Renesas Electronics Corp

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Thank you, everyone, for joining Rina Sasaki Electronics Fiscal 22 Q4 and Full Year Results Briefing. Simultaneous interpretation channels can be used. please click on the globe mark at the bottom of the screen and choose the language of your choice. Speakers, please turn your video on. At today's briefing, we have with us our representative director, president, and CEO, Hitetoshi Shimada, SVP and CFO, Shuhei Shinkai, SVP, co-general manager of automotive solution business, We also have staff members on the call. Mr. Shibata will greet you all first, then after, Mr. Shinkai will explain results for Q4 and the full year, followed by a Q&A. The total amount of time provided is 60 minutes long. And the materials that we're going to use today for the briefing are the materials available on our investor relations site. Without further ado, I would like to pass on to Shibata-san. Please turn your mic on and go ahead. Hello, this is Shibata speaking, the CEO. First of all, in Turkey and Syria, there was a massive earthquake, and there are those who have been directly or indirectly been affected and presumably may be in pain, and I would like to extend my condolences. In Turkey, we have several dozens of employees there, And back in 2011, Turkey. We were affected by the Great Eastern earthquake and we were supported by our friends from Turkey and other countries. We still have that fresh in our minds, so we would like to make donations and try to extend our support as much as possible. Thank you for that and for today. It is our full year results briefing. For fiscal year 22, revenue, as well as profitability, gross margins, operating margins, and EBIT margins have achieved record highs for our company. For GAAP and non-GAAP numbers, for non-GAAP, it's pretty obvious, but even for non-GAAP, we were able to achieve record high numbers. Last year, we had an analyst or capital market day And I touched upon this. But for last year, from many industries and stakeholders, they were telling us that we finally came back to the global market. And we were being extremely encouraged. And now being able to see it be materialized in numbers is something that we feel very happy about, and especially Although there were a lot of predicaments and difficulties, we were able to make these achievements because of our 22,000 employees and their hard work. So I would like to take this opportunity to tell you that we feel proud of these achievements. So regarding the market, PC, mobile, consumer in these segments, the considerably large assessments or correction has been ongoing. And I think Mr. Shinkai will touch upon this later, but for inventory levels and amount, whether it be our inventory or distribution inventory, I think we are fairly able to control it well. So I hope you can check that. And under these circumstances, At early last year, we did some share buybacks, but once again, we have decided to do another round of share buybacks. This time around, market corrections are ongoing, but our stock prices have relatively been firm. Also, with the acquisition of Dialog, we did a capital raise and We wanted to try to buy that portion back at least. So from these two reasons, up to 50 billion, which is smaller in scale compared to last year, but the share buyback scale will be up to 50, 50 billion yen. Furthermore, finally, another point I wanted to make, which is a housekeeping announcement. I don't want to forget it. That's why I'm going to say it now instead of the end. But typically, ever since I've become the CEO of Twice a year, towards the capital market, we have been providing updates. But like we've been communicating, we are now at a comparable position against our peers compared to the past, humbly speaking. So for this analyst day as well, like our peers are doing, we would like to do it once a year. That is the cycle we would like to follow in updating you going forward this year. We haven't decided completely yet, but we're thinking around the May timeframe where we could provide presentations. So the way we are going to be conducting this will be different from the past. We hope you understand. So now, without further ado, I'd like to pass over to Mr. Shinkai, who will go into the details. This is the CFO. My name is Shinkai. Q4 and fiscal year 2022 results, I would like to explain based off the presentation that has been posted on our investor relations site. Please turn to page four in the presentation. So for Q4 results, as you could see in navy in the middle, revenue was 391.3 billion yen, gross margin was 56% operating profit, 135.7 billion, which was 34.7% operating margin, and 109.3 billion in profit attributable to the owner, excluding FX impact, it was 85.6 billion, and 155.5 billion for EBITDA, and the dollar was 144 yen against the dollar, and 144 yen against the euro for this period. And going three columns to the right, the comparison gets to our expectations are shown. I'll explain this later. And for the full year results, it is in Navy once again on the right. It was 1 trillion 502 billion plus for revenue. And this time around as well, we wanted to show you the constant level of net profit. Therefore, net profit excluding FX is also shown here in Q4. the cash pooling method between group companies has changed. And when we conducted this change, again, the losses related to FX has been incurred. Ever since Q1, the pooling factor FX impact exposure has become quite small. So we have been able to minimize its impact. Please turn the page. The revenue trends are shown here by quarter. So for Q4, it is on the very right. Overall, on a year-over-year basis, revenue went up by 24.5% and Q1Q by 1%. If you exclude FX impact on year-on-year, it was up by 4.1% in revenue and minus 3.5% Q1Q. For the breakdown, the details are shown here. Automotive went up by 7.5% Q1Q and industrial infrastructure IoT went down in revenue by 3.5%. Likewise, if you exclude FX impact, Q1Q automotive was up by 3.3%, and industrial infrastructure IoT was down by 8.6%. Please turn the page. For Q4, revenue and gross operating margin, to talk about the total purse, comparison against guidance is shown at the top right. So revenue... Compared to the median, it was up by 1.6%. It exceeded our expectations, and half of it was due to FX, and the other half was due to automotive. In the overseas market, we were able to see growth. And gross margins, compared to our guidance, it was above by 2%. Major reason was product mix, which was about 40%. And manufacturing expenses improved as well. And for product mix or for FX, the foreign currency ratio went up and its impact was about a quarter and the rest was due to product mix. And royalty sales increased. And for manufacturing expenses, at the end of the year, last year, we did some regular inspections that went down, and mainly around OSETs, manufacturing expenses went down. That led to an improvement. And for operating expenses, R&D, SD&E was below our expectations, and operating margins as a result was 4.2 percentage points higher than expectations. And looking at the bottom right, Q1Q, So revenue went up by 1%. Excluding currency impact, it was down. And by segment, industrial infrastructure, IoT, was down due to less demand from PCs and so forth and mobile. And for gross margins, it was minus 1%, which point because of less production recovery and higher production cost, and for operating cost, R&D, SDNA went up, respectively. Next is by segment, which you can refer to on the left-hand side. Gross margin and operating margins on a Q&Q basis. Industrial infrastructure, IoT, changed substantially in Q4. there was settlement expenses related to a litigation, which is one off that was recognized. Therefore, it was half of the decline, Q and Q. So next page, please.

This is in-house inventory. On the right-hand side, the company total DOI declined Q and Q, and it is 28 days. Looking at each segment, For both of the segments, DOI declined. As of the end of the fourth quarter, the yen strengthened. So that was a positive element. And excluding FX impact, it was a QOQ increase to 111 days. This is sales channel inventory and WOI. And The WOI QonQ declined in both segments. It is seven weeks or so. This is inventory analysis and the outlook from in-house inventory to the left. From third quarter to fourth quarter, the actual amount declined, and that was due to FX impact. Excluding FX, it increased. The evaluation increased reflecting material and utility cost increase. Also for materials in response to VCM, we have conducted upfront ordering of the maintenance parts and other purposes for stable operation. We expect this to slightly increase in the first quarter. Regarding work in process, we have strengthened the DAI banks and we are continuing. On the other hand, we suppressed the welfare input, including purchase from foundry in response to the demand. So our first quarter work in process will be a slight decline. The DAI bank operation We have a target volume per product line. And depending on the product, they are different. And volume base, four weeks to 12 weeks. Average is six to seven weeks. That is the target of the building up of a die bank inventory. Six to seven weeks means roughly 45 days. We are to hold in a wafer. So the monetary amount will be half. the impact to DOI will be half, roughly 22 to 23 days. As I have said, as of the end of fourth quarter, DOI was 98 days, out of which Daibang's actual for in-house and foundry combined 18 days. The target is 22 to 23 days, so we needed to build up some more. Out of 18 days, roughly four days is the in-house production part. Legacy product category, we completed almost entirely the expansion for Daibank, but we still need to expand the inventory level of Daibank for growth products for finished products. goods. In fourth quarter, mostly for automotive application, we shipped the production done in the previous quarter. On the other hand, in the industry infrastructure and IoT, we suppressed the shipment to the sales channel by looking at the demand. So it is flat. In the first quarter and onwards, according to the demand, we will conduct shipment. So the inventory level of finished goods will likely be flat. For all of the channels, the trend of the demand is being monitored quite conservatively so that there will not be excessive inventory in the sales channel. So first quarter as well, we will conservatively manage the inventory so as not to consume the future demand. For industrial and infrastructure IoT, fourth quarter, the inventory actual amount and WI is slightly declined Q on Q. In the first quarter, we expect slight decline of the inventory level. But we also expect the slight decline of the demand. So we expect WOI to increase slightly. In the automotive, we recovered what was decreased excessively in the third quarter. However, the financial demand was higher than our expectations. Therefore, for actual amount in WOI, saw a Q on Q decrease. So in the first quarter, in order to compensate for the excessive decrease in the fourth quarter, we expect both the amount and WOI to increase. This is the utilization rate of the front end. And fourth quarter, wafer input base utilization was 80% or so and in line with our expectation. There was a scheduled maintenance at the end of the year and the beginning of the year, and the days of operation were lower. That was the reason. And for the first quarter, due to decline in the number of days of operation and production adjustment, we expect the rate of utilization to slightly decline. This is EBDA and FCF. Fourth quarter EBITDA is $155.5 billion. Fourth quarter operating cash flow was $106.2 billion. Free cash flow was $83.9 billion. From EBITDA to operating cash flow, $38 billion was the increase of the gap QonQ. And 30% of the reason is one-time reason and one-time Also, the upfront payment in order to ensure production capacity. Also, settlement of the patent lawsuit and other working capital increase is included. This is the forecast of the first quarter 2023. Please look at the first quarter column highlighted in dark blue. The revenue in midpoint forecast at 355 billion, gross margin 54.5, operating margin 32.5%. Revenue, we expect 2.4% increase year-on-year, and Q on Q, minus 9.3%. Excluding foreign exchange impact year-on-year, minus 7%. Q on Q is minus 3.3%. And gross margin, Q on Q decline is minus 1.5% in point. The reduction of the in-house production is the major reason. We are expecting the adjustment in the production and for production cost, foundry cost, raw material, utility, the increase of those costs are reflected The operating margin Q on Q, a 2 percentage point reduction, affects itself due to seasonality. It will decline, but due to the revenue decrease, we expect a negative operating margin. Next page, please. This is the acquisition and tender offer of owned shares. Following April last year, we will conduct the acquisition of our own shares. The upper limit is 50 billion, slightly lower this time. INCJ is planning to tender 40 million shares. The impact is shown to the right. Next page, please. Please turn to page 18 of the appendix. Excuse me, page 19. These are gap and non-gap reconciliation. The fourth quarter non-recurring items, there's a large number. This is the reconciliation cost for the patent-related lawsuit. This is the CapEx capital expenditure up By first half of 2022, major investment for the increase of the production is being completed. So in the following period, we expect one digit, single digit capex per sales. Thank you.