Earnings Call: Q3 2021

Jan 29, 2021

Thank you very much for attending despite the busy schedule towards CDK's performance briefing of the Q3 of fiscal year 2021. So from my side, I would like to talk about the consolidated results for the Q3. First of all, this is the key point of our performance. The 3rd wave of COVID-nineteen has been hitting countries around the world, and the impact continues on the society. Against this backdrop in areas of social and economic and production activities has already recovered, The recovery trend of electronics demand has become clearer from the Q2 and going in into the Q3. In the ICT market, DX related demand, such as the mobile devices, continued to be robust, so in the automotive market as electrification accelerating ex EV and ADAS. And expansion in overall demand has been seen. Industrial equipment market grew as demand for renewable energy is increasing, and the recovery of demand in Energy Transformation EX has become clear. Under this environment for demand, sales increased 11.3% against the previous year, And operating income went up by 11.6%. Against the previous year, this is a record high level for our quarter, both for sales and operating income. So orders for the auto market recovered sharply from the Q2, and this momentum continued into the Q3. Sales of passive components and sensors increased. Demand for DX related products for the ICT market was robust, leading to an increased Sales of rechargeable batteries and passive components contributing largely to the overall earnings. Recent orders for DX EX related products continue to be steady. So based on the free bubble results up to the Q3, We have decided to make an upward vision of the full year outlook against this is second again against the previous quarter. We should not relax because demand has recovered. At the beginning of the year, we have compiled additional earnings improvement measures such as rationalization enhancing efficiency to be prepared against the spread of COVID. We will continue to implement these measures. At the same time, based on the demand trend of DX and EX, we'll promote asset efficiency measures, including business side restructuring, aiming to be to lead the acceleration of improvement of our profitability. Next, I would like to talk about the outline of the consolidated results. The yen has been stronger against the dollar. This has impacted our sales negatively by 7,000,000,000 yen Operating income has declined by JPY 4,300,000,000 due to this impact. Sales was including this, sales was JPY JPY 395,700,000,000, that is JPY 40,100,000,000 increase year over year, 11.3% increase of sales. Operating income was JPY 45,100,000,000 Year over year, plus 4,700,000,000 yen 11.6 percent of increase. Income before income tax was 46,200,000,000 yen Net income was JPY 30,900,000,000 EPS was JPY 244.22 In terms of ForEx sensitivity, it is unchanged. Operating income level against the yen against the dollar with 1 yen fluctuation. This was 1,200,000,000 yen for the full year. The end euro impact will be 200,000,000 yen for the Next, going to the 3rd quarter by segment status. Peso combined sales was 100 and 9,500,000,000. Year over year, this is 11.4% increase. Operating income was 13,400,000,000 yen 26.4 percent of increase. Operating income margin was 12.2%. It has gone up. The demand for the automotive market has recovered sharply for the Q2. In the ICT market, mainly in the 5 gs related area, The demand has been very robust. And industrial equipment market demand because the demand for the renewable energy has increased. In all the businesses, we saw increased sales and profit. For the ceramic capacitors, sales to 5 gs base stations has declined. But on the other hand, sales in automotive market and the distributors has increased. For aluminum electrolytic capacitors and film capacitors. On top of the automotive market for the industrial equipment, for the renewable energy, sales has increased. For the inductive device, The demand for the automotive market has increased. On top of that, the ICT market sales has increased due to the startup of the new smartphone products. In high frequency devices, the productivity related demand was strong. And for the piezo electric material products and circuit production components, Sales is increasing in auto, ICT and industrial equipment overall. Going to the sensor application business. Sales was 23,000,000,000 yen Against the previous year, it has been increased 13.3%. Operating loss has improved from the previous year. As for the passive components segment, the proposal demand in the automotive market has recovered, and sales increased further substantially In the ICT market, mainly for smartphones, so all the three businesses have seen the increase of sales and profit. Sales of temperature sensors increased towards the auto and home appliances, recovering to a level so that it can contribute to our earnings. As for whole sensors, The supply chain for the automotive market is long. There was a delay in order recovery. However, Sales started to recover at last. Furthermore, the TMS sensor with nanodynamic sensors, The sales increased sharply as the peak for new smartphones has arrived. Sales and operating profit has increased sharply. For MEMS sensor, the expansion of the customer base for the motion sensors increase. So sales for the ICT market has increased. At the same time, expenses were finalized through the review of the resources, despite to a decline in loss from the previous year. Next, going to the magnetic application business. Sales was JPY 55,900,000,000. Year over year, this was a decline of 3.5 percent. Operating income was 4,200,000,000 yen a decline of 19.2% year over year. For HDD Heads, due to the demand increase of PCs, the HDD assembly sales increased. However, on the other hand, the total demand of HCAD has gone down, and the shipment volume of HCAD Heads has declined in line with this. So overall, we saw a decline in sales and profit for the head business. On the other hand, for the HAT suspensions, The MLHD for the data centers for the major clients has been robust. The Tamiya line HDDs, the shipment volume has increased. Suspension business also increased in sales and profit. For magnets, the demand recovered for the automotive market And the sales towards industrial equipment, such as renewable energy, has increased. So we saw an increase in sales, and the loss has improved against the previous year. Going to the energy application products. Sales was 195,400,000,000 yen Operating income was JPY42,800,000,000. Year over year, we saw our sales increase of 21.2%. Profit increased by 5.7%. Sales and profit increase for the rechargeable batteries due to the increase of smartphone units. And the smartphone sales has increased slightly against me this year for PCs and tablets continued at a high level. So mini sales for small sized products such Jazz wireless earphones has been robust. Sales of power cell products for the home energy storage systems and electric Tric motorcycles has continued to grow from the Q1 and continued into this quarter. In the power supply business, demand recovered in the industrial equipment business, such as in semiconductor production equipment and has seen increase in both sales and profit. Next, let me talk about the quarterly results of sales And operating income by segment from Q2 to Q3 quarter on quarter basis. I start with The passive components segment, the sales was up by 10,100,000,000 yen or 10.2% from Q2. Operating income was up by JPY 13,400,000,000 or 38.1%. The sales of The first of all, the automotive market as well as the industrial equipment markets increased. And also in ICT markets, Due to the peak season of the smartphone market, it's also increased. But on the other hand, that's the sales to the 5 gs base station have declined and have been almost a flood from Q2. As a result, high frequency component products With almost a flatbed, on the other hand, in other business areas, 4 devs, which have more business on the automotive markets or industrial equipment Markets have recognized the increase in both sales and income. Next, let me talk about sensor application products. Sales was up by 3,200,000,000 yen or 16.2 percent and operating loss reduced by JPY 1,000,000,000 With the recovery of the demand in automotive markets, Temperature and pressure sensor as well as whole sensor increased the sales and also TMR sensor have Essentially increased sales and due to the peak season in the smartphone. And also for the MEMS sensor, it also have been favorable for that In China, all the drone applications and we have we could recognize all an increase in the sales and all of that In these areas, as for the operating income, and temperature and the pressure sensor and magnet sensor can Be profitable and MEMSensors can improve its income and also with the our efforts to making that development efficient and we could reduce that margin of loss from Q2. Next, let me talk about Magnetic Application Products segment. Sales was up by 5,500,000,000 yen or 10.9%. Operating income is up by JPY 2,800,000,000. When it comes to sales from the HDD head sales volumes have declined by 2% from Q2, but still we have that's the increased Average selling price ore that's with the boosted demand for the PC and 3.5 inches HDD assembly sales have increased. And Now as an HDD head business as a whole, we have increased in the sales. And also, the HDD suspensions was favorable and the sales to the nearline HDD for data center substantially and also the application product for the Smartphone also made the contributions to push up the sales further. Also for the magnets and for the Automotive or Industrial Equipment Market have recovered its demand so that it contributes to the further increase of the sales. When it comes to operating income, HDD Heads suspensions have recognized increase in the sales. And for the magnets, it could reduce that the margin of loss due to that Increased sales. Now just for informations, and we recognized the gains on the sales of the Health Care Precision Process component business, it was a non core business for us. So we recognized the gain of this business sales in Q3. Next, let me talk about the Energy Application Products segment. Sales was JPY 195,400,000,000. That means 2.6% and decrease in Q2 on Q basis. Operating income was JPY 42,800,000,000 11 point 4 percent decrease from the previous quarter. And for the cellular batteries and our business and part of the business for the smartphone It's carried forward from Q3 to Q4 due to that inventory adjustment by our customer. So that's why and the sales was And substantially lower than we expected, so that and the sales have dropped from Q2. And also for that power supplies for the solar supply for industrial Use will slightly decrease when it comes to operating income and the power supply for industrial use and reduces Revenues, but it's we secured as profits. And for the secondary batteries, it will have recognized and decreased both in the sales And that's and also for the profit spectrum that we have needed to enhance that in our all these developments like in the e Baikal, that's color implications. That's why that other father pushed down that profits. Next, let me talk about A breakdown of the operating income of the 4,700,000,000 yen Secondly, batteries or the passive components business pushed up at instant sales, so that have made a positive impact of JPY 18,500,000,000 due to these sales. But on the other hand, sales price reductions have negative impact of JPY 7,300,000,000. But on the other hand, now the cost reduction via rationalizations have a positive effect of JPY 5,000,000,000 as well as another JPY 500,000,000 Also for the benefit from the restructuring from that impact of loss last year, and that will offset this negative impact of the sales price reductions. And in VINCI's M and A related expenses reduced by JPY 400,000,000. And also when it comes to SG and A And for the expansion of the business of secondary batteries and we need to spend for the power cell developments and the other businesses and The end of the filter fee, that all amounts to that JPY 8,100,000,000 of increase of SG and A. That will be negative impact. So including that's a JPY 4,300,000,000 of negative impacts of foreign exchange fluctuations and all in all, we have JPY 4,700,000,000 of Increase in operating income. Next, let me talk about that the overview of the consolidated business results Up to that Q3, sales is 1,080,000,000,000 yen 2.3 percent increase year on year. Operating income is JPY 107,500,000,000 And JPY 1,700,000,000 less than last year and 1.6%. And income before tax was JPY 109,400,000,000. Net income is JPY 73,100,000,000, the minus 1.7% year on year. Now when it comes to sales, Now we have that's regular high sales of the cumulative for the 9 months of the fiscal year. 1st of all, let me talk about that full year consolidated business forecast. Based on our business performance and to that's Q3 and also as well as taking into considerations the orders in Q4, we Revise our forecast from the one we announced last time in October. And full year sales, It's JPY 1,450,000,000 and the income before the tax is JPY 100 and JPY 16,000,000,000. This is that's the upward revisions and also JPY 110,000,000,000 of operating income and JPY 76,000,000,000 of Net income, it stayed the same from the previous forecast. When it comes to sales, we take into considerations that The demand in the automotive and industrial equipment markets and based on the assumption, that's the momentum will Continue into Q4. So that's why we upwardly revised the forecast of the sales. And when it comes to the income before tax, We increased that increase of non operating profits. The reason why we stated operating income stayed the same from the previous Forecast is that now under the COVID-nineteen pandemic, now all the structure under the demand of the DX and EX have substantially changed. And based on these changes and also in order to enhance the competitiveness, we need to promote that structural reforms, including optimization of assets, the It has met the competitiveness, so that's why. And now we think that we need to spend this JPY 12,000,000,000 for the onetime cost for this restructuring. So when it comes to that year end dividends, the CapEx, depreciation as well as R and D, and There was no any change from that previous forecast. That's all my presentation. Thank you very much. Thank you.