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Operator: As the time has come, we would like to start the Q1 performance briefing of fiscal year ending March 2026 for TDK. Thank you very much for participating despite your busy schedule. Please allow me to introduce the participants. Senior Executive Vice President and CFO, Tetsuji Yamanishi; Executive Vice President, Shigeki Sato; Corporate Officer, Fumio Sashida; Corporate Officer, Takao Tsutsui. These are the participants. Today, we would like to give you the highlights of Q1 of the fiscal year ending March 2026 results and give you the projections for the full year. After that, we'll go to Q&A. Overall, this will be a 60-minute meeting. The presentation they're going to use today is posted on our website, both for Japanese and English. Let's start.
Yamanishi: Hello. My name is Yamanishi. Thank you very much for taking time out of your busy schedules to attend our financial results briefing for Q1 of the fiscal year ending March 2026. I will now explain the summary of our consolidated financial results. Regarding Q1 of the fiscal year ending March 2026, key points. Due to intensifying trade frictions, increasing uncertainty over tariff policies, and heightened geopolitical risks in the Middle East, the global economy remained in an extremely unstable situation. Exchange rates showed a significant yen appreciation YoY, mainly against the US dollar and the euro. In the electronics market, which affects our business performance, production of smartphones among ICT-related products remained steady compared with the same period of the previous year. Demand for nearline HDDs for data centers also continued to be firm. On the other hand, in the industrial equipment market, overall capital investment demand remained sluggish. In the automotive market, the slowdown in demand for BEVs continued, resulting in parts demand falling below our initial assumptions. Under such a business environment, by market segment, sales of small capacity batteries and sensors increased to the ICT market, and sales of HDD suspension assemblies increased significantly due to firm demand in the HDD market. On the other hand, sales of passive components and sensors decreased to the automotive market due to slowdown in BEV demand. However, thanks to the recovery in parts demand for game consoles classified under the industrial equipment market, sales of rechargeable batteries and sensors increased. As a result, net sales for this quarter increased by 3.3% YoY. Operating profit decreased by 2.5% YoY due to the significant appreciation of the yen and the decline in shipments of products for automotive applications. Next, I will go through Q1 of the fiscal year ending March 2026 results, including the impact of FX rate fluctuations against the US dollar and other currencies, minus JPY37.6 billion in sales and minus JPY7.1 billion in operating profit. Net sales were JPY535.8 billion, up JPY16.9 billion or 3.3% Operating profit was JPY56.4 billion, down JPY1.5 billion or 2.5%. Profit before tax was JPY57.6 billion, down JPY11.9 billion or 17.2%, also impacted by foreign exchange losses from the appreciation of the yen. Net profit was JPY41.5 billion, down JPY18.2 billion or 30.5% due to foreign exchange losses and the absence of the tax expense reversal recorded in the previous year. Earnings per share were JPY21.85. Regarding foreign exchange sensitivity, as in the previous guidance, we estimate that a JPY1 change against the US dollar has an impact of approximately JPY2 billion per year and against the euro, approximately JPY0.3 billion per year. Next, I will explain the results by segment. First, in passive components, sales decreased mainly in the automotive market with net sales JPY138.1 billion, down 3.4% YoY and operating profit, JPY6.4 billion, down 54.1% YoY. Ceramic capacitors and inductive devices, which have a high sales ratio to the automotive market, recorded lower sales and profits. Aluminum electrolytic capacitors and film capacitors, despite lower sales to the automotive market, posted higher sales and profits, thanks to increased sales to the renewable energy market. High-frequency components saw lower sales and profits due to reduced sales to both the ICT and industrial equipment markets. Piezoelectric material products and circuit protection components also recorded lower sales and profits as sales to the ICT market declined. Next is the sensor application products segment. Net sales were JPY46.4 billion, up 5.3% YoY, and operating profit was JPY2.7 billion, returning to profitability from a loss in the previous year. For temperature and pressure sensors, sales decreased to industrial equipment market, resulting in lower sales and profits. In magnetic sensors, while TMR sensors posted higher sales for smartphones, whole sensors recorded lower sales to the automotive market, leading to an overall decline in sales and profit for magnetic sensors. MEMS sensors achieved sales growth driven by increased microphone sales for the ICT market and higher motion sensor sales for the industrial equipment market, resulting in a significant improvement in profit for MEMS sensors as a whole. Next, in the magnetic application products segment, net sales were JPY54.6 billion, flat YoY, while the operating profit was JPY6.3 billion, marking a significant increase in profit. In HDD heads and HDD suspension assemblies, sales for nearline applications increased, but overall sales were flat due to weaker demand for HDD heads for PCs. However, profitability improved significantly, thanks to a more favorable product mix. In magnets, sales declined due to lower demand in the automotive market, but profitability improved, thanks to quality enhancements and cost-reduction efforts. Next, in the energy application products segment, net sales were JPY285.5 billion, up 8.6% YoY, and operating profit was JPY55.4 billion, slightly higher than the previous year. In rechargeable batteries, sales and profits increased, driven by higher sales volume of small capacity batteries to the ICT market as well as increased sales of small and medium capacity batteries to the industrial equipment market. In power supplies for industrial equipment, however, sales and profits decreased due to the absence of a significant recovery in demand for industrial equipment. Next, I will explain the factors that caused changes in segment sales and operating profit from Q1 of the previous fiscal year to Q1 of the current fiscal year. First, in the passive components segment, net sales increased by 2.3%, JPY3.1 billion from Q4, and operating profit increased by JPY1.9 billion, excluding the onetime expense of JPY11.3 billion incurred in Q4. Ceramic capacitors saw increased sales to the automotive market, resulting in higher sales. Aluminum film capacitors saw a decrease in sales to the automotive market, but an increase in sales to the renewable energy market, resulting in higher sales. Inductive devices saw sales increase in the automotive and industrial equipment markets but decreased in the ICT market, resulting in sales remaining largely flat. High-frequency components saw sales increase due to a seasonal recovery in the ICT market, while piezoelectric and circuit protection components saw sales increase due to increased sales to the industrial equipment market. Despite a decrease in profit due to the impact of the strong yen and the deterioration in the product mix of ceramic capacitors, operating profit increased by JPY1.9 billion, mainly due to the effects of structural reforms in high-frequency components and overall revenue growth. Next, regarding sensor application products. Net sales decreased by JPY100 million, 0.2%, remaining nearly flat, while operating profit increased by JPY2.5 billion, excluding onetime expenses of JPY600 million incurred in Q4. Temperature and pressure sensors saw a slight increase in sales, but a deterioration in product mix led to a decrease in profit. Magnetic sensors experienced a decline in sales and profit due to reduced sales of whole sensors for the automotive market. However, an increase in sales of TMR sensors for smartphones resulted in flat sales and an increase in profit for magnetic sensors overall. MEMS sensors saw an increase in sales due to strong sales of MEMS microphones. In addition to significantly improved profitability, MEMS motion sensors saw a decrease in sales but achieved an increase in profit due to the effects of structural reforms implemented in the previous Q4, resulting in a significant improvement in overall profitability for MEMS sensors and a reduction in losses. Next, in the magnetic application products segment, sales decreased by JPY3.7 billion, 6.3%, while operating profit increased by JPY7 billion. HDD heads saw a decrease in sales volume of approximately 12% due to the transition period for demand for nearline heads, a major product, resulting in a decline in sales. However, improved product mix and cost improvement through fixed cost efficiency led to an increase in operating profit, enabling the segment to maintain stable profitability. Suspension assembly saw a 25% increase in sales volume due to increased demand for nearline applications, resulting in both higher sales and operating profit. Magnets saw a slight increase in sales, but profitability improved due to cost improvements and the sale of welfare facilities. Next, in the energy application products segment, sales increased by JPY5 billion, 1.8%, and operating profit increased by JPY17.6 billion, 46.6%. Sales of small capacity batteries for ICT applications increased, contributing to the increase in sales and significant increase in operating profit. Power supplies for industrial equipment saw a decline in both sales and operating profit due to the slow recovery of demand, while EV power supplies also experienced a decrease in both sales and profit due to reduced demand for BEVs. Next, regarding the analysis of the JPY1.5 billion decrease in the operating profit, an increase of JPY26.2 billion was achieved due to the higher sales volume of secondary batteries, HDD head suspensions, and sensors. While rationalization and cost reduction measures contributed to JPY4 billion and effects of structural reforms in the previous fiscal year added JPY1.4 billion, increased pressure to reduce selling prices resulted in a JPY15 billion decrease. SG&A expenses increased by JPY8.8 billion due to higher R&D expenses related to accelerating the development of new technologies and products in the secondary battery segment, a decrease of JPY2.2 billion from the one-time revenue recorded in the previous year and a decrease of JPY7.1 billion due to the yen's appreciation, resulting in an overall decrease of JPY1.5 billion. Next, I will explain about the cash flow situation. In Q1, operating cash flow was JPY59 billion and investment cash flow was JPY62.9 billion, including the acquisition of companies related to the AI ecosystem. As a result, free cash flow was a negative of JPY3.9 billion, but this was in line with the expectations for Q1. Next, I will explain the segment-by-segment sales increase or decrease for Q2 compared to Q1. For Q2, we are forecasting the exchange rate of JPY140 per US dollar. For ease of comparison, we will explain the increase or decrease adjusted to the actual exchange rate of Q1. First, for passive components, we anticipate increased demand from the automotive and ICT markets and expect an increase in sales centered on MLCCs, resulting in an overall increase of plus or minus 0% to 3%. Sensor application products are targeted at the ICT market with magnetic sensors and MEMS microphones increasing due to seasonal factors. Temperature pressure and magnetic sensors are also increasing for the automotive market. MEMS motion sensors are increasing for industrial equipment. Overall, we expect revenue to increase by 12% to 15%. Next, in the magnetic application products segment, while we expect an approximately 8% increase in the nearline ACT production volume, we anticipate approximately a 20% increase in heads sales volume and increase in suspension sales volume, resulting in an overall revenue increase of plus 10% to 13%. Finally, in the energy application products segment, we expect demand for smartphones to remain strong due to seasonal factors, resulting in an overall revenue increase of 12% to 15%. Finally, I will explain the full-year projections for the fiscal year ending March 2026. At the time of the initial financial forecast announcement, it was extremely difficult to predict demand due to the US administration's tariff policies, resulting in a highly uncertain outlook. Therefore, for the production volume of major devices, which serves as the basis for the forecast, we established two scenarios. The base scenario, which reflects initial assumptions made prior to the tariff measures and a risk scenario that accounts for the potential reduction in demand for major devices in the US due to tariff measures. Based on these two scenarios, we have provided a range-based projection for the performance outlook. As a result of revising the full-year production volumes forecast for major devices at this point in time, we have decided not to change the base scenario performance and to maintain the figures announced at the beginning of the fiscal year given that there is no significant difference from the base scenario established at the beginning of the fiscal year. Negotiations with various countries regarding tariff measures are still ongoing, and the future demand outlook remains uncertain. Therefore, we will maintain the risk scenario announced at the beginning of the fiscal year. However, there is no change in the view that the base scenario represents the minimum level that should be achieved. The exchange rates for Q2 and beyond remain unchanged from the beginning of the fiscal year, JPY140 per dollar and JPY155 per euro. ROIC free cash flow annual dividends also remain unchanged. Additionally, there are no changes to CapEx, depreciation and amortization expenses or research and development expenses. Finally, we have two announcements. The English version of the TDK United Report 2025 is going to be published on August 8. This report tells the story how the TDK United team members are striving to enhance corporate value by aiming for fusion rather than integration. It will be available on TDK's website, so please take a look. One more thing. We will hold TDK Investor Day on September 1. TDK United team members will introduce TDK's strength in technical capabilities and human capital, which are TDK's pre-financial capital in a panel discussion format. This event will be broadcasted live. This concludes my presentation. Thank you very much. [END]