Tdk Corp S/Adr

If I may, I would like to start the GDK Cooperation's Fiscal Year March 23 full year performance briefing. If I may, I would like to take time to introduce the participants. We have the Nobel Saito President and CEO. And we have the Vice President, Tetsuya Manishi. Thank you. We have the Vice, the Member, Sashida Kumio. Israel member, Taro Ikshima. Thank you. Israel member, Takao Tsutsui. Thank you. That's all. Thank you again for your kind attention. Thank you for your precious time despite the schedule. We are here to go through the full year performance briefing for fiscal year March 2023. I'm so happy having so many participants. That's, if I may, I'd like to go through the highlights of the consolidated results. First, key points for the earnings. Despite an ongoing recovery of the social and economic activities, as well as the production activities, and from the re-expansion of the COVID-19 pandemic in some regions, With the continuing inflation caused by the long-lasting Ukraine crisis and others, as well as by the policy interest hike in the US and Europe, the global economy slowed down. Also, the differences in the interest rates at home and abroad had a major impact on the FX markets, pushing down the value of Japanese yen. Moving into the fourth quarter, Again, such a business environment in the electronic market, which affected our business performance, the demand in the ICT market in particular remained sluggish. Actually, uncertainties actually have gained the momentum. So, as I have just said, we are affected by these factors in the ICT market. Particularly in the ICT market, actually the demand has slowed down, and also in the XEVs. and also the industrial equipment. Actually, the demand actually turned out to be rather firm. We were able to secure demand in these areas. Actually, revenue grew 14.7% year-on-year and operating profit grew 1.2% year-on-year. We renewed our records both for net sales and operating profit. In the ICT market, the personal computers and tablet devices were strong during the COVID-19. But the actual demand was much lower than we had forecasted, but we expanded our sales for rechargeable batteries and sensors for new smartphone models. In the meantime, investment for data centers declined rapidly, which pushed down our sales for hard drive heads and suspensions greatly. In the automobile market, despite the ongoing supply chain constraints such as semiconductors, we had a gradual recovery as a whole. In particular, thanks to the expanded ration of LCVs and advancing ADAS, increasing the number of parts to be used, The demand for the components became firm, thus we expanded our sales of passive parts and sensors. The rising geopolitical risks have caused energy supply instability and price hikes worldwide. Demand for renewable energy, energy-saving appliances and equipment, and energy storage systems for residential homes is continuing to expand. We expanded our sales of medium-sized secondary batteries, rechargeable batteries, and power supplies for industrial equipment. When we announced in the third quarter results, we explained that we expected to allow about, with all these factors in mind, 20 billion yen for structural reform efforts. Actually, that was a plan we were going to do in the fourth quarter. But we revised further into the future demand as well as the business outlook. We decided to allocate about 46.7 billion yen for impairment and structural reform. Again, 46.7 billion yen about, with the extended retirement age resulting in less deficit for retirement benefit. giving us a gain of about 12 billion yen. Out of these half settings, we now allocated 34.7 billion yen as one-time expense. Now I would like to go through the outline of the earnings. The FX changed vis-à-vis the US dollar, etc., and increased net sales by 68.9 billion yen or so, and interest rate operating profit by 68.9 billion yen or so. Net sales is now 2 trillion, 180.8 billion yen, up 278.7 billion yen, up 14.7% year-on-year. Opposing profit became 168.8 billion yen, up 2.1 billion yen, or up 1.2% year-on-year. Profit before tax became 167.2 billion yen. Net profit became 114.2 billion yen. Earnings per share, 301.19 yen. Open profit, as I mentioned this point earlier, does include one-time cost of 35.7 million yen for the full year basis. And most of the loss related with the one-time cost will not have impact on tax cost reduction, so net profit went down year on year. As for the effect sensitivity, no change from the last time. Between the US dollar and the Japanese yen, actually one yen is going to have impact on the 2 billion yen or so, and between yen and euro, it is going to be about 600 million yen for the full year basis. Now allow me to explain the full year negotiations by segment. Net sales for the passive components was 575.9 billion yen, up 13.4% in sales and 24.4% in profit year-on-year. Sales for the automotive market, XEVs in particular, dropped in firm sales and we achieved great growth both in revenue and profit. Having a higher ratio in sales of auto and industrial equipment, capacitors, aluminum, film capacitors and inductive devices secured growth both in revenue and profit. And due to the decline in smartphone demand, actually having higher rating in sales, electric material products went down in sales and profit. While keeping an eye on the demand trend going forward, we have allocated expense for structure reform as much as possible. the 300 million yen in the fourth quarter. Piezoelectric material components and circuit protection components grew in sales, but sales was down on the volume basis, resulting in declining profit. Next are sensor and application products, net sales being 169.5 million yen, greatly up 29.7% year on year, up in profit, Though including one-time cost of 2.5 billion yen enjoyed increased sales impact and its profit greatly improved as much as 11 billion yen. Temperature and pressure ascensors. The volume and substance decline in autumn and home appliance segment. We closed some locations and other structural reform activities cost us as much as 1.3 billion yen resulting in the profit. Magnetic sensors, whole sensors and enjoy sales expansion with the new products for auto and smartphones. TMR sensors on top of the front growth in auto business, smartphone business are expanding its adoption. Magnetic sensors as a whole, we enjoy great growth in sales and profit, improving its profitability as well. MEMS sensors were in slow demand. The sales in the ICT market came down, but sales for auto and wearable and gaming consoles grew firmly. Though we have allocated a one-time expense of 1.2 billion yen, the profits for MEMS sensors as a whole are recovering. Next, I will touch upon magnetic application products. Net sales was 200.6 billion yen down 19.3% year-on-year. Operating profit, including a one-time cost of 27.9 billion yen, became a big loss of 56.4 billion yen. HDD and head suspensions. Besides the decline in the demand for the PCs, we were also affected in near-line HDDs by the economic slowdown and other factors. Investment into data centers declined. With the HDD inventory adjustment, the overall demand for HDDs declined slightly less than 40% year-on-year. With this sales volume of HDD and heads and suspensions declined, rather significantly year-on-year basis, resulting into down in sales and we ended up with a loss. But assuming it will take some time for us to see recovery in HDDs to demand for head and suspension as well as suspension application products, we have already allocated one-time cost for impairment as well as structure reform as much as In the third quarter, together, 25.7 billion yen for the full-year basis. As for the magnet, though we grew in sales for XEVs due to the delay in the planned productive improvement, we could not improve our profit, resulting in an impairment loss of 2.2 billion yen. Next allow me to move on to the energy application products. Net sales, 1 trillion and 173.4 billion yen of in-profit, including the one-time cost of 70 billion yen, became 147.4 billion yen, up 21.5% in sales and up 19.6% in profit year-on-year. As for rechargeable batteries, sales volume for mobile applications such as smartphones and tablets and notebook PCs in China declined. But this was an offset by the increased sales of new smartphone models and sales expansion of medium-sized batteries mainly for the home-use power storage systems. So we grew in sales year-on-year basis. Open profit. Though we were affected by the decline in the profit due to the decline in the sales volume of the small batteries, but thanks to the improved mixture and the overall cost efficiency including HMA cost, As well as the improved profit of medium-sized batteries, we secured growth in profit. In addition, we allocated for 9 models 5.2 billion yen for the dedicated facilities for old models for smartphones in the fourth quarter. Power supplies for industrial equipment grew significantly in sales and profit. Particularly for the semiconductors and also in the healthcare sectors, we were able to increase the profit significantly. And also, naturally, we are able to grow the cells. As for power supplies for EVs, we grew in cells rather smoothly, but we allocated an impairment loss of 11.8%. due to the delay in cost improvement as well as decline in the future order forecast caused by the changes in demand trends. Now I would like to explain the factors behind the changes in sales and operating profit by segment from the third quarter to the fourth quarter of the current fiscal year. First passive component segment, sales were down by 7.7 billion yen from the third quarter or down 5.3% in profit, up in profit down 10.7 billion yen or down 41% in profit. In addition to a decline in sales in the ICT market, consumer techniques distributors also declined resulting in a decrease in the overall sales. So we are observing these selling points particularly in the smartphone sector. Piezoelectric materials and circuit protection components grow in cells and spread profit, but capacitive and inductive viruses deploy in cells. and profit due to the declined volume sales and the fourth quarter seasonality factors. Next, sales application products. Net sales was 6.7 billion yen, down 14.6% in sales. Open profit was down 7.5 billion yen. Excluding the one-time cost of 2.5 billion yen we allocated in the fourth quarter, We secured a profit for the fourth quarter as well. Temperature and pressure sensors were flat in sales from the third quarter. Excluding one-time cost of 1.3 billion yen, opening profit was also flat. Magnetic sensors. Both TMR sensors and Hall sensors declined, both in sales and profit, due to the seasonal factors for the sales to our large major customers. MEMS sensors. Motion sensors were firm for automobile business, but business for Chinese smartphones declined. Microphone sales also declined, resulting into down in sales. Including one-time cost of 1.2 billion yen, we ended up with a loss in profit. Next, magnetic application product segment. Revenue was 4.2 billion yen, or down 8.1% in revenue. Open profit was negative 26.1 billion yen, a big expansion in loss. Sales, mainly affected by the total demand for the HDD is coming down particularly near line side. HDD in the head sales volume actually came down from the third quarter by further 7% pushing down the profit and also that expanded the impairment. So we ended up with a big loss here. Magnets. Due to the delay in improving productivity, the business was down both in sales and profit, partly due to the effect of the one-time cost. The loss is now expanding. Next, energy application product segment. Net sales was 91.9 billion yen, down 27.7% in revenue. Operating profit became large loss of 53.1 billion yen. For rechargeable batteries, there was an seasonal factor pushing down ICT sales, including the one-time cost of 5.2 billion yen. The profit was down. Industrial power supplies maintained its strong performance both in sales and profit. As for power supplies for EVs, the business was down both in revenue and profit, including one-time cost of 11.8 billion yen. It incurred a large loss. Next, as for the analysis for the change in operating profit, 2.1 billion yen, ups and downs. HDDs and head suspension and rechargeable batteries had a big loss as much as 83.4 billion yen, mainly affected by the ICT. But due to the cheaper yen, Japanese yen, we had a growth of profit as much as 69.2 billion yen we were able to absorb to some extent, while sales volume declined. We carried out a restructuring effort to reduce costs, particularly in rechargeable batteries and passive components. We had some positive impact from the last year's structural reform efforts. We also worked on a share improvement for efficiency. It produced a growth of 28.2 billion yen from the previous year. In light of the big change going on in the demand for HDDN heads, we implemented our structural reform initiatives in the fourth quarter following the third quarter. As one-time cost, we allocated 35.7 million yen for the full year at 26.1 billion yen year-on-year basis. That's all from me. Thank you indeed for your kind attention. This is Senable Saito, President and CEO. I really appreciate your precious time. Now I would like to explain our outlook for the fiscal year ending March 2024. First, I would like to explain our consolidated results for FY in March 2024. I will go through the background. In 2022, with the global financial tightening policy, as well as the Russian-Ukraine situations, as well as the re-expansion of the COVID infections in some regions resulting into lockdowns, the world economy growth became 3.1%. As for the outlook for 2023 economic growth, in January, it was announced to be 1.7%. But in April, reflecting the economic recovery outlook after COVID, it revised up to 2.0%. But with the continuing Ukraine crisis, as well as the rising interest rate and financial instability concerns, the world economy is still expected to remain very uncertain. There is a such backdrop. Looking at the production volumes in each major product group, automobile is expected to grow. Smartphones are negative from the previous year. PCs and others are expected to be flat. And the impact coming from the energy price increase is expected to last going forward. Looking into production volumes of these major devices as well as the older stations, our full year sales is now forecast to be 2 trillion and 20 billion yen, operating profit being 190 billion yen, profit before tax being 188 billion yen, net profit being 147 billion yen. Next, I will touch upon 130 yen vis-à-vis the U.S. dollar and also vis-à-vis Europe, 142 yen. These have been our assumptions. Next, I will touch upon our production forecast for major devices for TDK. As for an automobile, including commercial vehicles, the market size for FI March 2024 to be 88 million units, up 5% year-on-year. EVs and eco-cars which have a big impact on business performance are continuing to grow in production going forward. Assumption for ex-EVs is up 27% or 21.9 million units. As for smartphones representing the ICT market, we are swimming for 1 billion and 118 million units down year on year. As for 5G smartphones, our assumption here is 670 million units, slight increase. HDD in the market as a whole, we are looking at a minus number of around 5%. As for linear line HDDs for data centers, we expect its recovery is lower than we had originally expected. Our number here is 60 million units, a slight increase from the previous year. Notebook PCs expect to have a slight increase, but as for tablets, we are assuming it would grow negatively from the previous year. Others, the TWS, True Wireless System, has slight increase. So we are assuming. With outlook for the macro economy being so uncertain, we need to pay more attention to the demand trend for components going forward.

Next, we will explain the outlook for expenses. The acquisition of a fixed asset is expected to amount to 260 billion yen, depreciation and amortization to 185 billion yen, and R&D expenses to 180 billion yen. A review of the capital allocation including the amounts of the fixed asset acquisitions will be explained later. Next, we'll explain the cash flow projections. Operating cash flow is on an increasing trend due to improved profitability of the passive components business, including MLCCs, and the sensor application product business, including TMR sensors, as well as improved working capital. Free cash flow for the fiscal year ending March 2023 is expected to be plus 28.4 billion yen and plus 80 billion yen for the fiscal year ending March 2024, partly due to a decrease in investment in energy application products. Next, I will explain shareholder returns. In the Mid-Atomic Business Plan, we target a dividend payment ratio of 30% taking into account changes in the business environment, investment in growing businesses, LOE and other factors. For the fiscal year ending March 2024, we are expected to pay a dividend of 116 yen, targeting a payout ratio of 30%. Next, I will continue with an explanation of the projected increased decrease in sales by segment for the fiscal year ending March 2024. In the passive component segments, we expect a sales growth of 1%. The 9% to 12% for the segment as a whole due to higher vehicle production and the shift to EXVs as well as increased sales to the industrial equipment market. In the sensor application segments, sales growth of 7-10% is expected due to increased sales of TMR and whole magnetic sensors which are performing well in ICT and automotive applications, and temperature and pressure sensors which are expected to grow due to EXV-related demand. In magnetic application products, While HDD production volume is expected to be about minus 5% year-on-year, and we expect recovery in near-line HDD production for data centers to be less than the initial forecast and resulting in 2-5% sales. The energy application product segment is expected to see a decrease in sales due to slightest demand for smartphones, notebook PCs, tablets, and the like, a certain level of declining selling prices due to lower raw material prices for rechargeable batteries, and a decrease in sales due to the transfer of the medium-sized rechargeable battery business for ESS and electric motorcycle applications is led to the JV. The forecast is at the minus 19 to minus 22% from the previous fiscal year, taking all this into consideration. Next, we will explain the progress of our mid-term business plan called the Value Creation 2023, which is now in the final year. In formulating the current Middletown Business Plan, we have considered development of businesses other than small rechargeable batteries, which have been a major driver of growth over the past nearly 10 years, and the diversification of revenue sources as major themes, and have implemented various measures amidst a rapidly changing business environment. We have been promoting a growth strategy centered on passive components, mainly for automotive and industrial equipment, sensor applications, mainly for smartphones and other ICT markets, and medium-sized rechargeable batteries, mainly for household storage batteries and electric motorcycles. By viewing the global trend toward the realization of a decarbonized society as a growth opportunity, The passive components business mainly for the XEVs has grown significantly and is becoming the second largest revenue source after rechargeable. In the medium-sized rechargeable battery business, centering on the storage for the home use, sales increased steadily and we were able to return to be profitable ahead of schedule. In addition, TMR sensors and MEMS motion sensors have become growth drivers for sensor applications which had not contributed to profitability in the past, and they have started to make contributions to the profit by realizing the sales growth as well as the improvement of profits. Among them, we have decided to invest in increasing the production of ceramic capacitors and TMR sensors, in particular to meet strong demand over the next few years. About this I will explain in more details later. But we are also considering further investments looking beyond that. In addition to this, to address geopolitical risks, We are investing in India for rechargeable batteries and in the Philippines for passive components, among others. On the other hand, we recognize that the restructuring of a business such as head center suspensions for HDDs and suspension application products, whose profitability has deteriorated significantly due to the sharp decline in demand for HDDs. is a major challenge for us, and we hope to achieve and another improvement in the profitability through structural reforms and other measures. On top of that, energy prices are now rising due to a variety of factors, and we will implement rationalization measures to strengthen our ironing structure. Next, we will explain how the capital allocation has changed from the initial plan. In the Middletown Business Plan, we plan to make a cumulative capital investment of 750 billion yen over the three-year period, in addition to the increase of approximately 90 billion yen due to exchange rate fluctuations. We will make upfront investments in a business that is expected to grow in the future, and at present we plan to spend 830 billion yen over a three-year period. Specifically, investment in energy applications, which was originally expected to be 450 billion yen, will be significantly reduced to 390 billion yen in light of the reduced investment burden due to the start of the new JD for medium-sized rechargeable batteries and the current business environment for small rechargeable batteries. On the other hand, we plan to significantly increase the amount of passive components such as MLCCs, thermic capacitors and inductors from 150 billion yen initially and the initial plans to 210 billion yen as we expect a strong growth in demand for AXVs, renewable energy and other applications. We also plan to invest 70 billion yen in TML sensors, a significant increase from our initial plan as demand is expected to increase for use in smartphones, automobiles and industrial machinery. With the improvement of working capital and an increase in cash inflow from the sale of equipment to the mid-sized rechargeable battery JV, we are aiming for positive free cash flow after return to shareholders as we aim to achieve, excluding about 110 billion yen in advances for long-term stable procurement of battery materials. Next, I will explain the progress of growth strategies for our major businesses. First of all, let me start with medium-sized rechargeable batteries. As shown here on this slide, we have started operation at JB's production sites and Xiamen, Fujian province in China. We plan to expand production capacity from the less than 10 GWh this fiscal year to 32 GWh by the fiscal year ending March 2027. In terms of the product portfolio, TDK's strength is the punch-type products, while the CATL's strength is the cylindrical and rectangular products, and we will aim to expand our share in the target markets while making the most of each company's strengths and the synergy. In the energy storage system market, our long-life high durability cells and the pack integration technology have already made us the global top-class market share in the residential market. And by further enhancing safety and long-life performance, we will expand into small commercial and industrial ESS and UPS. In the electric motorcycle market, we responded to a wide range of demand with pouch and cylinder types under the strength of our clothes after sales service tailored to regional characteristics and a subtle safety risk management to meet growing demand in the Asian and European markets where future growth is expected. In the power device market, we will maintain the top share end of the market for the high-power and high-energy density pouch seller for the drones, and aim to further expand our share end of the power tool market by adding cylindrical type in addition to the pouch type. By combining the strengths of the two companies in terms of production, technology, products and services, in a synergy, We aim to achieve the number one global position and achieve consolidated sales of approximately 500 billion yen by 2030. Next, we will explain our investment in increased production of sensor application products and passive components. Regarding the TMR census, first of all, we have decided to invest in that about, in order to make it double to the capacity to that production, and 2025, and much 2025, and much, compared to the 2023, we have decided to make investment at Asama Technoplant in Saku City, Nagano Prefecture. So we expect the demand to continue to increase for the ICT devices, mainly for smartphones, high-functional and in-vehicle motor angle sensors for the electric power steering, current sensors for the EVs, and industrial equipment applications such as factory automations. On top of that, we are currently considering additional investments to increase production after 2025. We are also planning to start mass production of MLCCs around April 2024, about five months ahead of our initial plan in line with our announcement in May last year. The growing demand, especially for the high-performance, high-reliability products for XCV and ADAS applications, we are currently considering further investments to increase production after 2025. In parallel with these investments and increased production, we will further strengthen our development capabilities for sensors and passive components to enhance our competitiveness. Finally, we would like to explain our ESG initiatives. First of all, and regarding E for Environment, we applied for the SBTI certification in September 2022 and the Dijon RE100 in December. Besides, we expect to achieve a 50% renewable energy target for 2025 by 2024. As a specific initiative to serve as a backdrop for this, we have converted 100% of the electricity at our manufacturing sites in the Tohoku and Niigata area to be delivered from renewable energy sources, effective April 1, 2023. In addition, by the end of 2023, we plan to convert 100% of the electricity at all of our manufacturing sites in other areas in Japan to be derived from renewable energy sources. We will continue our efforts to effectively use energy and expand the use of renewable energy sources toward achieving net zero CO2 emissions by 2050. Next, regarding S. The most important asset for a company is its people, employees, and we are actively promoting initiatives to strengthen our human capital. In the current fiscal year, we conducted a worldwide engagement survey as part of our various measures to improve employee satisfaction. Based on the findings of this survey, we plan to implement various measures to strengthen our human capital. In addition, all of our employees are working daily to improve the quality of all aspects of our products, safety and work style. Above all, we recognize that the fiscal and mental quality of each and every employee is one of the most important management issues. In order to realize this goal, we have established the TDK Health Declaration. In addition, we have joined the Alliance for Health Management, that is, an alliance of domestic companies that aims to create a model for health management and concrete solutions, and we hope to contribute to the realization of a sustainable society by enhancing the quality of not only work but also life. Regarding G, Governance, Our governance policy is empowerment and transparency, and based on these policies, we are actively promoting the delegation of authority to our core subsidiaries and other operating associated subsidiaries, while establishing the basic rules to be complied with globally as common global rules. The head office and the regional headquarters in Japan, Europe, the US and China have established a complementary relationship. in which the head office functions such as technology development, marketing, legal and finance supported the management of the business units and the regional subsidiaries. Regional headquarters, which traditionally had primarily a business management function, have begun to take on the function of planning growth strategies unique to the region. creating a structure that enables effective, efficient, and dynamic decision-making on the front lines. In the short term, the global macroeconomic environment is expected to be extremely unstable and uncertain that we will strive to increase our corporate value over the medium to long term by steadily implementing each of the growth strategy measures I have explained today and by continuing to strengthen our non-financial initiatives too, including ESG initiatives. That's all from me. Thank you very much. Thank you.