Investor Relations | IR Events | Performance Briefing

[ 1st Quarter of fiscal 2011 Performance Briefing ]Consolidated Results 1Q of FY March 2011

Mr. Takakazu Momozuka General Manager Finance & Accounting Dept.

Mr. Takakazu Momozuka
General Manager
Finance & Accounting Dept.

Good afternoon. I'm Takakazu Momozuka. Thank you for attending today's presentation of our first-quarter consolidated results in such large numbers despite your busy schedules. Thank you also for your ongoing support for TDK.

I will be using slides as part of this presentation.

Consolidated Results for 1Q of FY March 2011

First, I'll summarize our fiscal 2011 first-quarter performance. Consolidated net sales were ¥221,925 million, up ¥40,379 million, or 22.2%, year on year. Operating income was ¥20,209 million, which represented a ¥23,854 million improvement year on year. Income before income taxes was ¥18,818 million, ¥24,236 million higher year on year. Furthermore, net income attributable to TDK rose ¥17,739 million to ¥14,523 million. Net income attributable to TDK per common share was ¥112.59.

In terms of average exchange rates during the first quarter, the yen appreciated 5.5% against the U.S. dollar to ¥92.01 and appreciated 11.8% against the euro to ¥117.03. This had the impact of lowering net sales by approximately ¥9.3 billion and operating income by ¥3.2 billion. In the past we have explained that a ¥1 appreciation against the U.S. dollar lowered net sales by approximately ¥5.5 billion and operating income by ¥2.0 billion. In terms of the relationship between the yen and euro, because TDK had minimal transactions denominated in euro before acquiring EPCOS, yen fluctuations against the euro had little impact on our results. Following the EPCOS acquisition, however, because EPCOS settles in euros, euro-denominated transactions have a greater impact. In terms of the impact on a euro basis, since the euro weakened against the U.S. dollar from 1.36 to 1.27 compared with the first quarter of the previous fiscal year, transactions denominated in U.S. dollars led to higher sales and earnings. On the other hand, because the yen appreciated 11.8% against the euro, when transactions are converted from euros to yen on consolidation, the impact is to reduce net sales and earnings. The total impact of this was to reduce first-quarter net sales by approximately ¥0.6 billion year on year and operating income by approximately ¥0.1 billion. These impacts are included in the overall impact of foreign currency fluctuations I mentioned earlier.

Features of 1Q FY March 2011 Results

Now for a word on what defined the first quarter for us. The first feature was that the electronics market saw an ongoing recovery in a broad range of fields, including digital equipment, mobile phones and other consumer electronics, as well as in automobiles and industrial equipment. In the January-March quarter of fiscal 2010, shipments were strong on the back of buoyant demand from emerging nations, with no seasonal drop-off. This trend flowed through to the first quarter of fiscal 2011, which saw growth in shipments of components not only for main finished products, namely notebook PCs and flat-screen TVs, but also for smartphones and automobiles. Sales of passive components rose approximately 31% year on year as a result. Sales were also up approximately 9% on the previous quarter.

Consolidated Statement of Operations for 1Q FY March 2011

Now let's look at our consolidated statement of operations for the first quarter. The cost of sales ratio improved 6.4 percentage points from 80.7% to 74.3% as a whole. Selling, general and administrative expenses, including items shown separately as restructuring cost, decreased ¥1.8 billion year on year, representing 16.6% of net sales, a 4.8 percentage point year-on-year improvement. Past structural reforms have lowered our breakeven point, making us more profitable. Coupled with a recovery in average capacity utilization to 85% and higher sales, operating income was ¥20.2 billion. This was a ¥23.9 billion improvement from the first quarter of the previous fiscal year. I'll talk more about this later. In terms of one-off expenses, the first quarter of fiscal 2010 included structural reform expenses of ¥1.7 billion, including restructuring cost of ¥1.4 billion. The first quarter of fiscal 2011 only included ¥0.2 billion.

Breakdown of Operating Income Changes

This slide shows a breakdown of the positive and negative factors behind the ¥23.9 billion increase in operating income. Starting with factors that made a positive contribution, higher sales, including the capacity utilization rate and product mix, boosted operating income by ¥32.5 billion. Rationalization, cost reductions and purchased materials sales discounts contributed ¥5.3 billion, and a decrease in selling, general and administrative expenses contributed ¥0.1 billion. Together, positive factors lifted operating income by ¥37.9 billion. In terms of factors that had a negative impact on operating income, exchange rate fluctuations lowered operating income by ¥3.2 billion, while sales price reductions had a ¥10.8 billion negative impact, for a combined negative impact of ¥14.0 billion. The net result was the ¥23.9 billion increase in operating income. Of course, the main reason for improved income was higher sales, which resulted from an improved capacity utilization rate centered on passive components.

Sector Classification Change

Let me now talk about changes in the segments as well as changes in product categories. Up to fiscal 2010, we had two segments that we reported sales and operating income for, namely, electronic materials and components, and recording media. We have changed segment classifications, so that we now have three sectors: passive components, magnetic application products, and other. The new passive components segment includes the capacitors business, comprising ceramic capacitors, aluminum electrolytic capacitors and film capacitors, and the inductive devices business, where ferrite cores were added to inductive devices. This segment also includes a third category, other passive components. Included here are high-frequency components, piezoelectric materials and products, circuit protection devices and sensors. EPCOS products, which were previously included in "others," are included in the passive components segment. The second segment, magnetic application products, consists of two business categories: recording devices and other magnetic application products. The latter encompasses power supplies, magnets, and recording media. The "other," includes energy devices, mechatronics, and other businesses.

Net Sales Comparison 1Q FY2011 vs. 1Q FY2010

This slide shows a comparison of sales for the first quarter of fiscal 2011 against the first quarter of fiscal 2010 based on the new classifications I explained earlier. Passive components sales rose ¥24.9 billion, or 31%, to ¥105.1 billion, as sales increased in all product sectors. Sales in the magnetic application products segment increased ¥13.3 billion, or 15.3%, to ¥100.3 billion. Despite inventory adjustments by some customers in June 2010, recording device sales rose 14% from the first quarter of fiscal 2010, when there was a quick recovery in HDD heads. Sales in the "other" segment were ¥16.6 billion, up 15.2% year on year.

Segment Information 1Q FY2011 vs. 1Q FY2010

This slide shows business segment earnings compared to the first quarter of fiscal 2010. Passive components recorded operating income of ¥6.2 billion, a turnaround of ¥15.3 billion from the ¥9.2 billion operating loss in the first quarter of the previous fiscal year. This improvement was attributable to much higher sales. Magnetic application products recorded operating income of ¥16.1 billion, 2.7 times higher year on year. The other segment posted operating income of ¥1.1 billion, ¥0.2 billion more year on year.

Projections for FY2011

Let me finish by giving you our full-year projections for fiscal 2011. We are projecting net sales of ¥880.0 billion, operating income of ¥62.0 billion, income before income taxes of ¥60.0 billion, and net income attributable to TDK of ¥45.0 billion. We have therefore not revised our initial forecasts. For the second quarter onward, we are assuming average exchange rates of ¥87 and ¥113 against the U.S. dollar and euro, respectively. The average rate in the first quarter was approximately ¥5 weaker against the U.S. dollar than we initially assumed. This and higher-than-planned sales volumes have boosted our earnings. However, we have not revised our forecasts because of economic uncertainty clouding the second half of the fiscal year such as financial unease in Europe and an up-and-down economic recovery in the U.S.

That completes my presentation. Thank you.