Earnings Call: Q2 2021

Oct 30, 2020

From Gauteng, it's on a time zone that will let us start that the performance briefing, the first half of fiscal year March 2021, the sessions. Today's speakers first half of fiscal year, March 2021, represented by Ms. Emanishi. Thank you very much for joining us today. Okay. For this, the performance briefing of the first half of fiscal year, March 2021, Thank you very much. So first of all, I'm going to explain about that and the business performance of the first half of this fiscal year. And the points to private debt, that's, again, an entity the Q2 and the the lockdown have been lifted on a global basis. And now, gradually, that's the social and economic activity have reopened. And also for the major customers have restarted the production activity, and then we can take advantage of the clear rebound of the demand in electronics market. And the first in the Q1, due to that the negative impacts after the suspension of the products, and motivate the markets and also the demand of ATGT have dramatically declined, but getting into the second quote up that demand have significantly rebounded. When you look at our existing markets, in Q1, the remote working and remote learning have made progress for leading the digital transformation DX and it happened accelerated and as well as the mobile devices and the 5G related demand have extended to over our forecast. And now that momentum is still maintained in the Q2. And very steady. And the first half as a whole, now we could achieve that and and a significant expansion of both the sales and operating income. And as a result and when I look at that on the first half and olodoro. And in the first half, we are due to that lockdown, the negative impact of lockdown, it have declined by 2.2% in sales and on a year basis and 9.3 percent declined in operating income, but in particular for the Q2, now we could have the regular high and then the sales on quarterly basis and we could as a whole secure that's the gross and gross sales and income and getting into the Q2 that the demand in the automotive market rapidly rebounded. And so the passive components like MLCC and inductor and the sensor have expanded the sales and also, and as an indicator that the acceleration of the digital transformations is still going on. And and all these related products demand is steady and just the passive components like a secondary battery and the high frequency components have the put pushed up and make a big contributions to the favorable business performance. And when it comes to handed disk drive ahead in Q1 that we are that was adversely affected by the suspension of the factory operations, but now that the production of the customer have gradually rebounded. And it will relate to the improvements. Now in order to deal with the digitalization of business due to the COVID-nineteen, we have started our rationalization efforts as we're making the business efficient and we'll continue to make exactly the same efforts. Although that's now that we're observing the recovery of the demand and now we have the and it have leads to the synergy over and exceeding the forecast and have made some big contributions to the further improvement of business. Next, let me talk about the business overviews, including the significant impacts of the appreciation of the yen and JPY 13,900,000,000, the net impact on the sales and the JPY 300,000,000 of the minus impact our operating income. So the sales was JPY 691,100,000,000 minus JPY 15,900,000,000, two point 2% decline year on year. The this operating income was JPY 62,400,000,000, the minus JPY 6 point 1,000,000,000, 9.3 percent decline year on year. Income before tax was 1,000,000,000. Net income was 1,000,000,000, earnings per share was 1,000,000. When it comes to that currency sensitivity, there's not any change so far. Next, let me talk about the segment wise business overviews of first half, but not only talking about that year on year, Now since then we have the major change and the demand from the Q1 to Q2 to this year, so that's why not only talking about the first half year on year performance also elected to talk about that the Q2 performance on that's the quarter on quarter basis from the Q1 this year and also as well as that due to performance on year on year, we'd like to use these 3 measurements. 1st of all, the passive component sales was JPY 138,300,000,000, a minus 8.1 percent year on year. And The operating income was JPY 17,400,000,000 -20.2 percent decline and also that income margin was 9.5%. The sales of Q2 was minus 2.5% year on year and 14.9% have declined in the operating incomes and the profit margin was 9.8%. The demand of automotive markets have rapidly recovered in Q2 and then also for the ITC market, we could observe that the 5G related demands have invested in Q2. That's why The sales and an operating income of Q2 have surged from that the 17.8% is 26% for the operating income for each. From the Q1. When you look at the first half basis and now high frequency components, which are based on steady growth and the demand of 5G have grown. And it's and also I mean, our film capacities have a secured incremental income is struggling to that's the declining to sales and income due to that at and the poor demand and automotive market in Q1. Let me explain about for each product and the Q2 performance. First of all, ceramic capacitors. Now the sales for the 5G base stations have dropped it from the Q1, but on the other hand, now the market the demand for the automotive market have and rebounded so that we can have the incremental sales pattern to do to that negative impacts of the consumption of the strategically part of inventory from Q1. And now that we have the last of operating incomes, round 1, it come to Q2. Now that's all this, a, automotive market have recovered to the level of the last year to Q2. For the from a but also from these capacitors and have increased also for the industrial equipment market as well as automotive. And it recovers to the level of the last year's Q2. When it comes inductive devices, the demand for the automotive market have rebounded and also the startup of the new smartphone product devices to start at the demand in ICT market as well assets increase the demand for the industrial equipments, we could and recognize the significant and the increase from Q1 and we have secured that's operating income growth. When it comes to the sales for the automotive market, now have recovered to the last year, the Q2 level. And for automotive market, when it comes to high frequency components products, We have been very steady in 5G related products and we we could maintain at the same level as that operating income and sales for the Q1. For the piezo electric components and the socket protection components have been and increased and both the sales and components and the automotive ICT and industrial equipment, but still struggling in the automotive markets. And now next is the Sensor Application Products business. The sales was JPY 34,500,000,000, minus 11.3% in sales year on year basis. And the operating loss are just a little bit and slightly shrunk. And the sales of Q2, which due to that recovery of the automotive markets and also we have a very favorable and the business for the set up of the new smartphone devices in North America and as well as that incremental sales for our customer in China. Now it has grown by 34.7 percent on quarter on quarter from Q1. And the operating income shrank by JPY 2,200,000,000 and on a year on year basis and it have grown declined by JPY 4,800,000,000, but now the operating income shrunk by JPY 400,000,000. On a while, the 5 and a half basis, and due to the steel that makes the impact of declining the market and a lot more 1Q, in Q1, now that the temperature sensor sensor and the whole sensor have suffered from declining the sales and the income. And for the MEMS sensors, Now even and that's that the Dability Week mindsets have the constructions over the car in 2019 and also microphone demand for the device have declined. And the motion sensor And for the smartphone, mother's rate of month and motion sensors have declined. So that's why it will lead to that have the operating operating loss. On the other hand, when it comes to TMAO sensors, net sales for the smartphone and contributed to the market share expansion, it happened the steady and it contributes to the significant increase in both the sales and income. Now this is that's the quarter on quarter basis performance to the Q2. Temperature and the sensor sensors have a favorable and automotive markets. And still we have seen a slight operating income, but we get ready for make a tailwind to make end of the business profit overall for the whole sensors. Since the supply chain for that model market is very long, so that's why it's in the middle of the full recovery. So this have been on the path with the level of Q1. For conventional sensors, so the sales for automotive markets have and still and have not recovered to the level of the Q2, the previous year. When it comes to TmAb sensor, now Since this is also the startup of the new smartphone devices, which contributes for the significant increase of sales and also now in the Air operator, Income 2. For the men's sensor, now the orders are for the gaming consoles declined from Q1, but on the RMA can be more than offset by then increase the sales to our major customer in China and now we have a growth in the sales and also the shrinking. We could shrink that's operating loss. Next, let me talk about Magnetic Application Product Business. Sales was JPY 88,700,000,000, it was the minus 19.4 percent year on year. And operating loss, this this discount was JPY 2,500,000,000. So when it comes to the Q2, in Q1, the suspension of the production operation that were negatively affected on the HDD demand. They have a recovery in Q2 and also for HD suspension. Have increased for nearline HDD and for the magnet have been rebounding its and the demand and to now where the turnover will be favorable. So then on quarter on quarter basis, having grown by 31.6%. And now we have turning that business into profitable in Q2. On one first half basis and because of the decline in the total demand of HDD and to that the total and the declining number of shipments of the HDD Heads and which also where the sales is the drop of the HDDs assembly and now the We have, for the both of the sales and the operating income of the digital related on the other hand, ATD suspension have been made in favor for that our business with a customer for the Neely ACD and have increased the shipments and we have secured the possible growth in both sales and the income. For the magnet and the steel and the automotive market and still in the middle of full recovery, but now we are observing improvements. Now when it comes to the quarter on quarter basis performance in Q2, as for the HDD Heads, volume index have improved from 25% in Q1 to the 91% in Q2 and to recognize that significant increase in the sales and income And for this SD suspensions, then we have the oldest, more oldest from the major customers on the nearline HDD as well as that the demonstrates actuators and smaller type are those are the more profitable the products have been pushed up the sales. And for the magnets, Now, and incremental business when automotive markets is now we have the more sales reps still, we have the operating income. Next, the energy application products. The sales was jpy357,500,000,000. Operating income was jpy 79,600,000,000, and it's 12.4% and increase in gross and year on year for the sales and 15.4% of operating income growth. And operating profit margin was 22.3 percent, and we observed the improvements of profitability. When it comes to specifically for the Q2, now to secondary battery, the charge over battery is still very favorable and at the same time, and The business for this the power supply, the pushed up due to the mainly business for the semiconductor manufacturing business so that on quarter basis that the sales were increased by 27.9% and the operating income was pushed up by 54.3%. There also is now in this first half for the secondary batteries and due to the declining of the the smartphone will be slightly the drop effect. On the other hand, PC and tablet business have more than offset this declining of the smartphones. And substantially. And the residential ESS and this is for the stores, Badleys, for the residents and the e bike. And this is the application for the power cell products. So the power cell products have just fully started. So all in all, we have the significant increase of the sales and income and the process I have to suffer some a little bit decline. This is that on a quarter on quarter basis, we're in Q1, but secondly, the battery is now That's the peak season of smartphone to push the apps that sell some significantly and for the sales of PC and the template have farther and push up increase from Q1 and also for that and on a year basis, we have the increase on this sales and income for the power supply and we have the also increase in sales and profits due to that industrial equipment business favorable. Next is the breakdown of the operating income changes of minus JPY 6,400,000,000. Although sales of secondary batteries expanded, sales volume in PESSA components and HD had decline, leading to a decline of JPY 4,700,000,000. 10,700,000,000 decline came from sales price reduction. On the other hand, we have focused on rationalization, including cost reduction efforts to mitigate the negative effect on our earnings coming from COVID. This translates to a JPY 12,500,000,000 positive impact At the same time, we are strengthening our corporate structure through billion of benefits from restructuring. M and A expenses related to the was decreased by 1,000,000 as SG and A development costs increased due to expansion of the their value business and the acceptance of Filter Freeze ended this year due to this SG and A expenses increased by 1,000,000,000. There was a negative impact of 1,000,000 due to exchange rate fluctuations, all in all, operating income declined by 1,000,000,000. Next is the consolidated results for Q2 of fiscal year March 2021. Net sales was 1,000,000,000, up 3.1% year over year. Operating income increased 0.2 percent to 1,000,000,000. Income before taxes was 1,000,000,000. Net income was 1,000,000,000. On a quarterly basis, both net sales and operating income reached a record high This shows the difference of the net sales and operating income by segment comparing Q1 and Q2 of this fiscal year. I have already explained about the passage components, etcetera, the 4 segments. So I will only refer to businesses included in Other. That's all major changes. In the other segment, net sales was 1,000,000,000, a 25% decline quarter on quarter. Operating loss was 1,000,000,000. The loss increased by 1,000,000 against the previous quarter. The major reason of the decline was deterioration of the micro actuator business, which is the component of the camera module for smartphones. Are expanding our share mainly in high end models of a major Chinese customer with unique camera module products. But sales has dropped sharply in Q2 and profitability is worsening. So this has the 1st half performance and Manishi has explained about that. Thank you for your attention. Next, for the full year outlook, Mr. Isiguro will explain: Hello. I am Mr. Guro. Thank you very much for your participation. From my side, I will explain about the full year projections for fiscal year March 2021. First, I will talk about how the market environment has changed in the past 6 months compared to our initial forecast. And how that has impacted our performance or our demand trend? From macroeconomic perspective, on the global basis, it is trending slightly below the initially anticipated minus 4% growth. I think you are all aware of this. Going forward, we feel it necessary to closely watch impact of the second and third wave of COVID. If you go by device, we anticipate a demand for AT and T devices such as PCs, tablets and smartphones. Will be slightly over our forecast. On the other hand, the automotive business is still below our initial forecast as demand recovery is slow. As for the demand for components, demand for device is strong for the ICT market. Although we have seen some impact of the tightening of regulations against a major time smartphone manufacturer, the world trend is favorable. As had been explained previously, looking at the demand for the automotive market, orders for parts have to recover in Q2. Demand recovery for the overall automobiles is not seeing been strong, but demand for parts Well, we will watch the trend carefully. This may mean that the customers are punishing their stock to prepare for the market recovery or demand for future expectations may be included. As for the future outlook, we cannot come a slightly dismissed impact of the 2nd and third wave of COVID and concerns about the inventory and demand based on expectations. However, based on the first half results, specifically the recovery in Q2, and the recent order trend, we have decided to conduct an upward revision for the full year outlook. As we will continue to invest in businesses that can expect strong demand and growth, mainly in secondary batteries, we will increase our CapEx spending by 10% compared to initial plan to 1,000,000,000. With the recovery of our performance, we are increasing our interim and year end dividend. That will bring the dividend outlook for the year to Considering the demand trend for the second half, based on these market predictions, I will explain the image of changes in sales for the third quarter. We anticipate the world's sales to be the same level as a at a high level. For passive components, we forecast a slight decline between 1% to 4% compared to the 2nd quarter. Although sales will increase, for the automotive market and smartphones mainly in 5G, sales for 5G base stations will decline as it has peaked in the first half. In sensor application products Orders for temperature and pressure sensors will continue to come for the automotive market. In addition, We are anticipating orders to increase for whole sensors where recovery has been delayed. Demand is peaking for smartphone applications for TMM TMR sensors. Sales will increase from MEMS microphone in the smartphone and IoT device applications. But despite the sales decline of NEMs motion sensor to a major Chinese client, sales will increase in other clients. Overall, we are forecasting an increase between 8% to 11%. Going to many electrification products in HDT Heads Business, although volume is going to grow for nearline HDD Heads, ECD has for consumer electronics, such as for PCs and game consoles, is going to decrease. For the overall head business, sales volume will go down by 4%. Sales of the HCD assembly business will go down as well. For the total magnetic application products, we are forecasting seeing a decline between 5% to 8%. As for the HTT suspension business, nearline suspensions are doing well. And we'll see a slight increase from the 2nd quarter. We are anticipating sales increase for magnets in line with the growth in demand for the automobiles. In the energy application products, we are forecasting sales to peak in the third quarter as the demand for smartphones is going to peak and demand for PCs and tablets will be strong. Sales for high power products such as residential ESS is going well. For power supply. For power supply sales would be flat. For industrial machinery such as semiconductor production equipment. So this will be flat to for the 2nd quarter. Overall, sales change will be between 0% to plus 3%. Lastly, this is the forecast for this fiscal year. Based on the demand environment and sales outlook, that has been explained, we will make an upward revision of the initial forecast. The revised full year outlook will be as follows: net sales 1.4 1,000,000,000, operating income, 1,000,000,000 income before tax, 1,000,000,000 and net income, 76 1,000,000,000. We have initially announced that we'll pay ATM per dividend for both the term and year end. Y160 for the full year. However, based on the increase of earnings per share, we will increase the dividend by JPY 20 for the year. Paying JPY 90,000,000 for the interior and year end and JPY 180,000,000 for the full year. The assumed exchange rate for the second half is JPY 105,000,000 to the dollar and JPY 124,000,000 to the euro. We will advise our CapEx up for JPY 20,000,000,000 to 2,000,000,000,000, mainly in the second period where demand is grown. That is all from me. Thank you for your attention.