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TDK Investor Day 2024
(Conducted on May 22, 2024)Q & A

Q1.  What is your schedule for carrying out portfolio management in businesses with low ROIC? How effective will it be?
A1. In the three-year period of the previous mid-term plan, we failed to take action at the desired speed. Learning from this, we will accelerate actions to deal with businesses that we have defined as turnaround businesses. We will institute proactive business portfolio management, with a scope that extends to profitable businesses that do not reach the hurdle rate. We will monitor individual business units and conduct a close assessment in the second and third years of the medium-term plan.
Q2. It seems that Magnetic Application Products and Sensor Application Products will not reach the hurdle rate under the new medium-term plan. What do you expect them to be like in the future, after the plan?
A2. We aim to reach double-digit ROIC figures for Magnetic Application Products and for Sensor Application Products in the medium to long term. Under the previous medium-term plan, we made some investment in the long-term growth of magnetic heads. Going forward, this investment will generate returns. We can seek a somewhat higher ROIC level. In Sensor Application Products, we need to invest in continuous growth mainly in TMR sensors.
Q3. I see a communication score goal of 75 points or more in the section for pre-financial indices. What situation or state does it envision? And what effect do you expect from it?
A3. We thought that communication would be the most fundamental thing. Two years have passed since I became president. During that period, I visited workplaces in Japan and overseas. I feel that its effect will be to make workers more aware that they are part of management. We referred to this index as a pre-financial one. It is still invisible at the moment. We will develop it into a tangible performance that is covered in the consolidated accounting. (Noboru Saito, President and CEO, answers)
Q4. Your presentation makes me feel that you will decrease your CO2 emissions reduction from 42.9% to 23.3% in the FY March 2027. What is behind these figures?
A4. We achieved a renewable energy ratio of 100% in Japan for the FY March 2024. This resulted in an increase in the CO2 emission reduction ratio. When we think of the future, we need to meet the target in China, where production represents a high percentage of our total output. In addition, we must fulfill this target in the process of expanding battery production in India. The reduction dips temporarily because the target was set with the assumption that the regions where it is rather difficult to introduce renewable energy would expand.
Q5. You explained that you wished to conduct M&A deals up to a limit of ¥150 billion earmarked for strategic investment. What sectors are you looking at for M&A.
A5. We will invest in areas derived from our existing businesses, or in areas that are not distinct from them. They could be Sensor Application Products or Passive Components, for instance. As explained in the briefing, with regard to TDK Ventures, we will positively invest in areas of technology that we could not reach within our current business scope for the purpose of long-term enterprise value creation.
Q6. What is the significance of research and development (R&D) expenses in the new medium-term plan? Will there be any difference between the past and the future?
A6. R&D expenses account for around 10% of net sales. We regard this level of investment as necessary for long-term growth. For example, we will be announcing a solid-state battery with considerably enhanced performance in a separate press release. Since we announced a battery of this kind seven years ago, we have been continuously investing in development. This breakthrough would have been impossible without our continuous outlays for development. This reflects the venture spirit that TDK has passed down from generation to generation.
Q7.  I imagine that there will be more differentiated products including silicon anode materials. Despite that, the compound average growth rate (CAGR) for net sales is forecast at 2% to 5%. This looks quite conservative. What is your projection for silicon anode materials as a percentage of net sales for the FY March 2027? What are the market growth rate and TDK's market share used as an assumption for the CAGR of 2% to 5%?
A7. The procurement of materials for batteries with silicon anode materials is now in sight. We will be increasing their use in small capacity batteries to 10% for the current fiscal year. In a medium-term future, we aspire to increase the percentage to 15%. From a medium-term perspective, we forecast that the ICT market will rally at an annual growth rate of 2% to 3%. In line with the market growth, we will increase our quantity. This is a prerequisite to keep our market share at the current level. The net sales CAGR forecast is based on an assumption of a rise in the quantity of small capacity batteries. This assumption takes into account the impact of the reduction in selling prices. It also incorporates predicted growth in medium capacity batteries. Overall, the net sales CAGR is projected at 2% to 5%.
Q8. My question is about investment in India with regard to small capacity batteries. What percentage of your production will the capacity in India cover in the future?
A8. We are planning to start production at a new factory in 2025. Currently, our production in India does not account for a high percentage of total output. The new medium-term plan also forecasts around several percent. However, we will respond flexibly to trends in the market and customers in India and to local policies. Currently, phase one construction is underway. As you see in the India new factory overview, we have secured land. We can expand production as appropriate.
Q9. In the category of Passive Components, what specific new products will increase the operating margin after they are introduced?
A9. Among the Passive Components, we are focusing on inductors made of metal materials. They are increasingly used for automotive applications. We will be promoting them under the new medium-term plan. From a longer term perspective, there are thin-film inductors. They are expected to be increasingly introduced to AI servers. In the category of high-frequency components, we will continue our efforts to develop new models of RF inductors, high-frequency filters and other mainstay products. We will develop and introduce new models for thin products and for products supporting a high frequency band, among other applications.
Q10. With respect to Magnetic Application Products, the previous medium-term plan forecast net sales growth, but in reality we posted negative net sales growth and an operating loss. The new medium-term plan mentions an amount of capital investment that is less than half that of the previous plan. Is it possible to expand the business with that? In addition, do you have the start of the heat assisted magnetic recording (HAMR) business in sight?
A10. HAMR is a new technology and we see it as having potential. We reduced our product capacity, partly for the purpose of cutting costs. We think our current capacity is sufficient and no extra capital investment is needed. It seems that demand is on the rise. We will carefully monitor the market. If the current situation continues into the next and subsequent fiscal years, strong returns can be anticipated. We forecast that it will take two to three years until HAMR is put into mass production.