Earnings Call: Q1 2022

Jul 28, 2021

Thank you very much for joining us today with our performance briefing on Q1 of FY March 2022. We really appreciate that all of you will join today and I am going to present about the consolidated business performance. I start with the key points. In Q1 last year, Due to that the expansion of infections in the COVID-nineteen pandemic, each country lockdown and that was a slowdown to the global economy and leading to the major impacts on the business too. But after the Q2 last year that the social and the production activity in each country have gradually reopened and now We observed that the recovery of the electronics demands, particularly in the digital transformations and energy transformation, where the demand have been steady, So sales was grown by 35.8 percent year on year. Operating income have grown by 67 point 4% from the year earlier. Now going towards the last Q2, the automotive market's demand have slowed down due to On the shortage of the semiconductors, although we have been really and good until the Q4, but now the further accelerations of the electrification of the EV orders increased the component accounts in the vehicles have pushed up and the demand and now and have Order is steady, and we could expand the sales on our passive components and sensors. And for the ICT markets, due to the shortage of the semiconductors and Also, the result of the COVID-nineteen pandemic and the release due to the part of the lockdown, the production of smartphone was lower and our initial projections. But on the other hand, the demand in the PCN tablet will continued to be on a high level and investments in the data center have recovered leading to the further demand expansion for the solvers. And result of that, the sales of secondary battery sensor and HDD head have increased. Also for the industrial equipment markets, now the power supply for the industrial equipments or the passive components, The sales have included have expanded due to that the more the corporate CapEx based on the recovered production activity. Next, let me talk about that outline of our business. Now the impact of the currency fluctuations and the impacts on the €21,400,000,000 in sales and €1,700,000,000 of minus impact on the operating income. But all in all, the sales was €420,100,000,000 110,700,000,000 or 35 percent increase year on year and operating income was 30,800,000,000 Well, 12,400,000,000 or 67.4 percent increase from the year earlier. Income before tax was 32,200,000,000 yen Net income was €26,700,000,000 Earnings per share was €211,090,000,000 When it comes to sensitivity to the currency, there was no any change. Now impact on the Operating income, the yen change to the dollar have the 1,200,000,000 in fact and the 200,000,000 yen to euro. Next, let me talk about the segment wise, the overview of the business and the Q1. Sales of passive components was 100 and 21,200,000,000 yen 43.6% increased from the year earlier. Now there's still that the very high level of that the demand for the automotive markets contributed and also in the industrial equipment markets, now it's have been really favorable in the renewable energies or the industrial equipment. In ICT markets, Now although we have just a little less demand for the base stations last year, but now the total 5 gs related demands are really steady, so that we could recognize on the increases in the revenues in all end businesses. Operating income was JPY 18,000,000,000. It was 2.3x as much as last year, so substantial increase and operating income margin It's 14.9%, making big contribution to the profitability. Excluding that high frequency component business, All of the business recognized the increase in both sales and profits. But in high frequency component products, it's a little less than the last Due to the R and D expenses for the new products. Next, sensor application products. Now the last Q4, we have the record high sales that we have also found a substantial increase in the sales this quarter and the sales was £26,800,000,000 82.3 percent of increase year on year. Operating income also opened profit, we could Senshu reduces the operating loss. And when it comes to TIM, our sensor have been expanded the business for the ICT markets. On the other hand, the MEMS sensors have successfully expanded the customer and application basis, and they were starting to deliver all these efforts. In motion sensor and MEMS microphone, the sales have remarkably increased. Now we have the improvements of the performance, and we could substantially reduce the loss. And there's a conventional products like temperature and pressure sensor and hole sensors and will Also being recovered due to that the good demands and in other markets and we could improve that profitability. And on top of that, now we have To improve that's the profitability and the performance, including that structure reform we have implemented the last quarter. Next, Magnetic application products. Sales was €60,600,000,000 58.2% increase year on year. And That operating income tended to be profitable from the big loss we had last year. HDD head business have been favorable due to that recovery of the investment in the data centers. They're now somewhere and the demand have increased And the sales volumes of nearline HDD have doubled from the last year and also It happened over 70% more than we have initial projections of the Q1. And So that we could eliminate that negative impacts of the closure of that factory of 1 of the major customers in Q1 We don't have any that kind of negative. The effect so that we have about substantial increase in the sales and the profit. And for HDD suspension, now nearline HDD for our major primary Customers' data centers have been very favorable, and we could secure an increase in both sales and profits. With magnets, now sales for the automotive markets have remarkably recovered, and the sales for the industrial equipments have also pushed up and that our Sales and we could substantially reduce the loss. Next, energy application product. Sales was 199 point €6,000,000,000 Operating income was €23,400,000,000 27.2 percent increase in The sales and 25.2 percent and a less in operating income from the year earlier. As the secondary batteries, the smartphone, tablet, Note PC and another mobile devices, the businesses have been steady And the Ministry of Products, the e bike order that's in the home, power storage systems And we also in the market are favorable and we have been good business power cell products. When it comes to operating income, now We have that and the positive growth in the income due to that increase in volumes, but now we need to make the upfront investment for the Also products and also with the increase of the raw materials like cobalt and the operating income was lower than the previous year. When it comes to Industrial Equipment Products and Power Supplies, now we could secure this with increase in both revenues and profits. Next is explanation of the reasons for changes in sales and operating income by segment from the Q4 of In the passive components segment, Sales increased by 7,300,000,000 yen or 6.4% from the 4th quarter And operating income increased by 4,800,000,000 yen or approximately 36% Excluding 3,700,000,000 yen in one time expenses incurred in the 4th quarter, Sales increased in all markets, including the automobile, ICT and industrial equipment markets as well as distributors. And all businesses posted higher sales and operating income. Next, in the Sensor Application Products segment, sales was 2,900,000,000 yen a 12.1% increase. Operating income improved by 2,400,000,000 yen excluding 4,100,000,000 yen in onetime expenses incurred in the 4th quarter. Sales of temperature pressure sensors and hole sensors increased Due to strong demand from the automotive industry, While PMR sensor sales volume increased for smartphones and MEMS sensor sales increased for motion sensors for smartphones in China And game consoles. As for operating income, TMR sensors, which have good profitability, greatly expanded its revenue and motion sensors profitability improved Essentially due to a favorable turnaround in the customer and product mix, which greatly contributed to the reduction of the overall loss. Next, in the Magnetic Application Products segment, sales increased by 11% to 6,000,000,000 yen And operating income increased by 1,900,000,000 yen excluding the 5,000,000,000 yen in onetime expenses incurred in the 4th quarter. Sales increased due to a 17% increase in the sales volume of HDD Heads And an increase in HDD assembly sales from the 4th quarter. Sales of HDD suspensions remained almost unchanged due to a decrease in application products for smartphones Despite an increase in sales volume for nearline HDDs, Sales of magnets increased slightly. Operating income for HDD The heads improved significantly due to an increase in sales volume, while the operating loss for magnets increased slightly due to the impact In the Energy Application Products segment, Sales increased by 6.6 percent to 12,300,000,000 yen and operating income decreased by 6 0.4 percent to 1,600,000,000 yen Sales of secondary batteries decreased, Including the impact excluding the impact of foreign exchange rates related sales increase and increase in sales due to the passing on the rise The raw material costs to the selling prices, so called surcharges. Sales in real terms decreased on a volume basis Due to a decline in smartphone products volume, while sales of industrial power supplies increased to a higher demand. Operating income decreased due to lower sales and profit of rechargeable batteries, including deterioration in capacity utilization due to lower volume And the residual impact of higher material prices, operating income increased slightly in industrial power supplies. Next is the breakdown of the operating income changes of 12,400,000,000 yen The increase in sales volume in all segments, including passive components, had the effect of increasing operating profit by 32,500,000,000 yen Despite the impact of higher material prices, there was a negative impact of 7,000,000,000 Due to a sales price reduction, but this 2,400,000,000 contribution came from cost reduction through rationalization and the effect of structural So a form that was conducted in the Q4. In addition, SG and A expenses increased by 13 JPY800,000,000 mainly due to the SG and A expenses associated with expansion of rechargeable battery business and increased development expenses from accelerated power cell development. Foreign exchange fluctuations reduced profits by 1,700,000,000 yen resulting in a total operating income increase Next, I would like to give you an idea of the changes in sales for the Q2 of the current year And comparing that against the Q1, sales to the automotive market Are expected to remain strong on the assumption that car production will increase from the Q1. Sales to the ICT market are expected to increase significantly on the assumption that smartphone production volume will increase from the Q1 And that PC and tablet demand remains strong despite the lingering effects of semiconductor supply shortages. Demand from the industrial Equipment market is also expected to be strong. Based on the above mentioned trends in the demand in the main markets And excluding the impact of exchange rate differences between the 1st quarter and second quarters, for the 2nd quarter, we were using The assumption that we have announced in the initial in Chile. So this is what we are showing in terms of changes. So if we exclude the exchange rate differences, with the passive components, sales are expected to increase by between 0% and 3% overall. Sales to the underwater market are expected to remain strong. Sales to the smartphone market are expected to increase Significantly in line with the increase in smartphone production and sales to industrial equipment and distributors are expected to decline slightly. In sensor applications, sales to the automotive market are expected to remain strong, while sales to the smartphone market are Expected to increase by 11% to 14% on the back of a significant increase in the number of TMR sensors used and the launch of new products. For Magnetic Application Products, We expect HDD heads for nearline HDDs and suspensions to perform well due to strong demand from data centers. We also expect sales of magnets to increase by 0% to 3%, In line with rising demand for automobiles, we expect energy application products To grow 28% to 31% on the back of increased demand for smartphones, strong demand for PCs and tablets and further growth in Paracel products. Based on the above mentioned factors, we expect overall sales to increase by 14% to 17% in the 2nd quarter compared to the Q1. Finally, I would like to explain our full year consolidated forecast, which remains unchanged from the In the Q1, smartphone production volume was lower than the initial forecast. And the rechargeable battery earnings were significantly lower than the initial forecast due to the impact of rising raw material prices. On the other hand, passive components, sensors and magnetic application products supported the overall performance of the company. Looking at the demand trends for the full year, demand from the automotive and industrial equipment markets is expected to remain strong, While demand from the smartphone market is also expected to gradually recover in the second half of the year, passive components, sensor applications products And Magnetic Application Products will trend above our initial forecast in the Q2 following the trend of the Q1. We expect this to support rechargeable batteries, which are still affected by high raw material prices. However, we expect the impact of shortages in the supply of semiconductors and the spread of the coronavirus infection As well as the raw material price trends to remain uncertain. As such, we are maintaining a full year forecast Announced at the beginning of the year. Exchange rates, capital expenditure, depreciation and amortization and research and development costs remain unchanged The company Board of Directors today approved the 3 for-one stock split of the company's Common stock effective October 1, 2021. As a result of the stock split, The interim dividend forecast remains unchanged at per share as initially announced, But the year end dividend forecast has been changed to per share after the stock split. On a pre split basis, the full year dividend forecast is 191 yen per share, An increase of 1 yen from the forecast announced at the beginning of the year.