what will be your idea in your M&A?

So I talk about 8 spears. I always talk about the 8 spears. So we're going to strengthen the 8 spears, and we won't -- so we won't be able to rely too much on the sub-core businesses. So that's what we want the company to become. So I think that's the perspective that we have for M&A. Because I can't talk specifically about these matters, but bear with me. Thank you.

We'd like to proceed to the next question from Morgan Stanley, MUFJ Securities, Sato-san.

This is Sato. I have 3 questions. First question is regarding MITSUMI business. The profit last year was an increase of JPY 22 billion in last fiscal year. And analog semiconductors and actuators and also [ FM ] related. What were the changes in terms of breakdown? And this fiscal year, you're expecting just a slight increase. But in terms of the 3 products, how do you expect changes for these 3 products?

Well, it's somewhat difficult for us to explain that in detail. Yoshida-san, if you could explain without going into too details.

So on a year-on-year basis, the MITSUMI business operating profit was JPY 204.6 billion, and this fiscal year was JPY 41.8 billion, increase of JPY 20 billion. So where did this come from? And the key drivers were semiconductors accounted for about half of the increase, and next was optical devices and the increase in profit is greater than that for the semiconductor. But these 2 accounted for a large portion of increase in profit. Conversely, with regards to the gain, from 2 years ago against the for profit last fiscal year, we saw a decline. And so all put together, there are the positives and negatives. And in the end, we saw JPY 20 billion of profit. And on that basis, what is going to be the situation for the next fiscal year? And so the previous fiscal year was of the JPY 41.87 billion. And this fiscal year, we are saying JPY 43 billion in optical device. I was explained in Kainuma-san's slide, there is going to be a new business opportunity that will lead to increase in sales. And as a result of that, we are expecting to see increase in profit for semiconductors, too. In terms of sales, it should increase and the profitability will improve inclusive of FX, and that is assumption that we have for now. And it will also gain, as was mentioned in this presentation, and there was an announcement by customer yesterday. And so if you could refer to that as the assumption for the quantity. But then from our perspective, we are forecasting very conservatively. And so put all these together, optical device, semiconductors, we'll see increase in sales and profit. Gain related, the drop in sales and profit and about JPY 43 billion if we met all these numbers together. This is the structure.

The second question is MITSUMI's performance for FY '24 or March 2025, it's going to expand. And that is the forecast that you have shown on Page 33. Now it is what type of product are you expecting to see growth inclusive of this situation for developing new product, what are you assuming? And also analog semiconductors. In order to enhance and expand this further, what are the missing pieces right now? Or what are the pieces that you don't have sufficient amount of? If you could also make some comment about this, please.

Now this is what we said over time. JPY 100 billion we're going to achieve for semiconductors ahead of our original schedule and the profitability is what you can assume. And if you add these up, and they will also -- they will all contribute in OIS 2. We do have the road map, and we will also see those increase. So these 2 will become the kind of a core and other, what's shown here as #4, the connectors and switches, we will see increases in those products, too. And so the numbers here is not probably an overly surprising type of number.

Understood. So analog semiconductors. So you're going to do JPY 200 billion ahead of schedule. And on the next page, the operating profit target is at JPY 30 billion. So in order to exceed JPY 100 billion, where do you need to enhance?

Well, so if we are to exceed JPY 100 billion, then we need to expand our plan. And this is something that we've already talked about previously. But from OMRON, we have received a Yasu factory. And part of that is refurbished to increase capacity, and that should enable us to achieve JPY 100 billion. And the investment for that is at this level. This is something we have already explained previously. But the issue is for us to expand right now. MEMS, the -- what we are supplying to OMRON right now, are the first processes needs to be taken out the companies. And this is not something that we can do based on our judgment, we need to have the consent of the counterpart. And so if possible, we'd like to create a space there and to introduce that or buy another factory elsewhere. And this would be the kind of the form for us to achieve beyond JPY 100 billion.

And the third question and in regards to numbers. In terms of ball bearings, January to March and April to June, what is the monthly the production, the assumption as well as your assumptions for our internal sales?

First of all, January to March, ball bearing external sales, 289 in January, 274 in February and 310 in March. Internal sales, 60, 61 and 59 for January, February and March. Apologies. So what I mentioned was the total. So 229, 213 and 251 January, February, March for external sales. The internal 60, 61 and 59, a total of 289, 271 and 310 in total for the 3 months. And production in January was at 320. February, 272. And March was 334. And moving to the situation right now, the current, the production, the external sales. And as you know, because of COVID -- sorry, because of the lockdown in Shanghai, and in the case of bearing production, we do produce in Shanghai as well, but the majority is actually produced other than in Shanghai. And there is some impact to us, but more the impact is greater for our customers. So external sale in April, 192, May, 220 or so -- but beyond May, the impact of lockdown in Shanghai due to COVID, we don't know the impact of the supply chain overall. We are -- there are still some uncertainties there. So we are not able to share with you numbers there. In terms of production, April, 294; May, 312. Again, there is a reduction in the capacity utilization in Shanghai, but other facilities operate in a full capacity, and we have been able to secure the needed quantity.

Thank you very much. If that's the case, what you have just said, the numbers for April to June, and that is more or less reflected in the forecast for the first half of the year mostly. Is that right?

Yes, we are talking about bearings right now. But in regards to other products as well, how the impact itself is different. But in terms of the first quarter, particularly the April and May, we are likely to incur a large impact. And if we actually reflect that as the first half versus the second half, it may look somewhat stronger in the second half of the year. But that is because we have made a slower start in the first quarter, and we are going to catch up from the second quarter onwards. That is the overall scenario. Thank you.

Let's go to the next question. From Mitsubishi UFJ Morgan Stanley Securities, Uchino-san, please.

This is Uchino. So I have 2 questions. So first question is the MITSUMI analog semiconductors business. In the second half, the production capacity is going to ramp up. That's my take. And after the enhanced capacity, the product mix, how will be the product mix after the increased capacity? In terms of the market environment, there's a lack of various products, and there's a lot of EV-related products as well. And MEMS is another product. And if you increase their capacity, so what is your plan for increasing capacity?

So I cannot go into detail. But EV-related products, that will be one of the major business offers that we have received. And of course, we will be doing that business. And for the other businesses, the battery-related business, we do still have capacity. There will be -- there is a lack of capacity. So we want to increase the production for those products as well.

So the -- with batteries, I think is this a market that will be growing sustainably? Excuse me, EV, I'm talking about EV. Is this kind of a sustainably growing market?

Yes. Of course, we think as well.

My second question is, well, this is a confirmation in terms of how this year's outlook is and what are you thinking. So as you have said, the increased cost, how you're going to pass it on to the prices, that will be the focal point. But within this year's forecast in terms of increased costs, are you -- is there some sense that you can more or less offset the increased cost by price pass-ons? Or is this kind of still a risk that remains? Is it a conservative outlook?

Well, in terms of the price pass-ons, how are we going to increase the prices. We do have a plan internally, and we have already started negotiations with our customers. So I cannot go into detail about this matter. But our price increases, it is reflected in this year's outlook. So basically, the cost increase will be more or less offset. Well, that's a difficult issue because we have to consider ForEx. But we think that this is a good opportunity. We have no intention to gain a lot of profit. But the material costs are going up, the logistic cost is going up, and we can prove it immediately. So we have to show it to our customers and then persuade the customers so they understand and they feel comfortable to increase the prices -- to receive the increased prices. I think that's the most important thing.

[Operator Instructions] So I would like to go to the next question from Nomura Securities, Akizuki-san.

I have 2 questions. Kainuma-san, and you're good at coming up with the forecast. So I wanted to ask the cause of that. Now on this occasion, the supply chain disruption in China, right. So to the extent that you're able to see right now, is there a kind of say, for example, for automotive application, the customers are wanting to increase production going forward? But I'm asking for the utilization to below right now. But for PC application, I don't know what the situation is right now. But in terms of application or based on components, for example, motor, if you could share formation with us as to the current situation and the impact of the lockdown in Shanghai is likely to be relieved after May, if you could share with us your thoughts in regard to what could occur going forward. And also related to your numbers, in China, logistics cost is increasing quite significantly. And there are some which are only one time, but the increases in logistic cost. Would that be subject to surcharge as well? Or because it's going to be relatively short term, is that something that the maker or the manufacturer need to accommodate? And if you could explain related to disruption in China.

Well, first of all, my understanding right now is the supply chain issue in China, whether it's applicable to certain industry of first and second, it's not the case. It's across the board. And generally, automotive has stopped quite significantly in other areas as well. In the Shanghai region, there is a lack of components, and so there is a slowdown. So irrespective of the fact that we produce various type of product, drop-down is quite up because it does apply to all industries. And also China is the main location for mass production, a lot of the components for that are also produced in China. And so in that case, we're not really feeling a unevenness, we are seeing slowdown across the board, more or less. In regards to the logistics cost, it's been FOB in the past, not CIF. But because the logistics cost was low per piece, and that needs to be taken into consideration, and that was taken into consideration to come up with a kind of a ballpark. But all of a sudden, the logistics cost has shot up. And so how could I put it, the weighting there, and that tended to have accounted to a much larger portion, which is applying significant stress on the profitability. And so this must be passed on to the customers because otherwise, we will just build up on losses, the more product with supply. And we are able to prove this to our customers, we are able to show the invoices for the logistics cost, and they would have to understand that it's inevitable. And so we want to address that in kind of a surcharge approach.

Understood. And talking about the business -- in your material, you're expecting an increase in profit for OIS at JPY 3 billion and 30% increase in sales, which is about JPY 40 billion, I assume. But the increase in profit seems to be low in comparison to increase in the revenue. So the marginal profit at that level or the fixed cost is going to increase in view to increase in production next fiscal year. If you could give some explanation on that, please?

This is some -- that I'd like for you to, I suppose, presuppose because customers are looking at this. I'm unable to say. From our perspective, this is what we are thinking, and we're making an announcement accordingly. And if you could forgive me at this.

[Operator Instructions] So with this, we would like to end the Q&A session. Once again, please answer to a questionnaire to the link on the screen. Thank you very much for your participation. . [Statements in English on this transcript were spoken by an interpreter present on the live call.]