Earnings Call: Q2 2020

Oct 31, 2019

Now it's on time. So to start, the performance briefing of TDK Corporations for the 1st half of year March 2020. Today's attendance from TDH Corporation is Sheguro, President and CEO Tetsuya Manishi, Senior Vice President Naburu Saito, Senior Vice President, Shigeki Sato, corporate officer and CEO of Hekaton And Components Business Company Fumio Sashida, Corporate Officer And Energy Solutions Business Company, the CEO. These are an attend attendance from the CTK Corporation. First of all, I'd like to start from that the performance briefing on the first half of fiscal year March 2020 from Mr. Tetsuji Yamanishi. I'm Yamashi. And today, thank you very much for joining us in this the business performance meeting. For that's the first half of the fiscal year March 2020. Thank you very much. Then first I would like to present about that overview of our business performance in the 1st half. These are the points and key points of this the business performance getting into the 2nd quarter and now and all this the truth friction between U. S. And the China get intensified and now and still we have the continuous down to the global economy and they will lead you to the most serious and impacts for this, the global economy and the pause in our net sales after the first half was the decline by 2.1 percent year on year. On the other hand, when it comes to the operating income, we have a 10.6% of gross from the earlier and the income before income tax and net income. Now we have that recognized a record high performance. And on both the quarter and the same annual basis. And when we can demand, we have been flat from the previous quarter, and the sales and SCT markets, it had been very favorable and main for the smartphone markets and the secondary battery very favorable not only for the smartphone but also wearable devices and tablet PC. We have expanded the business and also we have improved substantially so that it's playing the reading role of a business. And the high frequency components have increased the sales for the 5G base stations and MEMS sensor, TMR sensor and also have been a going better well for the smartphone market. On the other hand, when we look at the automotive and industrial equipment market sales and EBITDA was adversely affected by the slowdown the demand including the China and now the demand efforts are lower than we had expected and now we have a negative, the sales from the year earlier. Consequently, except for that as frequency components, all of the passive component business Now we have a negative growth end in the sales and also from negative profits and the passive performance as a whole. When it comes to sense application products, the conventional sensor like a temperature sensor and the whole sensor now and the automotive market application have link and all of the sensor application product as a whole, we have the native growth in both the sales and profits. We could not expect any and take up our order recovery of this group economy and we have a lot of uncertainty and then ahead. So that's why we have to implement and speed up that implementing at a lot of countermeasures based on that of course because strategy. And also we have announced this, but now, and this is about the ALF360 holdings Singapore. That's the joint venture, what they call but 49% of the stake will be sold according to the option and when the exercise executed option over the 30th and we have already received at JPY 124,500,000,000. And on September 16, for this money will be spent for the repayment that the loans and the debts. And there was we ball out for that M and A for the inbend sense and so that we can enhancing our financial strength. Next, our the corporate business overviews. Net sales was 1,000,000,000. That was 14,900,000,000 less and 2.1 percent from year earlier and open income was 8,800,000,000 and 1000000000 and 1000000000 and 10.6% of the growth year on year and income before income was 1,000,000,000. Net income was 1,000,000,000 and now the earnings per share was 1,000,000,000. Up rate foreign exchange rate was jpy108.74 to 1.4 percent of the appreciation of the yen, jpy 121.51.51 6.5% at the appreciation of the yen, certainly a result of it. The impact of this currency fluctuation was 1,000,000,000 minus for the net sales and 1,000,000,000 minus what operating income. When it comes to sensitivity to the currency, we did not change that's for the yen and dollar and 1,000,000,000 to the change of 1,000,000 and 1,000,000 of the change of 1,000,000. Next, Let me talk about segment wise business performance. The first of all and the part of the products and inductive device will be shifted to that segments of the passive components. So that's in the 1st half, the sales of the inductive device in the previous was pushed down by JPY 4,500,000,000 and JPY 1,000,000,000 minus and operating incomes. So then we have just devices there this is the performance. 1st of all, the net sales of the passive components were JPY 200,100,000,000, 11 point negative and from year earlier and operating income was JPY 21,800,000,000, JPY 28.3 Percent Minus from the year earlier. And the operating income margin was 10.9%. When it comes to ceramic capacitors, and have been inquisitive business for the automotive and the base stations just like the ICT market. But now when it comes to the sale the distributors have declined due to the adjustment of the inventory and we have only slightly in growth in the ceramic capacities, but now we have done more sales in that high embedded added value products. So that's why we have had the positive growth and the sales and on also, we have just slightly improvements of the profitability. When it comes to high frequency components, now with the startup of the 5G network, now we have more sales and business and base stations so that we could have the positive growth in the sales. When it comes to other passive components business, Now it had been adversely affected that the slowdown of the global economy. Aluminum new film capacitors have just like the previous quarter, and have been struggling in the automotive and renewable energy markets like also for the industrial equipments and declined both the sales and the profits. The inductive devices and the piezo electric components and the circuit protection components have been also very affected by the declining demand of automotive and the other industrial equipment markets. And we have negative and both sales and profit. Next Since application products, sales was JPY 38,900,000,000, minus 1.5% and sales and previously from previous year and we have an operating loss of JPY 12,500,000,000 on operator performance and it might be declined by JPY 3 1,000,000,000 year on year. When it comes to that, the M and A expenses for invoices was in the decrease by 100,000,000 were recognize the JPY 2,700,000,000. In this segment, now some slowdown that we grew over economy, our TMA sensor, MEMS sensor and also then the pressure sensor. So that all the promising and the products for us. And in this slowdown in the global economy and we have expanded and steadily for that's the new application and new customers. But on the other hand, when it comes to the conventional sensor like a temperature sense in whole center, have been and been hard time and in automotive and industrial equipments and also in markets. And we have seen in the strength of declining and since application product as a whole, we have to recognize it both negative growth in both sales and profits. When it comes to a different business, and the temperature sensor have been declining, but on the other hand, pressure sensor have could expand the business to the automotive market. So all in all, and both the sales and profits only about the slight decline from a year earlier. When it comes Magnetic Sensors, TML sensor have been expanded for not only for that smartphone but also for the new applications. It has been very boosting and also for the sales for that automotive applications had been but also that's why we could have pushed up this profitability. On the other hand, whole sensor have decreased in business with automotive applications. So that's why they bank netting sense as a whole, we had to recognize that both negative growth and both the sales and the profits. When it comes to memo sensor, First of all, motion sensor have pushed its business for the major clients and also if a member's microphone both for the smartphone and IoT devices. But on the other hand, we have to send but we have to spend expenses for the mass production that we have a motion sensor and also we changed their product mix. That's why we had to have expanded loss from previous year. Next, Magnetic Application Products. Sales was 1,000,000,000, 24.6 percent minus year on year and operating income was 1,000,000,000, and we have the 52.3% of gross. Operating income margin was 6.1%. When it comes to hard disk drive ahead, mainly for that, the demand for that's the 2.5 inches head for the PC have declined. So the this will lead to, that's the reduction of the sales volume by 13% from the earlier. And The assembly sales for the HDD have reduced it by haps from the previous year, so that we have lost about the sales by 28% from the year earlier, right? The sales of the SDD suspensions, now we have more of the micro D SA type of the suspensions have been increasing in product mix. So that's we could have that's and pushed up average selling price and we have more revenues for this. And also when it comes to application product for suspensions, we could have a saying that the business in ICT market, but on the other hand, had a decent dry suspension, the sales volumes have had reduced it and all in all and our total sales for this segment have declined by 20% year on year. And this will drive heightened suspensions and by operating income was due to this the shrink, shrink and the revenues and also the decline in the business and trend better when it comes to nearline and each head, which is a very highly added value and also micro DSA types suspension have increased in the product mix and we also had a consolidating production basis. So the with that all the making of the production efficiency, we are already that with the setting deliver the goods, so that's now we couldn't maintain that exactly the same profitability from the last year. When it comes to magnet, for that application like the wind power generation, the industrial robotics and machine tools, these are all that the industrial required markets And we have that sales have declined by 13%, but now when it comes off with the income, now by the improvement of the productions for the low to better markets, lot of that card measures. Now excluding that impaired loss of 1,000,000,000 last year, excluding an apple after basis, we have the improvements and the profitability. Net sales was JPY 318,200,000,000. Operating income was JPY 69,000,000,000, up 13.5% and 27.1% respectively, a big jump. 21 21.7% and actually in regards to the operating margin. Rechargeable batteries, sales for the Natani smartphones grew flat. Why or why? On the other hand, in other regions, other than China, our major customers had a good sale pushing up an overall market for smartphones, tablets and a laptop grew firmly. Furthermore, we're about 100,000,000 cells and for the wireless and phones grow out in a big way. Besides the increase in income, improved product mixes and income from production, volume, reaching peak as well as further improved productivity efficiency. All in all, our profit grew in a big way. Power supplies and for industrial equipment and have been affected by the slow economy, revenue, for the semiconductor Manufacturing, our groupmates and for the Instrumentation equipments and for industrial equipments and a market decline pushing down the profit. Next, this shows analysis and further changes in operating income, factors for 1,000,000,000 increase in profit. We had a decline in the automotive and we had an increase in the rechargeable, but it's actually about JPY 4,000,000,000. How does this go ahead, does it go around the rechargeable is actually has been declined as much as 1,000,000,000 downside. We went through all the in our series on activities and for the manufacturing capabilities and its efficiency and also rechargeable all the operations 1,000,000,000. Actually, we are able to absorb the impact coming from the price erosion. We had impairment in the 2 early in the quarters, actually, given us as much as JPY 1,100,000,000 and also in Vincent's acquisition costs coming down. But 1,000,000. And due to the rechargeable battery in the business expansion, as well as the development costs incur as much as 1,000,000,000. FX impact was negative 1,000,000,000. All in all, we had a profit of JPY 6,600,000,000 positive side. Next, on the I will go through the outline of the consolidated numbers for the second quarter. Net sales was JPY 370,200,000,000. Down 2.3% year over year basis. Operating income was down 19.3% becoming 1,000,000,000. Income before income taxes and 1,000,000,000. Net income of 1,000,000,000 renew the record and on a quarterly basis. Operating Hana margin was about 11.9% and it's showing that we were on our way to profit making capabilities in a big way. Next, and I'd like to go through the changes by segment and have from the first quarter to the second quarter. Some of the factors now I'd like to highlight for you. 1st, in a passive, the components segment, The, actually, it went up in the 3.6000000000 from the first quarter in sales, 3.7%, excluding FX and impact. Actually, that was an improvement by percent. Ceramic and capacitors, particularly for the automotive and also in the 5G and our base stations actually improved. Also, Almi foam capacitors, actually, particularly the industrial equipments actually went down. At the same time, for the car business, actually, the numbers went up. So we had a flat from the 1st quarter. And actually, actually up 1,000,000 from the 1st quarter or 1.8%. In fact, the sales and actually 1,600,000,000 from the first quarter were up 4.7%. And also, we had a slow the sales and for the industrial equipments. At the same time, for the automotive market and also for the smartphone markets, actually in ICT, sales growth, mix and other on the passive components. It went up 1,000,000,000, up 7.3%. As for the high frequency components, actually, and thanks to the 5 gs in her basis, and actually, we had good performance and also the ceramic filter actually went up for the smartphones and also the piezoelectric, the components as well as the circuit on a production components actually have been flat from the first quarter. Passive components and operating profit actually in 1,000,000,000 from the first quarter, up 10.7%. As for the summit on our capacity and operating margin, actually in the same level from the first quarter, only for my capacity actually, and I had a slight increase in active devices and also in a high frequency components, actually, enjoyed on both our sales increase and profit increase. Piece electric and components and also in search protection. Actually, now we had a flat shift from the first quarter. Next, I'd like to talk about since application products. Sales are 1,000,000,000, up 14.9%. Excluding FX impact, it was actually in our increase as much as 18% from the first quarter. Temperature and pressure sensors actually in our the pressure sensors went up and were also in a temperature sensor and actually went down, given us in fluctuation, monitoring sensors actually for the whole showing further went down from the first quarter around the automotive market. And also TML season actually went up in a big way. How particularly for the ICT. As for MEMS sensor, the ICT and her sales went up and given us the increase in profit. Operating income 1,000,000,000 increased, but we had the acquisition cost actually went down for as much as 1,000,000. So now actually, we are able to actually reduce in the loss as much as 1,000,000,000. Temperature pressure sensors actually even though a slight number, but we are able to be main we were on the side of black figures. The monitor sensors, actual particular hole sensor actually had some loss mems sensor actually still had in red numbers, but still we are trying to improve overall on the profitability structure. Next, the Magnetic And Application Product segments. The net sales actually went down 1,000,000,000 from the first quarter, down 1.8%. Hardness can drive enhanced sales. We had an index in the 1st quarter, 88 and that became 89 in the 2nd quarter. It was an increase by about 1%. Hurdish can drive an assembly in home, the revenue went down because of an actual overall, actually went down by 5% this can drive suspension and suspension sales became flat, but suspension application products actually grow, given us the increase of the revenue 11%. Manite on the sales actually went down by about 8%. Manite, application and products and operating profit and actually from the first quarter and went up under JPY 12,000,000 or 6.1%. HD did ahead and actually went down both in sales and revenue, and HD and suspension actually increased its sales volume and also on a suspension application product actually enjoyed good productivity Given us the better, the profitability and also on adding products actually went down in the loss number. Next, I'd like to move on to the energy application hard products. Actually, it went up at 1,000,000,000 from the first quarter, up 20.2%. Rechargeable, the batteries actually particularly for smartphone particularly for the North American market made a great contributions and also the good numbers and performance Chinese market and tablet and laptop and also mini cell and products actually made great contributions. And as for the power supplies and for the industrial mentioned, actually, it further went down from the 1st quarter. As for an operating income, actually, it went up 1,000,000,000. Becoming JPY 42,500,000,000. And rechargeable, the batteries actually increased its volumes in sales, given us the increase the marginal profit. And also, we are able to actually improve the productivity and that gave us some further operating profit given us a good synergy. And I went through the, how many highlights of the, on the, on the, on the, activities for the thank you again for your conversations. For the full year on our forecast, and I would like to have him say she won how to go through his presentation. And this is Yigiro. I'd like to thank you again for your precious time despite your busy schedule. And that said, I'm quite happy to explain full year on our forecast for FY March 2020. Following in her first half, we are assuming that the demand will not recover due to the ongoing sluggish world economy. The current uncertainties that Roshan had to continue? Well, in some semiconductor equipment, actually, there seem to be some recovery But at the same time, actually, on the automotive markets, much bigger than the market. In this market segmentation, we still have informed slow economic activities and Norway for us to be able to make a good recovery. So that is why we decided to revise down our numbers. As for the ICT in the market and the 5G in the market, actually, it's giving us a step by step impacts, but comes to the smartphones and, again, actually, due to the penalty in the second half, and actually, we had a peak in the second quarter. And since we do believe that it is going to come down slowly in assumption. All in all and for the third quarter, and this kind of fiscal year as for the sales and forecast, we do believe that it's going to become much tougher against us And from the second quarter, minus 1% to 4%. That is going to be the level we keep an eye on by segment. And in passive components, and I think it is going to be flat. And particularly on the it is going to take more time for us to get to see recovery in the automotive market end up devices and also on the energy electric and also in high frequency and components. We do believe that there shouldn't be and how small the transition. As for the SENSE application, actually in 6% to 9%. This is going to be the increase we are assuming. And the TML sensor Again, including phone ICT, yes, there is going to be a steady increase in MEMS sensor and expanding our customers and also MEMS like product and it's going to help us to expand on our improvement and slowly but steadily it is making good contributions to the improvement. At the same time, the whole I say, and also the temperature sensors particularly in important and the protocol lines and in the automotive area, we do not expect that we can have a good government as for the magnetic application And actually, 5% to 80% is going to be the improvement. And we have in mind how to describe and the heads and the volume on the and it's going to go up slightly. And also nearline had this going to drive a heads and are going to also grow. So it doesn't and average pricing is going to go up and also harder to drive in suspension also for near line is going to be expecting to go up. And as for the magnets, hybrid cars, modern magnets and are expected to grow in our assumption. Energy And Application On a Product, actually 6% to 9%. Actually, it is going to be the download and transition as a result of address, actually due to seasonality, That's going to be the slowdown taken into account for smartphones. As for the power supplies, the slight increase is expected. Lastly, for the full year, our lifetime actually, and I'll give you the following updates. Net sales Actually, in actual for the first half and also future forecast, I have just explained 1,000,000,000,000,000. The revenue is going to result in 1,000,000,000,000. About 2% of the download revision. As I have explained, this ICT on the market. Actually, the driver there is going to be the reachable on the market. Actually, we are going to have the better performance better than our focus. At the same time, we are suffering from the overall slowing down of the economy and also on the industrial equipments and also on automotive activities, definitely not going to have the dark cloud above us. And so decided not to have too much expectation there, all in all, and the passive and components and sensor and the products, certain production are going to actually go under the forecast date numbers At the same time, operating profit and also income before income taxes and also the net income, we announced those numbers in April and we decided to stick to those numbers. And then actually, FX and for the second half and also on CapEx and also on R&D plans. Actually, we decided not to change those numbers. As for the dividend, first half, actually found 90 yen. And as for the second half, actually 90 yen has been unassumed. So now for the full year, actually, it is going to be up to the end. Actually, it is going to be JPY 180 plan for dividends. Yes. We are faced up with uncertainties of the global economy, the energy, transformation of Yext, and also the additional transformation of the AXA EX and DX definitely are going to help us. So we have to tighten our belt. So that actually, we are going to have the deeper engagement working on the best efforts in order to address the issues we are faced with. This concludes my presentation. For your current attention.