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[ 1st Quarter of fiscal 2013 Performance Briefing ]Consolidated Results 1Q of FY March 2013

Mr. Takakazu Momozuka General Manager Finance & Accounting Dept.

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

Thank you very much for coming despite your busy schedules and the very hot temperature. We are happy to see so many people here to listen to the consolidated first quarter results of the fiscal year ending March 2013.

Consolidated 1Q results of FY March 2013

Now in regard to the consolidated results of the first quarter, on a year-on-year basis when we make a comparison, here are the results. First, net sales; we have 208.7 billion yen which is 2.5 billion yen higher on a year-on-year basis or 1.2% higher. On an operating income it is 9.2 billion or an increase by 3.2 billion over the previous year’s first quarter and an increase by 53.8%. In regards to the net income, it was 4.5 billion which is up a year-on-year basis by 2 billion or 84.5%; EPS, 35.52 yen.
For the first quarter, the average exchange rate against the dollar was 80.27 yen. It was 1.8% appreciation of the yen and against the euro it was 103.18 yen, 12.3% appreciation of the yen. The negative impact on net sales was approximately 5.2 billion and in operating income there was a negative impact of 800 million yen.As for the sensitivity to the exchange rates, between the yen and the dollar up until now with one yen appreciation of the yen against the dollar, then there was an impact of 2 billion yen on our operating income but we have increased the dollar denominated purchases and have taken other types of measures and so therefore starting from the end of last fiscal year with an appreciation of the yen by one yen then it is a negative impact on operating income by 1.7 billion so the sensitivity has been improved. Against the euro, there is only an insignificant impact in exchange rate fluctuations.

Features in 1Q results of FY March 2013

Now I would like to talk about the main features of the first quarter results. In the electronics markets, we can see that for flat panel television sets or note PCs and information appliances and the communication market, we have seen that the results were less than anticipated. Meanwhile, for hybrid automobiles and other automotive market related business, we have seen the business steady as anticipated. In our consolidated net sales, on a year-on-year basis it was up 1.2% and an operating income on a year-on-year basis it was up 53.8% so we have seen increased profits. As for passive components, on a year-on-year basis, it was down 10.1%. With inductive devices and capacitors for information appliances, the business was down. In Europe, for solar power usage, the aluminum electrolyte capacitors for industrial equipment had business go down; but for the automotive business, on the whole, we were doing well.

Next, in regard to the magnetic application products, net sales were up 10.8% on a year-on-year basis. After the Thai floods, the HDD heads sales increased and in other magnetic application products, there was increases in automotive related business. For film application products, the net sales were up 28.9% on a year-on-year basis to 23.2 billion, and this was for secondary batteries and other tablet usages. There was restructuring efforts to improve our profitability and the efforts are going according to plans.

Breakdown of Operating Income Changes

Next, on a year-on-year basis, we have seen an increase in operating income by 3.2 billion yen and these are the factors. First of all, in the first quarter last year, there were changes in the pension plan that impacted us but this is no longer the case and so there was a positive 3.1 billion impact and then there was impact of 3 billion because of the fact that the earthquake impact was less than the previous year. Also there was recovery from the earthquake but then there was the decrease in net sales including factors such as capacity utilization and product mix and there was a negative impact of 2.3 billion yen. There was also a negative impact of 7.7 billion as a result of the decrease in the sales price and also an 800 million yen negative impact as a result of the higher yen. With the rationalization and the reduction of costs and so on, there was a positive impact of 4.1 billion and in SG&A there were decreases in the SG&A expenses for a positive impact for 1.3 billion. There was a decrease in the restructuring fees from 600 million yen last year to 200 million yen this year so that there was a decrease by 400 million in this case. There was also a 2.5 billion in restructuring benefits.

Segment Information (FY2012 1Q vs.FY2013 1Q, FY2012 4Q vs. FY2013 1Q)

So they have been talking about the segment information in Q1 this year. First off, let me talk about the market as a whole; the smartphone has been growing rapidly these days. It happened substantially, the growth in manufacturing as a whole, but when it comes to that, the quarter-on-quarter basis is only a few percentage points and manufacturing of flat panel TVs and PCs have been almost on par on the year-on-year basis; a little slight increase on quarter-on-quarter basis. When it comes to hard disc drive, the production level has recovered from the manufacturing level, damaged by the flood in Thailand last October but still, that is only on a year-on-year basis; it is slightly lower than last years.

In this circumstance, let me talk about the factors of change and sales and profits from a quarter-on-quarter basis from the last Q4 to this Q1. First of all, the passive components as a whole ? the sales ? have grown by 1 billion yen, 1.1% from 90.5 billion, and the last quarter to 91.5 billion yen. When it comes to capacitors, the sales have grown from 31.6 billion yen Q4 to 31.4 billion, it’s almost flat. When it comes to sales of ceramic capacitors, it has been growing in automobiles and industrial weapons market but on the other hand, the aluminum electrolytic capacitors and also film condensers for the industrial equipment markets have declined. Next, as for the inductor devices, it is also almost flat from 28.4 billion yen last quarter to 28.2 billion yen. Although sales to communications market have declined, sales have increased in automobiles and the other home electronics. For the other passive components, the sales have increased from 30.5 billion yen in the last quarter to 31.8 billion yen, increase by 1.3 billion, 4.3%. High frequency products have been under par with the last Q4 and still have been struggling but on the other hand, the actuators, which are part of the electric material components, has increased mainly for the magnetic market.
The operating income for the passive components have improved by 10.3 billion yen from the 13.2 billion yen of loss in the last Q4 and now this quarter we have 2.9 billion yen of loss. Although the market in Europe has been struggling and now that is the market for the electronic components have been unfeasible than we have expected but we have eliminated the manufacturing costs which is recognized in the last Q4 and also now for there was a loss for the ceramic capacitors which were at the target of restructuring the business and their loss has shrunk so we have the 10.3 billion yen of improvements.
Next let me talk about the magnetic application products. Sales of the segment in this Q4 were 87.8 billion, which was almost flat on quarter-on-quarter basis. For the recording devices, the sales in the Q4 were 58.2 billion yen, increased by 1.7 billion and 3% to 59.9 billion yen. For the sales of HDD head, due to the manufacturing adjustment of the May customers and it was in the business ? went lower down than expected and but is still on par with the last Q4. For the sales of other magnetic application products has declined by 1.4 billion yen, 4.7% decline from the 29.7 billion yen to 28.3 billion yen. The sales of magnets have recovered from the damage from the flooding in Thailand and increased for common electronics but on the other hand it’s declined and the automobiles market; and it upsets as well as the declining sales and the power supplies and industrial equipment market. For the magnetic application products, the operating incomes have increased by 600 million yen from 14 billion yen in the last Q4 to 14.6 billion yen. Due to that, the offers have rationalizing efforts due to the declining HDD head.
Next I will talk about the film application products. The sales were 23.2 billion, declined by 1 billion yen and 4.1% from the 24.2 billion in last Q4. For the sales of secondary batteries has been steady; they are mainly for the tablet device products but there are sales for the old media applied to film have declined. Upgrading income for film application products turned out to be a profit of 2.1 billion yen from the 500 million yen of loss in the last Q4. Now we have eliminated the restructuring costs and recognize it in Q4 and also the damage from the flooding in Thailand have eliminated and at the same time the improvements of the business of the secondary batter have improved. For the corporate eliminations, now it changes from 900 million yen to 4.2 billion yen of loss. In the last Q4, we have recognized 2.7 billion yen of unemployed asset sales.

FY March 2013 Projections

Next, let me talk about our annual focus for the consolidated business in March 2013; 900 billion yen of net sales and 57 billion yen of operating incomes and 53 billion yen of the net income before taxes and 40 billion yen of net incomes. So this is exactly the same up to the forecasts we announced in the guidance in April. There is no change. For the average exchange rate after Q2 and onward; and 77 yen to the US dollar and the 95 yen to euro; this is an assumption. When it comes to background, now the smartphone and tablet devices and all these components for this market have been growing in demand and from major customers have once delayed and in sales in the market; but starting from late August, all the sales are starting to catch up so that we think we can have steady growth in the second half of this year. Also we expect positive effect from the restructuring after the second half onward. And at the same time, we now plan to make additional cost reductions. That is all my presentation, thank you very much.