Tdk Corp S/Adr

If I may, I would like to now start the financial performance briefing for the first quarter of the fiscal year, March 2023. We have Tetsu Yamanishi, Executive Vice President, and Fumio Sashida, Executive Officer, and Taro Ikushima, Executive Officer, and Takao Tsutsui, Executive Officer. They are the participants for this briefing session. Thank you. This is Yamanishi speaking. We are so pleased to have so many of you today, despite the busy schedule, to attend our performance briefing for the first quarter fiscal year on March 2023. Now allow me to explain the consolidated results. First, key points. In the first quarter, due to the resurgence of COVID-19, China had a large-scale lockdown with its zero-corona policy. Chinese economy had a major impact, slowing down its production, social as well as economic activities. Also, Russia invaded Ukraine, resulting in a great impact on the world economy with heightened geopolitical risks. The supply chain and materials procurement continued to be restricted, and demand for electronics declined. Despite the challenges we were faced with, TDK's each business carried out its own initiatives to expand the base of customers and applications. On top of it, the Japanese yen depreciated appropriately with these factors in place. Net sales became the largest on a quarterly basis, up 21.5% year-on-year, and operating profit went up 42.4% year-on-year. In the automotive market, while supply chain constraints continued, including semiconductor supply shortage, and automobile production volume remained at a level lower than the previous year, components demand remained firm thanks to the increase in XEV ratio, sales of passive components and sensors increased. In the ICT market, demand for laptop computers and tablets, which had been on the firm during the COVID-19 pandemic, started to decline, and demand for smartphones declined sharply mainly in the China region, resulting in a decline in the sales of rechargeable batteries. While demand for servers for data centers remained firm, but the demand for personal computers declined sharply, pushing down the level of shipment of HDDs lower than the previous year. All in all, the revenue of HDD heads and suspension declined greatly. With the heightened geopolitical risk, energy supply concerns and soaring energy prices are affecting us globally, and with the rapid expansion in demand for the storage systems, mid-sized rechargeable battery cells are expanding. As you see, uncertainties in the world economy are becoming stronger. Though the demand varies depending upon the components in question, thanks to the expanded business foundations, net sales and operating profit continue to be firm. Next, the highlights of the financial performance. Due to the effects to the U.S. dollar, net sales was up about 63.7 billion yen, operating profit up about 12.6 billion yen. Net sales was 510.5 billion yen, up 90.4 billion yen or up 21.5% year-on-year. Operating profit was 44.6 billion yen, up 13.3 billion yen or 42.4% year-on-year. Profit before tax was 43.9 billion yen, net profit was 31.4 billion yen, and earnings per share was 82.87 yen. As for FX sensitivity, with the rapid depreciation of the Japanese yen and the euro to the U.S. dollar, With the one-year fluctuation, its impact on operating profit between the yen and the dollar was about 1.6 billion yen for the full year and about 600 million yen for the full year between the yen and the euro. The effect sensitivity has increased from the past. Next, I will explain the first quarter results by segment. As of the current fiscal year, we have some changes in the combination of products and segments due to the changes in the organization. We have changed the numbers of the previous year based upon the new segmentation. As for the passive components, due to the change in some products belonging to others, it increased 600 million yen in the previous year's revenue and decreased 100 million yen in operating profit. Passive components net sales was 141.6 billion yen, up 16.3% year-on-year. Automotive parts demand continued to be firm. Demand for industrial equipment was firm, particularly for renewable energy as well as production facilities. As for ICT market, with the declined demand for smartphones, high-frequency components with higher sales ratio with smartphones declined in real-time, both in revenue and operating profit, excluding FX impact. But automotive and industrial equipment business grew both in sales and profit. We are happy to have these results. Next, Sense and application products segment. Here, just like the passive components, we have changed the last year's actuals based upon the changes incorporated in the new segmentation. Due to the change in some products belonging to others, though there is no change in sales, but operating profit declined by 1.2 billion yen for the previous year. Net sales worth 39 billion yen, up greatly 45.4% year on year. Operating profit, thanks to the increased sales, improved greatly, becoming 2.8 billion yen. We are able to secure profit, getting away from the loss we had in the previous year. The Russian and Ukrainian issue is suppressing supply chain for automotive competitors. Particularly, the demand for the oil in Europe was affected. Temperature and pressure sensors excluding FX impact had declines both in sales and profit. But magnetic and MEMS sensors will enjoy an expansion in sales for ICT market, contributing greatly to the improved revenue and becoming profitable. Next, magnetic and application product segment. Net income was 55.1 billion yen, down 9.1% year on year. Operating profit became negative 700 million yen. HDD head. Near-line HDD demand for data centers grew firmly, but demand for HDD for personal computers declined drastically, pushing down sales volume about 20% less than the forecast we had in the beginning of the year. we had a big decline both in revenue and profit as for hdd suspension due to the decline in volume in suspension application products both revenue and profit declined as for suspension the overall volume declined due to the less demand for personal computers, but thanks to the increased ratio of micro-DSN type in the near-line HDD high values, pushing up revenue, resulting in growth in revenue and profit for the entire suspension segment. Magnet, driven by the increased sales of an XEV, grew in revenue, and the loss has become smaller. Next, as for energy and application products, net sales was 260.1 billion yen, and operating profit was 27.3 billion yen, up 30.3% and 16.9% respectively year on year. As for rechargeable batteries, well, the sales volume of mobile application products such as smartphones, tablets, and laptop personal computers declined. We are now expanding business for power cell products for home storage systems and others are expanding. Also, with the searchers advancing together with the FX impact, we secured growth both in revenue and profit. Sales and profit from power supplies for industrial equipment increased year-on-year due to the strong corporate CapEx demand.

I will now explain the factors behind the change in the net sales and operating income by segments from the Q4 of the previous fiscal year to Q1 of the current fiscal year. In the passive component segments, sales increased by 800 million yen and operating income decreased by 100 million yen in the first quarter due to the recombinations because of reorganization. All in all, sales increased by 13.6 billion yen or 10.6% from the Q4 and operating income increased by 7.7 billion yen or about 46% excluding 2.1 billion yen in one-time expenses incurred in the Q4. Sales increased in all markets, including the automotive, ICT and industrial equipment markets as well as to distributors, resulting in higher sales and operating income in all businesses. And both of the sales and operating income was favorable. In sensor application products, there was no change in sales in Q4 due to the reorganization, but the operating income decreased by 900 million yen due to the recombination. All in all, sales increased by 3.9 billion yen, or 11.1%, and operating income increased by 2 billion yen, excluding the 2 billion yen in one-time expense incurred in the Q4. The sales and profits of temperature and pressure sensors declined in real time, excluding foreign exchange effects due to the supply chain restrictions on automotive parts, but sales and profits of magnetic sensors increased due to steady sales for automotive and smartphone applications. In MEMS sensors, while the sales of motion sensors for smartphones in China declined, but sales increased for the game console and VR, and operating income also improved. Next, the magnetic application products segments, sales declined by 5.7%, so 3.3 billion yen, while operating income increased by 600 million yen, excluding 2.9 billion yen in one-time expenses in card-ended Q4. Sales declined sharply due to a 23% drop in HDD head sales volume from Q4 and decline in HDD assembly sales. Sales of HDD suspensions also declined due to lower sales volume of suspensions for PCs. Sales of magnets increased slightly. Operating income of HDD heads decreased due to a decline in volume, while magnets improved net sales despite an operating loss due to an increase in sales to the automobile industry. Next, energy application product segment. Sales declined by 5.1%, or 14 billion yen, while operating income increased by 3.2% or 800 million yen. Sales of rechargeable batteries declined due to a large decrease in the sales volume for ICT applications, while operating income remained almost flat due to cost improvements, including SG&A expenses, in addition to surcharge to absorb the impact of price hikes. And the sales of Industrial power supplies remained almost flat. Next, let me talk about an analysis of the changes in operating income of 13.3 billion yen. Excluding the 12.6 billion yen increase due to yen depreciation and exchange rate fluctuations, the increase in operating income was 700 million yen. Although the decline in HDD head sales volume had a large impact, the increase in sensor volume and the surcharge effects of rechargeable batteries contributed ¥4.2 billion to the overall increase in operating income. And while the negative impact by price discount was limited to 600 million yen in the middle stubble and the material price hike, the total effect of streamlining cost reduction and the effect of structural reform implemented in Q4 of the previous fiscal year was 4.2 billion yen increase. SG&A expenditure increased by 7.1 billion yen, but approximately 4.1 billion yen was due to license fees for CATL, which was not recognized in the Q1 of the previous year. And the other increase was mainly due to the impact of higher transportation costs. Next, I would like to give you an idea of the increase and decrease in sales from the first quarter to the second quarter of this fiscal year. As for sales to the automobile market, demand for components is expected to remain strong based on the assumption that automobile production volume will increase in Q2 as the impact of the China lockdown into Q1 eases. In the ICT market, demand for PCs and tablets is expected to remain sluggish, while smartphone production in China is expected to remain far below the level assumed at the beginning of the period. But still, on the other hand, smartphone production is expected to increase from Q1 as new products are launched by a major customer. So that's why we expect the sales to increase in the ICT market. Demand from the industrial equipment market is also expected to remain strong and steady. Based on these demand trends in the major markets, we expect overall passive component sales to increase between plus minus zero to the three percent. sales to the automotive market and smartphones are expected to increase, while sales to industrial equipment are expected to remain almost flat, and sales to distributors are expected to decrease. Excluding foreign exchange effects, we expect sales to increase by approximately about 5 to 8 percent. Sales of sensor application products are expected to increase by 3% to 6% as sales of magnetic sensors for smartphones are expected to increase significantly due to the launch of new products from our major customers. Excluding foreign exchange effects, we expect an 11% to 14% increase. in the area of magnetic application products, while the demand for HDD heads for PCs will remain sluggish. But on the other hand, the shipments of main models of the near-line HDDs for data centers will be in full swing and are expected to increase significantly from Q1. We also expect the sales of magnets to increase by 12% to 15% due to higher demand from the automobile industry. Excluding foreign exchange effects, we expect a 21% to 24% increase. In energy application products, we expect a 13% to 16% increase in sales due partly to the launch of new smartphone products as well as an increase in demand for ESS and e-bikes. excluding foreign exchange effects, we expect an increase of 20% to 23%. Based on all these, we expect overall Q2 sales to increase plus 8% to 11% from Q1 and 15% to 18% increase, excluding the impact of foreign exchange rates. Lastly, Let me explain a full-year consolidated ironing forecast, which remains unchanged from our previous full-year forecast announced in May. In the first quarter, Although demand in the ICT market was lower than expected at the beginning of the period and sales of related products declined, but increases in sales of high-value added products and passive components and sensors boosted earnings, while raw material prices remained at the level expected at the beginning of the period and surcharges advanced. In addition, as a result of the cost reduction measures, including SEG and IA expenses, we exceeded our initial forecast, excluding the impact of the yen's depreciation. As explained earlier, demand trends in the Q2 are expected to increase in the automobile and smartphone markets, and both sales and operating income are expected to be in line with the level assumed at the beginning of the fiscal year. However, Due to the uncertainties, for example, in any demand trends in major markets toward the end of the fiscal year, or normalization of supply chains, or raw material price trends, and exchange rate trends, they are all uncertain. So we maintain our initial forecast, including assumed exchange rates. Capital expenditure, depreciation, and R&D expenses all remain unchanged. That's all for me now. Thank you very much. Thank you.