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[ 1st Quarter of fiscal 2012 Performance Briefing ]Consolidated Results 1Q of FY March 2012

Mr. Takakazu Momozuka General Manager Finance & Accounting Dept.

Mr. Takakazu Momozuka
Corporate Officer
General Manager
Finance & Accounting Dept.

Good afternoon. I’m Takakazu Momozuka, General Manager of the Finance & Accounting Dept. at TDK. Thank you for coming out in the summer heat to attend this presentation of our fiscal 2012 first-quarter operating results.

I will be using slides as part of this presentation.

Consolidated 1Q Results of Fiscal 2012

I will draw a comparison with the first quarter of fiscal 2011. In the first quarter of fiscal 2012, TDK’s net sales were ¥206.8 billion, down ¥15.2 billion, or 6.8%, year on year. Operating income was ¥5.6 billion, down ¥14.6 billion, or 72.1%, year on year. Income before income taxes was ¥3.3 billion, down ¥15.5 billion, or 82.3%, year on year. Net income was ¥2.4 billion, down ¥12.1 billion, or 83.3%, year on year. Earnings per share was ¥18.78. The average yen exchange rates for the first quarter were ¥81.74 versus the U.S. dollar and ¥117.62 versus the euro. The yen thus appreciated 11.2% against the greenback and depreciated 0.5% against the euro. These changes had the effect of lowering net sales by ¥18.5 billion and operating income by approximately ¥5.9 billion. The Great East Japan Earthquake had an approximate ¥4.6 billion negative impact on net sales in the first quarter, and lowered operating income by approximately ¥3.0 billion. Furthermore, the change in our pension plan gave rise to a one-time charge of approximately ¥3.1 billion at the operating income level in the first quarter.

Features of Consolidated 1Q Results of Fiscal 2012

Turning to trends in the electronics industry, market trends differed by type of finished product. Production of flat-screen TVs, notebook PCs, HDDs and certain other finished products was around the same level as the previous fiscal year, while output of smartphones and tablet devices increased. Industrial equipment production remained strong. The Japanese auto market, which was hard hit by the Great East Japan Earthquake, is expected to see a faster recovery from the second quarter onward.

Against this backdrop, sales of passive components decreased 2.9% year on year. Sales of inductive devices for the communications and automotive markets were firm, and sales of aluminum electrolytic capacitors and film capacitors increased primarily for use in renewable energy and industrial equipment. On the other hand, sales of high-frequency components for use in mobile phones declined, as did sales of ceramic capacitors mainly for use in IT home electronics.

Sales of magnetic application products declined 17.5% year on year. This reflected lower sales in recording devices due to the impact of production cutbacks in the HDD market, the strong yen, and lower sales prices. Recording devices sales declined 22.9% year on year.

Other sales increased 32% year on year. Sales of rechargeable batteries increased appreciably, mainly for use in tablet devices. One-time expenses lowered operating income by approximately ¥6.1 billion. The Great East Japan Earthquake, subsequent aftershocks and power outages had an approximate ¥3.0 billion negative impact on earnings. Meanwhile, the change in our pension plan had a negative impact of approximately ¥3.1 billion.

Quarterly Results (1Q of FY March 2012 vs. 1Q of FY March 2011)

Next, I will compare net sales and operating income year on year by segment.

Passive components sales declined ¥3.0 billion, or 2.9%, year on year to ¥101.7 billion. The negative impact on sales of the Great East Japan Earthquake was approximately ¥2.8 billion. The decrease in passive components sales corresponded to about this amount. Sales of high-frequency components, which are included in other passive components, declined for use in mobile phones. Passive components operating income declined 39.6% to ¥3.8 billion. This reflected the lower sales in high-frequency components, as well as an approximate ¥2.0 billion negative impact of the Great East Japan Earthquake.

Sales of magnetic application products declined ¥17.6 billion, or 17.5%, year on year to ¥82.7 billion. This includes an approximate ¥1.6 billion negative impact from the Great East Japan Earthquake. Within this segment, recording devices saw sales fall 22.9% year on year. In addition to a slight drop in sales volumes of HDD heads, this reflected forex impacts due to the strong yen and lower sales prices. In addition to these factors, costs rose due to soaring rare earth prices. Accordingly, operating income in the magnetic application products segment declined by 53% year on year to ¥7.6 billion.

Sales in Other increased 32% year on year to ¥22.4 billion. This was attributable mainly to higher sales of rechargeable batteries. As a result, operating income rose 53.1% to ¥1.5 billion. Corporate and eliminations of ¥7.2 billion included a ¥3.1 billion one-off expense related to the change in pension plan.

Breakdown of Operating Income Changes

I’d now like to look at the positive and negative factors behind the ¥14.6 billion decline in operating income. Higher sales, including capacity utilization and product mix, contributed ¥8.5 billion to operating income. Rationalization, cost reductions and purchased materials savings lifted operating income by ¥3.7 billion. However, sales price discounts of 5.5% on average had a ¥12.5 billion negative impact. Furthermore, higher SG&A expenses negatively affected operating income by ¥2.3 billion. The impact of the change of pension plan on operating income was ¥3.1 billion, while the Great East Japan Earthquake lowered earnings by ¥3.0 billion. Exchange rate fluctuations lowered operating income by ¥5.9 billion. The net result of these positive and negative contributions was first-quarter operating income of ¥5.6 billion.

Quarterly Results (1Q of FY March 2012 vs. 4Q of FY March 2011)

Amid the lingering effects of the Great East Japan Earthquake, first-quarter net sales declined ¥6.8 billion, or 3.2%, from the fourth quarter of fiscal 2011 to ¥206.8 billion. Operating income declined ¥3.8 billion, or 40.4%, from the fourth quarter to ¥5.6 billion. In addition to lower sales of high-frequency components for communications applications and sales price declines in recording devices, this result included a total of ¥6.7 billion in one-time charges in the first quarter, including ¥0.6 billion in structural reform expenses. These one-time charges were ¥1.2 billion more than the ¥5.5 billion recorded in the fourth quarter of fiscal 2011.

Amortization expenses of goodwill from the EPCOS acquisition were ¥1.4 billion, up ¥0.1 billion from ¥1.3 billion in the fourth quarter. Looking at the performance in each segment, sales of capacitors and inductive devices increased in the passive components segment. However, lower sales of high-frequency components brought down overall passive components sales by ¥3.3 billion, or 3.1%, from the fourth quarter. Passive components operating income declined ¥1.0 billion to ¥3.8 billion, due in part to higher one-time expenses. Sales of recording devices in magnetic application products declined by ¥2.2 billion from the fourth quarter due to lower sales prices, although HDD head shipments were flat. As a result, sales of magnetic application products as a whole declined ¥2.5 billion, or 2.9%, from the fourth quarter. Operating income in magnetic application products was ¥7.6 billion, an increase of 11.8% from the fourth quarter, when TDK incurred one-time expenses. Other sales declined ¥1.0 billion from the fourth quarter, as a result of lower sales of products other than rechargeable batteries, which rose. Operating income increased ¥0.5 billion from the fourth quarter.

That concludes my overview of our fiscal 2012 first-quarter results.

Thank you.

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