Investor Relations | IR Events | Performance Briefing

[ Financial Results for Fiscal 2011 Performance Briefing ]Consolidated Full Year Results of FY March,2011
Consolidated 4Q Results 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, General Manager of the Finance & Accounting Dept. at TDK. Thank you for attending this presentation. You have just heard a summary of our results for the fiscal year ended March 31, 2011 from our president. I would like to give you additional information about our consolidated full-year performance as well as look at the fourth quarter.

Consolidated Full-Year Results for Year Ended March 31, 2011

Let me begin by looking at our full-year results by business segment. I will draw comparisons with the fiscal year ended March 31, 2010. The passive components segment posted net sales of ¥431.1 billion, ¥66.3 billion, or 18.2%, higher year on year. Shipments were strong for passive components used in mobile phones, particularly smartphones, tablet devices, automobiles, and industrial equipment. On a year-on-year basis, capacitor sales rose 9.2%, inductive devices rose 21.3%, and other passive components, including high-frequency components, rose 25.2%. Next, the magnetic application products segment recorded net sales of ¥368.5 billion, representing a ¥15.3 billion, or 4.0%, decline year on year. Within this segment, recording devices saw net sales decrease 8.0%. While a slight increase in HDD sales volumes helped, this result reflected the forex impact of the yen’s appreciation, and lower sales prices. Sales of other magnetic application products rose 7.0% year on year, on the back of growth in shipments for use in industrial equipment and automobiles. The other segment recorded net sales of ¥76.1 billion, a 26.2% increase from the year ended March 31, 2010. This increase was due mainly to higher sales of rechargeable batteries. The increase in net sales in the passive components segment accounted for the lion’s share of the total net sales increase of ¥66.9 billion and drove our results.

Operating income was ¥63.8 billion, an increase of ¥38.0 billion, or 140%, from the previous fiscal year. In terms of one-off expenses, the previous fiscal year included structural reform expenses of ¥13.0 billion, including restructuring cost of ¥4.9 billion. Such structural reform expenses amounted to only ¥4.7 billion in fiscal 2011, with ¥1.0 billion recorded in the first three quarters and ¥3.7 billion recorded in the fourth quarter. The massive earthquake and tsunami that struck Japan in March 2011 caused losses of ¥1.8 billion in the four quarter. If these expenses are included, one-off expenses in fiscal 2011 totaled ¥6.5 billion.

By segment, passive components turned around an operating loss of ¥10.3 billion in fiscal 2010 to post operating income of ¥24.7 billion. This substantial earnings improvement was attributable to significant sales growth, including EPCOS. Magnetic application products recorded operating income of ¥46.9 billion, a slight increase from the previous fiscal year. The other segment saw operating income increase ¥0.3 billion, or 5.8%, to ¥5.5 billion. The higher earnings in passive components accounted for most of the ¥38.0 billion increase in total operating income.

Breakdown of Operating Income Changes

Now let’s look at the positive and negative factors behind the ¥38.0 billion increase in operating income. Firstly, higher sales, including the capacity utilization rate and product mix, boosted operating income by ¥73.1 billion. This was on the back of strong sales, especially in passive components. Next, rationalization, cost reductions and purchased materials savings lifted operating income by ¥22.2 billion. In terms of factors that had a negative impact on operating income, sales price discounts of 4.2% on average had a ¥39.7 billion negative impact. Lower SG&A expenses boosted operating income by ¥2.2 billion. This included an ¥8.3 billion decrease in restructuring cost. Japan’s major earthquake had a ¥1.8 billion negative impact on earnings, while exchange rate fluctuations reduced operating income by ¥18.0 billion. The main reason for the ¥38.0 billion increase in operating income was higher sales resulting from an improved capacity utilization rate, especially in passive components. Amortization expenses of goodwill from the EPCOS acquisition were ¥5.2 billion, which was ¥0.8 billion higher than the ¥4.4 billion recorded in the previous fiscal year.

Financial Position

Now for a word on TDK’s financial position at March 31, 2011. Total assets stood at ¥1,060.9 billion, ¥30.6 billion lower than March 31, 2010. Total liabilities decreased ¥20.7 billion to ¥521.1 billion. This total includes interest-bearing liabilities, which declined ¥25.1 billion to ¥245.0 billion. Stockholders’ equity was ¥534.3 billion, ¥9.5 billion less than at March 31, 2010. Accumulated other comprehensive loss was ¥218.0 billion, ¥45.9 billion more than at March 31, 2010. This was mainly due to a ¥46.7 billion deterioration in foreign currency translation adjustments. The yen appreciated from ¥93.04 to U.S.$1 at March 31, 2010 to ¥83.15 at March 31, 2011. And against the euro it went from ¥124.92 to ¥117.57 over the same period. The stockholders’ equity ratio rose by 0.6 of a percentage point from the previous fiscal year to 50.4%. Cash and cash equivalents were ¥129.1 billion. Add to that term deposits of ¥50.8 billion and ¥17.7 billion in short-term marketable securities, including government bond holdings, and total liquidity was ¥179.6 billion. Net interest-bearing liabilities were therefore ¥47.4 billion.

Quarterly Results (FY2011 4Q vs. FY2010 4Q)

Let’s move on and look at our consolidated performance for just the fourth quarter. I will draw comparisons with the fourth quarter of the fiscal year ended March 31, 2010. Net sales were ¥213.6 billion, ¥2.2 billion, or 1.0%, higher year on year. Operating income was ¥9.4 billion, ¥1.1 billion, or 13.3%, higher. Income before income taxes was ¥8.9 billion, which was ¥2.1 billion, or 19.1%, lower year on year. Net income was ¥6.6 billion, ¥3.1 billion, or 88.6%, higher year on year. The average yen exchange rates for the fourth quarter were ¥82.31 versus the U.S. dollar and ¥112.66 versus the euro. The yen thus appreciated 9.2% against the greenback and 10.6% against the euro. These changes had the effect of lowering net sales by ¥8.8 billion and operating income by ¥5.3 billion in the fourth quarter of fiscal 2011. Regarding exchange rate sensitivities, as we have explained in the past, in terms of the relationship between the yen and the U.S. dollar, a ¥1 appreciation against the U.S. dollar lowers net sales by approximately ¥5.5 billion and operating income by approximately ¥2.0 billion. In terms of the relationship between the yen and euro, there is only a negligible impact.

FY2011 3Q vs. 4Q Comparison

Now I would like to draw a comparison between the third and fourth quarters of fiscal 2011. As was the case in the third quarter, the fourth quarter saw strong shipments of mobile phones, especially smartphones, automobiles and industrial equipment, but production adjustments in some sectors, such as flat-screen TVs and HDDs. And the earthquake and tsunami in Japan resulted in lower shipments in some sectors too in the fourth quarter. In this operating environment, fourth-quarter net sales were ¥213.6 billion, ¥6.3 billion, or 2.9%, lower than the third quarter. Operating income was ¥9.4 billion, ¥7.8 billion, or 45.3%, lower than the third quarter.

As I mentioned before, in addition to one-off expenses of ¥3.7 billion, we also incurred losses of ¥1.8 billion related to the impact of the natural disaster in the fourth quarter. So, one-off events had a ¥5.5 billion impact on earnings in the fourth quarter. This was ¥5.2 billion more than the ¥0.3 billion in one-off expenses in the third quarter. Amortization expenses of goodwill from the EPCOS acquisition were ¥1.3 billion in the fourth quarter, ¥0.4 billion less than the ¥1.7 billion recorded in the third quarter. By segment, passive components recorded a ¥0.3 billion, or 0.3%, decrease in net sales despite higher inductive device sales. This result reflected lower sales of capacitors and other passive components. Segment operating income declined ¥1.3 billion from the third quarter to ¥5.0 billion due to the impact of the natural disaster. Net sales in magnetic application products dropped ¥5.6 billion, or 6.2%, from the third quarter. This was the result of a quarter-on-quarter decline in HDD head sales in the recording device business. As a result, operating income declined ¥4.7 billion from the third quarter to ¥6.8 billion in the fourth quarter. Other net sales declined ¥0.4 billion, while operating income in this segment fell ¥1.2 billion, to ¥0.8 billion.

That completes my presentation on our consolidated performance for the full year and by quarter. Thank you.

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