- Q1. Please explain how the full-year forecast was assembled. I understand about the additional one-time expenses of 8 billion yen and your cautious approach to demand in the automotive and industrial equipment markets for passive components and sensor application products, but on the other hand, foreign exchange effects, rechargeable batteries and HDD-related businesses are performing better than expected. This makes it difficult to understand why the 220 billion yen full-year projection for operating profit has been left unchanged.
- A1. In the third quarter, rechargeable batteries, HDD heads and suspensions ended up performing better than anticipated. However in the fourth quarter, we project a downturn due to a decline in sales of passive components and sensor application products. In terms of profit, we left our forecast for operating profit unchanged at 220 billion yen as we had incorporated around 10 billion yen in write-down risks for high-frequency components in the Passive Components category.
- Q2. What is the breakdown of costs for restructuring in the third and fourth quarters?
- A2. For the third quarter the total was 1.4 billion yen (Passive Components 400 million yen, Magnetic Application Products 600 million yen, Energy Application Products 200 million yen, Other 200 million yen). For the fourth quarter the total is around 14 billion yen, including 10 billion yen in write-down risks in Passive Components (Passive Components 11 billion yen, Sensor Application Products 1 billion yen, Magnetic Application Products 500 million yen, Energy Application Products 600 million yen, Other 500 million yen).
- Q3. Please explain about the effects of changes to the VAT refund rate in China? Will negative effects remain in the next fiscal year?
- A3. The Input VAT is usually charged at 13%, but for exports, the full amount (13%) used to be refunded. In other words, there was effectively zero VAT charged on export products. As the refund rate was lowered from 13% to 9% from December 2024, the 4% difference represents a cost increase. As for the impact on profit, looking at the fourth quarter, we expect an amount equivalent to roughly 2% of net sales to increase as costs. Unless the policy is reversed, we believe the impact will continue into the next fiscal year and beyond.
- Q4. What are the current sales of silicon anode batteries as a percentage of overall small capacity battery sales? You mentioned targeting 10% this fiscal year and 15% next fiscal year. Could you provide a progress update?
- A4. In the third quarter, silicon anode batteries accounted for more than 10%, and we have made steady progress in line with plans. In the first half of the next fiscal year, we are planning a market launch of third-generation products with even higher energy density. Our target for the next fiscal year is currently the same as initially planned, 15%.
- Q5. I am aware that there is a growing trend for medium-capacity batteries to be used as the LFP batteries for the battery backup units (BBUs) in data centers. Could you comment on the current situation?
- A5. We recognize that there is a large market for BBUs, particularly in data center applications. As these products demand high output and reliability, we believe those qualities are a good selling point for our products, and we are looking to aggressively pursue this market.
- Q6. With free cash flow (FCF) having exceeded your previous forecast, are there any changes to shareholder return and your plans for strategic investment? Also, please provide some insight about how you prioritize where to allocate this cash.
- A6. We view allocating cash to growth investments to be the top priority. We are in the process of reviewing the figures for the next two fiscal years during our current Medium-term Plan, also taking into account FCF in this fiscal year. If a certain amount from our strategic investment budget remains, we think it will be necessary to pursue measures such as share buybacks.
In our existing businesses, we believe capital expenditures on rechargeable batteries will increase slightly more than initially expected. We need to boost our capabilities for new products and technologies with high added value. We are searching for a business apart from rechargeable batteries that will become the next pillar of operations in the medium to long term. We haven't nailed down the specifics yet, but we believe it will become necessary to make strategic investments in such an area.
