Tdk Corp S/Adr

Hello, this is Yamanashi. I do appreciate your precious time. This must be the schedule. And also, we are being connected through the web systems. It's rather inconvenient. Again, I'm so happy to go through the highlights for the performance for the fiscal year in March 2020 on a full year basis. Thank you indeed for your precious time. That said, again, I'd like to go through the highlights of the performance. First, key points. Economic slowdown in China and the rest of the world became so clear due to the worsening relationship between the U.S. and China day by day as we moved toward the year-end. In the fourth quarter, economic activities in each country stagnated due to the COVID-19 pandemic, impacting the production of electronics and the demands for electronic components. Its impact was beyond our imagination back in the beginning of the year. Net sales was down 1.4% year on year. Operating income was down 9.2% year on year. Amid the severe macro demand globally throughout the year, rechargeable batteries enjoying the strong demand in the ICT market performed well since the beginning of the year. Energy application product segment recorded its sales and profit by making efforts to expand its sales with the expanding applications. The US and China trade friction had a major impact on the automotive and industrial equipment markets. creating a much bigger sluggish demand than we had expected since the beginning of the year. Many passive components and products, and the sensor and application products, particularly the conventional sensor products, were affected negatively. In contrast, the ICT market demand turned out to be rather firm. Sales in the ICT market grew year on year. With the 5G demand increasing, the rechargeable batteries and high-frequency components drop overall earnings from the expanded sales for smartphones and base stations. In the fourth quarter, we came to our conclusion that the sluggish demand for automotive and industrial equipment markets is here to stay, so it will be rather difficult for us to have a big recovery in profit. So we posted about 6.5 billion yen for impairment for the production facilities for the magnets and aluminum capacitors. We also booked about 1.8 billion yen impairment loss for the idle facilities in light of the revised development operations. Next, the highlights of the numbers. The stronger yen against the U.S. dollar and other currencies. We have the sales and operating income affected by 40.7 billion and 3.1 billion yen respectively. With this, net sales was 1,363,000,000 yen, down 18.8 billion yen year-on-year, and significantly declined by 1.4%. So we went through these situations. Operating income, including the impairment loss of 18.3 billion, became 97.9 billion yen, down 9.9 billion yen. was down 9.2% year-on-year. Income before income taxes was 95.9 billion yen. Net income was 57.8 billion. Earnings per share was 457.47 yen. COVID-19 outbreak stopped some of the plant operations and shipments. With this, we assume that net sales and operating income were affected by about 28 billion yen and 12 billion yen respectively. As for the FX sensitivity, no change. With the US dollar and the Japanese yen, we assume 1 yen fluctuation had its impact on operating income, about 1.2 billion yen on the annual basis. Between the euro and yen, it was 200 million yen. Can I like to explain the results by segment? Passive component segment, net sales was 395.5 billion, down 8.7% year-on-year. Operating income was 39.1 billion, down 33% year-on-year. Operating income margin became 9.9%. With the continuing US China trade friction continuing into the new fiscal year, automotive and industrial equipment market demands became so sluggish. Furthermore, with the inventory adjustment made by the major distributors both in the US and Europe, capacitors, inductors and piezoelectric components, circuitry protection components and aluminum and film capacitors, major items in the automotive and industrial equipment market's revenue had a tough time in sales, making the profit negative. For your further information, aluminum film capacitors became negative in the fourth quarter as much as 2.1 billion yen due to the decline in demand. In contrast, ICT market demand continued to be firm since the beginning of the year. 5G ramp-up centering around China is gaining its momentum fully. The volume was down because of COVID-19, but may I remind you that high-frequency components The business was able to secure growth both in revenue and profit. Next, Sense Application Products segment. Though we positioned this segment as our growth strategy business and tried to increase sales since last year, but the total shows only a slight increase of 1.8%, and operating loss became bigger. To be more specific, there are two segments. In one segment, we were affected a lot by the economy and suffered from decline in sales. And in another segment, we were able to grow based upon our growth strategy. Globally, the demand for automotive and industrial equipment markets are becoming so low, our temperature sensors and whole sensors conventional types business became sluggish resulting into big decline in sales and its profit deteriorated from the last year. It is having a major impact on the overall business. In contrast, our strategic on the products where now we do expect a growth TMR sensors for autos expanded its sales with a steady increase in volume increase. For smartphone business, shift to new models have surely advanced and given us growth in sales. As for MEMS sensors, our motion sensors have grown with our new customers. NEMS microphone is also growing rapidly, particularly for smartphones and IoT. However, it is not that great to make a contribution to our profit. Next, magnetic application product segment. Net sales was 219.7 billion yen, down 19.5% year-on-year. Operating income was 400 million yen, showing a major decline. HDD in all linear heads and HDD in suspension. While our hardest drive HDD assembly volume went down by 4% due to the decline in the total HDD demand. Partly due to the end of life of HD-DNA assembly in the products, HD-DNA suspension as a whole was down about 18% in sales, resulting in a decline in profit. However, thanks to the high-value products introduced, its profitability has improved since last year. We are so happy for this situation. On account of this, we have been benefited thanks to these high-value products and the near-line products. Sales decreased year on year due to the withdrawal of hard disk drive magnets as well as the sluggish demand for industrial robots and machine tools and other industrial equipment markets. With this, we are still faced with a tough situation as for the deteriorating profit. So, we had an impairment loss of about 14.4 billion yen in the fourth quarter. Next, energy and application products segment. Net sales was 597.7 billion yen, up 11.2% year-on-year. Operating income was 124.1 billion yen, up significantly 36.4%. Operating income margin was 20.8%. Profitability improved quite greatly. Rechargeable batteries increased greatly for the smartphone business as a whole. Tablets and laptops business also grew firmly. Furthermore, mini-cell products for the wireless earphones and other wearables grew firmly in sales. It grew about 15% year-on-year. showing the improved profitability. Power supplies for the industrial equipment were affected greatly by the backlash on capital investment demand, making the total sales for industrial equipment going down. Next, I will analyze the decline in operating income of 9.9 billion yen. COVID-19 impact was as much as 12 billion yen, but we had a profit of 11.5 billion yen backed up by the increased volume. Sales and price reduction impact was about 15 billion yen, but this was absorbed by rationalization of cost reduction of 19.1 billion yen. And the benefits from the restructuring was 1.6 billion yen. They have contributed to the improved possibility by improving our internal strength. As for InvenSense, acquisition cost was 5.4 billion yen, no change from the previous year. Rechargeable battery and expansion activities and costs including SGMA and the development was up 10.4 billion yen. Effective change, they pushed down the profit by 3.1 billion yen. Impairment loss increased 13.6 billion yen. All in all, it resulted in the loss of 9.9 billion yen in profit.

Next, I'm going to talk about the reason of the changes of that segment-wise net sales and operating income changes. on a quote-on-quote basis from Q3 to Q4. First of all, passive component segment. Net sales have declined by 1.3% from Q3, but if we excluded the impacts of the COVID-19, it has grown by 2% positively. All in all, we can see that now the business in ICD and the industrial equipment business have declined, but on the other hand, the Islamic capacity and the high-frequency components for the 5G-based stations have more than offset. Now, operating income declined by 37% Q1-Q2 basis, but we're excluding the impact of COVID and the impairment of aluminum capacitor. It has grown by 9%. Next, the sensor application products. Net sales have declined by 7.9%. Operating income, operating income, the 1.5 billion yen of loss have increased For the automotive market, slightly going up, but when it comes to decreasing the volumes of the smartphone, and all in all, we suffer from the negative growth. Due to the impact of the COVID-19, we have to suspend the production line. And due to these impacts, excluding these impacts, the margin of decline was 14%. Next, magnetic application products and segments. Now, next sales, when it comes to that, due to the volume decline by 6% of the HED they had from Q3, and also the slowdown of the assembly of the HEDD, and also that the sales volume of HEDD suspension by 8%. 10.5%, this is an all-in-all decline in the magnetic applications. The magnet net sales have declined by 5%. The operating income, we have a 14.4 billion yen of impairment loss. But excluding this and also for the COVID-19 negative impacts and at a margin of the decline of the open income was 35%. Next, the energy application products. Net sales have declined by 26.6%, 200 cubases, 1 to 3, but excluding the impact of the COVID-19. Now, margin of decline was 15%. When it comes to secondary battery, now, due to the seasonal impact and also for the industrial power supply in the flood. When it comes to the operating income, 63.7% at negative, but excluding the impact of COVID, natural margin of decline was 49% minus. That's all the performance. Okay, next. Mr. Ishiguro is going to talk about the forecast of March 2021. I'm Ishiguro. We want, first of all, to appreciate all of you for joining this unusual style of business performance announcement meetings. I highly appreciate all of you to join today. I'd like to have a face-to-face meeting with all of you as often as possible. And I sincerely hope that I can meet you again. Now... I just take over from Mr. Yamanishi, but Mr. Yamanishi actually then speaking is quite different, separated room for having their social distancing. So now we have working on a split team, having their social distancing, all the executives working on that. I sincerely hope that all these problems will be solved. Then I'd like to talk about that the consolidated business performance forecast for March 2021. First of all, I'd like to talk about the assumption that And about the microeconomic trend and also and the demand for the major device market. Now you're looking at the graphics. So this is about the global GDP forecast. Now on which we have come up with the forecasting. On the 2020 calendar year basis, and this is called the calendar year basis, this is the annual forecast of the GDP growth. Well, forecastly, it's minus 4%. Vision-wise, now, the China will already have under the bottom out, although they have just suffered from the inspection in the earlier stages, and now they're going to recover from that situation. as always possible, but on the other hand, then China will come back to the macroeconomy and just like before the COVID-19 infection in China. But other than China, including Japan, now when it comes to the negative impact of the economy, we will bottom out in the Q2 and gradually pick it up. But it would be impossible to recover to the level before the COVID-19 crisis. When it comes to the impact on the business, and due to that, about the market inventory, in fact, now we expect that about actual impact will be the two to three months after this impact comes up to the market. Next, let me talk about about the assumption of the demands of our major devices related to our business. When it comes to automotives, now the outputs of the vehicles, including commercial vehicles in the fiscal year 2020, now our expected is that 75 million units, minus 14% outputs on a year basis. This is our assumption of focus. Already, part of the market will suffer from the further decline. It's argued, on the other hand, when you look at the market in China, they say that there are the business in China, demand in the market in China have already had a positive growth year on year as early as April. But anyway, we have to watch the market and demand that carefully. But on the other hand, we think that XEV market will... expanded by 11%. On the other hand, the smartphones, which is the main state of the ICT market, are expected to have 124 million units. Minus 9% is the total demand of the smartphones, and units of a 5G will be expected to be the 376 million and then the 5G foreign demand in 2020 was expected to be 400 million so that's why compared to that level it will be just there and the weather devices but then again that the total smartphone demand we expect is 1 billion and 240 million So when it comes to the near-line drive, used for the data center, will keep expanding, although the total HDD market will shrink. And at the same time, the PCs or tablets will be, we expect that the demand will be flat or slightly upward. On the other hand, the impact of COVID-19 will increase. not only have the impact on the market demand. And on a short-term basis, with this expansion of the COVID-19 infection, that will directly affect our supply chain. So that will also lead to the expansion of manufacturing operations. But currently, we have some kind of a problem and part of India and part of the Southeast Asia. And they failed to achieve the 100% utilization due to the regulation of the government. Now they will lead to less than 100% utilization for the Indian and part of the Southeast Asia. But on the other hand, in most of the other regions we have already almost full capacity can be operated. so that's why an assumption of this forecast based on that our operation will be on the full capacity basis and then also at the same time we expect some kind of there's no any further decline of the microeconomy due to the second and third wave of infection this is their assumption okay based on the assumptions now and in march 2020 and about 5% decline from March 2020, and March 2021, our sales in March 2021 is 1.29 trillion yen. Now, for the passive components, now, although there is some automotive and industrialized markets, with some investment effect, but now, about the passive components, net sales will decline by 7 to 10%. So when it comes to passive component segments and now but all these and high frequency components or the 5G later market will be steady. This is a forecast. When it comes to certification products with the expansion of the customer base and its product lineup and the portfolios, we expect 8 to 11% positive growth. Even in the COVID-19 crisis and that when it comes to the temperature and pressure sensor or that whole IC used for the motifs cannot be expected to grow so much substantially due to the negative impact on the market but when it comes to the TMR and magnetic sensor, microphone, MEMS sensor these are the promising for the future market that we can expect the new and development of new customers and applications we expect the positive growth. When it comes to the magnetic application products When it comes to HDD head, 2.5-inch and 3.5-inch drive market will gradually end the decline. At the same time, accordingly, the absorption manufacturing business of 3.5-inch drive will also slow down. With this background, we are forecasting that the net sales will also slow down. When it comes to the magnetic products, Therefore, we can expect the expansion of the new project for XEV. But due to that slowdown of the automotive market as a whole, we expect it will be very difficult to expand substantially about. So that's why all in all, we recognize a forecast of 15% to 18% of minus. When it comes to energy application products, Shrinking smartphone market and also infrastructure market is shrinking, which is related to power supply. But on the other hand, we have very favorable forecast about this, the PC and tablets and other, and the telecommuting and the markets, and also the mini cell and the power cell. Those sales of these and the city and the business will gradually contribute. So that's why the energy application products are on the flood. Based on all these assumptions and the focus, now, just like we have this focus of the Consolidated Business Performance March 2021. Assumption of the currency is that 105 yen to the dollar and 117 yen to euro. And the net sales forecast is 1.29 trillion yen, about a 5% decline in a year. Due to that impact of COVID-19, now, based on declining demand, of the net sales is considered but now we expect about 180 billion yen as the net impact due to this corona and the virus and the COVID-19. The one that comes to the negative impact of this operating income including this negative impact to our operating income would be 70 billion yen and income before tax would be 70 billion yen, net income would be 48 billion yen and and 880 yen of earnings per share. And our dividend in the second half of March 2020, we already announced that will be 90 yen, so that we can pay about 180 yen to the annual dividends. When it comes to the dividends of next fiscal year in March 2021, we have about Now, based on our target of the results of the shareholders and the current mid-term business plans, including the payout ratios and amounts, that's why we paid at 80 yen for both the first and the second half, in total 160 yen in annual dividends. Capital expenditure 180 billion yen, depreciation 140 billion yen, and R&D expenditure 120 billion yen. So, we would like to very aggressively continue about all these strategies in the growth area. So, now, in this second instance, Mr. Yamanishi, again, will talk about our strategy on finance. Okay, then. I'm Yamanishi again, and I'm going to talk about how we can improve our financial strength in this uncertain environment of the business. Now, when it comes to the business forecast for March 2021, next fiscal year, and as the CEO has explained, due to the impact of the COVID-19, and our forecast of the net sales and operating income will also lower than the previous year, And as we have announced in 2018, that this is the current mid-term business plan, and this is really last year of the current mid-term business plan. In terms of very, very difficult to achieve the target of finance strengths. But now, but we can achieve that free cash flow plus for each of this year, but now due to that declining and the incomes of this in March 2021, and we need to postpone that year to achieve the target of financial strengths. also in March 2021, but still, we will put priority on making investments for the future growth areas. At the same time, we try to recover the results of the growth investments aggressively so that we can be sure to secure the free cash flow expansion so that we can achieve that financial strength target as soon as possible. On the other hand, In order to deal with this rapidly changing the demand in the market situations, we need to secure, we already have to secure the funding capability including the commitment line and also we can deal with that any uncertainty in the market with that financial strength and including this specific and liquidity on hand. Then when it comes to the return to shareholders, as CEO also have mentioned earlier, when it comes to return to shareholders, And we're filmed to achieve the target of a and especially share, so that's why, and we needed to decrease the 20 yen from the 180 yen as an amount of dividends, and the plan in March 2020, but anyway, based on the policy of the dividends, and also based on the free cash flow level of the Middletown business plan, we think that we can still maintain that 30% of the payout ratio going through all of the periods of the current Middletown business plan. That's all my presentations of our financial strategy and the last of all, Mr. Ishiguro again will explain about our basic ideas for the post-COVID-19 crisis. Now, when it comes to expansion of the infection of the COVID-19 crisis and the For example, that will have a very brutal impact on crude and supply chains. And also, we have adverse effects at the consumer markets and the business markets. But still, when it comes to the electronics market, which is our main battleground for TDK, we still have very good potential for the future growth. As also explained in the last time... Energy Transformation and Digital Transformation . These two major trends in the market and in society, we think that these are the areas that TDK has made the biggest contributions to change the society and the world. And Energy Transformation . First of all, we would like to transform TDK to solidly equal TDK. Also, by taking advantage of digital technologies, we like to try to secure that the maximum output with the minimum input and also like to more aggressively and transforming into using the renewable energy and like to make a big contribution to the energy conservation and the low carbon society and to become the sustainable TDK. And when it comes to DX, digital transformation, the first of all, I like to make our own TDK itself transform into as much digitalized as possible. With this pandemic of COVID, many of the working styles and many of the normal life of the world have changed. And also the teleworking will become all the more prevalent practice. And digital marketing, industry 4.0, AI and material informatics, RPA, there's all that and the technologies and the practices that will be all the more realized in an actual market in the field. We don't deny that importance of the face-to-face human communications, but if we can make use of the digital technologies, we can go beyond that temporal and spatial limit so that we can have the better communication we cannot realize before. Without having to have the physical movements and transportation, we can have the communications with each other. So that including all the tasks with the design, development, manufacturing, marketing, all of the aspects. We like to promote the digitalization of TDK. At the same time, we like to help the society with digitalization more. So that we can solve that social problem with our digitalization. That's all my presentation. Thank you very much.