Latest Update : Feb.16, 2012
Investor Meeting Presentation for 3Q FY 3/2012 and New Medium-term Business Plan held on February 3, 2012
* Some parts have been added and modified for a clearer understanding.
- Would you elaborate on the ownership ratio and potential M&As in the works under the framework with the Development Bank of Japan (DBJ)?
- Do you see any risk that joint investments will slow down the M&A process as opposed to going it alone?
- Could you tell us your basic M&A strategy involving machined components?
- When will your under-earning products in the Rotary Component Business begin making a profit?
- Why did you decide to partner with the Development Bank of Japan (DBJ) under the M&A joint investment agreement?
- Please tell us about your post-M&A management policy.
- It was said that it will take about a year to find a potential M&A target. Is that the time frame you are now envisaging?
- Could you tell us the thinking behind the shift in the keyboard strategy.
- What impact has the Tohoku Earthquake and Thai floods had on your bottom line this fiscal year?
- Why is the pivot assembly production capacity expansion plan now bigger than before?
- Would you sum up the extent of the damage from the flooding in Thailand?
- Getting back to the M&A framework with DBJ, how will profits be split among shareholders?
Question and Answer
- All those details will be ironed out during the course of discussing specific deals. Whether we will actually take majority ownership depends on the specifics involved so everything will have to be decided on a case-by-case basis.
- When two or more companies in the same or similar industry set up a joint venture, the partners are likely to disagree with one another and the joint venture often goes wrong. In this M&A framework between Minebea, a manufacturer, and DBJ, a banker, each partner has clearly defined roles. We don't anticipate any bumps in the road that will slow down the decision-making process. We want to act as quickly as possible so we can take advantage of the strong yen.
- Since Minebea is a manufacturer of ultra-precision components, we envisage making M&A deals with companies that focus on high-precision machining technology. Since we mainly make products with mechanical functions, we are looking for M&As that will create synergy in that area.
- HDD spindle motors are expected to be back in the black by the second quarter of the next fiscal year. Vibration motors are currently in a difficult position and it will take time before we see them contribute to our earnings. Issues concerning our coreless vibration motor designs as well as higher rare-earth prices have made it difficult to balance unit prices and costs. We're gradually realizing the benefits of producing brush DC motors in Cambodia. When you combine that benefit with the further inroads we are making with this product in the automobile parts market, etc. and an upswing for hybrid components, it looks like we will reach the break-even point in May or June as spelled out in our plan. We're not overly concerned about micro actuators since the prevailing notion is that the sluggish digital camera market will begin to pick up speed in March. It will be some time before fan motors begin making a profit again as one of our IC chip suppliers in Thailand continues to grapple with the impact of the flooding. In the meantime we have been scrambling to find alternative IC chips and receive our customers' approvals on newly modified fan motors. We intend to fix this by April.
- Other companies, including private equity funds, also expressed an interest in becoming our M&A partner but since we're a Japanese company; we thought we'd have better lines of communication with another Japanese company. Another reason is that DBJ has a long and distinguished history of nurturing companies. We firmly believe that Japanese companies must branch out across the globe if they want to grow. DBJ sees the M&A framework as a way to nurture the growth of Japanese companies and we see eye to eye with them on that.
- In light of our experience, the best way to manage a foreign M&A target is to let the local management team run the company, since they know their home country and its culture better than anyone else. Take New Hampshire Ball Bearings, Inc., a US subsidiary of Minebea, for example. The company had been posting huge losses and we kept shuffling managers around, including managers sent from Japan, until we finally put together the right team. That team is still there and consists of executives who were hired fresh out of college and moved up the corporate ladder. We think it's important for managers to fully understand their own company from top to bottom.
- We're looking to successfully complete an M&A within the year.
- We've already decided to stop making conventional keyboards, but we are still going to make keyboard parts, more specifically membranes. This area of the business still has a lot of potential, which we have been looking into. Over the years we've amassed a lot technological expertise through keyboard production that we will put to good use. The truth is keyboards would never have become a major Minebea product. We tried everything, including fully automated production, but the price competition in the keyboard market is so stiff that we've decided the best thing to do is get out.
- Due to the extensive flooding in Thailand, sales for the third quarter are estimated to have fallen off by 11.1 billion yen. We also anticipate a fourth quarter sales drop of about 6.1 billion yen. So we assume the impact will amount to 17.2 billion yen in the second half of this fiscal year. Operating income is estimated to have been thrown off by 3.9 billion yen for the third quarter. The loss due to interrupted operations, totaling 2 billion yen, has actually been transferred from operating income to extraordinary loss. That means the negative impact really amounted to 5.9 billion yen. We also anticipate the impact of the floods to affect our fourth quarter performance with losses totaling of 2.7 billion yen. The loss of operating income in real terms is estimated at 8.6 billion yen for the second half. The toll taken by the Tohoku Earthquake on first quarter sales amounted to 3.5 billion yen while operating income fell 2.0 billion yen. Sales and operating income for the second quarter dropped 500 million yen and 250 million yen respectively.
- The sales volume for the third quarter was a mere 28 million units per month on average but sales this January exceeded 35 million units and are expected to keep climbing. We expect sales to surpass 40 million units in March. The capacity expansion has been moving along steadily, but we begin, in place of one of our competitors, to supply new-model pivots for which we have never manufactured a specific type of ball bearings before and production is still not near the capacity we need. Production of this new ball bearing will kick into high gear after April when the overall monthly shipments should approach about 50 million units. We are likely to realize the increased capacity sometime in the first quarter of next fiscal year but can't pinpoint exactly when now. We will order 8.0 to 8.5 billion yen worth of production equipment for the new ball bearing factory in Thailand this fiscal year, and we intend to accelerate installment of the machinery, allocating about 5 billion yen this fiscal year. The balance will then be installed early next fiscal year. The new ball bearing production line will enable us to meet the demand for pivot assemblies.
- Our three main factories in Thailand were not at all affected and in fact we have received a number of requests from customers who would like to tour the facilities. Looking back I can say that it was quick thinking that saved us in the end. Quick thinking and action to match has always been a Minebea trademark and I believe we can take pride in our crisis management skills. On the flip side, our procurement sources rely on a small number of suppliers in order to get the lowest price possible. In some cases everything depends on just one supplier. We must review this situation and work with an eye to implementing our policy of producing similar products at multiple production sites. This is one of the reasons we've decided to build a second factory in Cambodia.
- We will hammer out that detail with DBJ some time down the road. If we sign an M&A deal with a really stellar company, one option might be to make it a Minebea subsidiary. If it turned out to be a failure, we could always sell the company. Since the yen is so strong at the moment, we want to strike while the iron is hot. While making a company a subsidiary would mean that we would share the profits with our shareholders, it would be very different from business as usual. The framework enables us to offset some of the immediate risk by utilizing our M&A target's cash flow and an SPC's leverage. While the downside is that it takes time for a company to become a wholly owned subsidiary, the up side is that it generates a profit. So in the end we will have to decide this matter on a case-by-case basis.