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[ Financial Results for Fiscal 2012 Performance Briefing ]Consolidated Full Year Results of FY March, 2012
Consolidated Full Year Projections of FY March, 2013

Mr. Takehiro Kamigama President & CEO

Mr. Takehiro Kamigama
President & CEO

Good afternoon. I'm Takehiro Kamigama, President & CEO of TDK. Thank you for coming out in the rain in such large numbers to attend today's presentation. I will discuss TDK's consolidated results for fiscal 2012, the fiscal year ended March 31, 2012, and our projections for fiscal 2013.

Fiscal 2012 Consolidated Results

Here you can see a summary of our fiscal 2012 consolidated results. We recorded net sales of ¥814.5 billion, operating income of ¥18.7 billion, an operating income margin of 2.3%, net income from continuing operations before income taxes of ¥12.2 billion, and a net loss of ¥2.5 billion. Net loss per share was ¥19.06. The average exchange rates for fiscal 2012 were ¥79.07 against the U.S. dollar and ¥109.06 against the euro.

Features of Fiscal 2012 Results

This slide summarizes the main features of our fiscal 2012 performance. As you can see, consolidated net sales dropped 6.6% and operating income decreased 70.9%. The big drop in earnings reflected the impact of the Great East Japan Earthquake and floods in Thailand, as well as the persistently strong yen, which remained around ¥80 to the U.S. dollar. Other factors included very lackluster sales of IT home electronics such as flat-screen TVs and notebook computers. Our results were also affected quite a bit by a production cutback at a certain major customer.

Under these circumstances, we initiated restructuring measures to improve our profitability. As previously announced, we began rightsizing our plants and workforce and dealing with unprofitable businesses. We are making progress as planned. I will talk about this in more detail later. As a result of these actions, we plan to post restructuring costs of approximately ¥18.0 billion in total for fiscal 2012 and 2013. However, we are projecting benefits of ¥33.4 billion in total for these two fiscal years. Meanwhile, TDK plans to pay a year-end dividend of ¥40 per common share. Combined with the interim dividend of ¥40, this would bring the annual dividend to ¥80 per share, the same as the dividend applicable to fiscal 2011.

Features of Fiscal 2012 Results

Now, I'd like to look at how sales trended by application on this graph. This shows sales by application from fiscal 2009 through fiscal 2012. Previously, we said our medium-term policy was to increase the share of sales in the communications, automobiles (car electronics) and other (industrial equipment, etc.) fields to add to the IT home electronics field, shown in yellow at the bottom. You can see the results of these actions on this graph. Incidentally, the figures in brackets in IT home electronics are sales for HDD heads in recording devices.

You can see that consolidated net sales for fiscal 2012 at ¥814.5 billion were largely the same as the ¥808.9 billion recorded in fiscal 2010. While the absolute monetary amount was similar, the share of sales by application differs. The three application fields of communications, automobiles and industrial equipment rose to account for 57.4% of consolidated net sales in fiscal 2012, up from 48.2% in fiscal 2010. We will continue to head in this general direction going forward.

Fiscal 2013 Results and Dividend Projections

Let me now talk about our operating results and dividend projections for fiscal 2013. We are projecting consolidated net sales of ¥900.0 billion, operating income of ¥57.0 billion, and an operating income margin of 6.3%. We are also projecting net income from continuing operations before income taxes of ¥53.0 billion and net income of ¥40.0 billion. That means we are forecasting earnings per share of ¥317.75. Regarding the dividend, we plan to pay an interim dividend of ¥40, and to increase the year-end dividend by ¥10 from fiscal 2012 to ¥50. This would make for an annual dividend applicable to fiscal 2013 of ¥90 per share. These forecasts assume exchange rates of ¥77 to the U.S. dollar and ¥103 to the euro.

Initiatives From Fiscal 2013 Onward

Let me now discuss what we have planned for fiscal 2013 and thereafter. As I said before, we are presently implementing structural reforms. As you can see from the slide, we are reorganizing business sites and optimizing our workforce, as well as reducing costs and stepping up measures to deal with unprofitable businesses and products. With the initiatives, we will increase our earnings power. In terms of current plant restructuring, we are focusing in particular on plants in Japan. We are proceeding with restructuring based on the concept of integrated production from material to finished products. It goes without saying, but we must change how we produce products and the flow through the production line. We aim to shorten lead times, which should help reduce inventories. Our restructuring efforts are also looking at how we can produce products in a more efficient manner. So we are implementing structural reforms with the goal of enhancing our earnings power mindful that speed and efficiency will be key themes in this drive. At the same time as restructuring our operations, we hope to achieve sustained growth by promoting our growth strategy. In this regard, we will step up actions targeting key markets. One of these is the next-generation information and communications market. Another is the energy-related market.

Growth Strategy for Key Markets

Let's look at these key markets, starting with the next-generation information and communications market. Naturally, we will focus on smartphones and tablet PCs that use cloud computing services. Another important business target is data center-related operations that are used by these services. In the energy-related market, two important areas are renewable energy and natural energy. Then there are automotive electronics applications. We intend to focus in particular on hybrid and plug-in hybrid vehicle applications.

Growth strategy themes are offering the smallest, high-performance passive components by drawing on our materials and process technologies; providing thin-film products that utilize magnetic technology and the HDD head production process; offering module solutions by utilizing new packaging technology such as LTCC and SESUB (Semiconductor Embedded in SUBstrate); offering HDD heads with high areal recording density in response to increasing digital data volumes; and providing power electronics devices for generating, storing and managing electricity. So, we plan to focus on these sorts of products.

Growth Strategy Next-Generation Information and Communications Market

On the slide you can see smartphones, tablet PCs and cloud devices as key devices in the next-generation information and communications market I just referred to. Using data centers as an example, we think that HDDs will continue to be the main storage device in data centers. At present, 3.5-inch HDDs use 5 disks, meaning they use 10 HDD heads. This will probably become commonplace. Regarding HDD heads, we are currently developing next-generation HDD heads that use laser recording technology called thermal assist. We expect to see an even greater uptake of smartphones, tablets and other cloud terminals in the next-generation information and communications market. TDK plans to offer ICs embedded in substrates and other solutions for this market. SESUB embeds semiconductors of less than 50 microns in substrates on top of which are placed passive components to form modules. At present, we are focusing on expanding sales of these products.

Growth Strategy Energy-related Market

Let's now look at the automotive electronics field. One of the trends we are seeing now is the greater use of electrical devices in conventional gasoline- and diesel-powered automobiles. This trend will likely continue going forward and on the periphery of this is a new market for electronic components. The slide also highlights another trend which is a move away from fossil fuels. This suggests the growing prominence of next-generation vehicles such as hybrid electric vehicles, plug-in hybrid electric vehicles, and electric vehicles, among others. These vehicles will use high-power film capacitors, not to mention bidirectional battery chargers, new current sensors, and bidirectional DC-DC converters, along with other products. In these hybrid and other next-generation vehicles, high-performance magnets will play a vitally important role in main motors, generators, and other areas. To respond to this demand, we plan to begin mass producing in fiscal 2013 magnets that use no dysprosium. We are also aiming to develop magnets in two years that halve neodymium use, and in five years to develop rare earth-free magnets. In this sense, we regard fiscal 2013 as a new beginning for the magnet.

Next I'd like to talk about power electronic devices. This includes power conditioners. Approximately 30% of the components used in power conditioners are passive components. Fortunately for TDK we boast the industry's leading lineup of passive components. On this slide, you can see the various passive components used in power conditioners. Then there are film capacitors for high-voltage DC power transmission. High-voltage direct current power transmission is really taking off in Europe. And it is said that China will probably adopt this form of transmission. Thanks to this trend, we are receiving a large number of orders for particularly large film capacitors with a capacity of 6,500µF and weighing between 60 and 100 kilograms. We plan to continue targeting this field going forward. Over the medium term, we hope to grow sales on the periphery of this market.

That concludes my presentation. Thank you for your attention.

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