Earnings Call: Q1 2020

Jul 31, 2019

So as the time has come, we'd like to start the performance be freeing of the first quarter fiscal year March 2020 for TDK. So I'd like to introduce today's participants, Senior Vice President, Tituzzi Amanishi, Senior Vice President Noboto Saito Corporate Officer, CEO, Electronic Components Business, Sigaki Sato, Corporate Officer, CEO Energy of Solutions Business, Jumio Sashida. So we have 4 participants from TDK. So first of all, In terms of the outline of the first quarter, Mr. Yamani, she's going to make a presentation. So hello, this is Yamanishi. Thank you very much. To coming over to the performance briefing of the first quarter of fiscal year March 2020 for TDK despite your busy schedule. So from my side, I would like to brief you on our consolidated results. First of all, this is the some of the highlights of the performance in the first quarter. Both the United States and China has reached their tariffs and there has been escalation of the trade friction between United States and China The impact of this has been spreading all over the world and the business environment has been impacted by the deceleration of the global economy. On a year over year basis, in the first quarter, sales has gone down by 1.8% operating income has gone down by 1.6% going down slightly. And so basically in terms of the earnings, we've been able to maintain the same level as last year. So we have 3 key priority markets, ICT, Automotive, Industrial Equipment And Energy, And in terms of the demand trend of these markets, it is mixed. In terms of ICT market related sales, it is over expectations that we have expected at the beginning of this year. In terms of the rechargeable batteries, it has been able to increase our sales to our major clients with smartphones, so the sales increase. So it has an increase in sales and profit in this area that has earnings of our companies as a whole. In terms of the automotive and industrial equipment related sales, specifically in the Chinese market, there has been acceleration of the demand and the demand level has been below compared to what we expected initially year over year sales has come down in this area. As a result, in the password component business in all of the business areas year over year, sales has declined. In terms of the sensor application products, specifically for the automotive sales has been stagnant, have you seen a decline in both in sales and income? Because of the impact of the deceleration of the global economy from the second quarter onwards in terms of demand trend, the outlook is unclear. That is what we are expecting. But we will go forward in the initiatives that we have decided at the beginning of year in each of businesses, and we will focus on achieving our targets for our midterm management plan. Next, going to the outline of our performance, sales were 1,000,000,000 year over year, 1,000,000,000 of decline is the 1.8% of decline of sales operating income 1,000,000,000 year over year minus 1,000,000,000. This is a 1.6% decline in profit. A before tax is JPY 24,700,000,000, the net income is JPY 15,600,000,000. The earnings per share is jpy123.43. In terms of the exchange rate, will be JPY 110.10 to the dollar. This is a 0.9% weaker yen against the euro 123.57 This is a 5.1% stronger again as a result because of the changes of the exchange rate in terms of the sales, the impact was 1,000,000,000 of decline of sales terms of operating income, this has been a 1,000,000,000 positive impact increase of profit. In terms of sensitivity of the currency, for instance, against the dollar is against 1,000,000,000. This was a billion impact against the euro, 1,000,000,000 of impact for the year. Going to the buy segment situation, from this year, in terms of the passive components business, some of the inductive device products has been reclassified under the other passive components. As a result, inductive day by year over year first quarter sales has gone down by JPY 2,400,000,000. Operating income has gone down by JPY 500,000,000. So because there's a reclassification against the previous year, in terms of the passive component sales, it's JPY 98,300,000,000, This is the decline of sales of 12.8 percent. Operating income was 1,000,000,000 year over year. It was minus 26.4 percent of decline in profit, operating margin was 10.5%. For the ceramic capacitors, so the ICT market sales points in sales for the base stations has increased, but for the industrial equipment itself has gone down. For the automotive market demand, this was decelerated, and there has been the adjustment of inventory, meaning that the sales to distributors has gone down. So overall, we have seen a decline in sales As for the higher added value product sales has increased, the average sales prices has gone up and so the income as the profits has gone up and the profitability has improved. For the aluminum electrolytic capacitors, for the automotive market, for the renewable energy, this what industrial equipment sales has gone down substantially and so the big sales has gone down overall and the profit has gone down as well. Going to the inductive devices, for the automotive market and for the distributors, sales has gone down. So again, this is a client in sales. In terms of the products that is more profitable for the owner of the market, this has gone down, so the progress has gone down. The high frequency components the sales for the base stations has gone well. So the increase of sales for the kilo electric material and circuit protection components for the automotive and industrial equipment related sales has gone down, so we have seen a decline in sales in this area. Next, going to the sensor application products, sales was 1,000,000,000, This has been a 4.2 percent decline of sales year over year. Operating income was a 1,000,000 of loss year over year, this is a 1,000,000,000 of decrease of profit. 1,000,000,000 of expenses related to the acquisition of inbences is included as the same situation last year. Going to the market sales situation by market for the automotive market because of the absorption of the demand, we have seen a major impact In terms of the temperature sensor and the whole sensor, mainly in these areas, sales for the automotive market has gone down by 13% in terms of sales. For the ICT related sales, TMR sensors smartphone related sales has increased, and M sensors and for M sensors, we have been able to increase our customer base and we have been able to start to to start the sales to our major customers. So this has been related to a 12% increase of sales. In terms of the temperature and pressure sensors, For pressure sensors, the sales has increased very steadily. On the other hand, for temperature sensors, sales has decreased. So overall, it is a slight decline of sales. For the magnetic sensors, this has been a substantial decline of sales of hole sensors. So overall, a substantial decline in sales, For the MEMS sensors, there is more applications for Mikes and for the motion sensors, we have been able to offset the decline of conventional products by increased sales of new products So overall, we have seen a substantial increase. In terms of the operating income, we have seen the decline in sales and profit both for the automotive market and MEMS motion sensors as production, there is an increase of development costs. So in committed to last year, loss has been expanding. Going to the Magnetic Application Products business, sales was JPY 55,500,000,000, year over year, this is a decline by 21.3 percent of sales. Operating income is JPY 3,300,000,000 year over year, a decline of profit by 5.7 percent. Operating margin is 5.9%, so a slight improvement. In the hard disk drive ahead, vessels' volume is for this term, is the index is 88 year over year. This is a compared to the same month last year is a 12% decline. In terms of the hard disk drive assembly sales, year over year has declined by 43% in terms of sales. So as a result, overall, for this business line, we have seen the 25% decline of sales. For the hard disk drive suspension sales, there has been a more increased product mix where the marketer deal has stage actuator type, which has more higher added value, more composition for this, as a result, as higher results prices have gone up and for the Applications SIM products has been increasing for the ICT market. However, for the hard disk drives suspension overall sales volume has gone down by 27% So for the HSD suspension overall, the sales has gone down by 17%. For the hard disk drive head suspicion overall operating income because of the decline in the sales volume, and we have seen a slight decline in profit. In terms of magnets for wind power applications and for the industrial equipment such as industrial robots or the machine tools that has gone down by 9% in terms of sales. But in terms of the operating profit, it's basically the same level as last year. Next, let me talk about energy application products. Net sales was JPY 144,500,000,000 operating income was JPY 26,500,000,000 and net sales was up by 15% and the operating income was up by 26.2 percent and the operating income margin was also at 18 0.3%. That's improved. And for the secondary markets, now a little bit slight decline and that's the and the business was the market and smartphone market in up and also, but on the other hand, we can have this faster and market share up and also, and we can have the more sales with the major customers and That will be more than offset and also for the tablet and notebook and also available in many cells and they were pushed up that about the most of the top lines and also for the profits and with the increasing the number of our productions and the production efficiency. For the industrial power supply for the industrial equipments have the declined and as the industrial equipments market including the semiconductment of equipments and the and also for that major echo commands are pushed down. That's momentum. Next, let me talk about the quarter on quarter results by segments focusing on a about the net sales and operating income changes. Then first of all, for the passive component segments, and net sales was declined by JPY 3,600,000,000, JPY 3,500,000,000 decline from the Q4. For ceramic capacitors have a declining to the sales to distributors and for the aluminum film capacitors have a decline for the sales for automotives and industrial equipments and a decrease by JPY 3,000,000,000 and 7.1% from the previous quarter. For inductive device business for the net sales declined by 1,000,000, 0.6% from the previous quarter Q4 and the sales for the automotive market I have and the decrease that on the other hand, I see key market business, including the smartphone, have pushed up. And in all in all, it's only slight decline. And the sales of the other specific components were declined by 1,000,002 percent decline. For the high frequency component products, ceramic filter have increased for the smartphone markets and piezoelectric components and circuit protection components have declined for that automotives and industrial equipment markets. So the operating income for passive components have also decreased by 1,000,000,000, 2 22.6 percent from the Q4. And for the capacitors and operating income capacitors have declined in terms of top line and then also profits and aluminum film capacitors declining and also for the profits and also including that the production decrease and induction device have declined and because we have the less sales forward as the highly profitable automotive markets, but and high frequency components at the flats and also and piezo electric and then also the circuit protection components have declined in both top line and profits. For the sensor application products and this net sales have increased about JPY 800,000,000 4.6 percent for the temperature and the pressure sensor as flood. And but magnetic sensors and hole centers have declined dramatically for automotive markets and the TMR sensor is increased that and for the ICT market that they have an all in all declines for the MEMS sensors that increase the ICT market and also for that have been a favorable business for the game and just industry equipments and a open income have pushed up by JPY 200,000,000 But excluding this development from the invoices and M and A costs have increased by and JPY 400,000,000, so that on a net basis, now that the loss have shrinked by JPY 600,000,000. Temperature and the pressure sensor business have been flat. And Vendetti sensor for the whole sensor have declined in profits. Betting the TiVo sensors have had the incremental and the incomes and now for the MEMS sensors have an increase in and the sales and then also the profits. So when it comes to the Magnetic Application segments and the net sales have declined by 1,000,000,000 and 8.3% decline from the Q4. So the sales of 8 Didi had have now although that the shipment volumes increased by 8% but now declining up on the average pricing sales and then also and about 40% of decline and that's the sales of the ATDT Assembly business. So then all in all, and had decreased by 13% as a whole for the HDDD suspensions and the sales of the suspensions have Although that the volume declined, but now to the average and the unit price is now up so that it will almost flat. And the magnet is almost flat in the sales, and operating income for the magnetic application components is declined by 1,000,000,000, 31.3 percent 31.3% quarter on quarter. And quarter, does magnets and ATD suspensions have almost a platform in Q4 But now each of the head have been declined both in about the sales and the incomes and then also due to that and the declining pricings prices and also in doing for that the development cost that will push down to the profit. Next, the energy application products and the net sales have increased by 1,000,000,000 and 29.2% from and on a few basis, But secondly, a battery have been favorable for that the sales to our smartphone for the major and also for the North American and the China. And also we have a substantial and favorable business with tablet and notebook. And And also an industrial equipment and power supplies are flat. When account operating income was increased by 1,000,000,000 from the Q4 and JPY 144,000,000,000 to JPY 26,500,000,000. So that we have just a negative impacts of this and operational loss of that Chinese New Year spend at the same time, we have secure that substantial increase of the sales and profits due to that supplies. Next, let me talk about the breakdown of operating income changes. So and let me correct that one information in the slide. Now you're looking at that the information of the breach charts now in this M and A, one time expenses related to M and A, it showed us in the JPY 400,000,000 and plus actually this is related to that the expenses for that invensys M and A and JPY 1,400,000,000 and exactly the same amounts. There was no any change of JPY 1,400,000,000. So that's why a this JPY 400,000,000 is about that about the offset by the increase of the volumes. So that's why a So due to that, about the changes in the sales, which is not the JPY 2,700,000,000 and actually it's a JPY 3 1,000,000,000. These are the two corrections I would like to make here on this bridge chart. Okay. First of all, this let me talk about this. And the factors will look JPY 400,000,000 after open income for due to 1,000,000,000 with increasing that the changes in the sales and particularly for the secondary batteries and about the JPY 5,300,000,000 negative than minus due to that decline in price and sales pricing for the secondary batteries And then also on the other hand, about JPY 3,000,000,000 plus for the rationalization cost reductions and also for the JPY 500,000,000 for the impaired loss. And for that expansion of the second half at least will lead to that increasing SG and A expenses increased by JPY 2,300,000,000 and the fluctuations of currency will lead you to the 1,000,000, so that in total, 1,000,000 is the changes. Next, let me talk about the percentage for Q2 of a changes in sales. 1st of all, for passive components, from the Q1, and we expect about 8% to 11% of increase at the sales. From delays of the 2nd half of the Q4 that we expect about the slightly increase of the old Automotive markets and we expect about that increase about MLCC in the active device and the piezo electric components and circuit protection components. And also for an ICT market business, when they go into the peak season including smartphone and we expected about the sales of inductive bison and the high frequency components. We do not expect a so much substantial recovery of industrial equipment market. So that's why favorable condenser business will be only slightly increased. For the sensor application products, we're focused to increase by 14% to 17% in net sales. There's only slight increases of the temperature and the pressure sensor for the magnetic sensor and the TMS sensor was substantially increasing in the ACT market and also we expect about the favorable business for MEMSensa. And also when we counter Magnetic Application Products and the volumes of HD head, will increase by 6%. But on the other hand, assembly of HDHD assembly will further drop and And all in all for HDD head will be the business wafer flights and the volume of HDD suspensions will in will be up by 24% and also top line increase we expect. And the magnet will be almost flat. The energy application products will increase by 12 percent to 15% and increase themselves. For the secondary device, now for the sales to the major customers and in dramatic increase in Q1, we've just slowed down, but on the other hand, we expect about the volumes on the municipal business increase and the peak season. And for the power supply products will be almost flat. Next and last of all, Let me talk about a full year projection for the FY March 2020. So as for the forecast, of this fiscal year that there was no any change from the focus we announced in the last time in April and 3 major focus markets Now for the demands is now the balance from the market and the market. And as time and the trade friction between the U. S. And China and the Brexit. And it will be a we have to have some of the impact due to all the Global Micro Economy, but at the same time, we like to secure that's the opportunities with growth. And based on the demand and also we like to and carry out about all this and the improvements of the efficiency of the businesses and try to achieve the target. That's all my presentation. Thank you very much.