1 2 I would like to explain the consolidated financial results for - PDF document

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I would like to explain the consolidated financial results for the fiscal year ended March 2018. 3

Consolidated net sales for the fiscal year ended March 31, 2018 totaled 879,139 million yen while operating income reached 79,162 million yen and net income hit 59,382 million yen. These figures represent year on year increases 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 courtesy of the Mitsumi business, which was integrated in January of last year, as well as steady performance of our main products, such as ball bearings, motors, and LED backlights. Currency fluctuations brought net sales up an estimated 23.5 billion yen year on year and operating income down an estimated 1.0 billion yen year on year. 4

In the fourth quarter of the fiscal year ended March 31, 2018, net sales were 224,211 million yen, operating income 14,773 million yen, and net income 7,827 million yen. 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 the 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 24.2 billion yen (hereinafter referred to as the “sales increase due to contract change with customers”). Excluding this impact, they would have dropped 11.5% quarter on quarter. Also, in the fourth quarter, operating income includes 0.7 billion yen of expense increase associated with the purchase price allocation process for the acquisitions of C&A Tool Engineering in US and Mach Aero in France (hereinafter referred to as the “PPA impact”), and the net income includes 5.4 billion yen of impairment losses for the business assets. Impact from foreign currency translations is estimated to result in year on year decreases of 4.0 billion yen in net sales and 3.3 billion yen in operating income as well as estimated quarter on quarter decreases of 3.4 billion yen in net sales and 1.8 billion yen in operating income. 5

This graph shows annual sales trends. In the fiscal year ended March 31, 2018, we recorded a new high of 879.1 billion yen by a wide margin. The forecast for the fiscal year ending March 31, 2019 is shown by segment. Also, as we have decided to voluntarily adopt International Financial Reporting Standards (hereinafter referred to as "IFRS") from the current fiscal year (fiscal year ending March 31, 2019), forecast has been calculated based on IFRS. For this reason, we cannot directly compare the results with those of the previous fiscal year (fiscal year ended March 2018) which were applied under Japanese GAAP, but these figures are presented alongside for your reference. The same applies to the forecast figures for each subsequent slide. 6

This graph shows quarterly trends in net sales. In the fourth quarter, we reached a record high for any fourth quarter of 224.2 billion yen. 7

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, net income rose 61.5% to hit 79.2 billion yen, marking a record high by a wide margin. 8

As in the previous slide, the bar graph shows quarterly trends in operating income while the line graph charts changes in the operating margin. Fourth quarter operating income totaled 14.8 billion yen to make the sixth consecutive quarter that profits were up year on year. Also, please note that this figure includes the 0.7 billion yen of PPA impact. 9

Now 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 176.4 billion yen. C&A Tool Engineering and Mach Aero, which were just consolidated in the third quarter, fall under the machined components segment’s category of "Other." Sales of ball bearings increased 13% to reach 105.9 billion yen. This uptick was fueled by strong demand across a wide range of industries with ball bearings for automobiles and fan motors used in 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 total 31.9 billion yen while revenue for pivot assemblies fell 3% from the previous fiscal year to total 31.5 billion yen. Our ability to hold on to over 80% of the market share has guaranteed stable earnings. Operating income came to a record high of 42.7 billion yen in the fiscal year ended March 31, 2018 as the operating margin hit 24.2% for a 9% year on year increase in operating income and a 0.8 percentage point decline in the operating margin. If we were to exclude the 0.7 billion yen of PPA impact, operating income would total 43.4 billion yen and the operating margin would be 24.6%. Looking at the results by product, we see that profit of ball bearings and pivot assemblies increased year on year while profit of rod-ends and fasteners dipped slightly. In the fiscal year ending March 31, 2019, we anticipate a jump in sales of ball bearings due to the continued increase in external sales volumes and an improvement in the profit margin resulting from the reduction of special expenses such as air freight 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. 10

This slide shows the quarterly trends in the machined components segment. In the fourth quarter, net sales were up 1% over the previous quarter for a record-high total of 47.3 billion yen. Sales of ball bearings increased 4% quarter on quarter to hit 27.8 billion yen. The volume of ball bearings sold outside the group hit 198 million units per month in 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, and we achieved our target of increasing monthly production capacity to 285 million units by April of this year. Revenue from rod-ends and fasteners were up 10% over the previous quarter to total 8.7 billion yen, and even though revenue from pivot assemblies dropped 9% from the previous quarter to hit 7.5 billion yen, our ability to maintain an 80% share of the market has generated stable earnings. Operating income for the fourth quarter was down 5% from the previous quarter to total 10.5 billion yen while the operating margin decreased 1.5 percentage points to reach 22.1%. If we were to exclude the 0.7 billion yen of PPA impact, operating income would have been up 1% from the previous quarter to total 11.2 billion yen and the 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 rod- ends/fasteners rose while profits for pivot assemblies fell. 11

Now let’s look at the electronic devices & components segment. In the fiscal year ended March 31, 2018, net sales were up 2% year on year to total 451.5 billion yen. Looking at the results by product we see that sales of motors increased 16% year on year to reach 184.2 billion yen mainly due to automobiles. While electronic devices sales dropped 5% year on year to hit 227.8 billion yen, demand for our ultra-thin LED backlights remained strong, surpassing initial targets, despite declining sales of final products sold by our major customers. Net sales of sensing devices decreased 7% year on year to total 35.7 billion yen. Operating income climbed 42% year on year to reach 31.2 billion yen while the operating margin rose 1.9 percentage points to reach 6.9%. Looking at operating income by product, we see that electronic devices were way up, sensing devices were down, and motors remained steady. In the fiscal year ending March 31, 2019, 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 an improvement in profitability. 12