Tdk Corp S/Adr

This is Yamanashi. Thank you for your taking time this project with the schedule. We are so honored to have so many people attending this financial briefing for the first quarter, the fiscal year in March 2024. We are here now to go through the consulted results. First, the highlights of the results. The global economy is in an unstable situation with the speed of growth slowing down, due to the prolonged inflation and the continued monetary tightening policies in the US and European countries. The yen has been depreciating against the US dollar and the euro. This has become a remarkable situation in the FX space. Under such a business environment, the electronics market, which will have an impact on our performance, is suffering from a prolonged sluggish final demand, slowing down the demand for ICT market. HDD in the market and automotive market are now faced with changing demand trends. On year-on-year basis, our net sales was down 1.4% and operating profit was down 41% year-on-year. In the ICT market, sales of passive components, especially for smartphones, declined significantly. while sales of HDD heads and HDD suspension assemblies dropped sharply due to 31% year-on-year decline in demand for HDDs. In the automotive market, sales of passive components and sensors grew but remained sluggish compared to our initial forecast due to customers' inventory adjustment of automotive components. In the industrial equipment, sales of power supply products remained firm. Demand for ICT-related devices, which has been sluggish, is expected to decline in the second quarter onward from our assumption we made in the beginning of the fiscal year. In particular, the production volume of HDDs for data centers is expected to decrease significantly. In addition, the demand trend for automotive components has been changing due to the inventory adjustment by some customers. As a result of reviewing the order and forecast in light of such demand outlook, we expect the sales of HDD heads, suspensions, and passive components to fall below the initial forecast. And we have revised down the forecast we have announced on April 28th In addition, we expect that it will take some more time for HDD demand to recover, so we have included in our forecast structure reforms to optimize the production operations for HDD heads and suspension assemblies. Next, allow me to explain the summary of the business performance. The foreign exchange fluctuation had an effect of increasing net sales by approximately 18.1 billion yen and operating profit by approximately 6.5 billion yen, resulting in net sales of 503.4 billion yen, down 7.1 billion yen, or 1.4% year-on-year, and operating profit becoming 26.3 billion yen, down 18.3 billion yen, or 41%. profit before tax becoming 21 billion yen and net profit becoming 14.7 billion yen. Earnings per share became 38.82 yen. As for the sensitivity to forex fluctuations, Following the last time, we estimate that one yen change in the yen dollar will result in an annual change of approximately 2 billion yen, and one yen change in the euro will result in an annual change of approximately 600 million yen. Next, I will explain the situation by segment for the full year. Sales of passive components was 140.7 million yen, slightly down by 1.1% year-on-year. Although sales to the automotive market, mainly for XEVs, grew, sales to the ICT market declined, pushing down in profit by 42.3%. Aluminum film capacitors and film in sales to the automobile and renewable energy sectors secured both sales and profit. Though ceramic capacitors grew in sales for the automobile market, but due partly to the decline in sales volume for the distributors, profit declined slightly. High frequency components and having high portion in smartphone business declined both in sales and profit. Inductive devices and piezoelectric components and circuitry protection components grew for automotive business, but it declined in ICT market and industrial equipment as well as the sales for distributors declined, resulting into a drop both in sales and profit. In the sensor and application products business, this sells 38.8 billion yen almost flat from the previous year and operating profit 600 million yen down 76.7%. Temperature and pressure sensors grew due to the high-end sales into the automotive industry. In magnetic sensors, sales of hole sensors and TML sensors increased for the automotive market, and sales for smartphones remained almost at the same level, resulting in higher sales, but due to the advance investment for increased production pushing up fixed costs, profit declined slightly. In the MEMS sensor business, sales of motion sensors for the automotive industry expanded, but sales to the ICT market declined, resulting in lower sales and lower profits. In the magnetics and applied products business, net sales being 38.2 billion yen, significant drop, as much as 30.7% year-on-year, and operating profit was a significant loss of 9.7 billion yen, In the HDD head and suspension business, sales volume of both HDD heads and suspensions for the near-line HDDs fell sharply and posted a loss as a result of 31 year-on-year decline in overall HDD demand due to the decline in investment in data centers caused by economic slowdown and prolonged HDD inventory adjustment. As a result, sales volume of both heads and suspension for HDDs declined significantly from the previous year, resulting in a significant drop in sales and posting a loss. Sales of magnets increased due to higher sales for XEVs, but delayed improvement in profitability due to delayed productivity improvement. Next, energy and applied products. Net sales being 274.9 billion yen and operating profit being 32.2 billion yen, up 5.7% and 17.7% respectively year-on-year. In the rechargeable battery business, sales for the small batteries saw smartphones increased, but sales of medium-capacity batteries decreased due to the transfer of joint ventures, and overall sales and profits were almost unchanged from the previous year. Power supplies for industrial equipment grew both in sales and profit thanks to the firm demand for semiconductor manufacturing equipment and medical equipment. its profitability improved significantly. As for power supplies for EVs, on top of the increased revenue, we were benefited by the structural reform we had toward the end of the previous fiscal year. We are happy as for this. Next, I will explain the factors behind the change in sales and operating profit by segment from the fourth quarter of the previous fiscal year to the first quarter of the current fiscal year. first the passive component segment net sales was up 3.2 billion yen or 2.3 percent from the fourth quarter while operating the profit declined 800 million yen or 5.5 percent and the aluminum film capacitors for renewable energy and other industrial equipment grew As for other products, excluding the forex impact, the overall profit declined in real terms. Overall, profit declined. Next, sensor application products. Net sales was slightly down by 200 million yen. As for operating profit, excluding one-time cost of 2.5 billion yen, which incurred in the fourth quarter, it grew slightly. Temperature and pressure sensors for the automotive market grew, resulting in increased sales and profit. Magnetic sensors turned out to be flat. Though the smartphone business declined in sales, but the sales for the automotive market increased. Operating profit grew slightly. MEMS Sensors While sales for the automotive grew, but the ICT sales turned out to be sluggish, pushing down both sales and profit. next the magnetic application products sales decreased by 5.1 billion yen or 11.7 operating profit down by 3.7 billion yen in real times excluding a one-time cost of 26.9 billion yen which occurred in the fourth quarter sales of hdd has declined 35 percent from the fourth quarter mainly as a result of the further decline in the overall demand for near-line HDDs, while sales of suspension also declined, resulting in a significant decline in the overall head sales. Operating profit improved despite a loss as a result of the effects of structural reforms and cost improvements. Magnets do a slight decline in sales, but profit has been improved. In the energy and applied product segment, Here, sales up by 14.8% to 35.4 billion yen, up in profit increased by 6 billion yen in real-time, excluding a one-time cost of 17 billion yen incurred in the fourth quarter. In the rechargeable battery business, sales of medium-capacity batteries decreased due to the transfer to joint ventures, while sales of small batteries for ICT increased. resulting in an overall increase in both sales and profit. Sales and profit of industrial power supplies remained strong with increased sales and profit. Sales of power supplies for EVs increased and profitability improved, partly due to the effect of the structural reforms.

Next. Analysis of the change of operating profit, the decrease in operating income of 18.3 billion yen. This was due to an 36.3 billion yen decrease in profit from a decline in the sales volumes of HDD heads, suspension, and passive components, and 9.5 billion yen decrease due to changes in selling prices. The decrease in operating income was due to the impact of the decrease in sales volumes, which could not be offset even by the increase in operating income of 6.5 billion yen from the depreciation of yen, rationalization cost reductions of 5.2 billion yen mainly in secondary batteries and passive components, as well as the effects of structural reform implemented in the previous year of 4.2 billion yen, and the increase in operating income of 11.6 billion yen from the efficiency improvements of the SG&A. Next, I would like to continue with an overview of sales increase and decrease from the first quarter to the second quarter of the fiscal year. In passive components, we expect overall sales to increase between 0% to 3% mainly due to an increase in sales of ceramic capacitors for automotive applications. Sales of sensor application products are expected to increase between 9% to 12% due to steady sales for automotive applications, as well as increased sales of magnetic sensors and MEMS microphones for ICT applications. In the area of magnetic application products, sales volume of HEDD heads is expected to increase by approximately 20% bat, slightly decrease due to the impact of foreign exchange rates, while sales of suspensions are expected to decrease by approximately 14%, resulting in an overall decrease of a minus 5 to minus 8 percent in sales. in energy application products with chargeable batteries. While the volume of smaller batteries is expected to increase due to the launch of new smartphone products, the transfer of the medium size of the batteries business to JVs is expected to increase resulting in a minus 2% to plus 1%. As a result, overall sales are expected to increase by the minus 1% to 2%. But excluding the impact of lower sales due to the foreign exchange, sales are expected to increase by plus 3% to plus 6%. That is all my presentation today. Thank you very much. I am Saito, President and CEO. Thank you very much for joining us today. I explain full-year forecast of FY March 2024. First off, I would like to explain the revision of the production volume forecast for major devices related to our company, our business, which is the assumption for our earnings forecast. As for the automotive markets, the shortage of semiconductors and other factors are on the way to being resolved, and XEV production volume remains steady. so there will be no change from the volume assumed at the beginning of the period. But on the other hand, however, in passive components and the sensors for the automotive market, we expect the demand to be lower than we had assumed at the beginning of the period as some customers are making significant adjustments to their component inventories. The production volumes of smartphones, which represents the ICT market, has been revised from the initial forecast of 11.18 billion units to 11.08 billion units due to the uncertain macroeconomic environment as well as the longer replacement cycle of smartphones. The focus for 5G smartphone has also been revised from 607 million units to 598 million units. Next, in the HDD market, due to rapid changes and the data center investment environment, we expect to customize HDD inventory consumption will take longer time than we had assumed at the beginning of the fiscal year. Due to these factors, the production volume of new line HDDs for data centers, which was expected to be 60 million units, up 9% from the previous year, at the beginning of the fiscal year, has been revised downward to 42 million units, down 19% from the previous year, from below the initial forecast. We have also made downward revisions to our initial forecast for PCs and tablets. In light of these circumstances, we have revised our full-year forecast for the fiscal year ending March 2024, and now we present forecast net sales of 1.970 trillion yen and operating incomes of 150 billion yen and net income of 105 billion yen. The exchange rate assumptions for Q2 and onward and beyond remain unchanged from the beginning of the period. There is no change in the dividend from the beginning of the fiscal year. I will now continue with an overview of the projected increase and decrease in sales by segment after the revision for the fiscal year ending March 2024. In the passive component segments, we Expected sales increase of ceramic capacitors and other products for the automotive markets, especially for XEDs. However, sales in the ICT markets, industrial equipment market and sales to distributors are expected to fall short of initial expectations. As a result, overall segment sales are expected to grow only 2-5% year-on-year basis. In the sensorification product segment, sales of magnetic sensors and temperature pressure sensors for the ICT and automotive markets are expected to increase, while sales of MEMS motion sensors and microphones for the ICT market are expected to grow less than initially expected. As a result, the focus for sales growth is only 1-4% over the previous fiscal year. In the magnetic application product segments, as explained earlier, the production volume of new line HDDs for data center is expected to be much lower than initially expected. Accordingly, sales of HDD heads and suspensions are also expected to be much lower than initially forecast. resulting in a 13-16% year-on-year decline for the segment as a whole. In the energy application product segment, sales of a medium-sized rechargeable batteries business are expected to be lower than initially expected due to the transfer of the medium-sized rechargeable batteries business to a JV. which is progressing faster than initially planned. On the other hand, sales of small rechargeable batteries are expected to exceed the initial projection due to an increase in market share and other factors, and the segment as a whole is projected to be minus 14 to 17%. at the previous year's level. Next, the breakdown analysis of the 40 billion yen decline of operating profits, HDD heads and suspensions, about unowned and HDD heads and suspensions, so declines, decrease in the sales of the flexible components, and so forth. And that will push down the profit by the 60.2 billion yen. we have recognized ¥3.5 billion as structural reform expenses for HDD heads and suspensions, and the effect of those expenses is to be ¥1.7 billion. In addition, we expect to achieve an additional ¥10.7 billion from streamlining cost reductions and ¥14 billion reduction in SG&A expenses, including R&D expenses. And the profit fluctuation due to foreign exchange is expected to be plus 2.7 billion yen based on the Q1 results and assuming the exchange rates of 130 yen to the US dollar and 142 yen to euro in Q2 and onward. Next, I will explain how we are responding to the rapid changes in the HDD market that I have just described. CSP that spans for current service providers. The trend of increasing capex allocation to AI-related projects has become more conspicuous since April, while the renewal cycle of general-purpose servers and storage systems has been longer and storage utilization rates have been rising. As a result, the production volume of HDDs dropped significantly due to the slowdown of HDD inventory consumption, and the demand for HDD heads and suspensions also dropped significantly, compared to our initial forecast. In response to these drastic changes in the market environment, we have decided to restructure our profit structure. Specifically, we will lower fixed costs by reducing headcounts and consolidating basis and establish a structure that will enable us to achieve break-even at the demand level of the latest second half. As a result, ¥3.5 billion of structural reform expenses will be recognized this fiscal year and the cost improvement effect is expected to be ¥1.7 billion this fiscal year Next, we have decided to review various expenses in line with the changes in the business environment We plan to reduce the acquisition of fixed assets from 260 billion yen to 240 billion yen, depreciation from 185 billion yen to 180 billion yen, and R&D expenses reduced from 180 billion yen to 170 billion yen each. Finally, please let me talk about cash flow projections. Free cash flow is expected to be the positive 80 billion yen as planned at the beginning of the fiscal year due to the review of the capital investments and the inventory reduction plan. As explained now, we will implement additional measures to respond to the rapid changes in the business environment But as we have explained in the past, we will strive to maximize sustainable corporate value by capturing demand related to decarbonization, including EVs and renewable energy, and the demand for sensors that are essential in the data society. So that's why I would like to start maximizing corporate value and the sustainable manner. That's all my presentation. Thank you very much. Thank you.