Investor Relations | IR Events | Performance Briefing

[ Financial Results for Fiscal 2024 Performance Briefing ] Q&A

Q1.  For FY March 2025 you forecast operating profit of 180 billion yen, a slight increase from the previous year. What are the year-to-year changes on a per-segment basis?
A1. Company-wide we project an increase of 7.1 billion yen. I will explain this excluding the 19.8 billion yen in restructuring costs incurred during FY March 2024, and also excluding foreign exchange effects (¥145 to the dollar in the previous year, ¥140 to the dollar this year).
Passive Components will record increased sales and profit, significantly raising TDK's overall profit. In Magnetic Application Products, we project that HDD head volume will not reach the break-even point. Unfortunately, losses will still remain in this segment, but we expect the loss in HDD-related products (heads and suspension assemblies) to halve compared with the previous fiscal year.
In Sensor Application Products, we forecast increased sales but see profit as largely on par with the previous year, in part due to up-front fixed costs incurred handling increased production, including the construction of a TMR sensor plant.
In Energy Application Products we expect sales to be largely the same as the previous year. The impact of falling sales prices and discount due to the sharp drop in materials prices in the fourth quarter offset positive factors such as an improved product mix.
Q2. What are the changes in net sales and profit from the fourth quarter to the first quarter?
A2. We expect the overall change in sales incorporating an exchange rate assumption of ¥140 to the dollar to be between -1% and -4%. When foreign exchange effects are removed, we see a change of ±0 to 3%. On a per-segment basis, we expect between 3% and 6% in Passive Components, between -8% and -11% in Sensor Application Products, between -7% and -10% in Magnetic Application Products, and between 6% and 9% in Energy Application Products.
Next looking at profit, when the effects of the 17.1 billion yen in restructuring costs recorded in the fourth quarter and foreign exchange effects are removed, we see profit as remaining largely flat overall. On a per-segment basis, we project an increase in profit commensurate with higher sales in Passive Components, while in Sensor Application Products we forecast a downturn in TMR sensor volume due to seasonal factors leading to a slight increase in losses. In Magnetic Application Products, due to HDD suspension improvements and gains in HDD head operations, we forecast a slight increase in profit, albeit coupled with a decline in sales. We expect increased sales in Energy Application Products, but assume a slight downtick in profit, with the impact of reduced sales prices driven by declining material prices in the fourth quarter spilling over into the first quarter.
Q3. Fourth quarter profit margin in the Energy Application Products was 17%, and this is a high level when taken in the context of seasonal factors. Was the main reason for this that sales prices have not fallen as much as the drop in material prices? Have factors such as improvements to the product mix and reduced fixed costs also contributed?
A3. This was due to the fall in material prices. There was a slight time lag in reflecting the drop in material prices that occurred in the fourth quarter in our sales prices, but this drop is reflected in sales prices in the current fiscal year. Operating profit will decline slightly in the first quarter compared with the fourth quarter commensurate with that adjustment. However, when this effect is removed, we still expect to see better profitability in the first quarter.
Q4. How was the growth rate in sales prices and volume in the results for FY March 2024?
A4. Volume increased 6% year on year in FY March 2024. Our initial forecast had been a 10% decline, but we managed to increase volumes in the 6% range, partly due to an increase in demand particularly from Chinese smartphones, as well as the effects of increased market share for TDK. Sales prices dropped several percentage points from regular levels, but this was largely offset by improvements to the product mix achieved with the launch of new models. Including impacts such as the decline in average sales prices due to falling material prices (decreased surcharges), there was a 10% decline.
Q5. What are your projections for medium-capacity rechargeable batteries and small capacity rechargeable batteries in terms of sales prices and volumes for FY March 2025?
A5. Medium-capacity rechargeable batteries accounted for roughly 5% of total segment net sales in the previous year. This fiscal year we plan to raise that percentage to around 8%. We expect sales volume to increase by about 20%. The factors behind these increases include a gain in market share in the Japanese and European markets for residential energy storage systems (RESSs), increased sales of commercial and industrial ESSs due to the introduction of long-life cells, and the full-scale introduction of cylinder type high output cells for power tools. In small capacity rechargeable batteries, sales volume for full-year is expected to increase by about 3% on a year-on-year basis. This is because we expect an increase in total demand, replacement demand for notebook PCs due to four years since special procurement during the COVID-19 pandemic, and share expansion for some customers. On the other hand, given the subtle differences between the first and the second halves of the fiscal year, although the volume of the former forecast is an increase of 5%, we have made conservative projections due to the uncertain market and competitive environment in the second half of the fiscal year.
Q6. In your FY March 2025 forecast for HDD-related products (heads and suspension assemblies), you mentioned that the loss incurred in the previous year would halve. What kinds of improvements will this entail?
A6. For HDD heads, we have taken the view that we will fall short of the break-even volume (200M units / year) by around 20%, and we project that a loss commensurate with that shortfall will remain. For HDD suspension assemblies we have continued to make further cost improvements and expect to break even in the current fiscal year.
Q7. Looking on a quarter-to-quarter basis (fourth quarter → first quarter), it seems that profit has fallen even when the effects of one-time expenses are removed. The fact that inventories by value is largely flat quarter-to-quarter despite the depreciation of the yen suggests that inventory by volume has actually decreased. Is that effect at play here?
Additionally, will you improve profit margins from the first quarter onward?
A7. There are multiple factors influencing the decline in profit margin. First is the product mix, which trended more unfavorably in the fourth quarter. Sales prices also started to fall from the start of the calendar year. As inventory has not varied significantly on a volume basis, the impact of inventories is minor. In addition, sales prices have continued to be tight, and we do not foresee any major improvement from the first quarter.
Q8. In FY March 2025, how do you see growth in MEMS sensors, magnetic sensors, and temperature and pressure sensors taking shape?
A8. We expect sales of temperature and pressure sensors to expand due to a recovery in the automotive market. We forecast increased sales of MEMS microphones due to their adoption in new models. These will be the two main factors driving sales. We will see partial growth in magnetic sensors (TMR sensors) for automotive applications, and expect several percentage points of growth in ICT applications.
Q9. Your target operating profit in the previous medium term plan was 240 billion yen. I understand that going forward President Saito will be steering TDK through a phase of accelerating growth, but when you talk about "solidifying the foundation," do you mean that the run-up to this phase will take a little longer?
A9. As with the previous medium term plan, we will expand our priority growth businesses, namely batteries, sensors and passive components. Not only sales growth but falling short of our target profit margin are major points of reflection we are taking away from the previous medium term plan. While ensuring growth of our priority growth businesses, we also hope to reliably achieve our target profit margins by delving deeper into the businesses in need of turnaround that have been lagging behind.
Q10. Over three years of the new medium term plan you expect that free cash flow will significantly increase to 260 billion yen on a cumulative basis. How do you intend to split up the allocation of this free cash flow between investment strategy and shareholder return?
In addition, how do you see your balance sheets changing over the next three years?
A10. In the new medium term plan we raised our target payout ratio by 5% to 35%. In the previous medium term plan cumulative shareholder return amounted to around 100 billion yen, but in the new plan we expect this to be around 150 billion yen. We project that around 100 billion yen will remain as free cash flow after shareholder return. We hope to allocate this remainder to growth investment projects, but any amounts remaining after doing so we intend to use to further strengthen shareholder return, including the acquisition of treasury shares. We have not decided when to carry out those measures, and we believe this warrants consideration in light of stock market conditions and the use of funds.
As for the structure of our balance sheets, as we have always noted we hope to operate under a structure with a shareholders' equity ratio of around 50%, and D/E ratio of 0.3-0.4x. In FY March 2024 we achieved that structure for the most part, and on top of that will further accumulate free cash flow. Therefore, after allocation for growth investments, we hope to allocate any surplus to enhancing shareholder return.