Tdk Corp S/Adr

Thank you very much for waiting. It's on time, so we'd like to start the performance briefing, the first half of fiscal year March 2021, the sessions.

Today's speaker is Mr. Ishiguro Ishiguro, the President and CEO, Executive Vice President, Mr. Tetsuji Yamanishi. These two are the speakers today.

Thank you very much.

I'm Yamanishi.

Thank you very much for joining us today for this performance briefing of the first half of fiscal year March 2021. Thank you very much. The first of all, I'm going to explain about that and the business performance of the first half of this fiscal year. And the points to be highlighted and that's getting into the Q2 and the lockdown have been lifted on a global basis and now the gradually that's the social and economic activity have reopened. And also for the major customers have restarted the production activity, and then we can take advantage of the clear rebound of the demand in electronics market. And the first in the Q1, due to the negative impacts after the suspension of the products and automotive in the markets, and also the demand of HDD have dramatically declined, but getting into the second quarter, that demand have significantly rebounded. When you look at ICT markets, in the q1 the remote working and remote learning have made progress for leading that digital transformation dx and it have been accelerated and as well as the mobile devices and the 5g related demand have extended to the over our forecast and now this momentum is still maintained in the q2 and very steady and the first half as a whole and now we could achieve that and the significant expansion of both the sales and operating income and as a result and when you look at that on the first half and although and in the first half we are due to that the lockdown the negative impact of lockdown it have declined by 2.2 percent in sales and ON A YEAR BASIS AND 9.3% DECLINE IN OPEN INCOME. IN PARTICULAR FOR THE Q2, NOW, WE COULD HAVE THE RECORD HIGH AND THE SALES ON QUARTERLY BASIS AND WE COULD AS A WHOLE SECURE THE GROWTH AND BOTH SALES AND INCOME. AND GETTING INTO THE Q2, The demand in the automotive market rapidly rebounded, and so the passive components like MLCs and the inductor and the sensor have expanded the sales, and also, and also in the Q2, that the acceleration of the digital transformations is still going on, and all these related products demand is steady, and just passive components like a secondary battery and the high frequency components have pushed up and make big contributions to the favorable business performance. And when it comes to hard disk drive head and Q1, that was adversely affected by the suspension of the factory operations, but now the production of the customer have gradually rebounded and it will lead to the improvements. Now, in order to deal with the deterioration of business due to the COVID-19, we have started our rationalization efforts. As we're making the business efficient, and we will continue to make exactly the same efforts, although that's now that we're observing the recovery of the demand, and now we have and it have lead to the synergy of over and exceeding than the forecast and have made a big contribution to the further improvement of business. Next, let me talk about the business overviews, including that's nearly impacts of the appreciation of the yen and 13.9 billion yen and the impact on the sales and the 300 million yen of the minus and impacts of an income, so the sales was 691.1 billion yen. Minus 15.9 billion yen, 2.2% decline in a year. The upper income was 62.4 billion yen. The minus 6.4 billion yen, 9.3% decline in a year. Income before tax was 63.2 billion yen. Net income was 42.2 billion yen. Earnings per share was 334.27 yen. When it comes to that currency sensitivity, there's no any change so far. Next, let me talk about the segment-wise business overviews of the first half, but not only talking about the year-on-year, since then we have the major change in the demand from the Q1 to Q2 this year, so that's why not only talking about the first half year-on-year performance, but also I'd like to talk about the Q2 performance on the quarter-on-quarter basis from the Q1 this year, and also as well as that's that Q2 performance on the year-on-year. We like to use these three measurements. First of all, the passive component sales was 138.3 billion yen, minus 8.1% year-on-year, and the operating income was 17.4 billion yen, minus 20.2% decline, and also income margin was 9.5%. The sales of Q2 was minus 2.5% year-on-year and 14.9% of decline in the operating incomes and the profit margin was 9.8%. The demand of automotive markets have rapidly recovered in Q2 and also for the ITC market. We could observe that the 5G-related demands have been very steady in Q2. That's why the sales and operating income of Q2 have surged from the 17.8% to 76% for the operating income for each from the Q1. When you look at the first half basis and now high frequency components which are based on that the steady growths and the demand of the 5G have grown and also I mean our film capacitors have secured that's the incremental income. For all the other products, now the steel end is struggling to this, declining the sales and income due to that and the poor demand and automotive market in Q1. Let me explain about for each product and the Q2 performance. First of all, ceramic capacitors. Now the sales for the 5G base stations have dropped from the Q1. But on the other hand, now the market, the demand for the automotive market have rebounded so that we can have the incremental sales better now due to the negative impacts of the consumption of the strategically part of inventory from Q1. And now we have the less operating income, the one that comes to Q2. Now that's all this. The automotive market has recovered to the level of the last year's Q2. Also, from these capacitors and have increased also for the industrial equipment market as well as automotive and recovered to the level of the last year's Q2. When it comes to inductive devices the demand for the automotive market have rebounded, and also the startup of the new smartphone product devices have pushed up the demand in ICT market, as well as that increased demand for the industrial equipment. We could recognize the significant increase from Q1, and we have secured that operating income growth. When it comes to the sales for the automotive markets, now they have recovered to the last year, the Q2 level. And for the automotive market, when it comes to high frequency components products, we have been very steady in the 5G related products. And we could maintain the same level as the operating income and sales for the Q1. For the piezoelectric components and the circuit protection components, there have been an increase in both the sales and the components and the automotive ICT and industrial equipment. But still, we're struggling in the automotive markets. And now, next, the sensor application products business. The sales was 34.5 billion yen, minus 11.3% in sales year-on-year basis. And the operating laws have just a little bit and slightly shrunk. And the sales of the Q2 was due to that recovery of the automotive markets and also we have a very favorable in the business for the startup of the new smartphone devices in North America and as well as that incremental sales for our customers in China. Now it has grown by 34.7% on quarter on quarter from the Q1. and operating income shrunk by 2.2 billion yen, and on a year-on-year basis, and it have grown, declined by 4.8 billion yen, but now the operating income shrunk by 400 million yen. On a one-and-a-half basis, Due to the impact of declining in the market and the Q1, now the temperature and pressure sensor and whole sensor have suffered from the declining sales and income. And for the MEMS sensors, now even under that, that the very weak mindsets of the consumption of the carbon-19 and also microphone demand for the device have declined and the motion sensors and for the smartphone models and mounted motion sensors have declined so that's why it will lead to that have to the operating loss. On the other hand, when it comes to TML sensors, the sales for the smartphone and contributed to the market share expansion, it have been steady and it contributes to the significant increase in both the sales and income. Now, this is the quarter-on-quarter basis performance of the Q2. The temperature and the pressure sensors are favorable in all the modern markets, and still we have been a slight operating income, but we get ready to make a turnaround to make the business profitable for the whole census. Since the supply chain for the automotive market is very long, so that's why it's still in the middle of the full recovery, so this has been on the par with the level of Q1. For conventional sensors, so the sales for the automotive markets have still and have not recovered to the level of the Q2, the previous year. When it comes to TML with sensor, now, Since also the startup of the new smartphone devices will contribute for the significant increase of sales and also now the operating income too. For the MEMS sensor, now, the orders for the gaming console declined from Q1, but on the other hand, it can be more than offset by the increased sales suit of a major customer in China, and now we have a growth in the sales and also the shrinking. We could shrink that operating loss. Next, let me talk about magnetic application product business. Sales was 88.7 billion yen. It was the minus 19.4% in a year. And operating loss this time was 2.5 billion yen. So when it comes to the Q2 and Q1, The suspension of the production operation have been negatively affected on the HDD, but they have recovered in Q2, and also for the HDD suspension have increased for near-line HDD, and for the magnet have been rebounding, and the demand has now turned out to be favorable, and on a quarter-on-quarter basis have grown by 31.6%, and now we have turning the business into profitable in Q2. on one first half basis and because of the decline in the total demand of HDD and related to that the total and the declining number of shipments of the HDD had and was also where the sales, the drop of the HDD assembly and now we have But both of the sales and the operating income of the digital are a little bit related. But on the other hand, the HDD suspension has been very favorable for our business with a customer for the new HDD and have increased the shipments and we have secured the positive growth in both sales and the income. But the magnets and the steel and the automotive market is still in the middle of full recovery, but now we are observing improvements. Now, when it comes to the quarter-on-quarter basis performance of Q2, as for the HDD head, volume index have improved from 55 in Q1 to 91 in Q2 and to recognize a significant increase in the sales and income. And for the HDD suspensions, then we have the oldest, more oldest from the major customers on the near-line HDD, as well as that the dual-stage actuators and a smaller type of, those are the more profitable. The products have been pushed up the sales. And for the magnets now, and the incremental business when automotive markets is now, we have the more sales, but still we have the operating income. Next, energy application products. The sales was 357.5 billion yen. Operating income was 79.6 billion yen. And it's 12.4% increase in growth year-on-year for the sales and 15.4% of operating income growth. And operating profit margin. was 22.3%, and we observed improvements of profitability. When it comes to specifically for the Q2, now the secondary battery, the charger of the battery is still very favorable, and at the same time, the business world is... The power supply that pushed up due to that mainly business for the semiconductor manufacturing business so that on a quarter basis that the sales were increased by 27.9% and the operating income was pushed up by the 54.3%. There also is now in the first half for the secondary batteries and due to the declining of the protection needs of the smartphone, it slightly dropped, but on the other hand, PC and tablet business have more than offset this declining of the smartphones, and substantially. And the residential ESS, and this is for the storage batteries for the residents, and the e-bike. And this application for the power cell products. So the power cell products have just fully started. So all in all, we have the significant increase of sales and income, and the power supply have suffered some, a little bit decline. This is on a quarter-on-quarter basis with Q1. But second, the battery is now at the peak season of smartphone. The push-ups that sells significantly for the sales of PC and tablet have further and push-up and increase from Q1. And also on a year basis, we have the increase on sales and income for the power supply. And we have also increase in sales and profits due to that industrial equipment business favorable.

Next is the breakdown of the operating income changes of minus 6.4 billion yen. Although sales of secondary batteries expanded, sales volume and passive components and HDD heads declined, leading to a decline of 4.7 billion yen. 10.7 billion decline came from sales price reduction. On the other hand, we have focused on rationalization, including cost reduction efforts to mitigate the negative effect on our earnings coming from COVID. This translated to a 12.5 billion positive impact. At the same time, we are strengthening our corporate structure through 1 billion of benefits from restructuring. M&A expenses was decreased by 500 million as SG&A development costs increased due to expansion of the secondary battery business and the acceptance of filter fees ended this year. Due to this, SG&A expenses increased by 4.7 billion. There was a negative impact of 300 million due to exchange rate fluctuations. All in all, operating income declined by 6.4 billion. Next is the consolidated results for Q2 of fiscal year March 2021. Net sales was 381.7 billion, up 3.1% year over year. Operating income increased 0.2% to 44 billion yen. Income before taxes was 42.5 billion. Net income was 29 billion. On a quarterly basis, both net sales and operating income reached a record high level. This shows the difference of the net sales and operating income by segment comparing Q1 and Q2 of this fiscal year. I have already explained about the passive components as such at the four segments, so I will only refer to businesses included in other that saw major changes. In the other segment, net sales was $11.4 billion, a 25% decline quarter-on-quarter. Operating loss was $2.8 billion. The loss increased by $900 million against the previous quarter. The major reason of the decline was the deterioration of the microactuator business, which is a component of the camera module for smartphones. We are expanding our share mainly in high-end models of a major Chinese customer with unique camera module products. But sales has dropped sharply in Q2 and profitability is worsening. So this has the first half performance and Amanishi has explained about that. Thank you for your attention. Next For the full year outlook, Mr. Ishiguro will explain. Hello, I am Ishiguro. Thank you very much for your participation. From my side, I will explain about the full year projections for fiscal year March 2021. First, I will talk about how the market environment has changed in the past six months compared to our initial forecast and how that has impacted our performance or our demand trend. From a macroeconomic perspective, on the global basis, it is trending slightly below the initially anticipated minus 4% growth. I think you are all aware of this. Going forward, we feel it necessary to closely watch the impact of this second and third wave of COVID. If we go by device, we anticipate that demand for ICT devices such as PCs, tablets, and smartphones will be slightly over our forecast. On the other hand, the automotive business is still below our initial forecast as demand recovery is slow. As for the demand for components, demand for devices is strong for the ICT market. Although we have seen some impact of the tightening of regulations against the major Chinese smartphone manufacturer, the world trend is favorable. As had been explained previously, looking at the demand for the automotive market, orders for parts have started to recover in Q2. Demand recovery for the overall automobiles has not been strong, but demand for parts have started to recover. We will watch the trend carefully as this may mean that the customers are replenishing their stock to prepare for the market recovery or demand for future expectations may be included. As for the future outlook, we cannot completely dismiss the impact of the second and third wave of COVID and concerns about the inventory and demand based on expectations. However, based on the first half results, specifically the recovery in Q2 and the recent order trend, we have decided to conduct an upward revision for the full year outlook. As we will continue to invest in businesses that can expect strong demand and growth, mainly in secondary batteries, we will increase our capex spending by 10% compared to our initial plan to 200 billion yen. With the recovery of our performance, we are increasing our interim and year-end dividend. That will bring the dividend outlook for the year to 180 yen. Considering the demand trend for the second half based on these market predictions, I will explain the image of changes in sales for the third quarter. we anticipate the world sales to be the same level as Q2, including seasonality factors, so which is at a high level. For passive components, we forecast a slight decline between 1% to 4% compared to the second quarter. Although sales will increase for the automotive market and smartphones mainly in 5G, Sales for 5G base stations will decline as it has peaked in the first half. In sensor application products, orders for temperature and pressure sensors will continue to come for the automotive market. In addition, we are anticipating orders to increase for whole sensors where recovery has been delayed. Demand is peaking for smartphone applications for TMR sensors. Sales will increase for MEMS microphone in the smartphone and IoT device applications. Despite the sales decline of MEMS motion sensor to a major Chinese client, sales will increase in other clients. Overall, we are forecasting an increase between 8% to 11%. Going to magnetic application products in HDD heads business. Although volume is going to grow for near-line HDD heads, HDD heads for consumer electronics such as for PCs and game consoles is going to decrease. For the overall head business, sales volume will go down by 4%. Sales of the HGD assembly business will go down as well. For the total magnetic application products, we are forecasting a decline between 5% to 8%. As for the HGD suspension business, near-line suspensions are doing well and we'll see a slight increase from the second quarter. We are anticipating sales to increase for magnets in line with the growth in demand for the automobiles. In the energy application products, we are forecasting sales to peak in the third quarter as the demand for smartphones is going to peak and demand for PCs and tablets will be strong. Sales for high-power products such as residential ESS is going well for power supply. For power supply, sales will be flat. For industrial machinery such as semiconductor production equipment, so this will be flat for the second quarter. Overall sales change will be between 0% to plus 3%. Lastly, this is the forecast for this fiscal year. Based on the demand environment and sales outlook that has been explained, we will make an upward revision of the initial forecast. The revised full-year outlook will be as follows. Net sales, 1.4 trillion yen. Operating income, 110 billion. Income before tax, 111 billion. And net income, 76 billion. We have initially announced that we will pay 80 yen per dividend for both the interim and year-end, 160 yen for the full year. However, based on the increase of earnings per share, we will increase the dividend by 20 yen for the year, paying 90 yen for the interim and year-end, and 180 yen for the full year. The assumed exchange rate for the second half is 105 yen to the dollar and 124 yen to the euro. We will revise our capex upwards by 20 billion yen to 200 billion yen for the full year, mainly in the secondary battery business where demand is growing. That is all from me. Thank you for your attention.