Minebea Mitsumi Inc

TSE:6479

Earnings Call Transcript 2021-Q1

[Katsuhiko Yoshida, executive]

This is Yoshida speaking. Today, I would first like to explain the consolidated financial results for the first quarter of the fiscal year ending March 31, [ 2021, ] and then Mr. Kainuma, Representative Director, CEO and COO, will explain the highlights including business updates.

For the fiscal year March 2021, consolidated net sales -- net sales was down 8.3% year-over-year and quarter-on-quarter it was down by 17.4% at JPY 187.463 billion. Operating income was up 61.4% year-on-year and down 56.7% quarter-on-quarter to total JPY 5.364 billion.

Profit for the period attributable to owners of the parent was up 64.4% year-on-year and 65.7% quarter-on-quarter to total JPY 3.573 billion. So the operating income for this quarter includes special expenses of approximately JPY 4 billion incurred due to impact of the coronavirus, et cetera.

We estimate that the quarter-on-quarter foreign currency translation impact on sales was JPY 3.46 billion year-on-year, JPY 5.9 billion quarter-on-quarter -- excuse me, year-on-year JPY 5.9 billion. The impact on operating income was plus JPY 8.8 billion quarter-on-quarter, minus JPY 8.4 billion year-over-year.

So we made a slide we respect those changes to last year's fiscal year's financial statements due to the PPA for U-Shin. Please note that the figures on the following pages are [indiscernible] figures.

Moving on to the next slide. This is the quarterly trend in net sales, operating income and operating margin. The operating margin for the first quarter was 2.9%. So this was up 1.3 points year-on-year and down 2.6 points quarter-on-quarter.

Moving on to the next slide. Now let's take a look at the results by segment, starting with Machined Components business segment. On the left is a graph indicating quarterly net sales trends, and on the right is the graph with the bar chart showing quarterly operating income trends along with a line chart for operating margins.

First quarter net sales decreased 20.1% quarter-on-quarter to total JPY 35.5 billion. Sales of ball bearings decreased 18.0% quarter-on-quarter to total JPY 23.6 billion. The monthly external shipment volume fell 9% quarter-on-quarter for an average of 172 million units. While sales of ball bearings used in fan motors remain strong, those used for other applications, especially automobiles, were down substantially. Sales of bearings for aircraft were impacted by the sharp market slowdown. Sales of Rod ends and fasteners totaling JPY 7.4 billion were down 26.4% quarter-on-quarter.

Aircraft manufacturing has slowed significantly and lagging production is expected to continue through this fiscal year. Sales of pivot assemblies decreased 19.8% quarter-on-quarter to total JPY 4.5 billion. This is due to the production CapEx in some supply chains due to the lock downs in Southeast Asia.

Operating income for the quarter totaled JPY 7.2 billion, and operating margin was 20.1%. On a quarter-on-quarter basis, operating income fell 23.7%, while the operating margin dropped 1.0 percentage points. Looking at the results by product. We see that operating income was down quarter-on-quarter for ball bearings, rod-ends and fasteners and pivot assemblies.

Moving on to the next slide. Going to the Electronic Devices and Components segment. Net sales decreased 10.5% quarter-on-quarter and stood at JPY 79.7 billion. Looking at the results by product, sales of motors decreased 8.6% quarter-on-quarter at JPY 39 billion. This is due primarily to the slump in the automobile market.

Net sales of electronic devices decreased 13.7% quarter-on-quarter, JPY 32.5 billion was the number. Sales to the automotive industry declined buffer smartphones, our major customer smartphone models that used our LED backlights were steady. Net sales of sensing devices totaled JPY 6.9 billion, decreasing 7.5% quarter-on-quarter.

Operating income was JPY 2.2 billion, the operating margin, 2.7%. Operating income decreased 19.3%, and the operating margin declined 0.3 percentage points quarter-on-quarter. Operating margin by product has not changed significantly. Moving

on to the next slide. Let's look at the performance for the MITSUMI business segment. In this first quarter, ABLIC, which was merged with MinebeaMitsumi as of April 30, was included in the scope of consolidation. Net sales decreased 9.3% quarter-on-quarter to total JPY 56.6 billion. Mechanical Component sales were up, thanks to growing demand as more people stayed at home. But sales of other products declined.

Operating income totaled JPY 1.4 billion, while the operating margin reached 2.4%. Operating income decreased 67.4% and the operating margin declined 4.3 percentage points quarter-on-quarter.

Looking at the results by product. We see that profits were up for Mechanical Components and Analog Semiconductors, including ABLIC, but for other products, it went down.

Moving on to the next slide. The U-Shin business segment first quarter net sales decreased 49.5% quarter-on-quarter to total JPY 15.6 billion, affected by the restrictions imposed on operations in Europe and the U.S. due to lockdowns as well as production cut backs by major customers. In the second quarter and onward, we expect an uneven recovery with some areas bouncing back more significantly than others. But overall, the business is expected to be on recovery track. The segment recorded an operating loss of JPY 2.2 billion.

Next slide. The bar graph shows trends in profit attributable to owners of the parent, while the line graph charts changes in the profit for the period per share. Profit for the period was JPY 3.6 billion, earnings per share was JPY 8.8.

Next slide, quarterly inventory trend at the end of the first quarter. Inventories totaled JPY 204.4 billion, up JPY 34.6 billion over 3 months ago due to an increase for some OEM products ahead of peaking demand and an increase resulting from the ABLIC consolidation.

Next slide. The bar chart shows trends in net interest-bearing debt, which is total interest-bearing debt minus cash and cash equivalents. The line chart represents free cash flows. At the end of the first quarter, net interest-bearing debt totaled JPY 126.5 billion, up JPY 51.3 billion from the end of the previous fiscal year. This includes the cost of acquiring shares in ABLIC totaling JPY 33.9 billion and the cost of additional acquisition of C&A shares totaling JPY 4.6 billion.

Next slide. Summary of the forecast for the fiscal year ending March 31, 2021. No changes to the full year forecasts, which are to remain in the ranges announced at the beginning of the fiscal year. We are still trying to figure out the projection for the second half and have decided to lever initial projections as they are. Exchange rate assumptions is JPY 107 to the U.S. dollar, both for the upper and lower end.

Next slide, the forecast by business segment. No changes to our initial overall forecast by business segment either. That concludes my presentation.

Thank you. Mr. Kainuma, please.

[Yoshihisa Kainuma, executive]

Hello, everybody. This is Kainuma speaking. So on my side, today, I only have about 2 slides in presentations. First of all, going to Page 13, I think everybody could read through this at their leisure. But from my side, I would like to give you 4 messages to give you some business updates.

So the first quarter, in terms of the Machined Components segment, it has gone down in terms of profit, but for the MITSUMI business and Electronic Component business, we have been able to offset that decline. However, the U-Shin business, we will not be able to fully offset the U-Shin business performance. The previous year, we should have been JPY 7.3 billion. So we have seen about a JPY 2 billion decline in profit. I think that's a fact that we have to account for.

But that said, the second point I want to make is that the sales has started to recover. And I think in this 3 months, so July, August, September, the second quarter period, JPY 270 billion increase of sales -- or JPY 270 billion plus sales is going to be generated. For the first half in terms of operating profit, I think we'll be in line with the last year.

So in that sense, so May, I talked about our forecast. I think basically, we are on track with our initial forecast that we have made in May. Going to the second half, there are some uncertainties. There's still some uncertainties in the situation. So in terms of the forecast, we are giving it as a range. And in November, we're going to report our results next time in November. And at that time, I think we'll be able to give you some more detailed information about our performance.

The third point I want to make is that for the LED backlight business over a couple -- or maybe a month or 2 months ago. So a certain economic paper talked about this -- about this on the front page. They said that the LED backlight is going to disappear. But the same newspaper, in terms of time-related article, basically, they wrote that the LED backlight will not go away. So that was the nuance of that article.

So this type of -- well, I think the volatility related to this type of news has been moderate, but there is a negative impact on the share prices. We can't deny that. But I have always been saying that LED backlogs will not go away. So please understand my stance on this matter.

So going to the actual status currently. So the ball bearing business. I think basically, we have to talk at the marketing condition. You have to talk about market condition of ball bearings. So the machined components, automobile and aircraft, that was the reason why the performance for the most income was bad for the first quarter. For the aircraft, I think that the damage was substantial. But if you consider the product mix, so for the defense, aircraft, rod and fasteners, so we have that. So we have that business. So it's not loss-making for the ball bearing.

So the product mix has changed because the 5G-related fan motors has gone up, but the automotive application has gone down. But recently, the automotive applications has started to recover very robustly. That is our understanding. In Japan, so the ball bearings for the Japanese cars, well, 10 million per month. If you sell that much, it means that it will be a very strong sales if you sell that level. So this month and next month, we think that we'll be able to achieve the 10 million number.

So Europe, United States, we have started to see an increase. For the automotive industry overall, so JPY 65 million was the peak. But currently, it's JPY 50 million plus. So gradually, I think this will start to recover. So in terms of the product mix, for us, it is a very good situation.

As for fan motors, because of the U.S.-China issue, for the customers in China, the production on the part of the customers have slowed down somewhat. But eventually because of 5G related Ericsson, Nokia, there's a possibility that the orders were low to those companies. In any event, our ball bearings would be in need, so we do see some decline in volume, but we expect the return recovery to a more robust development going forward.

Last month, the 178 million, 179 million was the units sold of ball bearings. September to October, 190 million to 200 million for the external shipments. That seem to be within the reach. And ball bearing is always a leading indicator. What -- that's what I've been saying. So in terms of the leading indicator, we do see signs of recovery.

And Slide 14. The message here is very simple. We enjoy lion's share in various markets and various products and, therefore, in the current global situation under COVID-19, we are affected but our growth story, growth scenario remains unchanged. Once the economic activities return, owing to various factors, we believe that our earnings capability would be regained. That structure remains unchanged, and we have a strong belief in that. We are convinced of that.

And that's all I have from me for today. And we will now take your questions. Thank you.

[Unknown Executive]

Let's go to Q&A. So this is the first question from Goldman Sachs Securities, Takayama san, please.

[Daiki Takayama, analyst]

So my first question, so from the first quarter to the second quarter, I would like to give you the breakdown of what change has happened. You talked about sales, so JPY 270 million -- JPY 27 million plus -- JPY 270 billion first half. So the first half of this same level as the first half profit. So the JPY 17.6 billion would be the calculation for the quarter-on-quarter. So JPY 82.5 billion profit will increase. So in terms of the contribution, so for the 4 major segments, how much sales is going to go up? And how much that will contribute to the increase of profit? Could you give me the breakdown?

[Katsuhiko Yoshida, executive]

This is Yoshida speaking. First, in terms of the Machined Components segment, let me talk about the assumptions or the market conditions. Please explain -- let me expand about that for the aircraft. So not only for the second quarter, for the full year, it will continue to be at a stagnant situation. For the ball bearings. For the automotive, numbers will start to recover, second quarter will be positive. The third quarter will move further be on the positive trend. So that is our assumption.

So against this backdrop, for the Machined Components business, a slight positive is what we are assuming. In terms of the Electronic Devices and Components business, so the first -- when we -- when the end of last fiscal year at the report, plus second quarter to the third quarter, gradually, the volume is going to go down in terms of the LED backlights. That's what we have been saying. But there has been some delay in that. The first quarter -- second quarter sales is going to be more than first quarter. So the second quarter is going to be the peak for the backlights.

In terms of motors, automotive business, it will start to recover. So the increase of sales, increase of profit can be expected for this business. So that's for the Electric Devices and Components business.

So in addition, in terms of the backlight, strong inquiries coming from the customers. So that trend is continuing. But. The MITSUMI business. Overall, automotive-related business, look, recover, that trend will be unchanged in terms of the games related mechanical components. In the second quarter, the major peak will arrive. So this will be a very strong -- very strong orders are coming to us. This will be basically going to a strong operation environment.

For the optical devices, for North America, we have a very strong orders coming for North America. But on the other hand, for China, for actuators for China especially for the high-end side, we're seeing a slowdown. So there are some differences depending on the business.

For the semiconductors, so in terms of 2 businesses, in semiconductors, basically, it will be very stable. The U-Shin business, the first quarter, I think it's not necessary to explain that there has been lockdowns in various -- lockdowns has been released in various countries and the automobile OEM production has started to recover. So sales is going to increase. So that's the overall picture.

So the -- so this will be qualitative. But if you rank it. So the mid semi sales and profit change will be the major factor of the increase of profit -- for the profit from the first quarter to the second quarter. Then next will be electric devices and machine components. U-Shin basically would be basically breakeven for U-Shin for the second quarter. I don't know whether it'll be in breakeven. But against the first quarter, I think we will see a major improvement in the second quarter for U-Shin. So that's the overall status, I think, that -- you are correct. Thank you.

[Daiki Takayama, analyst]

So the second question, well, this is related. But in the first half outlook, I thought that maybe Yoshida come out with the outlook because the -- you talked about the profits coming this much, and sales is going to recover this much. So were there some uncertainties beside the fact that you didn't have outlook for first half? We understand they will be able to comment with the second half of the full year. Kainuma, what's your take?

[Yoshihisa Kainuma, executive]

Well, I think it depends how you think about it. So I talked verbally about the -- basically, we have about the same as last year. But overall, I think you have to talk about giving you a range. So simply speaking, we don't want to mislead you. So that's the reason why we're giving you a range in terms of our outlook. So for the first half, I -- rather than talking on specific numbers for the first half, I think we should talk about this range so that you can reserve the full year performance of our company. So I haven't really thought that deeply about this.

[Daiki Takayama, analyst]

Understood. Lastly, so this is a very -- I think this is a kind of rough observation. But compared to the couple of months ago, so towards the July to September, September to December period. So if you -- do you think by segment, by product? Where do you think that would be on the upper part of the range or the low part of the range? But by business, by product, if you look at that perspective, what type of momentum do you see by each of these aspects?

[Yoshihisa Kainuma, executive]

Well, that's the reason why I'm giving you the range. So the automotive industry, I think we're starting to see a slight light down the road. That's the situation. So the initial scenario was that the first half will be -- the business will be supported by the [ subcore ] business. The second half, analog semiconductors, these new businesses were the 8 spears -- the 8 spears, the new business, well supported. So that has been our initial scenario.

So I think this is related to the question that you asked. So our assumption in terms of October and onwards, so we'll be starting to see a very strong upward trend or momentum. To be frank, we don't have that level of confidence. But in any case, at this stage, I would like to offer you a range as an outlook. So I hope you understand our intention.

For the second half, the Eight Spears core business, how much are they going to recover? How are they going to contribute to the profit? I think it all depends on that.

[Operator]

The next question now from Morgan Stanley MUFJ, Sato san, please.

[Shoji Sato, analyst]

This is Sato. I hope you can hear me. Thank you for your presentations. First, figures. I have 3 questions, but ball bearing shipment volume, external, internal and production for April, May and June, monthly volume, please. And if possible, July trend as well, please.

[Unknown Executive]

External, April, in millions 177, 173 and 166. July, approximately 180. Second quarter 180 would be the floor and some addition. And third quarter onward, 190 million to 200 million units. That's for external shipment. Internal shipment, April, 55, 51, 52. In July, 54, 51, about the same level. That's internal shipment volume.

[Shoji Sato, analyst]

What about production volume?

[Unknown Executive]

Again, starting in April, 258, 208, 236. In July, 240 to 250 are what we are projecting.

[Shoji Sato, analyst]

Thank you.

[Unknown Executive]

Also about ABLIC, the sales in 2018 was over JPY 30 billion, operating profit over JPY 4 billion. That has been disclosed.

[Shoji Sato, analyst]

What were the results in 2019, fiscal 2019, and what were the results in the first quarter and the projection for the full year?

[Unknown Executive]

Currently, due to macro factors, there are some impact, but on a full year basis, about the same level, especially the profit level. We believe that, that could be achieved.

[Shoji Sato, analyst]

The first quarter MITSUMI business segment, the impact of ABLIC. How much impact did it have on the sales and profit of MITSUMI business in the first quarter, please?

[Unknown Executive]

The consolidation was only for 2 months. So 300 divided by 12 and a little less than that would be sales and profit would be on track. And if you can multiply that by 2, you can get the fee for 2 months.

[Shoji Sato, analyst]

Thank you. The profit for MITSUMI, compared to the fourth quarter, there was a big decline. What are the reasons? What were the reasons for that? That's my last question.

[Unknown Executive]

Optical devices business. Temporarily, the demand season ended at the end of the fourth quarter, more specifically in the Great China area. The demand is fourth quarter and demand has come down, starting at the beginning of first quarter. That's the reason. For second quarter onward, centering on North America, we expect recovery. And what's different from the projection made at the beginning of the fiscal year was the smartphone -- high-end smartphone growth in the Great China area did not realize from the second to the third quarter. Those are the differences.

If I could add, the game console could not be built because of the component supply chain was disrupted because of the COVID-19 impact. So the production could not be made during the first quarter. And that affected the original MITSUMI business segment in the first quarter.

[Shoji Sato, analyst]

So the game console business, that portion should come back in the second quarter. And for North America, in the fourth quarter, your market share increased and that market share, do you think, could be maintained for a camera actuator?

[Unknown Executive]

I would not comment on the market share question. But, currently the preparation for production is steadily underway. And toward the second quarter, very strong production is being planned. That is for the North American market.

[Shoji Sato, analyst]

As for the game console business, what's the situation?

[Unknown Executive]

Well, in the first quarter, as Kainuma san just said, in the first quarter -- well, let's go back. In the fourth quarter, in the Great China area, because of the lockdown, the production was disrupted. That's where all the plants are. We were hoping that we could make up for that in the second quarter. But because of the disruption in the parts supply, we couldn't do that. But starting in June, things recovered and from July, then on to August, getting closer to the full operation.

[Operator]

From Mitsubishi UFJ Morgan Stanley Securities, Uchino san, please.

[Akihiko Uchino, analyst]

So this is Uchino. So I ask 3 questions. One, inventory assets. So can I confirm what is increasing? So you're preparing for increased capacity production. So by segment, where is you're seeing the increase in inventory assets? That's my first question.

[Unknown Executive]

So ABLIC, we have now the console in ABLIC, that's one addition to the inventory assets. And the -- I talked about the production trend for the games in the first quarter. We basically were thinking about increasing our production games for the first quarter, but some components basically were not available, so we are not able to produce in the first quarter. So the inventory is for the game consoles. But for this inventory, in the second quarter, the high level of operation is going to be planned and we'll be able to bring down the inventory. So that's the overall situation for the inventory.

[Akihiko Uchino, analyst]

So ABLIC, how much is accounting -- accounted for ABLIC.

[Unknown Executive]

So we do not actually announced about the independent inventory. But I think generally speaking, it's about the same level as the general semiconductor industry in terms of inventory.

[Akihiko Uchino, analyst]

So you haven't started to produce actuators. Is that my correct understanding?

[Unknown Executive]

Well, yes, in the fourth quarter, we're going to push for the production for the fourth quarter. For the first quarter, including some prospects in the customers, but we'll be able to ship that going into the second quarter. I don't think there are any issues surrounding actuators right now.

[Akihiko Uchino, analyst]

Understood. So in terms of MITSUMI, I have 2 questions about MITSUMI. So for -- in terms of the gain across our business. So the lack of components has been sold and basically going back to full utilization? So let's say outlook, how far can you go? In terms of the order situation, how much visibility do you see in terms of -- so I would like to look at your future outlook.

[Unknown Executive]

So the custom -- well, particularly, this is basically what the customer decision. So we can't say it clearly. But second quarter, 100% utilization, third quarter, I think, basically wile close to full utilization. So the fourth quarter, in terms of -- I think we'll be able to see a certain level of production. That's our assumption. So initially, at the beginning of this year, compared to that level and the production level that we are anticipating right now, I think, basically, it is going up.

[Akihiko Uchino, analyst]

So if you look at seasonality in the middle of third quarter, the production tends to go down. I think that's a normal situation. But basically, does that mean that the momentum is improving because the inventory is at a low level? So compared to a normal year, this is a more sustainable momentum that you're saying?

[Unknown Executive]

Yes, I think that's the correct assumption.

[Akihiko Uchino, analyst]

Yes. My third question is that -- so again, this is about MITSUMI. So the increased production of actuators. So I think you have frozen the increase of the production. So how about is your update of the situation with the actuators?

[Unknown Executive]

So I think we have always explained about that. For the Philippines, productivity should be improved. The asset efficiency should be improved. That will be a focus. And I think next fiscal year onwards, there will be more business opportunities. Thailand and Cambodia, we'll be looking at those countries. So that the overall by plant allocation should be considered, and then we should base our plans on that allocation. So there's no change from -- your stance hasn't changed from the previous meetings.

[Operator]

Next questioner from Mizuho, Goto san please.

[Fumihide Goto, analyst]

I have 3 questions. I'll go one by one. First, about U-Shin, the progress of PMI. The [indiscernible] factors are very difficult. And so I think there are things that can be implemented management wise. And what's your current view of the progress and the effect?

[Yoshihisa Kainuma, executive]

This is Kainuma speaking. Due to COVID-19 until period recently, production have been halted. But now, finally, we are seeing signs of resumption. We are implementing many things now for all products. Markup is being investigated, one by one. We are studying that and we are asking customers for their cooperation. Price increase and the withdrawal business in Southeast Asia and others. So there are many things that we can work on.

And in November, I think we can have a more solid explanation about U-Shin. But currently, all we can say is that we are doing many things.

[Fumihide Goto, analyst]

Understood. I'll look forward to your next earnings briefing. And you maintained -- you made no changes to the full year guidance, and the risk factors for the second half. What are the things that you are worried about as management? What risk factors are you concerned about? If you can talk about that. And subcore and Eight Spear, if you could separate the two, I'd appreciate it.

[Yoshihisa Kainuma, executive]

Foreign exchange is the perennial issue. So excluding that, in our mind, the biggest risk is the result of the U.S. presidential election and the ensuing impact on the U.S.-China relations. Because many of the original assumptions that we have, have been disrupted. For example, the cell phones, the mobile phones. Good balance. We were able to bring to a very good situation, but the high-end products today, Chinese customers are faced with a very difficult situation. So we have to keep a close eye on all these developments. And overcoming the COVID-19 vaccines to be developed and supplied in fall. What would happen, what would not happen. We really don't know. Everything is uncertain. And this summer, we are seeing an increase in the number of people affected. And when winter comes in the Northern Hemisphere, what is going to happen in terms of infection. That's another risk.

Now as has been mentioned many times, we enjoy lion's share in many products. So once the economy returns, we can enjoy good business. And we're not going to be cut surprised by an increase in production. We are already -- we are always preparing for that. But we have to manage and control all possible risks for the time being.

[Fumihide Goto, analyst]

Understood. My last question, a very simple question. Always pursuing new products. You are working on that. From the second half to next fiscal year, what are the areas? What are the products that are expected to make contributions?

[Unknown Executive]

Well, because of COVID-19, everything has been pushed back, postponed. And so for this fiscal year, 0 is the answer. But in terms of positive challenges that we are making, Smartlock launch is what we are working on. And we're hoping that in October time frame. Product launch will be realized. We do sell masks as well, surgical masks and MinebeaMitsumi brand name to become more common to the general public. I think this will be a good opportunity. So this we call B2C business. The products that would allow us to go further into B2C business, we will be pursuing that. But in terms of sales contribution, it is not going to be large. We don't have much expectation there. But going forward, we believe that, that will be one of the major trends.

So as a starting point, we are thinking of starting and increasing these businesses. But in terms of major new businesses, everything has been pushed back. Plants in Cambodia and Thailand, the plant factory audit has been suspended. No progress. And we are suffering from that, but we're not the only one. All the vendors are faced with the same issue. No progress in the factory audit. So by overcoming all the difficulties related to the COVID-19, I think that would give us the opportunity to change the way we do business.

[Operator]

Next, SMBC Nikko Securities, Watanabe san, please.

[Hiroharu Watanabe, analyst]

This is Watanabe from SMBC Securities, Nikko Securities. Well, first of all, so the COVID-19 expenses of JPY 4 billion, how are you -- have you treated this? So can you talk about this using the P&L? So it has been for JPY 4 billion extraordinary expenses last year. So COVID-19, is it in SG&A or is it in cost? Sales? How should I look at it in the P&L?

[Unknown Executive]

So it's in cost, however, but it's all expensed. So it's unrelated to inventory. So for the other expense -- other expenses, it's in other expenses, excuse me, it's in other expenses. It's in cost.

[Hiroharu Watanabe, analyst]

So going forward, how should I think about this? So going forward, is this going to happen again? Or isn't -- it's going to come up in the second quarter again?

[Unknown Executive]

So the lockdown -- the level of Latan has changed. So it won't be 0, but I think it will go down to a minimal number.

[Hiroharu Watanabe, analyst]

So Yoshida san, you are in charge of this, I would like to ask you. In terms of the COVID-19 countermeasures, what is your stance for that?

[Katsuhiko Yoshida, executive]

Well, I actually -- speaking, so I would like to answer to your question. So right now, it's about 2 days a week. It used to be 3 days a week. We connect sites all around the world. Well, actually, right now, it's once a week that we do this conference. So I think what is becoming more and more serious is Mexico. That's the country is becoming serious. The Philippines. Those countries, gradually the people who are infected are becoming -- the number is increasing. But of course, it's very clear that what we should do. So we are very thorough in these countermeasures. So we are always vigilant. We have not dropped our guard at all.

[Hiroharu Watanabe, analyst]

So your controlling so that people will not be affected?

[Katsuhiko Yoshida, executive]

Yes. So we will prevent people by, in fact, not to go into the plant. So if necessary, all the employees will go through PCR testing. That's what we are doing. So if necessary, we will quarantine people as with people if necessary.

[Hiroharu Watanabe, analyst]

Sorry, I would like to make a correction. So basically, it's in other expenses is in the JPY 4.2 billion other expenses?

[Unknown Executive]

It's included in here, [indiscernible] related expenses.

[Hiroharu Watanabe, analyst]

Understood. Well, my second question is that I would want to confirm about your strategy about U-Shin. So if you look at the automotive industry, I think it will take about 2 to 3 years to go back to the pre-COVID-19 situation. So if you just take normal measures, I think, basically, it will take a lot of time to go back to the profit level that you think is ideal. So are you going to take kind of a business as usual countermeasures? Or are you going to accelerate your measures compared to the original plan?

[Unknown Executive]

We are actually accelerating our measures compared to the original plan. But the biggest issue is Europe. So Europe's price in Europe is not rational in terms of the -- setting the price is not rational at all. We have seen those examples. So first, we have to correct the situation. That's where we have started. So of course, when we are in a difficult situation, that is an opportunity. And I said that in November, we'll be ready to announce more about U-Shin. But for specific measures, in the November earnings results meeting, I think we can give you some more specific detailed information.

[Hiroharu Watanabe, analyst]

Understood. Lastly, my third question. So in terms of the external environment for M&A has become better, but from the -- in terms of the capital market, the good companies are expensive. And then the companies that are not performing well is cheap. So basically, you tend have to buy at high price, even if it's another good opportunity. So I think there's things that you see rather than us. So can you explain?

[Unknown Executive]

Yes, exactly. We understand what you say. So we want to be very careful in going forward with these deals. Well, basically, we have some good and bad deals. Some companies are very good. I think in normal times, this is the same situation. There'll be some jewels out there. But I will look at the target and if we will consider whether we can actually tap in with the synergy, I think that's the most important point. So we will observe that fact and go forward, if necessary.

[Operator]

The next question is from Akizuki san from Nomura Securities.

[Manabu Akizuki, analyst]

A very simple question on figures, a clarification. Q1, MITSUMI consignment sales was the consignment sales of MITSUMI in the first quarter. And if possible, can you talk about the projection for the second quarter as well?

[Unknown Executive]

First quarter JPY 12.7 billion and second quarter approximately JPY 40 billion, which would mean that quarter-on-quarter, consignment is increasing. And therefore, the sales of mechanical components are expected to go up. You're talking about first quarter and second quarter?

[Manabu Akizuki, analyst]

No. Fourth quarter to the first quarter, Q4 to Q1.

[Unknown Executive]

Q4 to Q1. Yes, an increase. Of course, Q4 FY '19, that was a period where the plants in China were shut down for almost 2 months. So the utilization rate was very low, whereas in the first quarter, Q1, although there were the component supply issue, the plant itself was operational. And therefore, Q4 to Q1 increase in sales.

[Manabu Akizuki, analyst]

Which would mean that the camera actuators sales dropped significantly. Was that the factor? Are you talking about the first quarter camera actuator sales?

[Unknown Executive]

Yes, compared to the fourth quarter. Yes, you are correct.

[Manabu Akizuki, analyst]

And that has an impact on profit as well, correct?

[Unknown Executive]

Yes.

[Manabu Akizuki, analyst]

My second question is on camera actuators. The sales to the Chinese customers are not expected to go up because of the China-U.S. relation. But could you give us an update on Cebu? I understand that even stricter restrictions have been imposed in the Philippines, part of Philippines today. So in the situation, can you really expect a steady resumption of operations in the second quarter, July to September?

[Unknown Executive]

Well, operation wise, it's 100% the utilization rate. And as was mentioned earlier, very harsh or very strict controls are underway. So far, we don't see any issue. Simply put, this is the beauty of large-scale operation. So what we are doing is partly when sales are not expected, it would mean that there's redundancy in people. Surplus in people. So we do the reverse isolation and dispatch those people to the areas where manpower is needed. And therefore, in our operation, well, I'm not there personally, so I don't know to what extent exactly, but I am told and I have confirmed that there are no issues.

Whereas in Mexico, we're smaller scale in operation is the scale. Then when you don't have many people and when the people affected -- infected increases, that will be an issue. And so in Mexico -- in the case of Mexico, from Japan or China, we need to transport products to continue the production, the operation, plus continue the production to the extent possible. It's the hybrid operation. Whereas in large-scale plant, there are many workarounds that we can implement.

[Manabu Akizuki, analyst]

I see. My last question. Rod ends and fasteners. I'm listening to the foreign operators for aircraft, sales are to further go down in July, September quarter. Even greater sales decline is expected going forward. I'm not an expert in this area. So could you share with us your view on this?

[Unknown Executive]

Well, basically, personally, as was mentioned in May, even in that situation, what the time frame would be for the COVID-19 to be placed under control, that will be the key determining factor. Looking at Japan and others through the lifting of lockdowns and the self-imposed restrictions, people will go out and the number of people infected would be -- would increase. Now what about the overall trend? It's already at the low level. So we have already incorporated that. And we are blessed in that we have the defense business. And therefore, the negative impact is limited in that respect. And in fact, at a time like this, we can put into practice what we had to do, what we wanted to do, including the inventory management as well as work in progress management.

[Manabu Akizuki, analyst]

I see. So the level for April, June, the first quarter, would remain for some time. Correct?

[Unknown Executive]

Yes, that is correct.

[Operator]

So we have reached the end of this meeting. So I would like to end the Q&A session at this point. Thank you very much for participating. We'd like to end the meeting. Thank you.