Earnings Call: Q2 2018

Oct 30, 2017

Okay. Thank you very much for waiting, and it's on time. So I would like to start that did the performance briefing that the first half of the FY March 2018 TDK Corporation. Today, thank you very much for joining us today. And first of all, let me introduce the speaker today from CTK Corporation. President and the CEO, Mr. Shigenau Ishiguro. And senior vice president and vice president and Mr. Noburu Saito, the Managing Director and Corporate Officer Senior Vice President, Tetsuya Venishi. These are 4 other speakers today. Thank you very much. Thank you. Next, the first of all, I'd like to present that the consolidated results for the first and a half of the FY March 2018 and presenter is Mr. Emanishi, please. Okay. So I'm going to present that the consolidated results at the first half of FY March 2018. And first of all, then highlights of this the business performance of the 1st half, And the net sales have a to recognize this, that's the old time high and then boost the the same annual on a quarter basis. And announced the, the net sales of the first time for 7.7 increase in year and for operating income. And although we have the same 42,000,000,000 yen of a one time acquisition, a ex expenditure for MBSS best deal, then we could have the the same level of upper and the operating incomes from the year on year. So that with expansions of the profits of the existing business, and we could offset and then the part of the impacts of the transfer business of the high frequency component business and also including and excluding that's the one time, I mean, the cost, and now we have could have an achievable debt regular high, the level of the incomes in the past. And for the passive component business, and we could end the steadily and meets the strong demands of automotives and disaster equipment markets. A, now on top of that increase of volumes, but also and expansion of, then, a high functional, high highly functional products. Now, we could have it solidify to the basis of the business and also and now we could have a higher than the 10% of operating income margins even after the transfer of the private business of a high frequency business. For the Magnetic application products, and in the total and the the demands of HEDdd was in the within expectations and also with the steady sales of HEDD sales, And on top of that, now we could have, increase the volumes of sales of suspension due to the acquisition of Hansen Son so that we now we could have a very steady base for the business and in the magnets and the the power supply products. Now we could have that a very good high demands of the industrial equipment cats and a a semiconductor manufacturing equipment or robotics. And due to that's the push of demands and the renewable energies Now, we have an adds at a high end in revenues as well as the profitability. So we'll have then a gross and a boost and the net sales and the profits. For the rechargeable, Badlys, now for the the smartphone in Topless and then, the sales have been favorable and and also we could have that's and then a new application demands including that the gaming equipment and the drones And also, no, we could have a very good penetrations to the polymer, battery, and PCs. It had been sped it up. So that's why we have a dramatic increase of that, sales volumes and and both the quarterly and the semiannual basis. And now we could also recognize that's a record high end net sales of value operating incomes. So based on the transformations of the business portfolios and the sensor business, SIPSA application products is that the basis of this strategy, and we have established that the sensor systems business company, and we established the 8 role and based on this new organizations and we try to do the sensing core technology, material technology, IC Technology And Packaging Technologies. And then based on that the new technologies are acquired by the MSS acquisitions and when they try to expand the business by providing a highly functional and high high added value products. Next, let me move on to the outline of a corporate business performance in the first half. And net sales was 626,600,000,000 yen, which is a 44,400,000,000 yen, up and 7.7% up and up in a year on year and operating income was JPY 42,300,000,000 and minus JPY 2,000,000,000 year on year and -4.5%. It was a slightly declined year on year, but and this included, as I mentioned earlier, the 7,200,000,000 yen of time expenses for the acquisition so that and and actually, on an apple to apple basis, we could secure that's the the higher and the level of operating incomes in the app, then operating income versus income ratio and the margin was 6.8 percent. That's an odd and excluding that one time expenditure and up in the income margin was 7.9%. So now, so we could have a better profitability than last year. And when it comes to the income before income taxes, 44,300,000,000, And and net income in the first half will also with minus 2,000,000,000 yen as well as operating income and a minus 6.1% bit slightly lower than a lower and a year on year but also include even including that in a one time cost of acquisitions, we could almost off sets this negative impacts of the transfer business and high frequency component business. So in result of that, now we have a 243.15 for the earning per share. And average foreign exchange rate was 111 point 0 ADN to the dollar and 5.4 percent of depreciation and the of the m and in a 126.16 N to euro, 6.6% of the depreciation at the end. And a result of that, now, a the exchange impact was the JPY 22744000000000 and a increase and the positive and the net sales and the JPY 50,000,000,000 5,000,000,000 yen, the positive for the income. The bank comes, is, is there's now 1 yen change at the dollar, whereas and 1,200,000,000 yen, and it's and operating incomes for the euro, and that's the 200 NIN is the impacts of the change of the euro to YN. This is sensitivities of the foreign exchange. Next. Excuse me, please. Okay. Next, let me explain about the segment wise performance. From this in the fiscal year and then we have established new sensor application product segment, this is a new segment, so that's why we have some recast of the segments, especially. And for the passive component business, end and we changed that's the net sales of last year was decreased by JPY 4,700,000,000 on operating income and pushed down by 1,000,000,000. This is why we have the revises that's the last year's performance and the sales of the passing components worth 2 215,000,000,000 and in 20.9 percent and a decline from that year on year. And operating income was 22,600,000,000 yen and the 34.5 percent the less than last year and operating income margin was 10.5%. Ceramic capacitor as for the ceramic capacitors and due to the strong demand in automotive markets and still we have a very favorable business and automotive markets and we have and the the positive growth and the both net sales and the profits and also we have a dramatic improvements of profitability. When it comes to interactive devices, And due to that inventory adjustments of the major smartphone manufacturers in China, now, and although we have and the decline in the top lines of the ice CT market sales, but now now we have a very good business for this. They do automotive markets including the ceramic capacitors and and also industrial robots and that's also the other and then health care and the renewable energies and the robotics and all those segments have been favorable and this could offset the negative impacts on that. And due to the high frequency components, They were dramatically declining the both steps and the net sales and the profit due to the part transfer over the part of the business, and now Now, we don't have any in the WiFi module business and that wasn't at their end in last year. So that's why it pushed down the the top line and the a large margin, but now we could have the high profitability due to the ceramic filter business. When it comes to electric components. Now we have the good business for the industrial equipments and the consumers business and consumers components so that they have a positive growth in both net sales and profits. And for the high frequency business, and due to the the transfer of the business, we have the 70,000,000,000 yen and also 20% of that open income and the negative impacts we have and due to the transfer, we could not offset all of these negative impacts, but there's still Now we have steadily increasing that increasing and the pushing of the profitability of the existing business. Next, let me talk about the sensor application product business. So in these segments, as also an explained in the last meeting, and the temperature and the pressure sensor, the magnetic sensor, MEMS sensor. These are 3 sub components of the business, and due to the, the segment recasting, a, with these new segments, now we also revised that the last year's performance and the end, the net sales end, and also the open income was 2,800,000,000 of the net, operating loss. So when it comes to account state of the business, The sales was 36,600,000,000. It about to 1.800 times as much as to the top line year on year and operating income was 10,600,000,000 over the operational loss. So due to the consolidation of ampersands, now and We have a 12,000,000,000 more of the top line and in the first half. And then also, when it comes to valuation, we get well due to these acquisitions, Now we're still working on it as I mentioned in last meeting, but in the first half, now we are have recognized that 7,200,000,000 yen including the depreciation and another acquisition, relevant cost, and this due to that the inventory asset, the evaluation. So temperature and the pressure sensors have been higher, the higher proportion of business and in, of the automotive markets. And now now we have increased by the sales and 17% and particularly in the European, Europe, and the domestic market in Japan, and the TMR sensor have studied its full fledged sales and to the ICT market and starting to make contributions. The one that comes to the the net sales of a MEMS sensor, and it account for about one third of the total, the sensor application products, And the sales for the ICT market and account for about, over 60% and that's the close to the 40% is for the through equipment markets, including drones. Operating incomes of business segments, a have been almost flat. If we exclude that, that one time acquisition cost of 7,200,000,000 yen. Next, let me talk about the Magnetic application product business, due to that, that's the product and segment recasting. And now the last year's performance was declined by 10,100,000,000 and also, on the other hand, operating income increased by 5,800,000,000. The current business of this segment is that net sales was 165 point to JPY 6,000,000,000, 6 percent, a positive year on year and operating income was JPY 11,000,000,000,111.1 percent of increase year on year. Operating profit margin was 6.6%. When it comes to HDD head, now although that's the sales volume have decidedly declined year on year and then also we we have dropped with the business for the cap of the HDDs assembly sales for the captives. So that's why an top line of a decline, but on the other hand, we consolidated the wafer basis and then also for that's a a improvements over the cost structure of the ATD to food term products. So that's why profitability improved. So when it comes to suspensions and due to that consolidation of Hattinson have made the contributions to that's pushed up to the top line by 50%. As for the magnets, a Now there's ATTD demand have declined, so that's why and then the sales volumes of HDD magnet have declined accordingly. But on the other hand, the demands for that now that, wind power generations or that the industrial robots or the industrial equipment motors And there's an alias that the sales have been a favorable, so that's why we still have the loss, but in the loss, the level loss have a in cut in half. And steadily and improving the basis of business. Pentagon power supplies and now for the the semiconductor, the manufacturer requirements and the measuring devices and robotics, this and all that providing the very high demand. So now We have records and the increased revenues for both debt and net sales and the profits. Next, moving on to the film application product. Net sales and JPY 183,200,000,000, operating income being JPY 34,000,000,000 year on year basis actually on the 56.6% and 69.2% on the respectively. As for the operating income margin, 18.6 percent, we are able to maintain a very high level of profit. In sales in the mobile devices, actually in turn out to be much stronger than we had expected in the beginning. And also, we're able to actually increase our sales vis a vis the Chinese and our customers. And also, the unaccelerated polymon the battery, the into the exchange and how the exchange and FX impact as well as the M and A in one time expenses, fewer than them, we actually on the part to the profit of the JPY 44,500,000,000. And the Japanese yen even cheaper and given us the positive impact by 1,000,000,000. And also the one time expense in the fund M and A in 7,200,000,000, put them together. Our profit went down by 2,000,000,000. Moving on to the consolidated numbers for the second quarter. The net sales of JPY 334,000,000,000. This was the up 11.2% from previous year. On the quarterly basis, we're able to record the record high numbers. Operating income, 26,600,000,000 or up 4.3% year on year basis. In this second quarter, of course, we had JPY 3,700,000,000 the M and A and one time expense. So in some terms and actually, we're able to achieve profit from the previous year. Housefold in operating income and a margin, 8%, excluding the one time expense, looking at the substance and actually it was 9.1%. We're able to actually absorb the negative impact coming from the transfer of the in high frequency and how the components and net income of JPY 19,700,000,000, down 3%. Moving on and I like actually go through the changes from the 4th quarter to the 2nd quarter. In terms of the operating income, And first, I'd like to explain the passive component segmentations. Net income actually in our first quarter, JPY 8,000,000,000 actually it became JPY 8,000,000,000 from the first quarter, up 7.7%. Ceramic capacitors, thanks to the automotive, from a business, On top of that, we had really got on the performance in the renewable renewable energy as well as the industrial robotics as well as the aluminum half film our capacitors help us enter increased numbers. Conducted devices actually went up by 7.7% from the first quarter. Just like Ceramic capacitors, thanks to the firm business in the automotive market. And also thanks to the firm on sales. So number to help us to improve the smartphone and the businesses operating income in the passive components actually became a JPY 2,200,000,000 from first quarter, up 21.6%. Capachta's actually volume increased and also we're able to increase the productivity resulted in the overall improvement in the profitability. Allow me to move on to the NASA and Application Products segmentation, revenue wise on JPY 3,800,000,000 and up 23.2% TEMO sensors increased, particularly in the smartphone and the space. And also, inventories became fully consolidated starting from the second quarter. They are the major factors behind in a good number of sales. Operating income actually down JPY 1,500,000,000. This can be explained by expense actually went up under JPY 200,000,000 in the first quarter. And also, you know, we actually advanced R and D on the budget for the main sensors and other ESSA. And also, the, the, the imbecens actually became fully consolidated starting from the scanned quarter. And there are the major factors behind the, the red numbers. Moving on to the, magnetic application, on the product segmentations, and the revenue actually became JPY 5,600,000,000 improvement from the first quarter, up 7%. Regarding devices and in sales and also in HDD and ahead, our shipment structure increased slightly and the full turnkey and HDD volume actually increased. Given us 5.1000000000 or then up 9%. As for the other magnetic application, our products, from the first quarter, it grew JPY 400,000,000 or an up 1.7%. Industrial Robotics And also on the industrial, the businesses, particularly involved in her measurement, we had a really good performance and how with the Magneticicon products as well as the power supply products. From the first quarter, actually, our dissegmentation shows the improvement by JPY 1,300,000,000. In regard to the HDD head down we are able to increase the marginal profit, due to the increase in the volume and also magnetic and a phthalizer and products, we're able to improve the profitability and also that is also applicable not to the power supply and products. Film application products actually, the revenue actually went up on our JPY 23,800,000,000 or an up 29.9 percent. For the smartphone and tablet and the businesses, actually, we're able to increase the overall of the the volume. And also, there has been accelerated replacement of the polymer, the powers and the personal computers. And also, we were benefited actually good businesses and in her game business and other operating income actually in her, from the first quarter and 120 point 7,000,000,000 and up JPY 8,600,000,000 and becoming JPY 21,300,000,000. We are able to enjoy the good improvement in the a marginal profit and also we're able to reduce the overall cost structure. This concludes my presentation. Thank you indeed for your current attention. Now we'd like to move on to our, the forecast from the full year perspectives. Presenter here is going to be Mr. Ishiguro. Thank you. This is Igor. First of all, now I'd like to thank you for your precious time, despite your busy schedule being with thank you indeed. That said, and I'd like to actually explain on our forecast, looking into the full year on our fiscal year end of March 2018. First, I'd like to, look at, in the third quarter, the changes and ups and downs at the high level. First, the passive components, the automotive sales on how enjoyed a good and firm growth in Europe and in China also Furthermore, industrial equipments in the market will be quite firm, help us and help and to grow by 2 to 5 and the pressure sensors, as well as the magnetic sensors, actually in the automotive marketplaces are going to actually, you know, have a licenses So we do expect there's some positive trend. There is going to be some, it is going to be, you know, flooding out from the second quarter. But overall, we do believe that the growth is going to be in, from 2% to 5%. Next Magnetic Communication products, In regard to the HDD Head, HDD TAM, actually has been revised from previous 400,000,000 to $390,000,000. And as for the HDD Head and shipment of the index, in the second quarter, 102 and in the third quarter, 94, so down about 8%. As for the suspension, we do believe that there is going to be a solid increase in volume on top that in ICT in marketplaces as well as in the fine pitch, electronics components are going to be moving into the full and the swing. And I believe that revenue is going to go up. As for the Magnetic products, as well as in the power supply products, we do believe that we are going to benefit and buy the pharma business conditions in the industrial equipments market. But overall, due to the decline in HD didn't had, probably the growth is going to negative 4% to 7%. Allow me to move on to the film application rechargeable batteries. We are going to have the shipments and, going into 2, the, our, the customers in North America, then launching new devices. And also, We have, a good expectations, the vis a vis the Chinese customers. But having said that, in the second quarter, the, you know, we do we had, then, advancing the order as much as a 7,000,000,000 yeah, in the second quarter, now due to the Chinese National Foundation Day and the holiday. So now from the second quarter to 3rd quarter, and the net sales going to grow from 1% to 3%. Actually, excluding this exception of is on the substantial growth rate and how it's going to be 16%. All in all, then, the entire 3rd quarter, net sales is going to grow, from the 2nd quarter's JPY 3 34,000,000,000. In other words, growing from 1 to 3 sent. Lastly, I'd like to share our projections and for the full year, the performance. Seen our actuals in the first half as well as the in house sales trends in the second half. Back in July, we announced and have full year on the projections and that projections has been modified. For the full year, the revenue, 1,250,000,000,000 operating income have been JPY 85,000,000,000. Income before income taxes JPY 88,000,000,000 and net income, JPY 60,000,000,000. So now we decided to revise those numbers up. As for the event, then first half, 60 yen, second half, 70 yen, for the full year, and the dividend payment is going to be JPY 130 yen, there is no change in as for this number since the beginning. And as for the average and currency rate for the second half, obviously, the euro, due to the intelligence, the stronger euro, now the rate is JPY 127. But when it comes to the Japanese yen and U. S. Dollars, there is no change. It is being set at JPY 108. As for the net income, the rather, the net sales rather, And the second half from the automotive and industrial equipments market are going to give us a strong demand. Continuously. And also the smartphone and market, yes, there is going there are certain uncertainties, but I don't believe that they are going to major impact on our sales numbers. So all in all, we do, we're going to enhance our numbers up to 6 60,000,000,000 for the full year. As for the operating income, and we acquired invents. And in the previous announcement and the impact was announced JPY 9,000,000,000, but in the second quarter, we had an increase of about JPY 1,000,000,000 due to the PPA situation and having to do with the inventory evaluation. So for the full year basis, it is going to be about JPY 10,000,000,000 So we would like to revise our numbers up to JPY 5,000,000,000, thanks to the increase in the net sales. Of course, we went through the details of the expenses and CapEx actually was, is now up 10,000,000,000, becoming 170,000,000,000 As for depreciation, up JPY 2,000,000,000 becoming JPY 90,000,000,000. As for R and D on the JPY 5,000,000,000 increase, are becoming JPY 99,000,000,000. With this, I'd like to close-up my presentation, explanation. Thank you indeed for your kind attention.