Earnings Call: Q4 2019

Apr 26, 2019

Ami Amanishi, thank you very much for joining us today. And I'm going to present that this the consolidated results for the FY March 2019 and after TDK operations. First of all, I'm going to explain about outline of our business performance. 1st of all, the March 2019 and key highlights and concerning dynamics and the net sales that was up 8.7% year on year and operating income was up 20.2% in the year. And now the net sales have in the 6 straight years passed it, then we can hide and also open income and income before tax income taxes. And also, that's the a for all in the R and the negative highs and for the operating income have recognized JPY 100,000,000,000. Now, and the middle of Q3 that we experienced about the slowdown in the economy in China due to that the friction of the U. S. And the China and also that adversely affected that automotive ICT and industrial equipment markets. And now deliberately, and we have lost the demand path now and the 3, the favorable business segments in the first half have carried its momentum also in the second half and that the 3 businesses are more than offsets, and we could and ensure that's and the the growth of both stats net sales and profits and a full year basis for the charterer penalties and with an expansion of that market share of the our China, the customized smartphone in China, and also for that, and we have a favorable sales of the tablet, Note PC, and mobile and on top of that, now no mobile applications like mini cell have also expanded so that we could ensure that and and the substantial growth of the sales and the profits and make a big contributions company as a whole. For the ceramic capacitors, Now high reliability and high and redundancy products have been an expanded mainly for the automotive markets and also with that improvements of profitability, we could state the expansions of that profits and have been contribute a lot for the underpinning that a passive components business as a whole. For the HDD head and the suspensions, now the the demand of HDD have declined by about a 10% year on year. And also, that will lead to that, our decrease of shipments of HDD head year on year. But on the other hand, and in our high value added product for the data center have increased in the shipments, And although that we have declined in the sales that we could ensure that's the incremental profits year on year and the supported, that's our profit, profitability of the company. On the other hand, when it comes sensors and magnets, on top of that, detailations the demands and when also we could failed to launch that the new products and Italian money in the market, so that's an it was made a substantial negative effect and impacts. So this is the line of a consolidated full year results and net sales was 1,000,000,000 and JPY 381,800,000,000 JPY 110,100,000,000 and JPY 8.7% increase in the year, operating income was JPY 107,800,000,000, JPY 18,100,000,000,000, 20 point 2 percent earned an increase in the year and net income before income taxes was JPY 115,600,000,000 and net income was JPY 80 point 2,000,000,000. Earnings per share was JPY 651.02. Now an assumed ended our foreign exchange rates were almost on the power end of last year, JPY 110.94 for the dollar and JPY 128.48 to the euro, 0.9% of acquisition with yen and an impact of this fluctuation in currency was about JPY 5,000,000,000 of decline end in sales, And then also, even the push step provides JPY 600,000,000 and operating income. When it comes to a falling change sensitivities and there's no any change from last year so that for the 1 year change will lead to the JPY 1,200,000,000 of that operating income and the dollar and JPY 200,000,000 and the case of euro. Next, let me explain about the breakdown by each segments. Now we have and we combined that the segments, so that's why we the devices that's now a recognition of the last year's performance. 1st of all, for the passive component sales was a 4.7% of that incremental, the net sales was JPY 4 33,400,000,000 and operating income was JPY 58,400,000,000, six point 16.3 percent up in the year and operating income was 13.4 percent operating income margin was 13.5 percent and the improvements of the improved profitability. When it comes to ceramic capacitors, with as the product with high liability and redundancy have been favorable in automotive industries and we have into revenue growth and also, and we have the improvement of mix and also improvements of production contributed to that and profitability. When it comes to aluminum film capacitors, and the market in China, particularly for the renewable energy and the home electric appliances have declined. But on the other hand, for that, we for the industrial equipments and automotive markets have increased so that and all in all, we could ensure that about the profits. And a little bit improvements in the profitability. When it comes to inductive devices, and the home electric applies the game and the gaming and consulting China have declined shrank. But on the other hand, we could steadily improving the business and the automotive market as well as that's now and more sales and smartphones. And in all in all, we have ad and sales growth for operating income and in the and a half about the industrial equipments and that automotive demand have declined and also we implemented that production adjustment. So that's why and a profit declined year on year. When it comes to high frequency components, ceramics filter have increased for the for the favorable business when ICT, on the other hand, for the piezo electric materials and the circuit protection components. Now we have with industry equipments, but on the other hand, for that and ICT and also decline in market in Europe have put to down our both sales and profits. Next, the sensor application products. Now and the sales was JPY 76,500,000,000 minus 1.2% year on year and the forward operating income was including that JPY 5,400,000,000 of that M and A cost of the investments, including this cost and an open income was JPY 22,100,000,000 of that loss and a substantial loss. But when it comes to the temperature pressure sensor, it was adversely affected by the declining of the demand in the China of the home and electric appliances. But on the other hand, we have that the sales growth rate due to the favorable business automotive markets. On the other hand, when it comes to pressure sensors, due to the increase of our promotion and the other the cost for that the sensors have a little bit negative year on year. For the magnetic sales and wholesaler, there we have going well in the automotive markets and we have the sales growth and also profit growth. Tier M and R sensors also have been favorable in the smartphone business, and we have entered sales growth when we got MEMS sensors, and we have a we could not launch that new products under the market, timely manner and also due to the slowdown in the China. And for all this now, the demand for the small on a drone have declined and decreased it and also due for an older gaming market have declined so that now we have a substantial and decline. And Although, we don't have the JPY 5,500,000,000 of M and A expenses this year, but now, and including our order cost afford at the the customer base and for the cost of product materializations of the new models will push down that for this and we have Next, Magnetic Application Products. Now sales for the sales, JPY 272,800,000,000 of sales -1.7 percent year on year and operating income was JPY 17,000,000,000 and and the 5.6% up in a year. When it comes to the hard disk drive ahead, sales volumes have declined by 8% from the year earlier. But on the other hand, and the sales of nearline head have increased in the mix. So with this improvement of the mix, an average the selling price of increase and increase in the push after the sales. And when it comes to that the sales volumes were HDD, the suspension declined, but all end, micro DSA type sales, it's increasing in the product mix. And now with this increase in the upgrades selling price and the net sales have been almost flat year on year. And on top of that, application product for the suspensions have visit these revenues so that also although that the total and now although we experienced that the declining of the sales of HDDSM but and all in all, we it had been almost flat year on year. So when it comes to the profits and increase in selling price, And then also for that now improvements of the profitability of the HDD Disuspensions and the new we have, we have a profit growth. On the other hand, when it comes to the magnet for the wind power generations, as industrial equipments, then the market have declined. So that's why we declined in sales. When it comes to flight magnets and also we delayed end improvements of the productivity so that I mentioned earlier that in Q2, and we had to recognize JPY 4,700,000,000 and of impaired loss. So that's now for the market business, and we have founded the loss like this. Next is the energy application products. Net sales was 137,500,000,000 operating income, JPY 91,000,000,000, going up 21.4% and 25.7% respectively. Sales of rechargeable batteries increased substantially through share expansion at our major customers selling into the Chinese smartphone market. In addition, sales grouped steadily in the mobile device applications, such as laptops and tablets. Sales also increased toward non mobile phone applications, such as game consoles, leading to an increase for both sales and profit in this area. So power supplies for industrial equipment sales and profit, in the second half, the semiconductor production equipment and robots demand saw a decline both sales and profit has been basically flat year over year. This is the breakdown of operating income changes. As follows. So the change in sales by 39 5,000,000,000 is mainly thanks to sales increase in capacitors and secondary batteries and improved product mix for HCT head suspensions. On the other hand, there was a negative impact of sales prices reduction of JPY 19,100,000,000 However, you were able to offset this through rationalization and cost reduction. This will be JPY 21,500,000,000 and another one 400,000,000 coming from benefits from restructuring. In terms of administrative and development costs went up in line with the business expansion of secondary batteries, and we have strengthened our development structure of our sensor business, we saw an increase of the SG and A and R and D in total this SG and A went up at JPY 26,500,000,000. Untank expenses for M and A, this is mainly for the inventory related expenses. Year over year went down by JPY 5,500,000,000 and JPY 6,600,000,000 increase came from exchange rate fluctuations all in all operating income increased by 18,100,000,000. Next is the change of operating income from First of all, sales at passive Components went down by JPY 4,800,000,000, JPY 4.5 percent against the 3rd quarter. The reason behind this is first of all for ceramic capacitors, although the overall demand in the auto market slowed down, sales for our products increased specific for our products, but for the aluminum film capacitor sales declined for the energy at any renewable energy applications in China and auto applications. So this was the, 0.4000000000 decline of sales, 0.9%, against the quarter. In the ductive devices business, from the 3rd quarter, it went down by 3.3000000000,8.4percent sales decline. So this is due to the deceleration of the Chinese economy and weaker demand in the European auto market. So for the auto market and for the smartphone applications and for the industrial equipment overall, overall sales declined in this business. As for sales and other passive components, it declined by JPY 1,100,000,000, 4.5%. In the high frequency components business, so the sales declined mainly for the Chinese smartphone market, sales decline for piezo electric material products and circuit protection components as sales for the European market decreased. For passive components, operating income declined by JPY 1,400,000,000, 9.5 percent from the 3rd quarter. Sales and profit of Cermbic capacitors and continue to grow. But for inductors and high frequency components, we saw a decrease for sales and profit. Going to sensor application products, sales went down by 2.400000000012.2percent. Sales of temperature pressure sensors were flat from the previous quarter. However, sales dropped significantly for magnetic sensors for smartphones and for the European auto market as well. MIMS sensors sales decline for applications such as smartphones, drones, and game consoles. Operating income for temperature pressure sensors were flat, while that of magnetic sensors declined in line with sales. In the MEMS sensor business, costs related to the acquisition of Invensys went down by 0 point 1,000,000,000 to 1,000,000,000 compared to 1,600,000,000 in the 3rd quarter. However, due to the decline in sales, loss increased. Overall, for the Sensor Application business, we saw losses increase by JPY 1,700,000,000. Next will be the sales of Magnetic Application Products. Sales went down by 5,900,000,000 dollars, 8.9% from the 3rd quarter. For the HCT head business, Shipment volume index in the 3rd quarter was 81, but went down to 76, which was a 6% decline. For the HDD dissipation sales volume decreased as well. Sales of magnets decrease due to weaker demand for industrial equipment. Operating income of the segment declined by 3,000,000,000 from the 3rd quarter. So the major reasons behind this is the sales volume decline of HTTP heads and suspensions And in the fourth quarter, there was the Chinese New Year, and those came from lower utilization in China. Next is Energy Application Business. Sales declined 33.6000000000,23.1percent from the quarter. Sales of rechargeable batteries decreased due to seasonality, and was impacted by the deceleration of the Chinese economy. So this led to a decrease of sales worldwide devices such as smartphones and that the reason was solar sales were game consoles applications. Sales of industrial power sources declined impact did by the, decelerating economy. Operating income was $12,100,000,000, declining by $12,500,000,000, from JPY 24,600,000,000 in the 3rd quarter. So there was a margin decline of the sales volume for the secondary batteries. Furthermore, in third quarter, the cobalt material market went down further. And there is a time lag where we can reflect the changes at the material cost to our sales prices. This continued to persist in the 3rd quarter. And on top of that, there has been a operating loss due to the Chinese New Year in fourth quarter, we saw a decline in income because of these reasons. So the sales decrease of industrial power sources went down as well as sales and income. So that is all about the performance. That's all from me. Thank you very much for your attention. Next, this will be the March fiscal year March 2020 outlook for the consolidated results, Mr. Ishiguro Emeke Resitation, Thank you very much for coming despite your busy schedule. From my side, I would like to explain about the outlook of our consolidated results for fiscal year March 2020. First, I would like to explain about the business environment and assumptions that we are making. So in the mid to long term, the markets that we conduct business we'll see an acceleration of trend, such as digital transformation, utilizing digital Technologies. And another trend is the transformation for the Renewable Energy. So there will be a energy transformation So internally, I call this a DX and EX to explain about this situation. So this DX and EX in this type of society our electronics products, the expectations towards our electronics business, will further be enhanced. That is my understanding. Against this backdrop, how are we going to capture business opportunity. This means that how much can we contribute to the society So this is related to that, initiative. And the important point here is the time to market. We had to be very aware of that and time to quality and trying to volume. Maybe from the customer's perspective, this would be time to cost as well. We have to be agile to respond to these requirements. And we will have to offer our components in adequate manner. So this will be a very important point for our business. And through these, improvements enhancements, we will look at the market in a timely manner and expand our business. But that said, on the other hand, in the look at the short term, For instance, we have the U. S.-China trade friction, and we had the deceleration of the Chinese economy. And globally, we have political instability. These will have an impact on the macro economy, and we cannot ignore these on top of that, in this kind of environment, this will change very quickly. So maybe the the sky, we will see ebblo sky, but, very difficult for us to imagine that we're going to see a clarification of this murky vision. So for FY2020, we consider this year as a preparation for the mid to long term growth of our business. So, we will execute measures so that we can achieve the targets that we have set in our midterm plan. So based on this idea, in terms of the production of FY2020, for instance, this year, the ceramic capacitors have done very well this fiscal year, these passive components for the rechargeable batteries, these energy related components, for the energy application products, for these type of products, from FY2019, we will not assume a strong sales growth for these business areas with the HDT Dryze, which is the major product under the magnetic application products, we have seen a plateauing of the demand for the HCDs for the data sent We think this will grow in the future, but right now, the demand is stagnant. We will have to take this in as a reality. And in that type of condition, how will we outlook, make an outlook for our demand? Our assumption is that, the demand recovery will have from the second half of FY2020. And afterwards, we will base our assumptions on these types of some of conditions. However, unfortunately, FY2019, there was a delay in profit improvement for the sensor and magnetic application business, we will improve the profits steadily. And through this, we will strive to enhance our overall profit. For the sensor business, And for the magnet business, we have the future vision. And we are going forward in our themes, By realizing these results or these initiatives, we want to enhance our overall profitability. That is our basis of our plan. Overall, we are not anticipating a major sales growth, but, even so, we want to focus on our strength and uniqueness, like, including MLCC and rechargeable batteries, we will continue to invest for growth in these products. FY FY 2020 full year projection. What we think about this is shown in the next slide. Based on the ideas that I have explained, I would like to talk about a full year projections. So the exchange rate assumptions be using JPY 108,000,000,000 to US dollars, and JPY 122,000,000 to the euro. Net sales projection is JPY 1,420,000,000,000, which will be a record high for 7 years in a row. We will target our target for operating income is JPY 120,000,000,000 Again, this will be a The projection of income before income tax will be JPY 180,000,000,000. Net income will be JPY 84,000,000,000, EPS JPY 666. Dividend outlook is JPY 19 for both first half and second half. This will be an increase for the a 20 yen increase for the full year, at 180 yen CapEx is going to be JPY 200,000,000,000 depreciation JPY 130,000,000,000 R and D JPY 120,000,000,000. This is our projection. So based on the net sales, assumptions. This is a unit of changes in sales for each segment year on year. As I said, for the passive components and the rechargeable batteries, we will not we are not anticipating a huge growth, but for passive components, mainly in MLCC, the will project a growth. So on a year on year basis, we are forecasting a 2% to 5% improvement. Although, with the global sales volume for the automobile market, we can anticipate this to be flat. So we, in terms of the XEV, this will be related to the energy transformation and ADAS. We think that autonomous driving is going to expand, and there will be demand increased demand for components necessary for this. For the ICT industrial equipment market, we are not assuming any growth in these areas. For the Sensor Application business, we are anticipating a 28 to 30 1% or maybe plus minus 30 percent of increased MEMS sensors and TMLR sensors for smartphone applications we are anticipating sales expansion with the magnetic and temperature pressure sensors. We think that, this will sales will grow the automobile market. For the Magnetic Application Products, the projection of sales will be a decline of 17 20%. Although the proportion of near line hedges is going to go up, sales volume from HDD hedges as a total will go down slightly go down. At the same time, which we did it to support our customers, we think this will go down substantially. On the other hand, in terms of the sales and suspension, we assume that this will be flat. Magnet sales will increase for automotive applications, but will decline for HCT applications we will actually intentionally decrease this area. And the production of demand recovery for industrial equipment is going to be delayed for the segment overall, we assume a decline in sales. For energy application products, we will be assuming a sales growth of 6% to 9% Sales growth for smartphone applications will only be seen by increased sales to our major customers. We anticipate growth to come in a non smartphone business such as mini cells. Sales of industrial power supplies will go down slightly. So this is all from me. Thank you very much for your attention