Earnings Call: Q2 2019

Oct 31, 2018

Now it's in time, so I'd like to start the performance briefing. The first half will fly in March 2019 for the TDK Corporation. First of all, let me introduce that and the attendance today. President and CEO, Mr. Shigenau Ishiguro. Senior Vice President, Mr. Hiroyuki Wimala. Managing Director, Mr. Nobarus Haito. Managing Director, Mr. Tetsuji Amanishi. Energy Solutions, Susan Company CEO, Mr. Humio Sashida. This is an old 5 hour that Danzus today from TDK. Thank you very much. Okay then. So first of all, The consolidated results for 1st half of fiscal year March 2019 is presented by Mr. Yamanesi. Hello, everyone. I'm Miya Munushi. Today, thank you very much for joining us for our performance briefing first and help of FY March 2019. I thank you very much. Then I'm going to first talk about the consolidated performance for it. First of all, that highlights of this business performance, the net sales was a 15.8% growth year on year and operating incomes grown by 40.7 percent and it's a substantial growth year on year and bolster net sales as well as operating incomes And now we could recognize that to record high in both that's the same annual and quarterly basis for the passive components businesses and in the very favorable of modern businesses and capacitors and the inactive devices and particularly for MMCC have been growing against its sales and also for MMCC and with for the automobiles application with high reliability and redundancy have and very good for that the cash and upgrades increasing demand and we could continuously demand that both net sales and profit and could make big contributions to and also the high profitability of the passing components business. For the secondary battery for the energy application products, And we could expand the business and sales to that our major customer in China and tablet notebook and PC and the gaming consoles just like all these non smartphone and business sales have still continued to be very favorable, And on the top of that, we have a very good and the higher utilizations in facility and a continuous reduction efforts and all the contributes to the substantial and, inclusion to the sales and profits. For that's the Magnetic Application Products for HDD hit, and now for the volumes of sales have declined by 6% year on year, but still for we have a very good tailwind for the demand for the data centers and for an increase of the Nearline HDD Heads have an increase in profitability and also we The weak structures are manufacturing the facilities and also we have a very substantial growth in both net sales and profits. And just and also in the Magnetic business and the part of this this is part of the Magnetic Application Products and we try to eat the catch up with that's the demand, the increasing demands on automotive industries. And those are the flight magnets and the metal magnets. And now for all these areas, we're going through that. We try to enhancing the process improvements and product development is still when it comes to that flight magnets businesses and it sounded very very difficult to make the recovery for should pay the time so that end is Q2 and we recognize that impaired loss for the long term manufacturing and for that. Next, let me talk about the business performance overview of 1 in first half. And net sales was 1,000,000,000, it was up from the 98 by JPY 98,300,000,000, 15.8 percent year on year. Operating income was at 1,000,000,000, including the 1,000,000,000 of impaired loss. And it was they increased by 1,000,000,000, 40.7 percent year and income before income tax was 1,000,000,000. Net income was 1,000,000,000 earnings per share was 1,000,000. Now the part of the change of the U. S. GAAP requirements and the public benefit obligations and the part of that the cost of this the Retirement allow us 1,000,000,000 in the first half was now we combined into that non non pro form no operating income and no operating expenses. And from Q1, there will be recognized as part of non operating expenses. The average rates from the 110.30 yen to the dollar 0.7 percent of the amortizations for the euro, 129.90 3.0 percent of the yen depreciations. And due to this impact of this, 1,000,000,000 for the impact on the sales, and 1,000,000,000 of impacts to net operating income. When it comes to sensitivity of the currency and operating income basis and 1 year change will do that 1,000,000,000 and when it comes to dollar and when it comes to euro, and 1,000,000 is the impact for the one name change. Next, let me talk about its segment wise performance. From this from this, the new the fiscal year, we changed it. We combined that some in the current module and exchange and part of products. So that's why for the passing components, we revised that and the last year's sales by 1,000,000,000 less and operating income and 1,000,000 less. The sales of the passing components was 1,000,000,000. 11.0 percent year on year gross and operating income was 30.4% and 31.16 31.6% growth year on year. Operating income margin was 13.5%. Is it a very steady business and the recovery. We'll still make capacity business due to the products where it's in high liability and redundancy, we could change of risk that expanded demands on automobiles, and we could have that we have that as an increased sales. And we've also forwarded it due to that's an improvement of productivity and the product mix. We could successfully have the substantial increase after both profit and sales. And let me now and the family capacity is also steady in the automotive markets. And then also we can have a good business also in-depth industrial equipments, inducted devices is still doing very good and the automotive market and steadily and starting from this is Q4. Now we have increased the sales also for that business for the smartphone and we have a very good to steady growth in business for the high frequency component business Solamic Capeta. Capesta is a favorable in the business in China for the smartphones, and we have incremental revenues. And the piezo electric components and the circuit protection business and have also good and going well for the automotives and industrial equipments and we have both incremental revenue and a profit. Next, Tesa application products. Also on a part of the recombination of the products, revise is the last user, a the sales by 100,000,000 less and the 100,000,000 up and the operating income. The sales of this business application products is 1,000,000,000, 8.2 percent up year on year and operating incomes in And then including that emphasis, I mean, I cost 1,000,000,000 and announced a 1,000,000,000 operating loss. So the sales for the automotive markets have been very steady and the temperatures and pressure sensor as well as magnetic sensor have increasing its sales by 16% including in Europe, Japan, market, Japanese market and to overcome Magnetic sensors, Now in the Salesforce ICT market, but when I think the sales will have a substantially and increasingly increase it now, it went completely to that productivity, profitability of the magnetic sensors. When convinced motion sensors, now it doesn't again, council business have been under the of that declining demand, but still and then also we have to declining the city market and we need to pay for that for the expenses, for an expansion of the customer base and we also accelerated development in new models. So there's no overlap and including development resources and costs that we have expanded loss in this area. Next, Magnetic Application Products Also, again, due to the recombination of the segments now, and we revised that in the last year's sales by 24.5 1,000,000,000 and operating income 1,000,000,000 less than in the last years. When it comes to current business performance, sales was JPY 145,900,000,000, at 5.6% increase year on year. And operating income was 100000000049.4percent up year on year. Operating income margin was 3.0%. As also explained earlier, then this is Q2, and we recognize that the impaired loss of flight magnet business by 1,000,000,000. This is that the major reason of debt declined profits, but Excluding this one time loss and on an actual basis, now we could secure the 1,000,000 of an income and that is 4.6% growth year on year. When it comes to HDD head, at this drug head, now the sales volumes declined by 6% year on year from the earlier, but on the other hand, we have the incremental decrease demand data center HDD and we have more sales on nearline head and also with the improvement of the product mix Now we can have that an increase of the efforts unit and the selling price so that we have the 6% of gross annual revenues and the sales and also we have, improvements of profitability when it comes to the HD suspensions. And due to that incremental sales volumes, but also on the small size and highly added value products increase it so that we have good improvements of the product mix and we have to erlasing a rising, a upper unit cost. And also, we have a very good expansion for the business of suspension in product ICT products. And now the profitability is tunnels to be better. For the magnets, For that, the industrial equipment for a window power generation magnets have declined in sales. So this is due to this deceleration of the product mix and we have decline of also most of the sales and profits and also as I explained earlier in a freight Magna business, And it would be quite difficult for us to make a recovery. And if the business was short term business, we needed to recognize that impaired loss. Next, the energy application products. So the traditional secondary battery and on the top of that, and the industrial power supply and also that the power supply business for the automotive markets and now get old and integrated in energies Again, in this recombination, we've pushed up the last year's business of segments study 1,000,000,000 and also pushed up the opening income by 1,000,000,000. And the sales of this first half was 1,000,000,000 operating income was 1,000,000,000. That is 28.9 percent up and of 54.7 percent of the upper buy of the sales and operating income margin was 19.4%. So that's why we now have a first substantial growth in sales as well as the profitability. When it comes to secondary market, Secondly, but at least, and with the on the top of that, the substantial business growth and the smartphone market in China, and also we have tablet, notebook and the game from console counter non smartphone, a market business have been steadily increasing and also in top line together with this and It's the improvements in efficiency and then a of the manufacturing part manufacturers and they have been a more efficient. Now for a we have also have the incremental sales and profit for the industrial equipment supply. Next, let me talk about the breakdown of the the operating income changes. In total, it has grown by JPY 18,180,000,000,000 and operating incomes, but first of all, and and capacity and the HDD head and the secondary battery that are all and contributes to that the increase in sales and it had a positive 27,700,000,000. And about a 7 price decline and have a negative impact of 1,000,000,000. That can be more than offset by at JPY 16,300,000,000 up to a rationalization and cost reductions and also for the effects of the restructuring and JPY 400,000,000. And when it comes to the expansion of business of secondary, business and also developments and the other sensor business developments, will and pushed up the SG and A by BRL 17,700,000,000. There was a negative impact, but on the other hand, but including all the other factors, right, for example, and the ForEx fluctuations or a billion of an show positive, a impact of the excluding the one time expenses and also billion was declined for that and M and A related costs and the billion impairment loss and also including 1,000,000,000 of foreign exchange positive impacts in total of JPY 18,000,000,000 is the positive impacts. Related results for 2nd quarter, net sales JPY 378,900,000,000, increase of 13 points for percent. And operating income was 36.8 percent, the improvement of 33.3%. And therefore, on a quarterly basis, including net sales and operating income, we were able to achieve the record high For the second quarter, we have included the impairment loss of JPY 4,700,000,000. However, the actual results for the operating income was JPY 41,500,000,000. Therefore, net sales improvement in JPY 24,900,000,000 and therefore, improvement of 26 point proof of respect. And next, I'd like to playing the quarterly results by segment. And for the ceramic capacity, it's there have been improvement and for the temperature and pressurized sensors because of the implementation of the emission testing, it's going sidewise. However, for the magnetic sensors, it had improved sales to the ICT market. For the men's sensors, there have been decline of sales to the ICT. However, there have been improvement of the sales to drones and also the KB game consoles. For the operating income, we are able to achieved the improvement due to the increase of sales of the magnetic sensors. However, for the MEMS sensors, we have included the M and A cost of investments of 1,000,000,000. And also we have provided an increased development source for the new product. Therefore, they have increased red. However, in total, for the sensor application products, we are able to reduce the rent by 1,000,000. For the Magnetic segments, the sales had improved by 7% increase of JPY 4,900,000,000 HDT Head sales, the shipment index had improved from 93% to 97% in the first quarter to the second quarter, increase of percent and the sales had increased by 5% for the HDD suspension volume. Decline. However, the magnetic sales for the automobile industry had improved. Therefore, we had achieved a slight increase for the Magnetic Application Products operating income have been negative by 1,000,000,000. And also in the second quarter, we had included the impairment loss of 1,000,000,000. However, including that we have, are able to achieve the actual increase of 1,000,000,000 for the Did you have there have been improvement for the suspension as well. However, because of the magnets, we are able we aren't able to have the improvement for the energy application segments. The sales had improved by 29 point 1,000,000,000 improvement of 23.2 percent for the retaliable battery, it's the sales to the Chinese smartphone market favorably. And also there have been an increase of sales to North America as well as increase of sales of tablets and PCs. Or the industrial batteries, it's going fairly well for the operating income from the first quarter JPY 21,000,000,000, an increase of JPY 12,300,000,000 to JPY 33,300,000,000. Because of the increase of the volume for the rechargeable but with the improvement of marginal profit and also there have been improvement in the cost impact. And therefore, we are able to achieve improvements through the rationalization. And therefore, we have seen the improvement of profitability. Thank you very much. Next, we would like to invite Mr. Ishiguro, please. Thank you very much. So first of all, I would like to extend my gratitude to to all of you for being with us today. And I would like to explain the consolidated full year projection. For the third quarter, I would like to talk about the projects and for the third quarter of the fiscal year March 2019. For the passive components, there have been a fluctuation according to the market for the automobile industry. However, having said that, we do have a strength in powertrain and also there have been improvement of demand for the ADES. And therefore, we are seeing a favorable growth. And therefore, it will give a steady improvement to our business for the capacitors, we are expecting that we are going to increase the sales. And therefore, we believe that we will have a steady improvement For the Injective device, focusing on debt, we are increasing the sales and for the plastic components we expect an increase of 1% to 3% for the sensor application products because of the impact of emission test implementation, there have been a decline in the orders for the temperature and pressurized sensors. However, on the other hand, the magnetic sensors sales to the ICT will be having the seasonality impact. And also for the main sensors from the second quarter, we had expect a slight increase. Therefore, as a result in total, we expect a flattening in the third quarter, for the sensor application products projection, we expect that we are going to increase by 30% when we have already explained this. And therefore in the latter half of this year, we are going to have a delay in the launch of the new products, and therefore, it will be taking more time. For the magnetic application products for the HDD Heads shipment index. From the second quarter, from 97% to 3rd quarter, we expect the decline to 87% decline of 10%. However, it's a sales of SDD suspension will have a flattening effect. And we expect the suspension application for us sales to have a full full fledged sales. And therefore, for the suspension as a whole, we expect there will be a growth For the magnetic products, we expect it's going to be flat However, for the magnetic application products, we expect a decline of 5% to the 7%. In the third quarter. For the energy related products, we are able to have the increase to North America On the other hand, for the Chinese sales, we expect a decline and also non smartphone sales is expected to decline slightly. Therefore, as a result, we expect this to be flat in the third quarter. For the power supply for the industrial usage, the industrial market itself is having a slight recession. Therefore, we expect a slight slight decline. For the NIG application as a whole, we expect it's going to be almost flat Therefore, as a total, the net sales in comparison to 2nd quarter's 1,000,000,000 we expect the decline of 1% to 3%. Lastly, I would like to expect the full year projection. So based on the actual results of the first half and also looking at the trend in the latter half as we have announced at the beginning of the year, we have revised our forecast. The net sales for full year at JPY 1,423,000,000,000 operating income 1,000,000,000 income before tax 1,000,000,000. And therefore, net income JPY 80,000,000,000. Therefore, we would like to revise afterwards for the dividend. In the first half, we are going to increase by 10 from JPY 70 to JPY 80. In the latter half, we expect the dividend payment to be JPY 80. Therefore, we are going to pay 160 yen for the full year. Therefore, increase of 20 yen. The currency exchange rate is forecasted to be around JPY 110,000,002,001,000,000,000. And therefore, we are expecting that the exchange rate will be almost as the first half. For the full year forecast, And therefore, we are able to achieve more than we had expected in the first half. In addition, in the letter half, they'll be up and down according to the segments. However, as a whole, we are not going to revise upward nor downward. Therefore, we expect the revision as I have explained. That concludes my explanation. Thank you very much.