Tdk Corp S/Adr

Thank you very much for waiting. So it's time to start that TDK Corporation full-year performance briefing on March 2024. Today's speakers and attendees is President and CEO Noboru Saito, Senior Executive Vice President Tetsuji Amanishi, hello everyone, and Corporate Officer Fumio Sashida. Corporate Officer Taro Ikushima. Thank you. Corporate Officer Takao Tsutsui. Hello, everyone. Let's welcome all the speakers and attendees from TDK Corporation today. Thank you very much. I'm Yamanishi. Thank you very much for taking time out of your busy schedule today to attend our full-year performance briefing on March 2024. Thank you very much. I will now give an overview of our consolidated and the business performance. on a full-year basis. First of all, as for the key highlights of the full-year results, although the global economy remained steady in North America, mainly, there was still the growing sense of deceleration due to the economic slowdown in Europe and in China, as well as the uncertainty and geographical uncertainties in the Middle East. In addition, the yen continued to depreciate against the U.S. dollar and the euro. Under such circumstances, in the electronics market, which affects our business performance, sales decreased by 3.5% year-on-year due to sluggish demand in the ICT and HDD market, caused by prolonged weak final demand and weak capital investment demand in the industrial equipment market in general. So it is the 3.5% year-on-year decrease. However, operating income increased by 2.4% year-on-year, updating the regular high profits, mainly due to an increase in sales to the automotive market, resulting from an increase in the production of EXV vehicles and improved profitability of small rechargeable batteries for the ICT market. Looking at sales by business segment by market, sales of passive components and sensors for the automotive market increased due to the shift to EXVs and ADAS, while sales of passive components and sensors for the industrial equipment market, where demand remained sluggish and declined significantly. Small rechargeable batteries for the ICT market secured an increase in the profit despite a decrease in the sales due to a drop in selling prices accompanying the decline in the material prices. Sales of HDD heads and suspensions declined significantly owing to stagnant demand in the HDD market, but the signs of improvements began to emerge in the third quarter. One-time expenses of ¥19.8 billion were recognized for the implementation of structural reforms, including optimization of production capacity in anticipation of the demand environment. Next, Avalynx provided an overview of the full-year results. including an increase of approximately 101.1 billion yen in net sales and an increase of approximately 25 billion yen in operating income due to exchange rate fluctuations. Net sales amounts to 2 trillion and 103.9 billion yen, down by 76.9 billion yen or 3.5% from the same period last year. Operating income was 172.9 billion yen at 4.1 billion yen or 2.4% from the year earlier, including one-time expenses of 19.8 billion yen. Income before income taxes was 179.2 billion yen, and net income was 124.7 billion yen. Earnings per share is 328.7 billion yen. As for the sensitivity to exchange rate fluctuations, we estimate that one yen change to the dollar will result in an annual change of approximately 2 billion yen and one yen change to the euro. will result in an annual change of approximately 600 million yen. I will continue with an explanation of the full yield results by segment. In passive components, sales to the automotive market, especially for XEV vehicles, increased, but demand from the industrial equipment and ICT markets was sluggish. resulting in sales of 565.6 billion yen down by 2.3% year-on-year basis. Operating income decreased by 43% to 539 billion yen due to sales volume decline. Sales and earnings of ceramic capacitors increased due to higher sales to the automobile market, but earnings decreased due to degenerated product mix and lower sales volumes to industrial equipment and distributors and sales and earnings. Both of the sales and earnings of aluminum film capacitors decreased. due to lower sales to the industrial equipment market and the distributors. Sales and operating income of inductive devices decreased owing to lower sales to industrial equipment and the distributors while sales to the automobile market increased. Sales and earnings of piezoelectric components and the circuit protection components also declined for products for the industrial equipment market as well as the distributors due to the decrease in the demand and both sales and income of high-frequency components decreased due to lower sales to the ICT market. In addition, at one time, expenses of 7.4 billion yen was recognized for the period. Next, this slide. In the sensor application products business, net sales were 180.5 billion yen, up by 6.5% year-on-year, and operating income was down by 43.7% or 6 billion yen, including one-time expenses of 3.3 billion yen. The profitability of temperature and pressure sensors improved thanks to increased sales to the automotive industry and both sales and profits of magnetic sensors increased due to increased sales of whole sensors and TMR sensors to the automotive industry as well as to smartphones. On the other hand, both sales and profits of MEMS sensors decreased due to lower sales for smartphones and industrial equipment, although sales of motion sensors for automobiles expanded. Next, in the magnetics application product business, net sales were 184.2 billion yen, down by 8.2% year-on-year. And operating income was at a loss of 35.6 billion yen, including a one-time expenses of 6.5 billion yen. In the HDD head and suspensions business, HDD demand continues to be sluggish, with the total HDD demand down by 23% from the year earlier, and in particular, the total new line HDD demand down by 30%. As a result, sales volumes of both heads and suspensions for HDDs have fallen significantly from the previous year, and we had to recognize sales decline and operating loss again. Sales of magnets declined due to the lower sales in the automotive market and for industrial equipments. And of course, profitability improvement has not been as expected due to slow progress and productivity improvement. Next, in energy application products, net sales were 1 trillion and 121.7 billion yen, and operating income was 195.7 billion yen, including 2 billion yen one-time expenses. A 4.4% decrease in sales from the previous year but a 32.7% increase in income. In rechargeable batteries, although sales volume of small batteries for smartphones increased. total sales decreased due to lower selling prices and price discount caused by falling material prices, and reduced sales of medium-sized batteries due to business transfer to joint venture. However, the company secured an increase in profits due to volume growth, rationalization effects, and foreign exchange gains. Both sales and profits of power supplies for industrial equipment increased, and sales to industrial equipment such as semiconductor manufacturing equipment and medical equipment increased in response to the backlog of orders, while the profitability of power supplies for EVs improved. Next, I will explain the factors behind the change in sales and operating income by segment from Q3 to Q4 of the current fiscal year. In the passive component segments, sales declined by 2.5 billion yen or 1.7% from Q3, And operating income fell by 14.9 billion yen or 80.1%. On a Q1Q basis, sales of ceramic capacitors increased due to higher sales for automotive applications, but operating income decreased due to the increased expenses for the production enhancement. with both sales and operating income of aluminum film capacitors decreased due to lower demand in the industrial equipment market, and both sales and operating income of inductive devices also decreased. Owing to lower sales in all markets, both sales and income of high-frequency components decreased due to lower sales in the ICT and industrial equipment markets. while both sales and income of piezoelectric and circuit protection components remained almost flat thanks to higher sales in the automobile market, despite the lower sales in the industrial equipment and electricity market. And the restructuring costs of approximately 400 million yen in Q3 and about 7 billion yen in Q4 were recognized. And next, since application products, sales declined by 4 billion yen and operating income decreased by 8.4 billion yen. Sales of a temperature and a pressure sensor remained almost flat, while the sales of magnetic sensors for the automotive industry increased, but the peak of demand in the ICT market has passed, peaked out, so resulting in lower sales as well as profits. In addition, one-time expenses of 3.3 billion yen was recognized in Q4. Next, the magnetic application product segment sales increased by 2.6 billion yen, or 5.2%, and an operating loss. And now we have recognized it about 3.3 billion yen and recognize it in Q4. Next, in the magnetic application product segment, sales increased by 2.6 billion yen or 5.2%, as I mentioned earlier, and the operating loss increased by 2.1 billion yen. Sales increased by approximately 8% in HDD head sales volumes due to the recovery of overall demand for near-line HDDs and by approximately 10% in suspension sales volume, resulting in an overall increase in head sales and reduction of the deficit. As for magnets, sales declined and the operating Loss expanded. One, time expenses of 900 million yen were recognized in Q3 and 4.7 billion yen in Q4. Next, the energy application product segment. Sales declined by 66.4 billion yen and operating income decreased by 25.2 billion yen. In rechargeable batteries, sales of small batteries to the ICT sector declined significantly due to seasonality. resulting in lower sales and profits. Sales of power supplies for industrial equipment remained steadily, with both sales and profits declined, and the power supplies for EVs. One-time expenses of 2 billion yen were recognized in Q4. Next, the factors of changes in operating income of 4.1 billion yen on a per year basis. While the rechargeable batteries saw an increase in profit due to the growth in sales volume, the decrease in passive components was largely due to a decline in volume, deterioration in product mix, and reduced capacity utilization and the decrease in HDD head sales volume. resulting in a profit change of 57.7 billion yen due to sales fluctuations. The rationalization, cost reductions, and structural reform effects of 42.4 billion yen offset the 41.5 billion yen decrease in profit due to changes in selling prices. SG&A expenses were reduced by 20 billion yen through shallow cost streamlining efforts, mainly in rechargeable batteries and HDD heads, and one-time expenses such as reflection cost decreased by 15.9 billion yen from the previous year. 25 billion yen gained by the depreciation of Japanese yen also contributed to the total increase of operating profit of 4.1 billion yen. Next, I will explain the cash flow. The full year operating cash flow was 447 billion yen. Investment cash flow including capex was 216.6 billion yen, and free cash flow was 230.4 billion yen, a significant increase from the 28.4 billion yen free cash flow in the previous year. In addition to a significant increase in operating cash flow due to a decrease in working capital, including the ongoing inventory optimization based on the market demand conditions, capital expenditures were also reduced by approximately by 40 billion yen from the initial estimate of 260 billion yen as a result of careful assessments of demand trend. As a result, free cash flow increased significantly from the previous fiscal year to 230.4 billion yen. In addition, the financial target of a positive free cash flow after shareholder returns set forth in the previous mid-term plan was also achieved, even exceeding the initial target by approximately 50 billion yen. And the new mid-term plan will also aim to increase the free cash flow through further improvements of capital efficiencies. That's all my presentation today. Thank you very much for your attention. Thank you.

Hello, I am Noboru Saito, President and CEO. Thank you very much for your time and for the occasion. I will explain our full year projections for fiscal year March 2025. First, allow me to explain our consolidated forecast for FY March 2025, as well as the market background behind our forecast, as well as our planned production volume of the major devices. As for the automobile, we are assuming the market size including commercial vehicles to be 91 million units level, up 2% year-on-year. Production of EVs and eco-friendly cars having a major impact on TDK are continuously expanding. For the entire XEV in the market, we are assuming 26.4 million units level, up 21%. As for smartphones representing the ICT market, we are assuming 1 billion and 144 million units level. This is a significant increase of, slight increase rather, of 1% from the previous period. As for the HDD market as a whole, we expect an increase of 3% or around. As for the production volume of near-line HDDs for data centers, A recovery trend is being observed from last year's rapid decline, and we believe it will be around 51 million units up 31% year-on-year. As for notebook pieces and tablets, we are now assuming for a growth of 3-4% positive side. On the other hand, we are not seeing a recovery for the overall AFN equipment in the industrial equipment market, and it will be rather weak throughout the year. Production volume of major devices excluding industrial equipment seemed to have hit the bottom, now going up from the previous year, but the macroeconomic environment is still very unclear, so we need to be extremely careful as to the demand for parts and components going forward. with the production volume of those major devices as well as the order situations. Our outlook for the consolidated performance for FY March 2025, full-year net sales being 2 trillion and 105 billion yen, operating profit being 180 billion yen, profit before tax being 184 billion yen, and net profit attributable to owners of parent being 128 billion yen. As for the exchange rate, we are now assuming ¥140 to the USD and ¥156 to the EUR. Now, allow me to explain our shareholder returns. In the new medium term plan, Considering the changes in the business environment, investment for the growth business, and ROE and others, we plan to have shareholder returns with the dividend payout ratio of 30%. Now it is going to be raised to 35% according to our plan. The annual dividend is expected to be 120 yen, increase of 4 yen. Next, allow me to explain our projections for the cost items. CapEx for fixed assets is 250 billion yen. For depreciation and amortization, 190 billion yen. And for R&D and expenses, 220 billion yen are expected. For further information, as for the R&D spend, due to the partial revision of categories both in S&A and R&D expenses, it is expected to increase about 30 billion yen for FY March 2025. Next, I will explain our assumptions for ups and downs by segment for FY March 2025. As for the passive component segment, though sales may grow driven by the eXV in progress, but due to the assumed decline in the selling price of MLCC and others, as well as the sluggish market for the industrial equipment, we are now assuming the growth of 4-7% for the segment as a whole. In the sensor application product segment, Magnetic sensors such as TML and HAL, which are the firm thanks to the automotive and ICT applications, XEV-related demand is expected to grow temperature and pressure sensors. On top of that, MEMS microphone sales growth would result in the expected revenue growth for the segment of 8 to 11%. As for magnetic application product segment, we are now observing that the production volume of HDDs and near-line HDDs for data centers appear to have hit the bottom. Though we could expect the cells to grow, but due to the drop in the magnetic cells, we are now expecting to have a drop in the cells in the range of minus 2 to plus 1%. In energy and application product segment, we are now observing the demand and has hit the bottom of smartphones, notebooks, PCs, and tablets. Because we are expecting a certain level of drop in selling prices due to the price decline of raw materials of rechargeable batteries, so we are now assuming the segment would be minus 4 to minus 1% year-on-year. Next, allow me to explain an outline of our new medium-term plan which we plan to announce on May 22, next month. The current medium-term plan was made by Backcasting from what we want to be, namely from our long-term vision. So this is going to be our foundation building phase, where we would like to build a firm foundation and we would like to solidify our foothold. As for the company-wide financial goals, besides the same operating profit ratio, we are going to pay more attention to ROIC instead of ROE. Thus, we are going to aim at improving profitability of our capital invest data. In order to realize these goals, for the priority growth businesses, we will continue our aggressive investment in order to further improve our profitability. For the challenging businesses, we will quicken our activities in order to execute appropriate measures so that we could further improve our capital efficiency. We will be more strongly aware of the capital cost and carry out a more proactive business portfolio management. Among the major growth businesses are, first, we see an ERX trend in place, energy transformation. We will continue to invest into MLCC and other passive components which have a high reliability where we can expect the demand to grow, so we could continue to strengthen our competitiveness, so we could surely go for the demand. Decarbonization and renewable energy are progressing. Demand for mid-sized renewable batteries are expected to enjoy growth not only for home but for commercial ESS and USS and for the data centers. So here we would like to maximize the joint venture synergies so that we could expand ourselves on the mid- to long-term basis. With the digital transformation direction trend further advancing, in line with the AI-enabled devices becoming popular, as well as the increased demand for the foldable smartphones and other high-future devices, will further expand sales of high-value added products, such as silicon-anode lithium batteries, TMO sensors, and MEMS microphones. Next, I will explain our outlook for the free cash flow, which is going to be our continued focus in the new medium-term plan. In the previous mid-term management plan period, MLCC and other passive components business and TML sensor and other sensor application products business improved profitability. Furthermore, by improving the working capital, our operating cash flow tended to grow. Furthermore, in the final fiscal year, with the decreased investment in energy application products, we were able to generate 156 billion yen in cash flow for the three cumulative years. In the new mid-term plan, we will further improve our possibility of the capital invested. We will further reinforce our business portfolio management. We focused on our investment into growth, small size rechargeable batteries, passive components, and sense application products enjoyed improved profitability. And we believe during the new mid-term period, we believe we can further generate higher free cash flow. and the free cash flow after the shareholder returns will be used for growth investment and then further reinforce shareholder returns. I am planning to explain details of these financial initiatives as well as ESG and other non-financial initiatives on next month, May 22nd. On the short-term basis, the global economy is still faced with great uncertainties. But TDK now will define the three years starting from FY March 2025 as a period for us to build a strong foundation and solidify our footsteps on the long-term basis. We will aim at a sustainable value creation. With this, I'd like to conclude my explanation. Thank you indeed for your kind attention.