Tdk Corp S/Adr

Now it is time to start the full-year performance briefing of TDK Corporation for the fiscal year March 2025. Thank you very much for taking time out of your busy schedule to attend the briefing today. First, let me introduce the attendees. President and CEO, Noboru Saito. Senior Executive Vice President CFO Tetsuji Yamanishi. Thank you. Executive Vice President Shigeki Sato. Thank you very much. Corporate Officer Fumio Sashida. Thank you very much for having me. Corporate Officer Takao Tsutsui. Thank you. That are all the attendees. Today, we will present the results for the fiscal March 2025 and our projections for the fiscal March 2026. And before that, Mr. Saito will summarize our message for today and progress on the mid-term management plan, followed by a Q&A session. We plan about 90 minutes for the entire session. Please note that today's materials are available on our website in both Japanese and English, so please refer to them as well. Hello, I am Saito. Thank you very much for joining us today. First, let me start by sharing what we would like to communicate to you today. In the fiscal year ending March 2025, we posted record high net sales and profits. Free cash flows also exceeded our expectations, and we revised the shareholder return upward from the initial plan and increased the dividends. For the fiscal March 2026, with the impact of additional tariffs set by the new U.S. administration, the economic environment is highly uncertain, so we prepared the forecast based on two scenarios, base and risk scenarios. For shareholders' return, even in the risk scenario, we plan to maintain 30 yen per share. This is the second year of the mid-term plan. We will touch on the progress, especially our robust portfolio management that is a progress over growth strategy. I will talk about the progress of the businesses to be intensively monitored, as well as our investment and growth strategy in the AI ecosystem, which has great potential in the mid to long term for the company. We are also enhancing our dialogue with investors and analysts. We plan to provide a detail of our progress on bolstering pre-financial capital, another pillar of our mid-term plan, on September 1st. These are the points I want to cover today. I pass the floor to Mr. Yamanishi. This is Yamanishi. Now, I will illustrate the full-year performance briefing and fiscal year ending March 2025 and explain consolidated results, highlights, and full-year projections. In the electronics market related to performance, production of ICT-related products increased year-on-year. Demand for smartphones, laptops, PCs, tablets, and others was strong. Demand for near-line HDDs for data centers also recovered significantly. On the other hand, In the industrial equipment market, CapEx demand remained sluggish, and in the auto market, demand for battery EVs was stagnant, resulting in parts demand falling short of initial expectation. In this business environment, with a decrease in demand in the automotive market, sales of passive components and sensors decreased, and due to a late demand recovery in the industrial equipment market, sales of power supplies for industrial equipment, passive components, and sensors decreased. On the other hand, parts demand recovered in ICT market and with contribution of new products, sales of sensors, HDD heads and suspensions and small capacity rechargeable batteries increased significantly and sales increased by 4.8%. Due to the significant yen depreciation, increased shipments of products for the ICT market and the rationalization and the restructuring implemented in the previous fiscal year, operating profit increased 29.7% year-on-year. Both sales and profits reached record highs. Next, the summary of the four-year results. Exchange rate fluctuations had positive impact of approximately 95.7 billion yen to sales and 19.7 billion yen to operating profit, and the sales record at 2 trillion and 204.8 billion yen up 100.9 billion, or 4.8% year-on-year. Operating profit, including one-time expenses of 20.2 billion, was 224.2 billion yen, up 51.3 billion yen, or 29.7% year-on-year. Profit before tax was 237.8 billion yen, up 58.6 billion yen, or 32.7% year-on-year. Net profit was 167.2 billion yen, up 34.1% year-on-year. All lines reached new record highs. Earning per share was 88.1 yen. As for the currency sensitivity, we estimate ¥1 fluctuation to the dollar to be an annual increase of approximately ¥2 billion as in the previous calculation, and to the euro to be an increase of about ¥300 million. Next, the situation by segment for the fall year. First, passive components. Sales to the automotive and industrial equipment markets decreased, resulting in net sales of 559.6 billion yen decreased by 1.1% year-on-year and operating profit 34.1 billion yen decreased by 36.8%. Ceramic capacitors and aluminum film capacitor having a high sales mix to the automotive and industrial equipment markets declined in sales and profits. Inductive devices sales decreased to industrial equipment but increased to the ICT and automotive markets and increased in sales and profits. High-frequency components also decreased in sales to the ICT market, and with an impairment loss of 10.6 billion yen, it recorded a large loss. Piezoelectric material products and circuit protection components decreased in sales to the ICT and automotive markets, and sales and profit decreased. Next, the sensor application products business. Sales increased 5% year-on-year to 189.5 billion yen, already in profit decreased 17.5% to 5 billion yen. Sales of temperature and pressure sensors increased with increased sales to the industrial equipment and automotive markets, but the profit decreased because the previous year's P&L included one-time gain from asset sales. For magnetic sensors, sales increased due to higher sales of TMR sensors for smartphones and hall sensors to the automotive market, but due to higher expenses of investments for ramping up production, profit decreased. MEMS sensors sales of microphones increased to the ICT market, but motion sensors for automotive and industrial equipment decreased, hence overall MEMS sensor sales decreased. Magnetic application products business recorded sales of 223.6 billion yen, significant increase of 21.4% year-on-year, and operating profit turned to positive. HDD heads and suspensions. Demand for near-line HDDs for data centers increased by about 1.5 times year-on-year, both HDD heads and suspensions turned to profits. Head sales volume increased by about 30% year-on-year, and in particular volume for near-line HDDs increased by about two times Although the volume is slightly below the post-restructuring breakeven point, with an improvement in the mix and utilization, it turned to profit. Suspensions exceeded the breakeven point and steadily generated high profitability. Magnets recorded lower sales and sales decreased in the automotive market. Energy application products Sales increased 4.9% to 1,176.5 billion yen and operating profit recorded 234.4 billion yen, significant increase by 19.8%. Rechargeable batteries selling prices deteriorated due to lower material prices, but the mix improved and the volume increased with launch of new smartphone models and the profit increased significantly and profitability improved. Power supplies for industrial equipment. Sales and profit decreased as demand did not recover and sales for EV power supplies also decreased due to a slowdown in battery EV sales. Next, the factors of the changes in segment sales and OP on Q&Q basis from the third quarter to the fourth quarter. First, passive component segment. Sales decreased by 4.6 billion yen or 3.3% QoQ, and operating profit decreased by 18.8 billion yen. Demand in industrial equipment market increased slightly, but demand in the auto body market remained sluggish, and in ICT market, demand for smartphones decreased. Due to seasonality resulting in a decrease in sales of ceramic capacitors, inductors, and high-frequency components, aluminum film capacitor sales increased due to increased sales to industrial equipment. Ceramic capacitors and inductors sales and profits decreased, and high-frequency components posted an impairment loss of ¥10.6 billion in the fourth quarter, resulting in a large loss in OP. Next, sensor application products. Sales decreased by ¥1.6 billion or 3.3%, and OP decreased by ¥2.5 billion. Temperature and pressure sensors remained flat. Sales of TMR sensors for smartphones declined due to seasonality. And magnetic sensors sales and profits decreased. MEMS sensors recorded restructuring cost of 600 million yen, and the loss increased. Next, the magnetic application product segment. Sales increased by 3.8 billion yen, or 7%, and OP decreased by 2.9 billion yen. Heads for NEON line. Volume increased by 30% and HDD heads sales increased but it recorded loss due to the fixed asset tax payment but in real terms, profit increased. Suspension sales and profits decreased in Q4 due to advance shipments in the third quarter. Magnets saw a decrease in sales and profits. Next, the energy application products segment. Sales decreased by ¥43.4 billion or 13.4% and operating profit decreased by ¥35.6 billion in rechargeable batteries. Sales of small capacity batteries for ICT were as expected, but sales and profit decreased due to a one-time cost of 2.3 billion yen for disposal of equipment. Demand for power supplies for industrial equipment is showing some recovery and sales for profit increased. Sales for power supplies for EVs are increasing but losses continued. Next, analysis of 4-year operating profit of 51.3 billion yen. Volume increase of rechargeable batteries, HDD heads and suspensions resulted in an increase by 42.7 billion yen. Rationalization and cost reduction of 24.3 billion yen and restructuring effects of 9.4 billion yen absorbed 31.4 billion yen decrease in profit from selling price fluctuations. SG&A expenses increased by 13 billion yen due to higher R&D expenses as rechargeable batteries' new product development is accelerated. An increase of 19.7 billion yen from the weak yen resulted in an overall increase of 51.3 billion yen. Next, situation of the cash flows. For the full year, operating cash flow stood at ¥445.8 billion, investment cash flow ¥244.8 billion, and free cash flow ¥201 billion, roughly the same levels we had assumed at the Q3 results briefing at the end of January. In addition to increase in profit with reduction of capex and working capital, we significantly exceeded the free cash flow levels anticipated at the initial projections. Next, the forecast for the production volume of major devices related to the company as assumptions for our performance forecast. The outlook for the global economy in the fiscal March 2026 is very uncertain due to repeated changes in tariff measures by the US administration. For the production volume assumption of measure devices, in addition to the initial base scenario, We have formulated a risk scenario in which demand for major devices in the United States will decrease due to tariff measures. Based on these two scenarios, we set a range for our performance forecast. The risk scenario was formulated by predicting how much expected demand in the United States will deteriorate due to higher selling prices and others caused by tariffs from the base scenario. We assessed the automotive market at the range of 1% increase to minus 3% for the total number of vehicles. The volume of smartphones in the ICT market is focused in a range of 1.2 billion units to 1.164 billion, decreased by about 3%. The HDD market is on a recovery trend. and we had expected the near-line HDD volume for data centers to increase by 2%, but we incorporated a decline of approximately 5% as a risk. Based on the production volume of the major devices, we prepared the forecast for the fiscal March 2026 using the base and risk scenarios. The currency assumption to the dollar is ¥140, a significant depreciation from ¥153 in fiscal March 2025, and all items, including net sales and operating profit, will remain roughly flat compared to the fiscal March 2025 in the base scenario. Even the impact of tariffs on business is unclear. We have set the base scenario as a minimum level to be achieved. We plan to improve ROIC slightly to 7.1% for free cash flow, capex will increase and working capital will remain flat and it is forecasted to be 70 billion yen. On the other hand, the risk scenario indicates the possibility of a decrease in net sales of about 4% or 80 billion yen and operating profit by 45 billion yen. compared to the base scenario. ROIC and free cash flow will also deteriorate due to the decrease in profit. We intend to maintain the annual dividends at ¥30 as in fiscal March 2025, even in the risks scenario. Next, projected increase or decrease in 4-year sales by segment. The base scenario incorporated the yen appreciation impact to the dollar from 153 yen to 140 yen, but for comparison, we will explain excluding currency fluctuations. For passive components, with increased demand in the auto market such as XCVs, sales is focused to increase for automotive, mainly MLCCs, while sales to the ICT and industrial equipment markets are expected to decrease. We expect sales will increase across all businesses to an overall increase of 4% to 7%. Sensor application products. Sensors are projected to increase for temperature and pressure sensors and magnetic sensors for automotive application. MEMS sensors sales are focused to increase for ICT and game consoles overall increase of 11 to 14%. Magnetic application products. HDD production volume is projected to decrease by 2%, but near-line HDD production volume will increase by 2%. While head sales volume is expected to increase by 16%, suspension sales will increase by 25%, resulting in an overall increase of 9 to 12%. Lastly, energy application products. Demand for smartphones will remain strong, and we forecast an overall sales increase of 3 to 6%. Next, changes in operating profit for the fiscal March 2026. On an actual basis, excluding the impact of the stronger yen and the lower one-time expenses, profit will increase by 20.8 billion yen. We project profit increase of 70 billion yen due to increased sales across all businesses. Due to an uncertain economic environment, we assume 65 billion yen of selling prices fluctuation with stronger pressure. A 40 billion yen increase in profit from cost improvements and restructuring, and we plan to strengthen development of new products and technologies mainly for rechargeable batteries and SG&A expenses will increase by 24.2 billion yen. Including the decrease in one-time expenses and the impact of stronger yen, we project OP to be roughly the same as in the previous fiscal year. In the risk scenario, impact is 45 billion yen from reduced demand due to tariffs. Projections for various expenses We plan to spend 280 billion yen on acquisition of fixed asset, 205 billion yen on depreciation, and 260 billion yen on R&D expenses. Finally, shareholder returns. In the current mid-term management plan, considering changes in the business environment, growth investments, ROE, and other factors, we plan to return profits to shareholders at a payout ratio of 35%. Based on the levels of free cash flow, we plan to enhance shareholder returns, but considering the current uncertain economic environment, we plan to pay annual dividends of 30 yen, the same as for the fiscal March 2025. In the risk scenario, profit levels are projected to fall significantly, but we intend to maintain the annual dividends of 30 yen. In that case, the payout ratio will be about 42%.

And this concludes my presentation. Thank you very much. So now, Mr. Saito will explain the progress of the mid-term management plan, please. First of all, I'd like to explain the measures against this scenario, although the outlook is very difficult to predict. And there are concerns that stagflation will continue in the U.S. and there will be a slowdown in the global economy. So against this macro environment, we will continue to prepare as best. However, it is not ours to change per se. Therefore, what we need to do is to focus on what we can control. In other words, we are going to improve and strengthen our capabilities. So therefore, shown here, quality, productivity, and technology should be strengthened. And therefore, we will strengthen them. In addition, we will continue to strengthen our financial position in order to deal with three scenarios. Even in this scenario, we are going to have a balance between growth investment, strategic investment, and shareholder returns. Next, I'd like to explain about the KPI. In March FY25, all KPIs were achieved. In the fiscal year ending March 2026, we have incorporated risk scenarios. However, the target for the final year for the military management plan remains unchanged. We will continue to endeavor our efforts in order to achieve this target. Next, I'd like to talk about the capital allocation policy. So therefore, in total, we expect a cash flow of 1 trillion yen. However, we have the upside. And therefore, in total, for three years in comparison, we are going to have the upside of 250 billion. Of this, approximately 150 billion will be allocated for shareholder return strategy investment and focus on capital investment. We are going to increase by 100 billion yen. The increase will be mainly for the energy. So therefore, we are going to have a demand for the small rechargeable batteries. And therefore, we are going to have a related investment in the technical facilities. And also about the strategy investment, I will touch upon later. However, we are going to aggressively focus on AI ecosystem. Next, progress of the three points of the midterm management plan. So for the first cash flow enhancement having already explained, we have overachieved. So therefore, for the progress or the evolution of the ferrite tree, we have made a progress. So to enhance human capital, we established CHRO position. In terms of strengthening technological capabilities, we are going to work on the spin-off photodetector POC having achieved first. And using our spin-tronics technology, we are going to have a 10 times faster. In addition to those efforts, we will continue to enhance our sustainability activities and DX initiatives to make evolution of the ferrite tree. So I would like to talk about the selection of the business portfolio management. So therefore, after the announcement of last year's midterm business plan, we are going to enhance the first mover business portfolio. So therefore, we are going to focus on growth strategy. And I would like to focus on the priority monitoring business on the left hand side, and also high potential area focusing on opportunities on AI. So I'd like to talk about the priority monitoring project. So since last May, we have discussed 27 CBUs, and therefore we have implemented a turnaround effort. Suspension application products have already achieved a turnaround, and also for the HDD headings, we are having a right direction. For the 19 CBUs, we are having internal measures toward a turnaround and we are discussing on strategic options. And for today, at this moment, there are seven CBUs that we can announce and therefore we are going to decide to terminate the business and exit magnet applied products. and also MAS micro actuator business, we have agreed to transfer the business. In the passive components, we terminated PV solar cell and system conductor embedded substrate. We are going to terminate this business. And for the EDLC Lightning Air Double Layer Capacitor, we are going to terminate. And this is a progress at this moment. We are going to accelerate proactive business portfolio management in order to focus on growth strategy. I'd like to talk about the growth business on the right-hand side. We are going to implement a TDK transformation and the major driver will be AI-related markets. We define the AI market, not only the server and data center. We focus on AI ecosystem, edge AI terminals, AI vehicles, infrastructure, and also AI manufacturing process, including semiconductors production. We believe there will be a growth in this AI. And therefore, using our core business, we are going to exercise our opportunities and therefore we are going to contribute to indispensable applications in order to transform the society. So talking about AI ecosystem, there will be a growth prospect. So as I have explained, our major and new business will make an essential contribution to the growth of AI ecosystem. Specifically at this moment, it will be around 10% of the total sales. However, in the mid to long term, we expect to achieve a growth rate of 25 to 30%, as shown on the right mid-sized rechargeable batteries, heads, and suspensions passive components. Today, in addition to these career projects, I would like to focus and talk about the three new areas and the applications. The first is protective maintenance in industrial machinery market in July last year. So we have expected since AI and therefore we have created this company and we release a new product, HRX, various sensors and state of art AI. This HRX will make appropriate and also they are going to detect the and normality in the production and therefore provide a productive maintenance. Through our unique value proposition, we are going to contribute to the transformation of AI ecosystem. Next, this is a strategic investment in AR glasses. as we explained in May last year, so this will be only 110 size of our previous products and we are making a good development and also we are going to focus on piezo haptics and all solid state batteries to make glass smaller, lighter and more efficient. Finally, We didn't highlight it much. However, TDK also delivers manufacturing equipment in semiconductor field. These are the FAA technology cultivated through the development of automatic mounting machines for electronic components and other products as well as the clean technology and therefore, We have created a strong position in the market. Our main products are pod for stirring, welling, FOUP, load box, and this will play an important role in back-end process. Therefore, these product lines are still positioned in the upper right corner of the portfolio, but based on the AI semiconductor growth, we are going to achieve a greater height. We will not only strengthen our manufacturing technology, we combine with material technology in order to provide a new solution and contribute to the whole AI ecosystem. And I have talked about the three applications. However, talking about the CBC, we are going to make additional investment in order to become a main driver so that will be the strategic investment in ai ecosystem in order to further grow the ferrite tree so the major driver to continue to realize this growth. Our roots are our unique corporate culture, a venture spirit where diverse human resources continue to take on new challenges and they will work on equal functional basis to pave the way for social and personal transformation. And also talking about the new company since EI is one of the example. So including human capital, we are going to put the efforts of the pre financial capital and I would like to elaborate on September 1st investor day. I mentioned about my commitment a year ago. However, I will not waver from my commitment. In the last fiscal year, we increased the number of dialogues with investors by 30% and also we have increased 60% in numbers. We will continue to engage in constructive dialogue and collaboration with you to enhance our corporate value and we look forward for your continued support. This concludes my explanation. Thank you very much.