Tdk Corp S/Adr

As the time has come, I would like to start the first quarter performance briefing of fiscal year March 2026 for GDK. Thank you very much for participating despite your busy schedule. Please allow me to introduce the participants. Senior Executive Vice President CFO Tetsuji Yamanishi. Executive Vice President, Shigeki Sato. Corporate Officer, Fumio Sashida. Corporate Officer, Takao Tsutsui. These are the participants. Today, we'd like to give you the highlights of the first quarter of the fiscal year March 2026 results and give you the projections for the full year. After that, we'll go to Q&A. Overall, this will be a 60-minute meeting. The presentation they're going to use today is posted on our website, both for Japanese and English. So let's start.

Hello, my name is Yamanishi. Thank you very much for taking time out of your busy schedules to attend our financial results briefing for the first quarter of the fiscal year ending March 2026. I will now explain the summary of our consolidated financial results. Regarding Q1 FY March 2026 key points, Due to intensifying trade frictions, increasing uncertainty over tariff policies and heightened geopolitical risks in the Middle East, the global economy remained in an extremely unstable situation. Exchange rates showed a significant yen appreciation year-on-year, mainly against the US dollar and the euro. In the electronics market, which affects our business performance, production of smartphones among ICT-related products remained steady compared with the same period of the previous year. Demand for near-line HDDs for data centers also continued to be firm. On the other hand, in the industrial equipment market, overall capital investment demand remained sluggish. and in the automotive market, the slowdown in demand for BEVs continued, resulting in parts demand falling below our initial assumptions. Under such a business environment, by market segment, Sales of small-capacity batteries and sensors increased to the ICT market, and sales of HDD suspension assemblies increased significantly due to farm demand in the HDD market. On the other hand, Sales of passive components and sensors decreased to the automotive market due to slowdown in BEV demands. However, thanks to the recovery in parts demand for game consoles classified under the industrial equipment market, sales of rechargeable batteries and sensors increased. As a result, net sales for this quarter increased by 3.3% year-on-year. Operating profit decreased by 2.5% year on year due to the significant appreciation of the yen and the decline in shipments of products for automotive applications. Next, I will go through Q1 FY March 2026 results, including the impact of FX rate fluctuations against the U.S. dollar and other currencies, minus 37.6 billion yen in sales and minus 7.1 billion yen in operating profit. Net sales were 535.8 billion yen, up 16.9 billion yen, or 3.3%. Operating profit was 56.4 billion yen, down 1.5 billion yen or 2.5%. Profit before tax was 57.6 billion yen, down 11.9 billion yen or 17.2%, also impacted by foreign exchange losses from the appreciation of the yen. and net profit was 41.5 billion yen, down 18.2 billion yen, or 30.5% due to foreign exchange losses and the absence of the tax expense reversal recorded in the previous year. Earnings per share were 21.85 yen. Regarding foreign exchange sensitivity, as in the previous guidance, we estimate that a one-hand change against the US dollar has an impact of approximately 2 billion yen per year, and against the euro, approximately 0.3 billion yen per year. Next, I will explain the results by segment. First, in passive components, Sales decreased mainly in the automotive market with net sales 138.1 billion yen down 3.4% year-on-year and operating profit 6.4 billion yen down 54.1% year-on-year. Ceramic capacitors and inductive devices, which have a high sales ratio to the automotive market, recorded lower sales and profits. Aluminum electrolytic capacitors and film capacitors, despite lower sales to the automotive market, posted higher sales and profits, thanks to increased sales to the renewable energy market. High-frequency components saw lower sales and profits due to reduced sales to both the ICT and industrial equipment markets. Piezoelectric material products and circuit protection components also recorded lower sales and profits as sales to the ICT market declined. Next is the sensor application product segment. Net sales were 46.4 billion yen, up 5.3% year-on-year, and operating profit was 2.7 billion yen, returning to profitability from a loss in the previous year. For temperature and pressure sensors, sales decreased to industry equipment market, resulting in lower sales and profits. In magnetic sensors, while TMR sensors posted higher sales for smartphones, Hall sensors recorded lower sales to the automotive market, leading to an overall decline in sales and profit for magnetic sensors. MEMS sensors achieved sales growth driven by increased microphone sales for the ICT market and higher motion sensor sales for the industry equipment market. resulting in a significant improvement in profit for MEMS sensors as a whole. Next, in the magnetic application product segment, net sales were ¥54.6 billion flat year-on-year, while operating profit was ¥6.3 billion, marking a significant increase in profit. In HDD heads and HDD suspension assemblies, sales for near-lying applications increased, but overall sales were flat due to weaker demand for HDD heads for PCs. However, profitability improved significantly thanks to a more favorable product mix. In magnets, Sales declined due to lower demand in the automotive market, but profitability improved thanks to quality enhancements and cost reduction efforts. Next, in the energy application product segment, net sales were 285.5 billion yen, up 8.6% year-on-year, and operating profit was 55.4 billion yen, slightly higher than the previous year. In rechargeable batteries, Sales and profits increased, driven by higher sales volume of small capacity batteries to the ICT market, as well as increased sales of small and medium capacity batteries to the industrial equipment market. In power supplies for industrial equipment, however, sales and profits decreased due to the absence of significant recovery in demand for industrial equipment.

Next, I will explain the factors that caused changes in segment sales and operating profit from the fourth quarter of the previous fiscal year to the first quarter of the current fiscal year. First, in the passive component segment, net sales increased by 2.3%, 3.1 billion yen from the fourth quarter, and operating profit increased by 1.9 billion yen, excluding the one-time expense of 11.3 billion yen incurred in the fourth quarter. Ceramic capacitors saw increased sales to the automotive market, resulting in higher sales. Aluminum film capacitors saw a decrease in sales to the automotive market, but an increase in sales to the renewable energy market, resulting in higher sales. Inductive devices saw sales increase in the automotive and industrial equipment markets, but decreased in the ICT market, resulting in sales remaining largely flat. High-frequency component source sales increased due to a seasonal recovery in the ICT market, while piezoelectric and circuit protection component source sales increased due to increased sales to the industrial equipment market. Despite a decrease in profit due to the impact of the strong gain and a deterioration in the product mix of ceramic capacitors, Operating profit increased by 1.9 billion yen, mainly due to the effects of structural reforms in high-frequency components and overall revenue growth. Next, regarding sensor application products. Net sales decreased by 100 million yen, 0.2%, remaining nearly flat, while operating profit increased by 2.5 billion yen, excluding one-time expenses of 600 million yen incurred in the fourth quarter. Temperature and pressure sensors saw a slight increase in sales, but a deterioration in product mix led to a decrease in profit. Magnetic sensors experienced a decline in sales and profit due to reduced sales of whole sensors for the automotive market. However, an increase in sales of TMR sensors for smartphones resulted in flat sales and an increase in profit for magnetic sensors overall. MEMS sensors saw an increase in sales due to strong sales of MEMS microphones. In addition to significantly improved profitability, MEMS motion sensors saw a decrease in sales but achieved an increase in profit due to the effects of structural reforms implemented in the previous fourth quarter, resulting in a significant improvement in overall profitability for MEMS sensors and a reduction in losses. Next, in the magnetic application product segment, sales decreased by 3.7 billion yen, 6.3%, while operating profit increased by 7 billion yen. HDD heads saw a decrease in sales volume of approximately 12% due to the transition period for demand for near-line heads, a major product, resulting in a decline in sales. However, improved product mix and cost improvement through fixed cost efficiency led to an increase in operating profit, enabling the segment to maintain stable profitability. Suspension assemblies saw a 25% increase in sales volume due to increased demand for near-line applications, resulting in both higher sales and operating profit. Magnets saw a slight increase in sales, but profitability improved due to cost improvements and the sale of welfare facilities. Next, in the energy application product segment, sales increased by 5 billion yen, 1.8%. and operating profit increased by 17.6 billion yen, 46.6%. Sales of small capacity batteries for ICT applications increased, contributing to the increase in sales and significant increase in operating profit. Power supplies for industrial equipment saw a decline in both sales and operating profit due to the slow recovery of demand, while EV power supplies also experienced a decrease in both sales and profit due to reduced demand for BEVs. Next, regarding the analysis of the 1.5 billion yen decrease in the operating profit, an increase of 26.2 billion yen was achieved due to the higher sales volume of secondary batteries, HDD, head suspensions, and sensors. While rationalization and cost reduction measures contributed to ¥4 billion and the effects of structural reforms implemented in the previous fiscal year added ¥1.4 billion, increased pressure to reduce selling prices resulted in a ¥15 billion decrease. SCNA expenses increased by ¥8.8 billion due to higher R&D expenses related to accelerating the development of new technologies and products in the secondary battery segment. a decrease of 2.2 billion yen from the one-time revenue recorded in the previous year, and a decrease of 7.1 billion yen due to the yen's appreciation, resulting in an overall decrease of 1.5 billion yen. Next, I will explain about the cash flow situation. In the first quarter, Operating cash flow was 59 billion yen, and investment cash flow was 62.9 billion yen, including the acquisition of companies related to the AI ecosystem. As a result, free cash flow was a negative of 3.9 billion yen, but this was in line with the expectations for the first quarter. Next, I will explain the segment by segment sales increase or decrease for the second quarter compared to the first quarter. For the second quarter, we are forecasting the exchange rate of 140 yen per dollar. But for ease for comparison, we will explain the increase or decrease of adjusted to the actual exchange rate of the first quarter. First, for passive components, We anticipate increased demand from the automotive and ICT markets and expect an increase in sales centered on MLZCs, resulting in an overall increase of ±0 to 3%. Sensor application products are targeted at the ICT market, with magnetic sensors and MEMS microphones increasing due to seasonal factors. Temperature, pressure, and magnetic sensors are also increasing for the automotive market. And MEMS motion sensors are increasing for industrial equipment. Overall, we expect revenue to increase by 12% to 15%. Next, in the magnetic application product segment, while we expect an approximately 8% increase in the near-line HCT production volume, We anticipate approximately a 20% increase in head sales volume and increase in suspension sales volume, resulting in an overall revenue increase of plus 10 to 13%. Finally, in the energy application product segment, we expect demand for smartphones to remain strong due to seasonal factors, resulting in an overall revenue increase of 12 to 15%. Finally, I will explain the full year projections for the fiscal year ending March 2026. At the time of the initial forecast announcement, it was extremely difficult to predict demand due to the U.S. administration's tariff policies, resulting in a highly uncertain outlook. Therefore, For the production volume of major devices, which serves as the basis for the forecast, we established two scenarios. The base scenario, which reflects initial assumptions made prior to the tariff measures, and a risk scenario that accounts for the potential reduction in demand for major devices in the U.S. due to tariff measures. Based on these two scenarios, we have provided a range-based projection for the performance outlook. As a result of revising a full year production volumes forecast for major devices at this point in time, we have decided not to change the base scenario performance and to maintain the figures announced at the beginning of the fiscal year given that there is no significant difference from the base scenario established at the beginning of the fiscal year. Negotiations various countries regarding tariff measures are still ongoing and the future demand outlook remains uncertain. Therefore, we will maintain the risk scenario announced at the beginning of the fiscal year, but there is no change in the view that the risk scenario represents the minimum level that should be achieved. The exchange rates for the second quarter and beyond remain unchanged from the beginning of the fiscal year, 140 yen per dollar and 155 yen per euro. Rural cash flow annual dividends also remain unchanged. Additionally, there are no changes to capex, depreciation and amortization expenses, research and development expenses. Finally, we have two announcements. The English version of the TDK United Report 2025 is going to be published on the 8th of August. This report tells the story of how the TDK United team members are striving to enhance corporate value by aiming for fusion rather than integration. It will be available on TDK's website, so please take a look. And one more thing. We will hold TDK Investor Day on September 1st. So TDK United team members will introduce TDK's strength in technical capabilities and human capital, which are TDK's pre-financial capital in a panel discussion format. This event will be broadcasted live. This concludes my presentation. Thank you very much.