Tdk Corp S/Adr

We would now like to start the financial results briefing for FY March 2022 for the GDK. If I may, I'll take a moment to introduce the participants from the side. We have Saito Noboru. And also we have Yamanashi Tetsuji, executive vice president, executive officer Sashida Fumio, and also executive officer Kishima Taro, and executive officer Natsutsui Takao, and they are the members from TDK side. Thank you again for your time and contributions. This is Tetsuji Yamanashi. I do appreciate your precious time despite your busy schedule to attend our full year financial performance briefing for the fiscal year March 2022. I'm so happy to have so many of you. If I may, I'd like to go through the financial key points for the consolidated numbers. During the period under review, the re-spread of the new coronavirus infection and the concerns about political conflicts, including tensions between the U.S. and China, resulted in the prolonged supply chain restrictions on parts procurement and sluggish growth in automobiles and smartphones and others. But the economic and social activities started to become normalized. Production activities continued to recover, resulting in a firm demand for electronics, which further resulted in the growth in revenue in all the segments. Passive components expanded its sales and sensors became profitable. We enjoyed really good balance overall. Net sales was up 28.6% year-on-year and operating income was up 49.4% year-on-year, reaching record highs in both net sales and operating income. in automotive market although the production volume remained at the same level as the previous year due to the supply chain constraints impossible procurement the demand remained strong due to an increased parts installed and the customer's efforts to secure parts inventories as a result of the further development of the xcvs and accelerated electro electrification such as ADAS, and sales of passive components and sensors expanded. In the ICT market, demand for laptop pieces and tablets remained strong in the period under review, while demand for data centers recovered and production of HDDs for servers remained strong. Sales of personal computers, tablets, and HDDs increased as a result of strong production of those products. is this for service and recovery in demand for data centers in the smartphone market production volume was lower than the previous fiscal year due to the impact of the re-expansion of the new coronavirus infection but sales of rechargeable batteries of sensors and hdd has expanded In the industrial equipment market, CapEx remained strong, and the sales of products for semiconductors and other manufacturing facilities, renewable energy, and other applications increased. We are so happy given these initiatives because we were able to move toward expanding sales of passive components and power supplies for industrial equipment, while rechargeable batteries, including household-use ESS cells of medium-sized batteries, grew. Net income increased significantly in the fourth quarter due to the approximately 60 billion yen gain on valuation of investment securities and net income on an actual business basis excluding valuation gain also increased from the previously announced full year forecast. we have revised up our year-end dividend forecast by 9 yen per share in light of the improved earnings per share. Next, I will explain the highlights of the performance. Due to the dollar and other effects of the changes, net sales was up 125.7 billion yen, and operating income was up about 6.9 billion yen. So, net sales was 1 trillion 902.1 billion yen up, As has been already announced on April 27th, We put about 60 billion yen unrealized value from the investment of securities into non-operating income. With this done, income before income taxes and the net income grew dramatically. The numbers are 234.2 billion yen and 177.5 billion yen respectively. GDK was able to renew those profit numbers. Earnings per share became 468.36 yen. the FX sensitivity has not changed. For operating income in the U.S. dollars and the Japanese yen, with the 1 yen fluctuation, it was about 1.2 billion yen, the same from the previous year. In the yen and euro, the impact was estimated to be about 200 million yen. Next, I'll go through the highlights for the full-yen bisegment. Passive components, net sales was 505.2 billion yen, up 24.1% year-on-year. The automotive production units leveled off from the previous year, but due to the increased number of parts used, automotive sales continued firm in its growth. In the industrial equipment, the demand for the renewable energy as well as the manufacturing facilities turned out to be firm. The demand for an IC market system had a slight increase due to the decline in the number of smartphone products. Open income was 77.7 billion yen, up about 1.9x year-on-year. Open margin became 15.4%, showing dramatic growth in profitability. By business segment, excluding high-frequency components in the segments where automotive ratio is high, particularly the capacitors and inductive devices made great contributions to the improved profitability for the entire segment as a whole. Next, I will cover sensor application product segment. Nessus was a record high of 130.8 billion yen or up 60.8% year-on-year operating income side. Though we had one time spend of 2 billion yen in the fourth quarter, for the full year basis, we achieved a profit of 2.7 billion yen on the full year basis. Temperature and the pressure on the sensors grew for the automotive market and for the home appliances, whole sensors, and also grew for the automotive market, with this earnings improved quite significantly. TML sensors enjoyed a great growth in sales and profit thanks to the increased demand in the ICT market as well as a new adoption of the products. As for MEMS sensors, the expanded customer base and the applications, the benefit of our motion sensors and MEMS microphone business helped us to improve our earnings. so we were able to reduce the loss number quite dramatically. Next, I will touch upon magnetic application product segment. Net sales was 248.4 billion yen, or 24.7% increase year-on-year. Operating income was 4.6 billion yen, becoming profitable from last year's loss. HDD has Since the beginning of the fiscal year, the demand made a good recovery with the service for data centers. Near-line HDDs had robust sales, excluding one time spent. This business grew in profit, 33% in volume, giving us good profit opportunities. HDD near-line suspension actually had sales turn out to be quite firm. We enjoyed an increase in revenue, excluding the one-time spend. Actually, on a substantial basis, we became profitable. As for the magnets, for the automotive markets, actually, it's now to be quite strong. So we are able to actually increase revenue, but due to the rising cost of the raw materials, actually, we are still having loss situations. Next, I'd like to talk about the energy application sector, 960.53 billion operating profit and 123 billion yen. year-on-year basis, actually 30.4% increase, 16.4% loss in terms of profit. And as for the rechargeable battery, the effect change and also the rising cost of the raw materials, which has been transferred into an around price, excluding that smartphone actually growth and actually on-year basis actually declined, but ICT itself actually stayed at relatively um the uh the slight and increase but uh rechargeable batteries and also in home appliances particularly the energy storage actually helped us to expand and sell subsidies and then actual home all the substantial business actually we're able to not enjoy the 90 growth As for operating income, for the ICT, actually, even though we were not able to increase the real numbers, but starting from the third quarter, actually, we suffered from a high rise in the raw materials, pushing down the profit, and also the 15.4 billion yen as a realty. So only in NONO, we suffered from loss from previous year. The power for the industrial equipment, actually, semiconductor equipment and others, actually, there has been a strong demand for these sort of segments. We enjoyed both growth in revenue and profit. Next, I'd like to move on to the operating profit, 51.1 billion ounces behind this number. The first passive of the components, sensors became profitable, giving us good opportunities, and also HDD heads. The filter actually recovered. All in all, actually, even though we had some impact in the rechargeable batteries, and actually 85.9 billion yen, actually, the benefit actually has been still with us. So we actually went ahead in the streamlining our cost and structure. And also we had the structural reform actually given us the good opportunity for 28.9 billion yen. And actually the 64.5 billion yen increase. Major factor in that is rechargeable batteries, licensing fee, about 15 billion yen increase. And also passive component sales initiatives actually increased sales costs. And also COVID-19 actually resulted in quite a tough situation in distribution costs. And also the power pack costs actually went up. The structure of the reform in the fourth quarter, of course, one time spent actually 17.6 billion yen versus we had 9.6 billion yen for the previous fiscal year. So with cheaper yen, actually 6.9 billion yen improvement in profit. So total actually improvement was 51.1 billion yen. Next, I will go through the quarter three and the quarter four segmentations and the changes. And also now I'd like to talk about operating income improvements and also the decline. First, passive components. Starting from the third quarter, actually 2.3 billion yen, 1.8% decline. Operating income, 15.7 billion, 30.6% decline. As for the net sales for automotive, actually business was quite firm. But I see it in the market, smartphones and sales actually went down, and also the high frequency components actually declined. Operating income in the fourth quarter, we had about 2.1 billion yen one-time cost, and also due to the Chinese New Year, we suffered these declines. next ascension application on the products uh the revenue 1 billion yen 2.8 percent decline over the income Fourth quarter, we had about 2 billion yen on the one-time cost. Actually, we suffered from the decline of 2 billion yen. The temperature, the pressure sensors, actually, thanks to the good businesses in the automobile market, we had a slight increase. And also, we had the TML sensor and smartphone business, particularly the major customers and new products launched, actually, they went down due to the seasonality. and also motion sensors started from the third quarter and actually number actually leveled off operating on income tml sensor actually went down resulted in a decline in the profit mem sensor well they due to the increased out of the cost uh the slight decline in profit and also the energy on the cost went up and resulted in the decline in the profit next a magnetic application 5.6 billion yen revenue 8.7 percent decline operating income fourth quarter we had one time spent about 2.8 billion yen excluding that actually we suffered from the 3.4 billion yen Revenue, actually, data center demand went down, and HDD in sales volume, actually, for near line and also for personal computers, again, went down about 19%. HDD in assembly, sales volume, actually, that went down about 70%. So we suffered from this major decline. HDD suspensions, actually, slight decline. As for the magnetic business, for the automotive market, we had a firm business, giving us a slight increase. Operating income exceeded in the head, which did decline in value, and also the Chinese saw the new year. Again, business had been off, so now given us a decline in numbers. In suspension, actually, we had some slight decline in magnetic businesses. Actually, one-time cost, including that still, we suffered from more loss. Energy and application segment, next. The net sales, $17.9 billion. seven percent uh increase operating income 12.5 billion 32.1 percent decline As for the rechargeable battery revenue, smartphone production volume went down. Because of that, well, we suffered somewhat. But again, in FX situations, and also they were able to actually transfer the surged prices into the prices. So that resulted in a slight increase. Industrial equipment actually, power supply actually, we had a slight increase. As for the operating income, rechargeable batteries, actually raw materials, actually in the first quarter, the materials cost went up further and pushing us our profit. Industrial equipment, actually due to the expanded production, actually we were able to actually increase the number to some extent. I went through the highlights of the full year basis. Thank you. As of April 1, I became President. This is Saito. I would like to thank you for your precious time and participation. Here, if I may, I would like to explain our full year forecast for the fiscal year ending March 31, 2023, as well as the progress of our medium-term plan. First of all, I would like to explain our consolidated earnings and dividend forecast for the fiscal year. march 2023 and the mark the market background on which they are based in the fiscal year ended march 2022 the global economic growth rate was 6.1 percent due to the recovery from the corona pandemic and the growth rate and forecast for the fiscal year ending her march 2023 was revised from 4.4 percent down to 3.6 percent in april Although the production activity is recovering from the pandemic and the economy is accelerating its normalization, we believe that there are still concerns about further macroeconomic downside risks in the future due to the risk of higher than expected interest rates and the situation in Russia and Ukraine and the lockdown caused by the respread of the corona infections in some regions. As for the production volume of each major set of products, the production volume of automobiles is expected to increase from the previous year, and the production volume of smartphones is expected to remain unchanged. But the production volume of PCs and tablets, which have been rather at a high level, are going to decrease from the previous year. Furthermore, we expect the impact of the surging energy and materials prices due to the heightened geopolitical risks to continue. Based on the production volumes and orders received for these major devices, we project fully on a net sales of 2 trillion 200 billion yen, operating income 185 billion yen, income before income taxes of 190 billion yen, and net income of 145 billion yen. The assumed exchange rates are 120 yen to the US dollar and 130 yen to the euro. Based on the increase in earnings per share, we expect to increase the annual dividend from 78 yen per share after a 3-4-1 split in the fiscal year in March 2022 to 106 yen per share in fiscal year March 2023. Capital expenditure expected to be 300 billion yen, depreciation and amortization 200 billion yen, and around expenses 190 billion yen. As we have already announced, We will voluntarily adopt the International Financial Reporting Standards, IFRS, for the fiscal year March 2022 instead of conventional U.S. GAAP. The full year-end forecast for the fiscal year March 2022 March 2023, which we have just explained, is calculated based upon IFRS and the figures for the fiscal year ending March 2022, which will be used as a basis for comparison as shown as reference for all the values after being replaced by the IFRS standards. The 6.2 billion yen gain on the valuation of investment securities recorded in the fiscal year ended on March 31, 2022 is included in the non-operating income under US GAAP, but under IFRS, it is included in other comprehensive income on the balance sheet, not in operating income. Next, I will explain the demand and production volumes for major devices related to our company. We assume that the automobile markets, including commercial vehicles, will reach 83 million units in the fiscal year March 2023, up 5% from the previous year. Despite this, investment in EVs and eco-friendly vehicles, which uh have a large impact on our business performance is accelerating and we have assumed a 43 percent increase in x ev in the markets to 14.4 million units i believe that this session is going to continue for some time to come On the other hand, smartphones which represent the ICT market are expected to reach 1,390,000,000 units, the same level as the previous year, and the number of 5G smartphones is expected to continue to expand, reaching 663,000,000 units. In addition, while the overall ICT market is shrinking, We expect near-line HDDs for data centers to grow by 3% to 77 million units. As for PCs and tablets, which had been performing well in the corona pandemic due to the work and studies at home, we expect them to remain negative year-on-year. In general, we believe it is necessary to monitor component demand trends while keeping a close eye on the final sales trends as the macroeconomic impact remains uncertain.

Next, let me talk about the image of changes in the sales by segments in March 2023. I stand with that passive component segments and a business with an automotive market will exceed the growth rate of that automotive vehicle production unit growth itself, And also, we expect that the increase in the revenues in the industrial equipment markets and passive component segment as a whole, we expect 7 to 10% of the growth of revenues year-on-year. And we also expect that the further expansion of the demand in the mid- and long-term sort of like to make that aggressive investments so that we can capture this opportunity and make investment and developments and the production capability. As for the sensor application segments and magnetic sensor mainly for the TMR sensor for the ICT use or that MEMS microphone has expanded its options and also that temperature and the pressure sensor for the whole sensor will be an increase and based on the further electrification to the vehicles and all in all we expect the 13 to 16 percent revenue growth. For the magnetic application product segments, although that production units of HDD have been struggling, now investments in the data center is still active, and we expect some steady demand for that near-line HDD, and in total, the volumes of HDD will increase, and we expect that about the revenue growth of 15% to 18%. We also expect that the magnet business will increase its revenues and with that expansion, XEV business. As for the energy application product segments, although the production needs of the smartphone will be flat, we expect that an increase of the business for the the median size of the batteries and for the ESS or the e-bike usage and the standard power supply business will increase with that the demand increase demand of a semiconductor manufacturing equipment or infrastructure and we expect only now 17 to 20 percent of revenue growth. Next. Let me talk about the Value Creation 2022, that's our Midtown Plan, and let me talk about the progress of this Midtown Plan. As we have explained last year, we'd like to achieve the improvements of the corporate values, and by making a contribution to the EX and the DX, that is the social trend, so this is our major objective. The KPI, or I guess the sales of the profits, or the capital allocation plan is shown here on this slide. But in the next page slide, I would like to talk about the points of the progress of a Mid-Town Plan. First of all, for the progress of the growth strategy and for the passive components and both for the revenue and the profitability, it will exceed our objective so far. And since the business have it now make it recover, it's a profitability and faster than we expected and we can achieve that. And profitable business and the full year basis and for that the parcel business of the second battery have now been on plan and also HDD head business have recovered its profitability and we have launched the MAMAR, that is the next generation technology. When it comes to capital allocations, initially, we make an investment of 60% of allocation out of 750 billion of capex in the next three years. to the energy application segment, but we have changed the strategy due to the change of the business strategy and the market, and now we have to reduce it to that allocation to the energy application from 60 to 40 percent. On the other hand, we have boosted our investments from the passive components. from the 20% to 30%. We tried to just capture that opportunity for the growth for the next generation head or the TML sensor. So that's why we have dramatically changed the allocation plan. When it comes to the finance and the cash flow, Now, we have invested 100 billion yen for the stable procurement for the battery-laden materials. And this is implemented as part of the strategy. And as a result of that, it was getting difficult to achieve that about the positive free cash flow after return to the shareholders. in this mid-term plan, but we needed this investment from the mid- and the long-term perspectives, and this is the needed upfront investment for the sustainable competitive powers. On the other hand, and the cost of increase of materials and transportation, the budget affected the finance, but now we try to minimize the impact by the passing the cost onto the price or the improvement of the productivity. So now we're also trying to focus on that making the unprofitable business to be and improve it as profitability. Next, would you please go to the right-hand side of the slide. This is about our efforts to improve the social value from the perspective of ESG. I start with the E, environment. And for the first time, in November 2021, we have issued the 40 billion yen voice of sustainability link bond. Shown here on the slide, in order to attain to the objective by 2025 and and the lower energy and renewable energy will build both of the pillars for making that reduction of CO2 emission. Next, let me talk about S, society. Starting from March 2018, we have been opened in several places and global HR head office in Munich in Germany. including sectional planning and diversity activity, and also we try to enhance more female engagement projects for achieving the 15% ratio of the female managers. Last of all, let me talk about the G, governance. Now we have laid out that the global common rule They comply with all the group companies, and at the same time, we'd like to promote the empowerment and the transparency for the employees and the operations. So we'd like to have about this autonomous and the distributed type of organization structure. So we'd like to achieve that agile and the proper decision making and the front line of the business in each region and the company. Next, let me talk about the key points of the future initiatives by segment. When it comes to the passive component business, About 40% of the business is based on the old motor market, but in there, we experienced about the dramatic change in the industry and the customer structure change, and we have to deal with it flexibly. So although the production of the mobile is struggling, we're focusing on the EV and ADAS, right, the products, and we'll try to keep expanding our sales and profits. And at the same time, already we have announced in the media release, now we have decided to build a new factory for the MLCC. Let me explain about overview of this new plant and factory building plan. So this is the one – we have the new – the factory within the land of the Kitakami factory, which is one of the manufacturing base of MNCC. The construction will be completed on June 2024, and we will start the operation in September the same year. This is – that's the new – the factory that cover – to end the productions from the materials to that finished products, and also Given to the conservation, so that the energy conservation and CO2 reduction. Mainly manufacture, this factory may manufacture for the automotive related products. For example, that's the high voltage convergent units like the ADAS and the EV. And would be just the product would be the smaller size and also the high performance, high reliable products would be manufactured in these plants. Combining both this new factory and also the existing enhancement capacity, by the end of 2024, we will expand that production capacity 190 percent compared to the March 2021. Next, let me talk about sensor application segments. We could achieve that. to making the business profitable last year, but now, in order to further achieve that mid-term business plan objectives, and we'd like to continue our expansion of a customer base and application base. Now, temperature and pressure sensor and automotive, the whole sensor, will expect a steady increase in revenues and also for the magnetic sensor, mainly for the TMR, known as microphone, and the application for the digital transformations will be the new areas to explore to expect the further expansion of business and revenues. When it comes to the magnetic application product segments, ALTHOUGH THAT PRODUCTION UNITS OF HDD HAVE BEEN DECLINING, AND STILL THAT INVESTMENT AND THE DATA CENTER IS ACTIVE, AND WE EXPECT THAT STADIG DEMANDING NEAR-LINE HDD, AND AS AN HDD HEAD AS A WHOLE, THAT TOTAL PRODUCTION WILL INCREASE, AND WE EXPECT IT TO INCREMENT REVENUE. AND THIS YEAR, We start the mass production of Marmara technology that the next generation had, and we like to just expand the suspension application products to the areas other than HDD. Also for the magnets, we like to make our atmosphere to improve that profitability with the improvement of the productivity. So when it comes to energy application products, Now, we expect that, and still the smart point of production is a flux, so that we'll have to explore the new areas of the medium size of the battery, like ESS and the e-bike, and with the joint venture with CATL. We'll have to make the growth and boast that the balanced approach and the investments and the growth, and we'll have to explain about more details about joint venture from Mr. Sashida. That's all my presentation. Thank you very much. Thank you. Okay, next. The joint ventures with the CATL and energy application products business. I'm Sasho Dao. Thank you very much. I'm going to explain this joint venture. When it comes to that establishment, the joint venture with CATL, we already announced April last year, but let me explain about the current progress of this joint venture operations and also our future perspective. First of all, let me talk about the background of this and breaking into this market of medium-sized battery as well as the background of this and business alliance for the CATL. We have so far focusing on that's the small-sized battery for the ICT, and we could achieve it. That's a very high growth, but now we expect that this And the ICT market, the demand for the small battery will decline. On the other hand, about the large size of the battery for the EV or that this medium-sized battery for the ESS and the e-bike will increase so that On our end estimates, in about the medium-sized battery markets, we'll become about four times of the small-sized batteries in 2025. So in order to become the winner and be successful in this rapidly growing markets, we need to just take advantage of that technological and management resources in a timely manner, time to market, time to volume. This is the key for the success. Our battery business has become the current size of the business in the past 20 years, starting from the ATL. And the medium-sized battery markets will expand to the larger size, more higher than the small size of the battery market. So we know that we are the winner in this rapidly changing, rapidly growing market. We need more tremendous technological and also management resources. So now, we already have started as a business by the standalone operation by the TDK, by ourselves alone, but now, in order to make that more efficiently and the faster growth in a very shorter period of time, and at the same time, the long-term procurement of materials, or that's a synergy for this development efforts, we have determined to have this business alliance with the CATL. We have the similar corporate culture with CATL, and also we have the experience and partially some joint development program in the past, so that I think we think that we expect that the synergy must speedily and faster. At the same time, cross-license agreements with the CATL, not only for that the medium size and the battery, the technological resources of the medium size of battery, but also we can take advantage of this cross-reference to the small size of the battery too. So we think that this is the essential for and further growth of a business and the battery. Next, let me talk about the holding company and each joint venture and then the capital compositions of these companies. On the 27th last month, we have announced about the establishment of this new company. The company name is Xiamen Unpick Technology Limited, and this is a holding company of the two joint ventures, and so that we can have a more agile and management of the companies. Now, it's located in the Xiamen, Fujian Province in China. Now, PacJV Now we have the 70% of the stake is now named Xiamen Ampac Technology Limited. And the cell JD that now we have a stake of 30% is named Xiamen Ampcore Technology Limited. And these two joint ventures are located in the Xiamen Fujian Province. AmpCore manufacturer cell and AmpPack and manufacturer pack. But now when it comes to the contact to the customers, that will be within the scope of the responsibility of the AmpCore, the cell manufacturer. Next, let me talk about our strategic directions on a mid- and long-term basis with these joint ventures. Left, the top part of the slide represents, that's our assumptions of our, the market size of, that's the medium size of the market, and now we expect it to be about 100 gigawatt hour, but now in 2030, the market size will be tripled from the Canada level. So based on this assumption that this rapidly growing market for the medium size of the battery. So now, first of all, let me just explain about the image of that if the business going for business ourselves alone in March 2022, that's... The medium-sized bodily business will account for about 10% in March 2022. On the value basis, it will grow to be the size of 90 billion yen. As for the long-term basis object, we'd like to have a market share of 10% or higher, and by 2030, we'd like to have, on the capacity basis, we'd like to make the business on the par with the current ICT business. So if this is the case, I assume that the sales of that medium-sized battery will be 400 to 500 billion Japanese yen. Based on this standalone business operation scenario, now, the most important advantage of this joint venture is, as mentioned earlier, we can have the synergy, have them complementing with each other. First of all, from the product side, now we have a very good at a pouch-type sale, and at the same time, the CATM can give that about the square length of the slim-to-legal sale. And we're going to combine them together so that we can cover the broader needs of the customers. And now, in order to make that aggressive expansion of the market share, we're valuable in this highly expanded market. When it comes to the technology, and not only for the technology, but also we can secure that the resources, human resources, as well as that, also for that are, also we can have that sort of taking advantage of the other resources. intellectual properties. When it comes to operations, we can expect a scale merit for procurement of materials and manufacturing and scale merits and also we can have the synergy of that joint manufacturing technology developments. Based on these synergies, we expect that one and one, and not two, but over two, this is what I'd like to realize, and on a long-term basis, we'd like to have the top market share in the global market that may be 30 to 40%. so when it comes to that revenue reflected on our consolidated business performance now that would be just would be leading to that exactly the same level as we based on a standalone business operation SCENARIO, BUT ON THE OTHER HAND, THE PROFITS, NOW, WE CAN EXPECT THE SYNERGY SO THAT WE CAN HAVE THE HIGHER PROFITABILITY COMPARED TO THE STAND-ALONE BUSINESS OPERATION MODEL SCENARIO. WHEN IT COMES TO THE INVESTMENTS, SINCE WE THINK THAT'S ABOUT THE PROPER AND THE SHARED the investment between the joint venture so that we can achieve that actual and the proper growth and the balanced growth between investment and the growth. Just like this, we're going through the joint venture operations and proceeding with the medium size of the battery business, and we can expect to realize that the farther growth and the higher growth. That's all my presentation. Thank you very much for your attention. Thank you.