Earnings Call: Q3 2018

Jan 31, 2018

This is Yamana speaking. Thank you. Thank you, Dylan, for your precious time, despite your NABija schedule, we are here to explain the performance and the results for the fiscal year March 2018. First, allow me to go through the highlights for the 3rd quarter and the sales were able to renew its record for 3 consecutive quarters since the beginning of the fiscal year. The third quarter revenue was up 5% year on year. Operating income was down 0.3 percent, slightly, slightly from the last year. However, we are able to absorb JPY 10,000,000,000 plus the impact from the partial transfer of the high frequency components business Though we had one time expense of, for the third quarter, billion from the InvenSense acquisition, we did actually get on a path to the 3rd quarter actuals on the last year. Which was record high on a quarterly basis. As for the passive components, passive components and had a sure growth, mainly driven by the capacitors and inductors and thanks to the still ongoing strong automotive and industrial equipments market We are currently enjoying our stable profitability in 11% and plus operating income. Since application of products, while leveraging the broader portfolio, are trying to find new applications. In the third quarter, TML sensors expanded its sales, driven by the automotive and products, as well as by the ICT in the marketplace. Thus contributed to our improved profitability. We have almost completed our evaluation on the goodwill in regard to the inferencing acquisition. This time, we booked as much as, this time 1,000,000,000 in the quarter, as the intangible fixed asset, separated away from the goodwill and going back to the point of the acquisition. Magnetic application products and how well our HDD in our market and it has been moving almost within our expectations and in terms of the total demand Though the hard disk drive SG and A head volume tends to decrease. But now thanks to the improved product mix, the revenue moved and as we had expected, resulting in rather stable profit. As for the magnets and the power and the supply and the product, Thanks to the firm demand driven by the semiconductor Manufacturing devices and robotics devices in the industrial machinery, furthermore, renewable energy related demand are still going on. So resulted in the growth in both in sales and in a profit, we are so happy as for this result. As for the rechargeable, the batteries, our sales and for smartphones continue to grow, in our own tablet and in the PC, the business actually grew uniformly. Furthermore, apps related business now expanded continuously following the 2nd quarter where now both revenue and operating income renewed and its record, respectively, Allow me to give you the outline of the 3rd quarter, Net sales was 1,000,000,000, up 1,000,000,000 or 5 percent YY 1,000,000,000, up 1,000,000,000 or 5 percent YY basis, operating income was JPY 42,400,000,000, down JPY 100,000,000 or down 0.3%, almost the same level from the previous year. In the third quarter, we had a one time expense of $2,200,000,000 for the M and A. So in substance, we overachieved the profit year on year basis in a big way. Operating income ratio was 9.5%. We transport and are part of, you know, highly profitable and high frequency and common business, but we are able to offset its impact on profitability. Income before income tax was 1,000,000,000, up 4.4% Net income for the quarter was 2,800,000,000 or the down 11.5% But, may I remind you that, we had additional tax expense of almost -3,500,000,000 due to the tax reform in the U. S. Giving us a growth in profit ultimately. So 117.096 was in our EPS. So we're able to confirm. Average and FX rate for the quarter was JPY 112.97 to a dollar. The Japanese yen became weaker and by 3.5% As for Euron, it was JPY 133,000,000,000 depreciated by 30%. All in all, the FX had an impact of JPY 13,700,000,000, in net sales, and JPY 1,600,000,000 in operating income, positive income, positive impacts. The FX sensitivity by the fluctuation of operating income was the same from the last time, JPY 1,200,000,000 vis a vis the U. S. Dollar and JPY 200,000,000 to euro. Next, I would like to move on to the segments. Starting from the third quarter, we newly added a sense application of products. As we have explained already, some product mix has changed And actually, the JPY 1,400,000,000 is the impact and also the revenue was JPY 4,900,000,000 impact. Positive components revenue was JPY 112.7000000000, down 21.2% and operating income was JPY 12,300,000,000 down 35.6%. Giving us an operating income ratio on being a 10.9% ceramic capacitors next, thanks to the strong demand, continued to grow in the automotive market. Improved the product mix and improved productivity. We really enjoyed a great increase in revenue and the profit grew more than we had expected. Actually, we're able to achieve the higher down 10% level. Next inductive devices, the segment was impacted by the decreased production volume by the Chinese Smart on the major manufacturers? [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] Yes. And particularly on ICT sales on a shows a decline in sales, a Y oybasis. But having said that, when it comes to the automotive and industrial robotics and the instrumentation and other industrial equipment, the verticals, as well as the so called white and those on the businesses, our business grew and gave us increasing the sales. High frequency and components excluding the transfer business, previously, and actually, we had Wi Fi in the module business in place. But in the 3rd quarter, that was gone. That pushing down our net sales, but when it comes to the ceramic filter, our business actually were able to grow both in the revenue and the profit and enjoying a high level of profitability. Peace Electric Automotive Products now grown in sales and for automotive for industrial equipments Whereas, camera module actuators and for Chinese smartphone, the makers declined both in the revenue and the profit due to the reduced production on the for the business of high frequency components. Actually, with an impact of JPY 45+1000000000 in revenue and JPY 10+1000000000 in operating income, But we are able to offset the loss in the entire passive components and segment effectively. Our operating profit and have been 10% quite stabilized. And we are still, we are making a steady improvement in our profitability. Next, our sense application of products due to the change in the product mix of the new segmentation, previous years, and actual revenue was 10,500,000,000 and operating income became negative 1,500,000,000. As for the, actually, we have the fixed asset depreciation. So now, we went back to the point of M and A, actually, the JPY 1,900,000,000 and the one time expense put them together actually JPY 2,200,000,000 no, those are numbers actually we booked in the third quarter. The revenue in the automotive business world and the temperature and the pressure sensors and as well as the magnetic sensors actually grow particularly in Europe and in Japan, actually in percent 32% and TRMA sensor, by the way, I see that the business actually grown substantially. And sensors and applications and segment as well. ICT accounts for about 30% and automotive sales accounted for the 40%. Industrial Equipment accounts for about 30%. So I think we are enjoying really good balance among those segments. And next Magnetic Application, business segments and due to partial recombinations of a product mix up the segment again now it's the previous sales was revised downwardly by 4,700,000,000 and operating income and upwardly by 2,200,000,000. When it comes business, the net sales is JPY 86.9000000000,900.9percentdecline year on year and operating income was 8,300,000,000 and 18.6 percent of up year on year and operating income margin was 9.6%. When it comes to the HDD head, on a volume basis, it's a decline by 14% year on year. But on the other hand, that's the, the product mix have improved, for example, nearline had, have the more and volumes in the sales. So that's why and due to the improvements of the sales mix, we can have an increased average the selling prices. So taking these all into considerations for a total of the recording devices, now we can limit that's the decline the margin of decline by 6% and also we have that's the other positive effects of the consolidations of wafer basis and then also the improvements of the fixed cost efficiency. And when it comes to magnets, now the sales of the magnet for HDD have declined, but on the hand, we have a favorable business with that's to win the power generations and industrial robots. So that's why we could just make it that's the loss and half of the previous years and now we have a steady improvements and that's in profitability. When it comes to power supplies, and it has a very pretty good business and, semiconductor manufacturer equipments, measuring equipments, as well as robotics markets, Now the business has been very favorable and steady and also now the new product launch have contributed a lot for this and expansion of the sales Now we have the clear, the double digits, operating the profit margins and with increased it and revenues and the operating income. Next, film application products. The net sales was JPY 105,900,000,000 with that JPY 23,600,000,000 operating incomes, it was up the 38.6 percent of the net sales and 45.7 percent of up on the operating incomes Now we have a record high and both net sales as well as operating incomes and also we have a 22.3 percent of high profit margin. A business for the smartphones now have been expanding, exceeding that the previous year's business, and on top of that, we have also the other, the good business on the PC, tablet, drone, and gaming devices. There's an all the other than the smart on applications. Now we have a dramatic and margin of increase in both the net sales and income. Next, let me talk about quarter on quarter, the segment's growth from the Q2 to Q3 for both debt net sales and the operating income. First of all, passive components, the business and the sales have increased by JPY 1,200,000,000 and 1.1% from Q2 to Q3. Salamic for the ceramic capacitors has been very good for that automotive markets and but on the other hand, aluminum and film capacitors have some negative impacts due to the seasonal factors in the European open market, so that's have slightly declined from Q2. When it comes to inductive devices, the net sales was declined by 0.5 0.5% from the Q2 for the automotive markets and industrial equipment markets and in home appliances markets have been steady, but on the other hand, that the Chinese customers, the smartphone, manufacturing have declined. So that's an all in all only just slightly declined. Next, the sales of the underpassed Components business was up by JPY 500,000,000 and JPY 1.6% of a growth on quarter. Since our products had been increasing for the smartphone markets, But again, that the Chinese manufacturer smartphone manufacturers for the camera module actuators have declined and so that all in all, it's only increasing slightly on a quarter on quarter basis. The operating income of the passive components is declined by JPY 100,000,000, 0.8 percent decline from Q2 is almost flat. Then when it comes to ceramic capacitors, we have been dramatically increase the profit, but the inductor devices have been flat and also the profit also flat and now that camera module X traded and have declined largely in terms of profit. So that total is still flat. Next, Since application products, the sales have up by JPY 1,400,000,000, 6.8 percent on a Q on a Q basis and Timo's sense of ICT sales have increased. This is major factors. Operating income is the loss of JPY 2,200,000,000 So that's just a shrink in the profit, but now it's the major factor of this and 2.2 at 2,200,000,000, it is the marginal shrink of the loss, I'm sorry, but now this is also included that and Then we have the decline of that sort of one time cost of order and M and A. That is a major reason of the shrinking of the shrinking margin of the a loss. Next for the Magnetic Application Product segments and the sales of up by JPY 1,300,000,000, JPY 1,500,000,000, JPY 1,500,000,000, JPY 1,500,000,000, JPY 5 percent of gross When it comes to recording devices, that's the shipping index of HDD Heads have declined from the 103 in Q2, too, and 89 in Q3. That means that's about 14% of decline in the shipment index. But now on the other hand, we have incremental sales of an airline sales and also improvements of the mix that will do pushed up that average selling price so that now and we have JPY 100,000,000 of up of the net sales at a 0.8% growth. The other Magnetic Application Products and now the sales have up about JPY 900,000,000, 3.8 percent of gross. Now we have a steady business with the industrial equipment business and also for the magnetic products of an upper by 2% of the power supplies, new products, also contributes by 4%. When it comes to that Magnetic Application Products and for the operating income, was up by JPY 2.02 1,000,000,000, 36.1 percent of growth on a cool Q on a Q basis, ATD heads have a favorable with the improvement of the mix and then also, and we have a very good yield on improvements and the Magnetic products And then also when it comes to power supplies, we have, a, the volume increases that are favorable and also we have a and expansion of the business of the highly profitable and products. Next, a few application segments, the sales of the segments was increased by JPY 2,400,000,000, 2.3 percent growth quarter on quarter basis. Now we have the pick outs in a we have reached the peaks for the smartphone sales and we have an incremental sales and also other than smartphone and other and products like tablet, PC have been favorable. Then when it comes to operating incomes and Q2 was JPY 21,300,000,000 and in this Q3, we have a 23,600,000,000. It's increased by JPY 2,300,000,000 from Q2. Due to that, you know, we have a increase of the marginal profits due to that's the top line growth end and also on top of that, we have improvements of the product mix. Next, let me talk about that breakdown of the operating income changes. Now minus JPY 100,000,000 is that the bottom line, but the first of all, in a with that the change of sales, including neutralizations and product mix, and then we have, minus 100,000,000, what's about stuff? A 100,000,000, but but this is in a way we could absorb over the billion of that and the negative impact to the transfer of the high frequency products and JPY 4,700,000,000 negative for the sales and price reductions and also another JPY 3,100,000,000 due to that SG and A expense increases These are the total JPY 7,800,000,000 of negative impacts, but now we could absorb when JPY 7,600,000,000 of the reconstruction cost reduction and benefits from the restrictions were JPY 800,000,000 in total JPY 8,400,000,000 and could absorb this negative And before that's exchanging fluctuations and the one time costs, now we could secure a 500,000,000 name of operating income and the depreciation of the yen have the impact of JPY 1,600,000,000, up plus and also another one time expenses of the minus JPY 2,200,000,000 and with the taking all this including and a bottom line is minus JPY 100,000,000. Next, let me talk about that the consolidated, the business performance up to that's the 9 months total, Net sales was JPY 964.7000000000,6.6.7percent gross year on year, and on a total 9 months basis, now we have, again, a the all time high and the regular high and the net sales just like we have in the last year. When it comes operating incomes, we have a minus JPY 30,000,000,000 of that part of negative impacts due to the transport of the high frequency private business and but due to this negative impacts Now we have about the decline of our profits was only JPY 2,100,000,000, and let's say the JPY 2.7% minus but now we could secure 1,000,000,000 of operating incomes. And excluding this, the 1,000,000,000 negative impacts And now we again, we have a all time high up in the income levels. The net income, we have a a negative impacts of increasing taxation costs in the U. S. And the JPY 3,500,000,000, but still, we have a 1,000,000,000 of net income. That is a minus 8.4% year on year. Last of all, let me talk about the forecast of full year consolidated business performance, and we did not change since that's an announcement since and the last October. So that the full year net sales is 1,000,000,000 and JPY 250,000,000,000 operating income of JPY 85,000,000,000 and the net income before tax JPY 88,000,000,000 and the net income is would be JPY 60,000,000,000. So average and foreign exchange rate, there's again, no change since the last time. So the JPY 118 to the dollar and JPY 127 to euro. Again, and in dividends and JPY 70N in the second half and in a JPY 130N a full year basis, there's 90 change. When it comes to the net sales, we expect that again, that's the good favorable market environments and that the automotive and then also the and industrial equipment markets. But on the other hand, when it comes to that smartphone market, we expect some kind of a in Q4, we have some kind of decline and the demand due to the seasonal factors, usually. And on top of that, still that we still has an uncertainty in the demand and in the market. So that's why we try to make a focus conservative as possible. And also when it comes to HDD head, now the sales of 2.5 inches of HDD head we expect it to to gradual decline. So that's why the volume index will a is 89% in Q3 and back to Q4. We think that index will be 77, so that's we expect about that. 13% of decline is incorporated. And when it comes operating incomes and the cost for the in business acquire acquisitions. And we already recognized JPY 10,000,000,000 in the forecast, but now due to that depreciation of the intangible assets due to the good goodwill violations, will additionally be included as JPY 1,200,000,000 in the Q3 and another JPY 500,000,000 in Q4. And when it comes to the magnetic application products, mainly for that HDD head and we're going to maximize the supply chains of all these show reform costs that are all and included. So taking all these additional costs that are included, we still have that the forecast of JPY 85,000,000,000 of operating income. Forwarding that expenses, there's not any change in the forecast. So the JPY 170,000,000,000 of the CapEx and JPY 90,000,000,000 of appreciations and JPY 99,000,000,000 of R and D expenses. That's all my presentation. Thank you very much.