Earnings Call: Q1 2019

Jul 30, 2018

Hello. I was going to start our performance briefing for the first quarter of fiscal year in March 2019. Allow me first to introduce the attendees from the company. We have Mr. Hiroiko Emoran, Senior Executive Vice President. Then we have Mr. Nobles Haitong, Senior Vice President. Next, we have Mr. Teiturio Manishu, Senior Vice President. Last but not the reason from Energy Solution Business Company, we have Mr. Fumio Sashaan, CEO. So those are the phone attendees and from the company. First, in regard to the consolidated performance and for the first quarter, I'd like to have Mr. Manojin to go through the highlights. Hello. This is Yamana speaking. First, I would now like to thank you for your precious time despite your busy schedule. And also despite the quiet and hot weather and outside to attend today's the first quarter, the consolidated, the performance for FY March 2019, for now, I'd like to go through the highlights. First, the highlight of the earnings. Net sales, WIBA Basis was up 18.5%. Operating income grew dramatically by 53%. We're able to renew the sales record and a quarterly basis and we achieved in the third quarter last year. In regard to the passive component of the business, thanks to the continuing growth in the automotive and industrial equipments markets. Our capacity revenue grew firmly Of particular notice is that MLCC due to the increased demand for highly reliable and redundant products made a further contribution to the profitable business of the whole passive components segment. Samsung application products business on top of the firm and the computing sales of the temperature and the pressure sensors the magnetic sensors for the automotive market, the magnetic sensors for ICT particularly was able to maintain an profit. As for the MagneticK and Application Products, with the overall HDD on a head demand, market as a whole declined about 3% Y oybasis. The sales volume of 2.5 engine hard to describe and ahead for personal computers declined, but in which the data centers the business grew as our tailwind. Our nearline HDD and the hedge increased resulting into a better product mix Well, the volumes sold declined by 7% despite of that fact, we are able to grow the sales and profit. Energy And Application Products in the rechargeable battery in the business, we were able to respond shortly to the increased orders coming from the major Chinese customers and who launched new devices and adjusted their inventory level on top of them on tablets and notebook and personal computers and games Non smartphone business continued to firm revenue. They increased the production and improved factoring operation together with the improved cost all in all, help us to increase our sales and profit greatly. Moving on to the performance outline, and the sales was a trend 1,000,000,000, up 1,000,000,000, up 1,000,000,000 on a yy basis or up 18.5%. Operating income was 25,400,000,000, up 1,000,000,000 or up 53 percent YY basis. Income before income taxes was 1,000,000,000. Net income was 1,000,000,000. Earnings per share was 128 point 29. For information on the due to the U. S. GAAP and change, starting from April this year. There has been a change in regard to the how to deal with the retirement benefits. Because of that, part of the budget there, almost 1,000,000,000 has now placed on to the non operating expense side. As for the first quarter, for this condition, this has been already reflected into the non operating on the performance. The average exchange rate for the term is JPY 109.09 to the dollar, up 1.9% on the yen side and JPY 130.16 to Europe, down 6.7% on the yen side. With this, the impact from the currencies was positive 1,000,000,000 in revenue and positive 1,000,000,000 in operating income. The FX sensitivity in our assumption is about 1,000,000,000 between Japanese yen U. S. Dollar. If a year moves 1 year in, no change from how the previous year and about 1,000,000 between the Japanese yen and the euro. Allow me to move on to the segmentation and updates. As has been explained in the previous performance briefing, there has been some changes in the segmentation because of that, And we have to naturally modify the last year's numbers. That's what you see here. As for the passive components, the initiatives in the fold in camera modules as well as in due to the changes in the product mix, actually, the revenue went down to 6,800,000,000 operating income actually moved up 1,000,000,000. 1,000,000,000 for the segmentation, a 26% increase operating income, 1,000,000,000 or up 35.9% in operating income ratio, 12.04% all in all, and we're able to actually increase as health as well as we're able to improve and profitability. And economical capacitors, by the way, thanks to strong demand in the cars market, we're able to sell our product for automotive without ending the increased revenue and also due to the strong demand for the high high quality, high reliability and the other high features, we're able to actually sell more in improving our profitability. Aluminum on the film, our capacitors, actually, and how we enjoyed really good sales and also renewable the industrial equipments our business actually, he were able to grow, given us good growth in both in sales and our revenues inductive devices, by the way. Again, thanks to the strong demand and the automotive industries. With that, in the background, We're able to actually improve the product mix, particularly on the side of the car business. And high frequency And the ceramic itself, and actually, on the, was able to grow, thanks to the great demand in the Chinese market, and the piezoelectric. And the circuit protection actually thanks for the greater demand and for the automotive as well as industrial equipments the business were able to enhance the growth both in sales and profitability. Moving on, I'd like to move on to the sensors on the application business. Of course, there's been some partial change in the product mix. And actually, the salesman down JPY 1000000 and operating income actually increased JPY 1000000 Net sales was on 18,900,000,000, up 16% yy basis and operating income Again, in business on the acquisition cost actually went down by 1,000,000,000 from the previous year, and still on the or you suffered from the decline as much as a 1,000,000 on the side of operating income. Sales for the automotive market, and it shows about 90% increase in revenue driven by the temperature and the pressure sensors mainly in the Europe and the Japanese markets. Our City market revenues Revenue shows 4% growth due to the expanded opportunities in the Magnetic Centers, improving its profitability. We are so happy as to this point. MEMS motion sensors is actually the growing for industrial equipments and including new drones. But the, as has been expected, since the beginning of this fiscal year, the major customers for that city, actually, are declining and also now we are working on the initiatives and to try to expand on our customer basis and also We are working on the new development, new product development, including the ultrasonic authentication and applications, others, that is pushing up on the customer side. So in our loss is becoming bigger. Next, magnetic application products, and with the recognition of the sectors and the segment and the last year's performance to reduce it by 13 point 1,000,000,000 of net sales and JPY 1,100,000,000 in the decline in open income. The outline of business, the net sales is JPY 70,500,000,000, 6.2 percent up year on year and operating income is 1,000,000,000 and 5.4 percent a growth year on year and operating profit margin is 5.0 percent. ACD head have declined its that sales volumes by 7% year on year, But on the other hand, now we have, incremental sales for the nearline head for the for with the incremental demands of the ATDT for data centers and also a average selling price will improve it with the the improvements of mix. So now we have a 7% growth on the net sales and also with a better profitability profitability. When it comes to HDD suspensions, the sales volume had been flat from last year, but the suspension application and products have been expanded in the ICT markets and they only know we could secure the 9% up gross and net sales. But when it comes to operating income and expenses for the standard of the suspension application products have negatively affected the operating income. When it comes to magnets, now and we declining the sales for the wind power generation business will decelerate the mix and we have a negative growth in both net sales as well as net operating income. Next, let me talk about energy application products. On top of the traditional and recharged batteries and we have an industrial equipment, power supplies and automotive power supply products have been integrated as part of the Energy Application Product segment. So now we have increased it by 1,000,000,000 of net sales year on year and also JPY 800,000,000 of growth of a operating income year on year. Net sales is 1,000,000,000 and with a 1,000,000,000 of operating income 31.8 percent and the 50s, a of the net sales increase and a 55.6% in the gross up to net operating income dramatically and see we maintained a very high operating profit margin with 16.7%. The returns of the battery have an increase of push to have a buy that's a dramatic the demand of the smartphone market in China and on of that, also we have a non smartphone sales, like a tablet, notebook and the gaming consoles. So now with the synergy of that and volumes a volumes increase and the improvements in the productivity and had been improved in profitability but efficiently. So industrial equipments supplies have been very steady based on the very stable demand. Next, let me talk about business results on a quarter on the basis from the last Q4 to this the Q1 this fiscal year by segments. This is posed for that net sales and operating income. Due to the recombination of segments and now Cadillac mentioned earlier and then we have just revised debts and business performance. First of all, for the passive component segments and their sales have increased by JPY 6,800,000,000, 6.4% growth the quarter on a quarter basis and ceramic capacitors have been very steady for the automotive markets. On top of that, now in a aluminum film capacitors have been increasing for the renewable energy markets, so that's why it has increased by 3,100,000,000,7.5 percent, Q on Q basis as from last quarter. Intactive devices net sales have increased by JPY 2,100,000,000 5.4% and the gross quote on the quarter and the ceramic capacitors has invested in the steady in automotive markets and then also now we have more sales in the smartphone, a market in China. And the sales of the other passive components as increased by 1000000000, 6.3 percent increase from the on a quarter on a quarter basis high frequency components have increased for the Islamic capacitors and ceramic filter and the smartphone market in China and components and the circuit production components have been increased for the industrial markets. Operating income of the passive components have increased by 1,000,000, 2.9% on a Q on Q basis. So that mean capacity has increased is the volumes and also improvements of the productivity have contributed and also it has been a very favorable business inductor have a the major factor. Next, the sales of essential application products have declined by 1,000,002.1 percent of decline from the last quarter. That magnetic sensor have increased it for the ICT market, but on the other hand, for the MEMS center, have been adversely affected by the inventory adjustments on the ICD market and also for that the demand for that's the gaming console and drones have been adversely affected. That's the net sales. Operating income have declined by 1,000,000 but now it's a including even with including the 1,000,000 reduction of the in business M and A and later expenses and also increasing of the sales of a Magnetic Sensiopathies have been and now offset more than and offset by the a declining business of MEMS sensor and also when the fixed expenses increased by the M and A with CHOP. Next, let me talk about the Magnetic Application Products segments. The sales have increased by JPY 3,600,000,000, JPY 5.4 5.4% from last quarter and the sales of HDD Heads have and a bit based on that the increase in the volumes of the shipments and also the improvement product mix. It have increased by 11% and HDD Suspensions and now have been flats for the suspension sales, but on the other hand, then applications products, this is micro fabrication products, sales have a decline due to that shrinking demand. The sales of magnets have been declined by 5% and from a quarter on a quarter basis from last quarter due to that shrinking a sales for the Renewable Energy business. The operating income of Magnetic Application Products have increased about JPY 2,900,000,000 from the Elastic Q4. So that restructuring expenses recognized in Q4 and also for that impaired and the loss for the HDD wafer and also that the and negative impacts of all the on the operations and all the China New Year's have all gone. So that's now is to push them to buy that incremental volumes of agent they had. Next, let me talk about energy application product segments. The sales of these segments have increased by 1000000000, 25.1 percent and increased from the last quarter. The rechargeable badly had been very favorable due to the increasing in orders for the smartphone market in China for the new devices and also and now if we have de risked that stay startup after recovery of the productions after the inventory adjustment in Q4. Now open income have increased by a 1,000,000,000 from the 1,000,000,000 to 1,000,000,000. So due to this, of that's the Chinese New Years and then also with increasing up the volumes and we could improve that marginal profits and that's also the cost reductions and contributed to this. Let me next let me talk about breakdown of operating income changes. Now in total, we have incremental profits of 1,000,000,000 year on year. So the first of all, a capacity data and ATGT head and the secondary batteries and with all these and the change of the sales pushed up about JPY 10,000,000,000 profits, on the other hand, with that the sales price reductions have a negative impact of by JPY 7,500,000,000, but on the other hand, the rationalization costs, the cost reductions have the JPY 10,500,000,000 positive effects and also benefits from the restructuring we implemented in the last Q4, we have a JPY 200,000,000 and reductions of that one time expenses for related to the M and A and pushed up by 1,000,000,000. But on the other hand, with expansion of the rechargeable batteries and we have an incremental and SG and A expenses due to the enhancement of that of the business organizations and at the negative JPY 6,600,000,000. And on the other hand, we have a JPY 1,100,000,000 with the exchange fluctuation taken all this into consideration and the bottom line is 1,000,000,000 positive. Next, let me talk about that projections for Q2 of FY March 2019, images of changes in sales. 1st of all, for the passive components, now It will be almost flat from that the Q1 is now projected. When it comes down and now, and, we are in the full end of the production capacity to deal with that, the demand so that we expect that about almost the fights in terms of the net sales, but when it comes to that the inductor and the high frequency components, now We expect about an increase of business with the new device for the North America. But when it comes to aluminum film capacitors due to a It have been a favorable so far about this, the renewable. And as you expect now in China, the feed and tariff price will be declined So that's why we're getting into some negative impacts of that's why taking all this into considerations and some of the favorable and unfavorable and conditions with the offset with each other. So the all in all, we still are forecasting the floods. So when it comes to sense application products, we expect about the increase of 8% to 11% in terms of net sales. So with the new device in the North America and and this would have the favorite business, a Magnetic sensor and also we expect about the MEMS sensors and a business will will be increased will increase due to the smart market in China. And for the Magnetic Application product, we are focused is about positive 5% to 7%. We expect about 8% of the volumes for HDD Heads. And on top of that, we expect about a HDD suspension will focus to increase by 14% and besides about suspension application products, this amount about the micro fabrication products will also increase. On the other hand, and when it comes to magnets, due to the change of the product mix, but the steel and our progress is flat for magnets. And when it comes to energy application products, we are focused is the 9% to 12% growth in sales when it comes to rechargeable batteries and Now we expect it to a little bit slow down in the Q1 when it comes to the smartphone market in China, that's a we expected about an incremental business with that new device market for the North America. So all in all, and we think it's a little bit increase and for the power supplies, our forecast is flat. Last of all, let me talk about the full year projections on consolidated business in FY March 2019. And in conclusions, and we don't make any change from debt announcements and forecast in April. We announced last time. When it comes to that business performance of Q1, as we have just explained so far. And a but compared to that assumptions, before the Q1 and this performance have a little bit exceeded that assumptions and the focus spreads are still. And when I look at the ICT market strength, which is a big impact on the business and still and we see that uncertainty in the ICT markets in the second half And also, we have to think about uncertainty and the trade frictions or that the currency so that taking all this into considerations, I would like to be a little bit more at conservative. So that's why we stay the same. So After when all this comes and the situation cannot be more clear, we'd like to revise our forecast for the full year projections. That's all my presentations. Thank you very much. Thank you.