TDK Stock

Thank you for waiting. It is now time to begin. We will now start TDK Investor Day 2026, enhancement of Corporate Value through Pre-financial Capital. Thank you very much for joining us today. I would like to serve as MC. My name is Ito from TDK's IR Department.

Let me briefly introduce today's agenda. First, we will have opening remarks from CEO, Noboru Saito. This will be followed by the CHRO session and the CTO session, each lasting approximately 20 minutes. Finally, we will have approximately 45 minutes for a Q&A session with today's speakers and attending executives. Mr. Saito, please.

Good afternoon. Usually, I will be speaking from the podium on this side. But today, I have my smart glasses that I'm wearing. So I would like to use that for my opening remarks. Once again, thank you very much for attending this session despite your busy schedules. I am CEO and President, Saito.

For today's agenda, it is just as shown on the slide. Last year, we also held a briefing on pre-financial capital. Today, I would like to focus on one of my commitments, strengthening the management of pre-financial capital. And we will explain about our technological capabilities and the human capital that supports them. This slide shows how our materiality medium-term plan and human resources strategy support our long-term vision and strengthen pre-financial capital. To realize our long-term vision, our materiality focuses on maximizing corporate value while creating long-term value for all stakeholders. Our approach is to align the sustainability of society with that of TDK.

For pre-financial capital, our key materiality areas are R&D that contributes to social transformation and promoting and developing talent that supports R&D and continues to create competitive advantage. Our human resources strategy is closely aligned with our corporate strategy. To realize our long-term vision, we see human capital, not simply as a resource, but as the driver of transformation and the core form of capital that drives strategy, execution, and value creation.

We face 2 major management challenges in transforming our business, strengthening existing businesses and transforming our business portfolio. To address these challenges, we need to strengthen our human resources and transforming human resources capabilities. We need talent who can drive business transformation and innovation and how to attract and develop such talent is something our CHRO, Andreas Keller, is going to explain right after myself.

This talent will continue to drive our growth strategy, particularly our business portfolio management as we work towards our mid- to long-term target state. The biggest driver of this growth strategy is the expansion of our business for the AI ecosystem. By FY March 3031 (sic) [ 2031 ], we plan to increase sales to about 3x of the FY March 2026 level. In the first quarter this year, growth has been stronger than we initially expected. Today, this gray part, new business expansion is something we are talking about. We will talk about cutting-edge technology development and solution business using software and other technologies. And our CTO, Shuichi Hashiyama, and DGM, Jim Tran, will give you presentations. Thank you.

Thank you very much, Mr. Saito. So without further ado, we would like to start the CHRO session. And for the CHRO session, for the CTO session, we are going to have an English presentation. And therefore, who would like to use the interpretation service into Japanese, please use the receivers. And those who are participating through the Zoom, you don't need to switch the language.

So Keller-san and Greg-san, please.

Good afternoon, everyone. My name is Andreas Keller. I'm the CHRO of TDK. Last year, I stood here with Tomoyo Hiraoka and Angela Yuan, and I am pleased that Hiraoka-san is with us again today over there. However, this year, I will present together with my colleague, Greg Brower, another key member of our global HR leadership team. Together, we will spend the next 20 minutes on what we believe is the most fundamental driver of TDK's ability to execute on everything you hear today, our people.

When you look at the title, human capital management, fueling innovation and inclusive growth, the title says it all. Every growth target, every technology ambition, every market expansion, none of it happens without the right people, without the right capabilities in the right culture. This is what Greg and I are here to demonstrate.

My background before TDK was Hilton Hotels, 13 years in multiple countries, which is an industry where every single competitive advantage ultimately comes down to people. I carried this conviction with me when I joined TDK 26 years ago at our German subsidiary, starting in supply chain, moving through various functions in business administration, HR and eventually making my way to this role as CHRO. That journey across so many of TDK's chapters of change gives me both perspective and conviction. And perhaps more importantly, it is itself an example of what I'm here to tell you about. TDK's genuine capability to identify, develop and grow its own leaders.

Everything in our HR approach begins with one principle, RENDO alignment. As Saito-san said earlier, HR strategy and corporate strategy do not run in parallel in TDK. They move as one. Delivering what strategy requires us to build a talent portfolio of 4 distinct strengths, which you see at the bottom left, people who drive business transformation, people who drive innovation, people who are capable in AI and software, translating that capability in solutions and finally, people who can directly deliver those solutions to our customers. These 4 are not aspirational. They define the talent portfolio we are actively building today.

And 5 HR pillars bring this to life, which you can see on the right in our HR strategy, which is attract and develop talent, inclusive leadership practices, global leadership pipeline, organizational capability and efficiency and finally, team member health and engagement getting more and more important, all driven by our TDK United transformation.

To bring this strategy to life, we use a model we call the TDK Human Induction Cycle. And I have to be honest, I love this because this is very much like TDK. Just as an inductor stores energy in a magnetic field and releases it efficiently when needed, we bring in individual potential, enhance it through our culture and release it as business and societal value through TDK's transformation. And like an inductor, this is not a onetime charge. It is a continuous self-reinforcing cycle because stronger culture builds a stronger pipeline. A stronger pipeline drives greater innovation. And finally, greater innovation attracts exceptional talent. This cycle is driven by 3 initiatives, which you can see on the right: enhancement of our human capital as a change driver, strengthening value creation through TDK United, and finally, advancement of technical capability.

Let me show you how this maps to our value creation model. This slide represents the output and financial dimension of our human capital strategy. We believe human capital investment must be measurable, not just in engagement scores, which is, of course, very important, but in its direct contribution in financial value creation. We track human capital return on investment as a key metric, and we are actively working to define clear benchmark targets in dialogue with you, our investors going forward. The human induction cycle you have seen on the previous slide, operating at full capacity, translates into faster innovation cycles, stronger leadership decisions, lower organizational friction, and improved marketing -- market positioning. And these are not just soft outcomes. They are strategic returns on people investment.

Today, I want to take you through the major KPI progress that demonstrates this model working in action. But first, let me anchor it in 3 cultural values that make everything possible: Functional Equality, Venture Spirit, and diversity. Functional Equality. Every team member has a meaningful voice regardless of title or location. It is the cultural condition that makes genuine engagement real, something very special about TDK. Venture Spirit, TDK's entrepreneurial DNA. The drive to always challenge, always create and always be willing to pursue the new. It is what makes our internal incubators possible. And finally, diversity of thought, background, gender and nationality. It is the fuel for differentiated innovation. Diverse teams, I think you all agree with me, diverse teams see problems differently and solve them better. These are active operating principles we measure, reinforce and hold ourselves accountable to.

Let me show you the KPIs. The first major output KPI I want to highlight is team member engagement. We monitor this globally through an annual survey, paying particular attention to our communication score, which is also quite unique because we believe that the quality of communication is the truest measure of functional equality in practice. Our engagement score has risen from 72 points in fiscal year 2024 to 76 points in fiscal year 2026, which I believe is a meaningful step forward. Our communication score has grown from 67 points to 71 advancing towards our target of 75 or more. And our response rate has climbed from 80% to an incredible 92%. A 92% participation rate at a global company is exceptional. And it tells me our people trust that their voice matters.

How do we achieve this? Through concrete initiatives, like, in the middle below, you can see the quarterly global town hall meetings that we established. We held 4 last fiscal term, where every employee worldwide can ask questions directly to the management team. New member induction ceremonies, you can see on the left, and events like the International Women's Day used as a genuine platform to inclusion, for inclusion dialogue globally. Moreover, it is not shown on this slide, but every department in every location is having follow-up conversations with their respective teams for improvements.

You might recall our Global Management Development Program, GMDP, from last year. So let me go straight to the progress. Just to remind everyone, the program runs across 4 different management levels: TCDP, GMP, GAMP together with the IMD Business School in Lausanne and GEMP with IESE in Spain and Shizenkan University in Japan, covering approximately 1,250 participants in total so far from territorial leaders all the way to our most senior executives.

And the progress for this midterm speak for themselves. Cumulative GMDP participants stand at 367 on track towards our target of 500 plus. Female participation is growing year-on-year from 25.4% over 25.7% to now 26.1%, advancing also towards our target of 30%. And also very important, successor readiness for top executives has reached 212%, well beyond our 200% target. It means we have more than twice as many ready successors as positions to fill. But I would like to emphasize one point. GMDP is not just building leadership pipeline. It is also about creating business. Through our global executive management program, the TOP program, participants have launched real ventures.

Let me highlight SensEI, which you can see on the right-hand side of the slide, as Jim Tran will talk about it during the CTO session. It is a company established entirely by GEMP participants from outside the Sensor Systems Business Company. They identified an opportunity, formed a cross-functional team and built a new business. SensEI is now a functioning venture. By the way, Jim Tran as well as our CTO, Hashiyama-san, have both participated in this GEMP program. The other start-up companies that emerged through our TDK LaunchEngine, formerly called TDK Kindergarten, were already mentioned last year, so let me skip that part out.

This brings me to the next dimension of our talent strategy, how we make TDK visible and compelling to the world's best talents. Let me first share the strategic framework and then hand over to my colleague, Greg Brower, who will elaborate on this important topic further. Let me emphasize 1 point, employer branding is not only a communication exercise. It is a strategic business lever that drives competitiveness and sustainable growth. Corporate branding answers, why should I buy from TDK, while employer branding answers a different question entirely. The one every candidate and every team member asks, why should I work for TDK and why should I stay? Separate strategies, but deeply aligned. Again, an alignment in RENDO in action.

Our employment branding strategy targets 3 outcomes: Becoming the employer of choice for top seekers, giving team members compelling reasons to stay and grow, and strengthening the HR pipeline for our management bench, which you can see on the right top side. Delivered through 4 goals just below, a unified global identity, consistent messaging across all markets, clearly communicating our appeal and building long-term trust with candidates, our team members, customers and society.

I now hand over to Greg Brower. By the way, he joined TDK in 2017 [ through ] the InvenSense acquisition. So another example how our strategy works, and he's now leading our global HR business partnering. Greg, over to you.

Thanks, Andreas. It seems you've done some of my introduction. Prior to joining TDK, I was at a company called Cisco. It's a global IT enterprise company, and I had a variety of roles that prepared me for this one, working in IT, manufacturing, engineering and also HR. Today, we will discuss aligning the strategy to a shared culture of employee branding. It's a RENDO use case for us, and we're going to take you from concept to implementation.

So employer branding should be aspirational to attract talent. TDK in everything better is a wonderful description. For our team members, our employees, there must be consistency and integrity between our brand and their lived working experience. Whether you're hired in university, mid-career or through an acquisition, we understand and encourage team members to share their voice, their authentic voice. We then build a coherent global story and scale that impact through structured social media, career pages, local recruiting events.

Our branding campaign is consistent, scalable and effective. That's RENDO. We're transitioning from autonomy to a more structured, aligned entity through employer branding. Let's look at some real activities. So to attract talent, we implement employer branding to keep our current future team members engaged. For new graduates, Mr. Keller already mentioned the special onboarding we do at the World Athletic Championships. And we also already mentioned the town hall meetings to keep our team members engaged and informed.

So let us focus on the middle picture. What you're going to see is a group of engineers that we invited to attend the TDK Tokyo E Grand Prix. Our HR team and our tech IP team ensured that all of those potential engineers understood TDK and as well understood our special technical partnership with Porsche. So we use the brand to attract the talent in. And then what we do is show them our exciting world of technology within TDK. And the results show it. You can see how we have increased the amount of candidates applying by 140%, but there's also a branding result here that we like to share with you.

According to Toyo Keizai's ranking, TDK ranked 100th in the most popular company among 2027 graduates. We're paying attention to this, and we're focusing on it for continual improvement as you see it rise into the future. For the fourth time, TDK has also been qualified as a top employer in Germany for the Top Employers Institute. These are trends that we see globally, and it's because we're focused on looking at our brand and telling a cohesive story to the market.

Now let's look at how TDK leverages brand to support our growth strategy. Mr. Keller has already emphasized the alignment of the HR and the business strategy. These must connect for us to win. So let's dive into a use case of strengthening the technical capability together. So TDK creates value by providing solutions to our customers. And we have expertise in materials and process, and we're strengthening our software capability, which is critical for a total solution. With the Chief Technology Office, we have an approach.

First, we must have both software expertise with an understanding of TDK devices. Second, we must be able to adapt to the business by understanding changing customer requirements and applications, security and regulatory requirements globally. Third, we connect our expertise to TDK United, working cross-functionally across divisions, technologies and products to share knowledge capital. When you combine these together, you build software capability that solves customer needs.

From an employer branding standpoint, Rosa Chow, who you can see at the bottom here, she becomes the story. Rosa was named Woman of the Year at Sensors Converge Conference. She began her software career at InvenSense, software engineer, progressed to manager, progressed to software executive. She adapted with TDK's sensor system business company, developing not only motion sensors, but also microphones, temperature, pressure, magnetic, creating different and then connecting the technology for more value. She leads teams in Korea, Japan, China, San Jose and throughout Europe as part of our technical software community.

Expertise, adaptation, connection. We have real stories like Rosa's for marketing, for manufacturing, for information technology, and HR. And we're building capability and creating that impact from within. This is the employer brand from concept through implementation. TDK is a platform for careers to flourish and to create value. And this is what happens when you align the HR and the business strategy together. Thanks for your time.

Let me summarize and let me close with what matters most. RENDO aligns every people decision to our corporate strategy. Our engagement is up with a 92% response rate. Our people trust us. Our GMDP successor readiness is beyond target. Our leadership bench is deep. That same pipeline produced real business like SensEI. Our employer brand has increased, and we are actively building AI and software talent that will power TDK's next solutions. We are not only running HR programs, we are building the human foundation of TDK's future. Thank you very much.

So that concludes the CHRO session. Thank you very much to both gentlemen. And now we would like to start the CTO session. Hashiyama-san, the CTO and Jim Tran-san, please come to the podium.

So I'm in charge of CTO. My name is Hashiyama. And so with Mr. Jim Tran, we would like to give the CTO session, please. So as being introduced by 2 gentlemen, I have spent my entire career at TDK. However, I started as an engineer in our R&D center and subsequently gained a wide range of experience in sales, overseas assignments, leadership of business vision and the Corporate Strategy HQ before assuming my current role as CTO.

Our long-term vision, TDK transformation embodies 2 aspirations contributing to the transformation of society and continuing to transform TDK itself. And there are 2 aspirations. In the pre-financial capital represented by the roots of the Ferrite Tree, we have added software technology. By strengthening software capabilities, including AI, we aim to further enhance corporate value. For this reason, we are focusing on recruiting and developing the software talent that TDK needs to continue its transformation to provide solutions that are uniquely TDK, we need not only software expertise based on a deep understanding of the characteristics of devices such as sensors, but also the ability to connect people and business adaptability to address security and regulatory requirements.

TDK's business model is built on a diverse talent base and we differentiate ourselves by combining the capability to envision the future to bring new technologies to market ahead of others while choosing the optimal strategic position for each technology and product. So that's our TDK business model. For example, in the sensor business, by continuing sensors with Edge AI and software, we aim to contribute to the AI's ecosystem with higher value-added solutions at the module and system levels.

TDK has transformed its business portfolio through M&A over the years. More recently, we have stepped up the acquisition of the complementary technologies in order to provide higher value-added solutions to the AI ecosystem for smart glasses. Examples including the acquisition of SoftEye, which has an eye-tracking and the acquisition of assets from OQmented, which has a system technology for smart glass displays. For AI data centers, we have made Linergy a subsidiary in order to produce medium-sized batteries in Malaysia. And we are pursuing the acquisition of Fabric8Labs, which owns ECAM technology that's needed to manufacture cold plates. And the Fabric8Labs acquisition is expected to close after receiving the regulatory approvals. We will use these newly acquired technologies to further enhance corporate value and provide to the society.

Materials development has traditionally, so therefore, shown here, there are 4 areas in the AI. So on the right-hand side, so using the AI, we are going to contribute towards the business execution and that have been already touched upon by many corporations. On the left-hand side, so this is AI as a market. That is, by AI advancement. The AI ecosystem will expand, and we will have a good opportunity to provide our new technologies. On the right-hand side, so the solutions and the products in order to add value to our TDK products and also for the SensEI and for the growth opportunities. So the smart eye glasses are these areas. For that, we are going to have a detailed explanation by Jim Tran later.

On the left-hand side, this is to accelerate R&D using AI. And here, for the new materials development, there is material informatics is also becoming increasingly important. So in the past, the materials development has traditionally been said to take a long time because the development process rely on the results of experience accumulated through repeated trial and error. Today, by making use of the large amount of data we have accumulated over the years and applying AI, we aim to accelerate development and improve material properties.

The use of MI, the materials informatics. And therefore, in order to establish a sustainable material design method, it is important to use the AI. So therefore, we will continue to pursue materials development that is unique to TDK. So as physical AI moves into a full-scale adoption, we believe TDK's opportunities within AI ecosystem will become even greater. AI cannot be utilized without data, and the necessary data cannot be obtained without sensing technologies.

As shown here, by combining technologies that was through our own R&D with new technologies acquired through M&A, and other means, we will continue contributing to infrastructure such as AI data centers while pursuing medium- and long-term technology development to maximize our contribution to physical AI through new technologies.

I will now hand over to Jim Tran, who will provide a more detailed explanation of our contribution to physical AI and one of the 4 areas, AI for value enhancement. We are going to invite Mr. Jim Tran, please.

Thank you. Good afternoon, everyone. My name is Jim Tran. I'm the GM of Americas HQ and the DGM of Tech & IP headquarters. I've been at TDK for a little more than 5 years now. Prior to that, I was an engineer a long time ago, I started as an electrical engineer at Boeing and then at Sony. Then I moved my way up. I was the Vice President of Broadcom. And prior to joining the TDK, I was Senior Vice President at Qualcomm.

Today, I will focus on my discussion regarding physical AI. But at the end, I'll give a quick update on AI data center. Physical AI spans across many markets from robotics, smart glasses, AI edge devices, autonomous vehicles and drones. As physical AI ramps to a TAM of almost to $1 trillion, TDK's components and solutions will be a part of this growth. And in the next few slides, I'll explain how TDK will be part of this ramp.

Two years ago, we created a company called TDK SensEI, whose goal was to provide Edge AI solutions to improve the efficiencies of factories and warehouses. We started with CbM or so-called condition-based monitoring, where our edgeRX devices can tell you what went wrong when the machine went down in a factory. This was our first entry into Edge AI. Since then, we've now partnered with AWS or Amazon Web Services to add cloud computing capabilities to our solution. This is now -- this now allows TDK to bring predictive and prescriptive maintenance to the market, enabling our customers to plan ahead before failures happen. Not only we'll be able to predict the failure, but we will also be able to prescribe what to do before that failure happens. We expect this market to grow by 35% in the next few years.

I want to give a little more color about the market landscape. Many others have tried to do -- deliver solutions in this space, but they focused either only on the cloud or a sensor device with some limited capabilities. But here at TDK, we believe that in order to bring competitive solutions to the market, we need to bring together edge devices that are easy to deploy with multimodal sensing and leverage the compute power of the cloud and provide a total system solution, and that's what we're doing.

All factories want to maximize the uptime of their machines. This is the goal of our edgeRX and edgeRX vision solutions. By helping our customers maintain the uptime of their machines, we can help improve the efficiencies of their factories. As you can see in the graph, edgeRX aims to alert the factory management of the potential failures as early as possible to avoid downtime. This will reduce costs, maximize throughput and provide AI-powered visibility throughout the factory.

Next, I want to -- next topic I want to touch base is smart glasses. Last year, we announced the acquisition of SoftEye and formed an AR platforms business division. SoftEye is a provider of low-power eye tracking technology. Together with other TDK technologies like Full-color Laser Module, MEMS mirror, advanced battery technology and sensors, we will provide platforms that will enable smart glasses -- the smart glasses market. By optimizing these components in the system, our platforms will enable smart glasses that is usable for lasting all-day battery life, lightweight such that it can be worn comfortably all day, electronics that are small size that allows for fashionable designs. And with TDK's direct retinal projection technology, it can be scalable such that the prescription lens no longer need to be dependent on the electronics manufacturing. This market is expected to grow by 35% in the coming years.

So this technology, we believe, brings -- brings a different type of human machine interface, or HMI, to the computing world. It will be a seamless way for humans to interact with AI. With the fusion of the various sensors on the glasses, we will be able to provide contextual awareness for AI to be useful. For example, the AI will be able to use the sensors on the glasses to know where you parked your car. For instance, it will recognize as you step out of the car and close that door, that will trigger the glasses to take a picture of where you parked. And later, as you come out of the shopping mall, you can ask where did I park my car and it will pull up where you parked.

There are many more such examples like this, and I'd like to go through a few of them in the next page. Here are some other examples that you can see that the smart glasses with eye tracking can enable. For instance, you can receive a business card from somebody. And by having that AI trained, it automatically takes a picture of that business card because it knows you're trying to -- you just met somebody new and receive the business card. You can also navigate while walking or riding a bike and have eye tracking invoke functions on the UI while giving you a truly hands-free experience. I won't go through the rest of the examples, but I think you get the idea.

Now let me draw attention to something exciting in coming out of our R&D labs called SensorGPT. Just for background, every AI application requires data to train the models. 80% of creating an AI application is actually spent in collecting, curating and labeling the data. This poses a huge challenge to getting AI apps into the marketplace quickly. SensorGPT technology aims to reduce that amount of data that needs to be collected. With just a small sample of data, SensorGPT will augment or synthesize enough data to produce similar accuracy as collecting real data. This will vastly improve the time to market for AI applications that require a lot of sensor data. Our goal is to make this scalable to support a wide range of sensors. In addition, we will be sensor agnostic and provide a user experience that's simple to use as other LLMs in the marketplace. And we see this market growing very rapidly in the coming years.

Lastly, I want to showcase a newly acquired technology called ECAM, Electrochemical Additive Manufacturing. We recently announced the acquisition of Fabric8Labs, which has created a 3D printer capable of printing metal like copper. There are many applications for this type of technology like thermal management, RF antennas and passive components. This technology allows for the ultrafine pitch printing of metals like copper to create unique structures. One of the near-term applications is thermal management in data centers. Power and thermal management are some of the biggest challenges for AI data centers.

With this technology, we can print inserts for these cold plates with these micro channels that allows for efficient flow of fluid to promote better heat dissipation. This technology allows TDK to further participate in the growth of the AI data center market. We are awaiting regulatory approvals, and we look forward to giving you update as we get clearance.

This is the end of my presentation. I'd like to hand this back to Ito-san.

So this concludes the CTO session. Thank you very much. Now we would like to start the Q&A session. And please come to the podium.

Now we would like to start the Q&A session. And during the Q&A session, we invite Mr. Saito, Mr. Keller, Mr. Hashiyama, Mr. Tran and also outside Director, Nakayama-san and Mr. Katsumoto. And also Mr. Yamanishi CFO, Ikushima, and Mr. Brower and also Hiraoka-san will participate. [Operator Instructions]

So we would like to invite any questions from the floor, please. In the center, in the front row, please.

From Morgan Stanley Securities, Sato. A year ago during the Investor Day, so you mentioned about the battery ATL. So is the corporate culture and how you're going to deploy to other business or how you're going to align your corporate culture to other businesses. And during this fiscal year, so Linergy Power acquisition and also Fabric8Labs M&A. And therefore, they're having a large-scale M&A. So therefore, for the Linergy Power, so this is the batteries technology. However, this kind of HR strategy, how are you going to transfer these kind of corporate cultures? And for the Fabric8Labs, so you wait for the authorities' approval. However, going forward, so how you're going to nurture the HR within the Fabric8Labs and how you're going to utilize within the TDK? And therefore, I would like you to explain the progress?

So thank you very much for the question. So first of all, I myself is going to respond. So for the batteries business, so because of this we do have a long history, so group ATL to that group. So this is the electronic components and also the other business companies' leadership are trying to learn from that business. And therefore, from the ATL members, they are learning from each other. So that is under the thin of United from integration to RENDO. And therefore, talking about the energy. So of course, so we are going to integrate and also that has started to work in within the RENDO.

For the batteries business, as we mentioned, ATL and also the Linergy, it's under our TDK Group. And therefore, we have started the rental activity already. And also for the second question for the Fabric8Labs. So therefore, because during the presentation, they have mentioned about this company. This company -- so a few years ago, so the corporate venture capital TDK Ventures has started investment a few years ago. And from that period, so we have been collaborating from that period. And therefore, at the beginning, it was only a collaboration between the electronic components.

However, recently, we have expanded to other applications with such a huge growth potential. And therefore, it is necessary to scale up the business. And therefore, to that challenge, so because we do have a long relationship. And therefore, as a basis, we have invited the company to participate within the TDK Group. However, we are waiting for the approval. So talking about the collaboration, so we do -- they do have the unique technologies, not only the electronic components. However, they have such a growth potential. And therefore, not only the technology, so the production technology and therefore, talking about scaling up.

So we, TDK, have the electronic components and sensor business. And therefore, we do have the capability to turn it and transform into the mass production. After the approval, we are going to swiftly move to the TDK United to the RENDO. And therefore, we are going to accelerate the RENDO business. So thank you very much for the question.

Now we would like to move on to the next question. Yes, person on the left-hand side of the stage, please.

From Bloomberg, my name is Mochizuki. Well, in your presentation, you talked about the smart glasses. You said that you have already launched some products in smart glass market. I was so positively surprised that it was so quick. So could you review with us your growth so far in the smart glass business compared with your initial expectation, is the trend faster or slower? And what is your expectation going forward?

Thank you for your question. On this question, Hashiyama-san, could you respond?

Yes. Thank you very much for the question. From the demonstration, maybe there was some misunderstanding about the information. Yes, the smart glasses are available in the market today. And earlier, Mr. Saito talked about his own use of smart glasses. But how about TDKs, it's not commercially available yet. We are still developing the technology. What we have today is the one with display and one without display. So whether you can get the information from the screen or not. There are 2 types.

What is more promising is the one with the display. So what you have experienced in that exhibition is the retina-based laser injection -- projection type clear image technology as well as eye tracking to tell whether the user is looking at and AI can give you the correct information. That kind of technology is almost ready for the commercial launch. So that's what you have experienced today in the display. So today, how users are using -- there are some use cases we explained. But once smart glasses available, there are different applications and users can get information from AI in different applications. So that's why we are expecting a lot from this market.

Let me supplement. In the recent years, sensors and our main business segment like sensor business, electronic parts segment and the battery business. In the recent short term, we have a lot of potential from these. And as Hashiyama said, we have a long-term view as well. And from the long-term perspective, there are different types of potentials that we are looking forward to. When it comes to smart glasses, Katsumoto-san, what do you think about smart glasses? Do you have any views on smart glasses?

Yes. When I was with Sony, I was involved in something similar to this. For TDK, smart glass for TDK, in my opinion, is great because you can tell where the eye is looking at. So if somebody is looking at something and at what -- exactly at what time, and you can tell what happened at that time. So this is very significant because you can enter information into computer with the keyboards and so forth and images. But as soon as you look at something, it's all done. So it's a new possibility of inputting information into AI. So your eye side and without a lot of consumption of energy or electricity, you can get a lot of information. That's the secret. So we have promising opportunities for the short term, medium term and long term.

Thank you very much. So we would like to invite other questions, please. So in the front row, the right-hand side.

From Nomura Securities, Akizuki speaking. So this is a great opportunity. And therefore, I would like to ask Mr. Tran. So in the Qualcomm, so you have worked for Qualcomm. And from Qualcomm, so the smart glass and the sensors. So I think there are great business opportunities for Qualcomm as well. So going forward, so the future approach, so you do have the processors. And therefore -- so therefore, you do have the relationship with the operating system companies. And therefore, you're going to create an ecosystem, for example, thinking about the cloud connection in the future. So that's the opportunity. However, for TDK smart glass approach, -- so how -- what are the differences? So what's the advantages for the TDKs? And I'm sure there are some challenges for TDK. Of course, you are going to have a different approach. So therefore, the TDK is a unique approach. So could you elaborate on this point, please?

Okay. I think the question was elaborate on TDK's unique approach to smart glasses versus what I was doing at Qualcomm. So yes, I spent many years at Qualcomm. I was -- previously, I was the GM of Qualcomm Snapdragon, so I know very well. So one of the things that if you look at other companies, Qualcomm and others, they come from mobile phone and mobile phone has a different power profile. That is their mindset. In TDK, we are coming from a different angle from optimizing the components, but it requires both a total system from components to even the host processor.

So if you looked at the company we acquired, SoftEye, the key that -- the reason that we acquired, there's many different eye tracking companies in the world, but this one is ultra-low power. The ability to focus your eye on an object and to do it really low power is the key because I think I've outlined there's 4 things that allow -- that will drive the consumer market to adopt smart glasses. One, all-day battery life. If your glasses only last for 30 minutes, no one will use it, right? In the old days, the smartwatch didn't last very long until it lasts for 1 day, then people start using it.

Second, it has to be very comfortable. You can put a giant battery to make it last all day, but it will be so heavy that you cannot wear it comfortably for more than 10 minutes. And then the other thing is it has to be fashionable. It must -- the electronics must be so small and light that allows the glasses to be like a regular pair of glasses. So it's fashionable because the first thing you see on a person is what's on their face. It was ugly, then nobody will wear it. And then lastly, which is really key that separates TDK from other companies attempting to do this is our direct retinal projection technology.

So Saito-san has experienced it with his glasses and many of you who have tried the glasses today. Majority of glasses today is dominated by a projection technology called waveguide. So the image is projected into the waveguide. The waveguide is laminated onto your lens. Every one of us has a different prescription. I wear glasses for reading, but nothing for foresight. So everyone is different. So that imposes another step in the manufacturing of just regular glasses. Somebody has to put the waveguide on. So this prevents the scalability. So by using direct retinal projection, we don't have to worry about your prescription or his prescription or her prescription. We avoid that. This is TDK's advantage.

Suppose that such advantage from Qualcomm perspective, would Qualcomm look at the TDK as a competitor or a collaborator?

I think collaborator. Qualcomm is focused on the host processor. We are focused on eye tracking with the camera, and we also focused on the most efficient display. So together, we have to collaborate to make a true optimized system.

Thank you very much for the question. So we would like to invite other questions, please.

From Okasan Securities, Nishimura speaking. And today, so therefore, you mentioned about the device-based solution. And also, you have mentioned about some of the options, for example, the batteries and also the heat management and there are strong TDK's technologies. And therefore, in the Edge AI, what kind of solutions are you going to envision in the future? So therefore, because that is going to contribute to the business expansion. And based on that, so therefore, because starting from the multiple devices or are you going to focus on your strong areas focusing on individual devices? Or are you going to focus on the strength of software? So how are you going to create your competitive edge through your technologies?

Hashiyama-san, please.

So thank you very much for the question. So talking about the sensor, so I'd like to utilize example from the sensors. So I will be as been presented today, so global manufacturing, so this kind of preventive management, for example, equipment and the pumps, and they are going to detect the abnormality in order to communicate it is necessary to have a maintenance. This kind of preventive predictive management has been conducted based on the noise or the temperatures.

However, if there are different pumps in the different areas of the factory, they're going to detect abnormal signals in different areas. And therefore, the AI can provide the intelligence to the user. And therefore, they're able to have this predictive maintenance approach to the users. And therefore, we are going to have a multiple device, and therefore, we are going to use this intelligence in order to provide this kind of comfortable predictive maintenance to the users.

So I would like to add one point. So because TDK has a strong lineup of the sensors. And therefore, we do have the hardware portfolio. And as Hashiyama-san had mentioned, -- so we are going to combine edge. So that is being called as a software. So this is an edge. And so therefore, we are going to have -- so therefore, because the part will be processed through edge. And therefore, that is going to contribute to the low energy usage. As you may know, so this Edge AI, so not only for the sense solutions. So therefore, we are thinking about the AI ecosystem, including the data center. However, the challenge is the energy usage or the power usage. And therefore, because we are not -- so we are going to contribute to this opportunity in order to reduce the usage of the powers. So therefore, as being presented. So this will be a great potential and business opportunity for us.

Are there any other questions? Yes, person on the left-hand side, please.

From Nikkei. My name is Higashiura. I have a question to Mr. Saito and 2 external directors. This is the second briefing session on pre-financial capital. So in facing investors in forums like this, what is the significance of having your IR activities in such forum?

Can I say external directors first? I started with Katsumoto-san. So is it okay to ask Nakayama-san to respond?

Yes. Thank you very much for the question. Well, today is the day of complexity. Dialogue is more important than anything. Well, it can be with analysts and journalists or because I'm the head of the Nomination Committee, I also have opportunities to promote dialogue with the other Board members and so forth. We are external directors. So we have to ask about what's happening internally. And also to communicate with investors and analysts and just listening to your questions would give us a lot of opportunities to understand your interest, and those are very useful for our long-term strategy. Thank you very much.

Yes, in my case, so in the Board meetings and in different occasions, we have opportunities to talk to different members of the company and learning about the company so that I can be of use in the Board member discussions. But TDK itself from external people like investors, what are they interested in about TDK? Where can be issues that they are concerned about. So when we talk about these issues and so forth, and then external directors can learn more and we can contribute more to the discussions with the internal members by making useful suggestions. So there are more opportunities like this. And then that is beneficial for the external members because we want to want the company to contribute to society. So this is a great opportunity.

I myself, my background is engineering and technology. Therefore, for the internal sessions, we learn a lot about the internal technologies. Today, you asked about technologies as well. But we want to understand what kind of new technologies, products and solutions people outside are interested and would like to learn about from TDK. That is a very important information for us. That's why we would like to get more opportunities like this so that we can give useful feedback and proposals to TDK.

From myself, since the assumption of the office, I kept saying that the people is the most important thing. That's the comment that I've been making all that way. So as we do so, we have pre-financial capital and non-financial capital. Regarding financial capital, well, every quarter, we are holding investor briefing sessions to talk about the financial results for each quarter. So this financial capital is made or driven by what and by whom? That's the most important question, not only for our company, but also others as well. That is a pre-financial capital, I would say. Of course, not just internal members, but important stakeholders like investors should know about the status. That's why we are providing these opportunities.

And by having Q&A sessions like this, we can also get valuable input from investors so that for the most important fundamental aspect, pre-financial capital, especially human capital, we can get better ideas about what you expect. So last year, for the first time, we held this briefing session for pre-financial capital. Although we are saying that we are a company of the people, but this is just the second time. So we are willing to continue with these sessions with you, investors.

Last year, from external directors, they suggested that we should focus more on software talent, and we quite agreed with them. So the Board culture, we have a very open communication among the Board members, internal and external. But through these discussions, we emphasized the importance of software talent and technology talent. That's why this year, we are explaining about those talent and talent management. So from integration to RENDO, we are shifting. So we would like to continue with these sessions going forward.

Thank you very much for the question. So we would like to invite another question.

From Mizuho Securities, Goto speaking. So talking about the human capital value creation and therefore, because internal communication and also the leader nurturing programs are being implemented. I do have that understanding. However, in order to make those initiatives more significant, are you thinking about additional follow-up programs or any trainings that you have in your mind? So of course, other companies do have these kind of structures. And therefore, if you could mention a TDK unique initiative.

And also talking about the pre-financial capital in order to relate that to the financial capital, you mentioned that you're going to introduce some kind of KPI. However, I think it is very difficult to quantitatively monitor that. So how are you going to approach that?

So Mr. Keller, please.

Thank you for your question. First of all, it's also linked to the very first question we received regarding the culture of TDK and learning from each other like ATL. Actually, another member of the HR leadership team is the former Head of HR of ATL, Angela Yuan, who presented together with me last year. And actually, she is -- we have an internal project launching regarding a TDK Global Academy, where we also learn from internally because ATL has such kind of academy already, where we are actually institutionalizing such kind of programs related to AI as well, but also regarding manufacturing and other activities to actually make sure that we share best practice and that we can accelerate the learning and the education of our diverse members around the world. This is the first answer.

The second is, yes, it is not easy to measure. But as explained earlier, we are looking very much also at the communication score as part of our team member engagement survey, which is done yearly. And we put very much emphasis on this communication score because we believe that this communication or focusing on communication removes barriers to execution to find new solutions, more innovation, but also to improve recognition. So this is the reason behind. And by doing so, we believe we are able to also customize the different activities to accelerate the streamlining of the organization, get more efficient, but also increase the speed of innovation and agility.

So may I add? So as Mr. Keller had responded, I fully agree with his answer. However, if you focus on this engagement score, there is a communication score. And therefore, they have been already disclosed to outside. So therefore, improving those scores. Of course, that's important. However, on the other hand, internally, not only the HR people, however, with the team members, so we focus on another point is the comments being provided by the employees. So number of -- so 50,000 comments and therefore, because behind those figures, so those comments behind the score are important.

And therefore, because not only myself, however, when I visit all the sites, I communicate with the local people. So behind those figures, there are lots of comments. And therefore, because maybe we cannot listen and respond to all the comments. However, we are going to think and how we are able to implement those comments. And therefore, these kind of activities are important.

We're using internally also AI. Actually to analyze all those more than 50,000 comments because manually, it's impossible to do. And this helps us to put also the right focus. So actually, within a few days, we are able to distribute all the team member engagement results and the comments in a very speedy way.

So for example, we do conduct a town hall meeting. And therefore, we invite the outside directors as well. And therefore, we do have this kind of participation. And Nakayama-san, you have joined this town hall meeting as well.

Yes. So as Mizuho Securities person have mentioned, well, because -- so all the companies have already implemented and created the structure because I had worked in this automobile company for 20 years. They have that kind of structure. However, because as you have mentioned, so those are the treasure troves, because so with using AI, we are able to analyze those comments.

And therefore, how we are going to respond to those comments are so important. So as Saito-san has mentioned as a Board culture because we are trying to engage with outside. For example, we make a business trip to the factories. And this year, we are going to visit our headquarter. And therefore, with the employees, we do have the opportunity to discuss with the employees. And therefore, having that kind of opportunity, we look whether they are enjoying the working. And this is very analog information.

However, whether those comments have been implemented. And therefore, that is going to relate to a big evidence, because if some people are so tired of works, well, because what kind of measures or countermeasures we can implement because I'm working as an outside director, and therefore, I'm in the Nomination Committee and therefore, that was a joke. So However, having said that, so talking about the pipeline, so therefore, well because from the bottom up -- so therefore, we need to focus on the younger generation or younger employees, whether they are enjoying their workplace.

So Nakayama-san, Katsumoto-san thank you very much for joining the town hall meeting.

Thank you very much. Are there any other questions? Yes, person in the middle row.

From Mitsui Sumitomo Trust Asset, my name is Sawashima. I want to ask Hashiyama-san one question, CTO. In the recent 3 years, you have done a lot of M&As and to get the technologies, acquire technologies. You've been very successful in M&A. But how about the IP, intellectual properties? What is making it so successful? Probably TDK Ventures is doing something behind. So what are the secrets of success? And going forward, how is it changing going forward? Sorry for the many questions. But for human capital, you showed us per person OP, ROI of human capital. So you have those important KPIs. But when it comes to R&D, what is the effectiveness that you are measuring in terms of the effectiveness of investment?

Yes. Thank you very much for your question. Technological development in this area, well, in my -- one of the last slides I used showed you the ability to envision the future and execution capability to realize that. We have to nurture those 2. So those -- on the left-hand side is the ability to conceive of the future. And then we need a lot of different and diverse talent to do this.

And also TDK Ventures that we mentioned. So only with the existing technology, there are certain markets that we cannot access, but we have done a lot in order to address this issue. So there is AI, which is evolving, how can we approach the AI ecosystem. We thought about the different ways. So between the existing technologies and the new technologies, by having new technologies as well, we can create new values. Based on those assumptions, we conducted those acquisitions. Still, we are waiting for the approval of the authorities, as we said in the presentation. That technology is a mechanical parts technology.

So it's a different technology from what we have at TDK, but there is a great level of affinity technologically speaking. For example, power consumption is a big issue, as he said. So there is something relevant, GPU, how can we achieve the cooling of GPU so that we can utilize the power effectively. We can utilize this technology. That's why we acquired this company with the mechanical parts technology. So diversity and diverse approach, we conceive of the possible future and try to realize each element of this future vision.

How about the external perspective? Do you have any comment?

Well, that's a tough question. Well, in terms of the presentation we made today, as an external director, what I'm looking at is, for example, Fabric8, we are waiting for the approval of the authorities. But we are welcoming this technology. Immediately, they introduce these opportunities to us, and we can also talk to the top management. That was the case at the time of SensEI and AR glass. So immediately, they come to us. So there is an equality among different functionalities in our company. That's why they talk to us in such a frank manner.

So TDK, we have a capability to discern what is the quality technology going forward. But RENDO's speed, I think, is quite fast at TDK to involve different types of people in projects like this. There was this first question today. So what is the benefits of ATL? We are trying to learn from each other because in the past, we were just trying to integrate. That was all. So by putting those pieces together. But today, we are trying to do RENDO. So for example, in order to make an AR glass, in such a small diameter, how much capacity can we get? When we think about that, ATL battery can help us a lot. So how can we utilize that? And immediately, AR glass company discussion started. So that's the flexibility and strength of TDK.

As Mr. Hashiyama said, we conceive of the possible future and try to execute. So as we do that, we are using RENDO and equal spirit between different functions. So for the last 1 or 2 years, this kind of spirit is being strengthened, I think. So I've been in R&D for many years myself. So what is of a high quality, we have to nurture by ourselves. And also we have to acquire from outside. And then with RENDO, we can execute faster. So that will be an important KPI. Probably the members who are on the panel today, if you look at us, you can tell there is a great level of diversity. With multiple eyes, we are making judgment at TDK. I think that is very significant.

Thank you very much for the questions. We are running out of time. So next question will be the last question for today. [Operator Instructions] No questions? So now we would like to conclude the Q&A session. And lastly, we are going to invite Mr. Saito for the closing remarks.

So thank you very much for your participation despite your busy schedule. So during the earnings announcement in April, we had given the explanation. However, we are going to strengthen our pre-financial capital further transforming TDK's value creation chain, our value creation cycle with greater speed and efficiency. So that's our result. And finally, during the presentation and during the Q&A, we have mentioned several times the word RENDO alignment. So we have chosen RENDO as the theme of this year's united report.

So therefore, we will transform United from integration to RENDO, that is, alignment. So as shown here, RENDO encompasses many forms of alignment. And therefore, we would like to accelerate further. So this kind of constructive dialogue and collaboration with all the shareholders, investors and analysts. And therefore, we would like to work together. So RENDO and we have received many insights and advice today. And therefore, we would like to link them to our actions to RENDO in order to further enhance our corporate value. So we appreciate your continued support. Thank you so much for your time today. Thank you very much.

This concludes TDK Investor Day 2026. Thank you very much for your collaboration and participation. Thank you so much.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

We will begin the first quarter performance briefing for fiscal year March 2027 for TDK. Thank you for your participation despite your busy schedules.

I'd like to introduce the TDK attendees. First, Senior Executive Vice President and CFO, Tetsuji Yamanishi.

Good afternoon.

Executive Vice President, Shigeki Sato; Corporate Officer, Fumio Sashida; and Corporate Officer, Takao Tsutsui.

Good afternoon.

These are our attendees. We will first explain the Quarter 1 fiscal year March 2027 results highlights and fiscal year March 2027 projection, then open the floor for questions and answers. The total duration will be 60 minutes. Please find both Japanese and English versions of the presentation materials on our website.

Mr. Yamanishi, please?

So this is Yamanishi speaking. First, from myself, consolidated financial results for the first quarter. The key highlights of the first quarter results for the fiscal year ending March '27. In the electronics market, which has a significant impact on our business production of ICT-related products, including smartphones, declined year-on-year due to tight memory supply and demand and higher memory prices. Meanwhile, demand for nearline HDDs for AI data centers remained robust.

Capital investment demand in the industrial equipment market also remained solid. In the automotive market demand remained resilient, supported by the continued shift towards electrification and autonomous driving. Against this backdrop, although lower production of ICT-related products had a negative impact, strong sales of newly launched smartphone models, together with solid demand related to AI data centers, drove year-on-year growth in both sales and operating profit across all business segments. Overall, net sales increased by 38.3%, while operating profit rose 53%. Both net sales and operating profit reached record highs for the first quarter.

Next, the first quarter financial results in detail. Foreign exchange movements, primarily against the U.S. dollar, increased net sales by around JPY 72.5 billion and operating profit by around JPY 11.3 billion. Net sales totaled JPY 741 billion, up JPY 205.3 billion or 38.3% from the same period last year. Operating profit came to JPY 86.3 billion, an increase of JPY 29.9 billion, increase of 53%. Profit before tax was JPY 94.5 billion, up JPY 36.9 billion or 64% from earlier. Profit attributable to owners of the parent reached JPY 80.6 billion, up by 94.4%. We achieved record highs in net sales at every level of profit. Quarterly EPS came to JPY 42.45. Our operating profit sensitivity exchange rate is estimated at around JPY 2 billion annually for every JPY 1 movement against the U.S. dollar and approximately JPY 300 million against the euro.

Next, business performance by segment. Passive Components. Sales increased across all 3 key markets: automotive, ICT and industrial equipment. Sales for AI data center applications increased significantly. Net sales reached JPY 176.8 billion, up 28% year-on-year. Operating profit totaled JPY 17.4 billion, approximately 2.7x.

Ceramic capacitors achieved higher sales and profits, driven by strong demand from AI data centers. Profitability also improved. Aluminum film capacitors benefited from higher sales to both the automotive market and AI data centers. Inductive devices posted higher sales and profit, supported by increased automotive demand. Although sales of high-frequency components declined in the automotive and ICT markets, however, profitability improved. Piezoelectric materials and circuit protection devices recorded higher sales and profits, thanks to increased demand from the industrial equipment and automotive markets.

Next, Sensor Application Products. Sales volumes increased in both the ICT and industrial equipment markets. Net sales rose to JPY 61.9 billion, an increase of 33.3% year-on-year. Operating profit reached JPY 7.8 billion, nearly 3x the level of the previous year.

Temperature and pressure sensors posted higher sales and profit, supported by stronger demand from the automotive and industrial equipment markets. Magnetic sensors benefited from increased smartphone demand for TMR sensors as well as higher industrial equipment demand for whole sensors. As a result, the magnetic sensor business achieved higher sales and profits. MEMS sensors benefited from higher sales of motion sensors for both ICT and industrial equipment applications. The MEMS sensor business achieved higher sales and returned to profitability from a loss a year earlier. This made a significant contribution to sensor profitability.

Next Magnetic Application Products. Net sales reached JPY 81.6 billion, up 49.6%. Operating profit increased to JPY 9.6 billion, up 51.8%.

Demand in the HDD market remains strong, supported by expanding AI data center demand. HDD heads shipment volume increased by 36%. HDD suspension shipment volume increased by 31%. As a result, both sales and profit increased substantially. Magnet sales increased, thanks to stronger demand from the automotive market. However, profit declined because the previous year included approximately JPY 1 billion in onetime gain. Ongoing quality improvements and cost reductions significantly narrowed the underlying loss.

Energy Application Products. Net sales reached JPY 405.8 billion, an increase of 42.1%. Operating profit came to JPY 69.4 billion, up 25.3%.

Shipment volumes and rechargeable batteries declined as production of ICT-related products decreased. However, for small batteries, we implemented price adjustments, reflecting changes in material costs. The expansion of our battery pack business also contributed to higher sales and profits. Sales of midsized batteries for industrial equipment also increased. As a result, secondary rechargeable battery business as a whole achieved higher sales and profits. Power supplies for industry equipment benefited from a gradual recovering demand, particularly from semiconductors. Consequently, both sales and profits increased during the first quarter. The transfer of newly developed business within our EV power supply business has completed. Accordingly, a onetime gain on the sales of approximately JPY 2.6 billion was recorded.

Next, the quarter-on-quarter changes by business segment from the fourth quarter to the first quarter. First of all, the Passive Components, net sales increased by JPY 21.8 billion or 14.1% from the previous quarter. Operating profit rose by JPY 6 billion, representing a 52.5% increase. Ceramic capacitors recorded higher sales, driven by both automotive applications and AI data centers. We are able to have a higher sales and profit. Sales of aluminum film capacitors also increased for both AI data centers and automotive applications. Inductors posted higher sales and profit, supported by increased demand from both automotive and ICT markets. High-frequency components achieved higher sales and profits due to increased demand from the ICT market. Piezoelectric and circuit protection devices also recorded higher sales and profits, driven by stronger demand from automotive and industrial equipment markets.

Turning to Sensor Application Products. Net sales increased by JPY 5 billion or 8.7% from the previous quarter. Operating profit increased by JPY 6.3 billion, more than fivefold from the previous quarter. Temperature and pressure sensors delivered higher sales and profit. Thanks to stronger demand from the automotive and industrial equipment markets, whole sensors sales remained flat, while TMR sensor sales increased due to seasonal demand in the ICT market. MEMS motion sensors increased, also achieved higher sales and profits on the back of increased industrial equipment. As for profits in the fourth quarter, we had to appropriate JPY 1.2 billion for structural reform expenses. But if we excluded that, the magnetic sensor overall posted increased profits. In MEMS sensors, there were increased sales of motion sensors for industrial equipment. Thus overall, there were uptake both in sales and profits.

Next, the Magnetic Application Products segment, compared to the fourth quarter sales, were up JPY 5.5 billion, that's a 7.3% increase. Operating profit ended with JPY 2 billion or 27% increase. Sales volume of HDD has rose by 12%, suspension sales volume was up 8%. Overall, the HDD heads and suspensions resulted in higher sales and profit. Although revenue for magnets declined, we are reducing losses through cost improvements.

Finally, Energy Application Products segment had sales increase by 17.6% or JPY 60.7 billion from the fourth quarter, and operating profit increased by JPY 27.8 billion or 66.8%. Sales volume of small batteries for ICT market rose approximately 4%, and the small battery pack products and medium-sized batteries also has significant increase in sales and profits. Power supplies for industrial equipment saw a recovery in demand, resulting in increased sales and profit. As explained earlier, in the EV power supply business, we recorded JPY 2.6 billion of gains from new business transfer. The difference from JPY 7 billion appropriated in the fourth quarter for structural reform expenditure and the JPY 2.6 billion gains from the business transfer amounts to JPY 9.6 billion increase in profits and is included in the profit for the Energy Application segment.

Next, regarding the analysis of the JPY 29.9 billion increase in operating income. Profit increased by JPY 35.1 billion due to higher sales volume across all segments. Although price fluctuations had an impact of JPY 6.4 billion, this was largely offset by JPY 4.8 billion in cost reductions from rationalization efforts and JPY 900 million in benefits from structural reforms implemented in the previous fiscal year. Selling, general and administrative expenses increased by JPY 17.4 billion due to higher R&D expenses, primarily in the rechargeable battery business where development of new technologies and products is accelerating, and in the HDD head business, which is advancing the development of next-generation technologies, such as HAMR. Combined with the JPY 1.6 billion increase from nonrecurring gains and JPY 11.3 billion positive impact from weaker yen, this resulted in an overall profit increase of JPY 29.9 billion.

Next, I will explain the cash flow situation. Operating cash flow for the first quarter was a negative JPY 19.2 billion. In addition to an increase in working capital due to sales growth, a decrease in withholding tax payments served as a temporary cash outflow.

Regarding investing cash flows, capital expenditures remained largely in line with initial projections. Additionally, in the rechargeable battery segment, cash outflows related the acquisition of Linergy were included, resulting in total of JPY 60.2 billion. As a result, free cash flow was a negative JPY 79.4 billion. In the first quarter, free cash flow was significantly negative due to increased capital expenditures associated with business expansion such as acquisitions and an increase in working capital as well as temporary cash outflows. However, the impact on the capital allocation projected for this medium-term management plan period is minimal.

Next, I'll explain our full year earnings forecast for the fiscal year ending March 2027. First, I'll explain the projected changes in sales by segment from the first quarter to the second quarter. The exchange rate assumption for the second quarter is JPY 150 to the dollar, which is unchanged from the assumption announced at the beginning of the fiscal year. However, I'll explain the changes excluding the impact of exchange rates here.

First, regarding Passive Components, growth in inductive devices for automotive markets as well as increased sales of various products for AI servers, such as aluminum electrolytic capacitors, will drive a projected overall growth of 2% to 5%.

With Sensor Application Products, due to the seasonality in the ICT market, we expect growth in magnetic sensors and MEMS microphones that will lead to overall growth of 3% to 6%.

In Magnetic Application Products, thanks to increases in sales volume designated for captive and 10% uptake in volume for heads, around 6% of uptake in suspension assemblies, the whole segment is expected to have 6% to 8% (sic) [ 5% to 8% ] growth.

Lastly, in Energy Application products, taking seasonality into account, we expect smartphone production volumes to peak in the second quarter of this fiscal year, with quarter-over-quarter increase of approximately 5%. We anticipate around 10% increase in sales volume of small batteries, and the medium-sized batteries for industrial equipment are expected to grow. Thus, the overall increase is projected at around 9% to 12%.

Next, the outlook for full year consolidated results for the fiscal year ending March 2027. In the first quarter, in addition to strong sales to AI data centers, while production of ICT-related products declined year-over-year, the launch of new products such as smartphones helped. Our performance significantly exceeded the levels projected at the beginning of the fiscal year.

We expect sales in all segments to exceed the levels projected at the start of the fiscal year in the second quarter as well, and we anticipate that company-wide performance will continue to trend favorably. However, we recognize the need to carefully monitor future global developments, changes in demand trends and exchange rates. Therefore, we have maintained the full year earnings forecast for the fiscal year ending March 2027 at the levels announced at the beginning of the fiscal year.

Finally, we have 2 announcements. We published the TDK United Report 2026. The English version is scheduled for release on August 7. Focusing on the theme of synergy with TDK United and centered on materiality, this report details our initiatives aimed at realizing our long-term vision, enhancing corporate value. It is available on the TDK website. So please take a look.

And one more thing, we will be holding an Investor Day on September 1. Team members from TDK United will present on TDK's nonfinancial capital, human capital and software technology. We plan to live stream the event as well.

This concludes my presentation. Thank you.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

We will now start the TDK Corporation Full Year performance briefing for the fiscal year March 2026. Thank you very much for taking the time to join our briefing today. First, let me introduce the attendees. President and CEO, Saito Noboru; Senior Executive Vice President, CFO, Tetsuji Yamanishi; Executive Vice President, Sato Shigeki; Corporate Officer, Sashida Fumio; Corporate Officer, Tsutsui Takao. That is all for the attendees. Today, after presenting the full year results and projections for the fiscal year March 2027 and also midterm planned progress, and then we will have a Q&A session. The entire session is scheduled for about 90 minutes. Today's materials are available in both English and Japanese on our website. So please refer to them as well. The floor is yours, sir.

Hello, I am Saito. Thank you very much for joining us today. At the outset, let me summarize what we want to communicate today. For the fiscal year March 2026, we achieved increased sales and profit, breaking past records. Free cash flow exceeded our assumptions, and we revised shareholder returns upward from the initial plan and raised dividends. For the fiscal year March 2027, although there are headwinds such as tensions in the Middle East and lower ICT device production, such as smartphones due to soaring memory prices, we will continue to reinforce the management conscious of Control the Controllable, that is improving our capabilities. While the midterm plan targets are generally expected to be achieved, we will further enhance business portfolio management.

Today, I will elaborate on the investment in the AI ecosystem, a major potential for us in the mid- to long term, highlighting progress on our growth strategy on AI data center-related products. In addition, we are intensifying our engagement with investors and analysts. At the Investor Day scheduled for September 1, we plan to talk about our software technology as a newly added core and human capital. These are the key points for today. Now let me pass the floor to Mr. Yamanishi.

I am Yamanishi. I will present the highlights of the consolidated results. First, the highlights of the full year results for the fiscal March 2026. In the electronics market, which affects our performance, ICT-related production remained solid year-on-year and demand for nearline HDDs for data centers also stayed strong. In the industrial equipment market, demand for renewable energy remained firm. On the other hand, in the automotive market, battery EV demand continued to be weak, resulting in a component demand below initial expectations. Under this environment, component demand in the ICT and industrial equipment market remained solid, posting year-on-year revenue growth in all segments. In total, sales were up 13.6% and the profit increased 21.5%, breaking past records for both net sales and operating profit.

Next, I will provide the full year P&L overview. Including the FX impact headwind to net sales of about JPY 2.5 billion and operating profit of about JPY 10.5 billion, net sales were JPY 2,504.8 billion, up JPY 300 billion or 13.6% year-on-year. Operating profit was JPY 272.4 billion, up JPY 48.2 billion or 21.5%. Profit before tax was JPY 276.8 billion, up JPY 39 billion or 16.4%. And the net profit was JPY 195.7 billion, up JPY 28.5 billion or 17.1%, marking record highs in net sales and all profit items. EPS was JPY 103.09. The FX sensitivity for operating profit is estimated to be about JPY 2 billion for JPY 1 move to $1 for a year, same as before and about JPY 300 million to euro.

Next, the performance by segment for the full year. First, passive component sales for the industrial equipment and automotive markets increased, posting net sales of JPY 593.2 billion, up 6% year-on-year; and operating profit, JPY 41.8 billion, up 22.8% year-on-year. For ceramic capacitors, sales for the automotive market and industrial equipment increased, leading to higher sales but lower profit due to lower average selling prices.

Aluminum electrolytic and film capacitor sales for the industrial equipment market such as renewable energy and AI servers increased and net sales increased, while structural reform expenses of JPY 2.8 billion were recorded mainly in the first half for the portfolio management, profit increased. For inductive devices, sales for the automotive and industrial equipment markets increased and posted higher sales, but profit slightly decreased due to mix deterioration. High-frequency components. Sales for the ICT and industrial equipment markets decreased, but profitability improved. Piezoelectric material products and circuit protection components sales increased for the industrial equipment and net sales and profit increased.

Next, the Sensor Application Products segment. Net sales were JPY 224.6 billion, up 18.6% year-on-year and operating profit, JPY 20.7 billion, a fourfold growth. Temperature and pressure sensor sales increased for the automotive market and net sales increased, but profit decreased due to a weaker mix and other factors. Magnetic sensors, sales of TMR sensors for smartphones increased and the sales for automotive also increased, posting higher sales and profit for magnetic sensors as a whole. MEMS sensors, on top of microphone sales growth for the ICT, sales of motion sensors for industrial equipment increased and the MEMS sensor sales increased as a whole, turning from the previous year's loss to profit, contributing meaningfully to overall sensor earnings.

Next, the Magnetic Application Products. Net sales were JPY 262.9 billion, up 17.6% year-on-year and operating profit JPY 27 billion, a significant increase of about 8x. HDD heads and suspension assemblies. Sales volume for nearline HDDs increased about 14% for heads and about 35% for suspensions, recording a significant increase in sales and profit. Magnet sales increased for the automotive market, resulting in net sales growth and the loss is shrinking due to cost improvement effects, including quality enhancement. Energy Application Products. Net sales were JPY 1,370.3 billion, up 16.5%. Operating profit, 246.7% (sic) [ JPY 246.7 ] , up 5.2%. Rechargeable batteries. Small capacity battery sales for smartphones increased with new models. And the medium batteries sales also grew for the industrial equipment. Rechargeable batteries in total grew both in sales and profit. Power supplies for industrial equipment showed a gradual recovery in demand and both sales and profit increased.

The factors for changes in net sales and operating profit by segment from the third quarter to fourth quarter. First, in the passive components, sales were up [ JPY 2.5 trillion, ] 1.6% and operating profit was down JPY 4.2 billion, partly due to the fixed asset taxes. Ceramic capacitors sales for the automotive market decreased, but sales for industrial equipment for AI data centers and others increased, resulting in higher sales and profit remained virtually flat. Aluminum and film capacitors saw increased sales for renewable energy and AI data centers. Net sales and profit increased. Inductors, while sales were flat, profit decreased due to mix deterioration and the utilization losses from the Chinese New Year holidays in facilities in China. High-frequency components saw a decrease in sales for the ICT market due to seasonality and sales and profit decreased. Piezoelectric products and circuit protection components sales and the profit increased.

Next, Sensor Application Products. Sales decreased by JPY 2.9 billion, 4.9% and operating profit significantly decreased by JPY 5.7 billion. Temperature and pressure sensors sales were flat, but recorded losses due to structural reform expenses of JPY 300 million. Magnetic sensors, while sensors -- sales of Hall sensors were flat, sales of TMR sensors for ICT decreased with seasonality and net sales decreased for the total magnetic sensors. Profit significantly decreased due to the structural reform expenses of JPY 1.2 billion in Hall sensors. MEMS sensors sales of MEMS microphones and motion sensors were flat, but the profit decreased due to the structural reform expenses.

Next, the Magnetic Application Products. Sales increased by JPY 5 billion, 7.1% from Q3 and operating profit was flat. HDD heads sales volume increased by 9% and sales and profit increased, while sales volume of suspensions was down 5% due to the reaction to front-loaded shipments in the Q3 and sales and profit decreased. For HDD heads and suspension as a whole, sales increased, but the profit decreased. In magnets, we are proceeding with price pass-through of material prices. Sales increased and the loss has narrowed.

Finally, Energy Application Products Sales decreased by JPY 32 billion or 8.5% Q-on-Q and operating profit decreased by JPY 25.8 billion or 38.3%. Sales volume of small capacity batteries for the ICT market decreased by about 14% due to seasonality and the sales and profit decreased. Power supplies for industrial equipment showed a trend in recovering demand and sales and profit increased.

Next, analysis of JPY 48.2 billion increase in operating profit. Increased sales volume across all segments resulted in JPY 128.6 billion increase in profit. Rationalization and cost reduction of JPY 18.8 billion and restructuring effects implemented in the previous term of JPY 5.9 billion contributed to the higher profit, while selling price fluctuation had a negative impact of JPY 53.2 billion. SG&A expenses increased by JPY 44.6 billion due to higher R&D expenses, mainly in rechargeable batteries with accelerated development of new technologies and products. Although there was a negative impact of JPY 3.3 billion from the decrease in one-time income from the previous year, JPY 6.6 billion decrease in restructuring expenses and negative FX impact of JPY 10.6 billion. In total, the profit increased by JPY 48.2 billion from the higher sales volume.

Next, cash flow situations. For the full year, operating cash flow was JPY 507.7 billion, and the investment cash flow saw an increase in CapEx, mainly for rechargeable batteries in new products and technologies. In net, it was up JPY 133 billion year-on-year. Free cash flow was JPY 129.9 billion, down JPY 71.1 billion year-on-year, but it trended above the expected level.

Next, the full year projections for the fiscal year March 2027. First, I will talk about the production volume forecast for major devices as the assumptions for projections. For the automotive market, we expect total production to decrease by about 1% and xEVs to increase by about 13%. For smartphone production volume in the ICT market, we forecast 1.112 billion units, 10% decrease impacted by memory shortages. The total HDD market will decrease by about 2%, but demand for AI data centers will remain strong and we expect production of nearline HDDs for data centers to increase by 7%. For laptops and tablets, we expect decreases by 12% and 8%, respectively, due to memory shortages similar to smartphones. With growth in demand for AI servers, we have included the outlook for AI serverables, which will increase by 21%.

Next, the consolidated earnings projections for the fiscal year March 2027. Based on the device market forecasts and the recent demand trends, our full year projections are JPY 2.58 trillion in net sales, operating profit, JPY 295 billion and net profit JPY 225 billion. For exchange rates, we assume JPY 150 to the dollar and JPY 175 to the euro, roughly the same level as the average for the fiscal March 2026. We forecast free cash flow of JPY 60 billion as we plan a significant increase in CapEx for midterm growth. For business portfolio management, we plan about JPY 6 billion in onetime expenses such as restructuring costs. For the dividend per share, considering the profit increase, we plan JPY 20 each for midyear and year-end, JPY 40 for the full year.

Next, the image of net sales changes by segment for the full year. Since the currency impact is minor, we will compare based on disclosed figures. For passive components, sales of inductive devices for automotive and products for AI servers, including aluminum electrolytic capacitors will grow, thus 5% to 8% increase overall. Sensor application products, while magnetic sensor sales volume will decrease, we expect an overall range of flat to plus 3% with sales growth of new microphone products in MEMS sensors, magnetic application products with nearline HDD heads sales volume increase about 50% with orders from captive manufacturers and the suspension sales volume up about 22%, leading to a significant increase by 21% to 24% overall. Lastly, energy application products, while smartphone production decreases about 10%, we expect small capacity battery sales volume to be down about 7% due to improved mix and share gain, resulting in a range of minus 3% to flat overall.

Next, I will explain the changes in operating profit for the fiscal year ending March '27. We project JPY 20 billion increase due to higher sales volumes, primarily in passive components. We anticipate JPY 28 billion increase from profitability improvements in business currently classified and as undergoing improvement such as HDD heads and aluminum electrolytic capacitors. We expect JPY 4 billion increase from loss reduction resulting from exiting businesses such as EV power supply and camera module actuator businesses. Furthermore, we plan to absorb JPY 45 billion impact of selling price fluctuations by enhancing cost competitiveness through rationalization and cost down effect JPY 30 billion effects of structural reforms from previous years, JPY 3 billion, reduction in one-time expense, JPY 9 billion.

Regarding expenses for future growth, we plan an increase of JPY 19.4 billion in SG&A expenses primarily for R&D to strengthen new product and technologies in secondary batteries and HDD heads and an investment of JPY 5 billion, mainly in R&D for new business expenses such as it's AI-related businesses. Finally, including a minor impact of JPY 2 billion from yen appreciation, we project an overall increase in operating profit of JPY 22.6 billion.

Next, I will explain the projection for various expenses. For the CapEx, we plan a total of JPY 370 billion, actively investing in new technology and product launches for small batteries as well as facilities for HAMR compatible HDD heads and further capacity expansion for suspension. Depreciation, we project JPY 240 billion, reflecting the increase from capital investments made in previous fiscal year. R&D expenses, we plan for JPY 310 billion, focusing on developing new technology for secondary batteries, HAMR-related development for HDD heads and accelerating development to expand new businesses such as Edge AI.

Lastly, I will explain about dividends. Our policy for the current midterm management plan is to provide shareholder returns based on 35% payout ratio. For FY '26 March, we initially planned an interim dividend of JPY 16 and a year-end dividend of JPY 18. However, based on increased profit, we have raised the year-end dividend to JPY 20, totaling an annual dividend of JPY 36. For FY '27 March, we plan to increase the dividend to JPY 40 annually with both interim and year-end dividends at JPY 20 each. We will continue to consider appropriate shareholder returns based on future profit performance and our cash on hand situation. This concludes my explanation. Thank you very much.

Now I will explain the progress of our midterm management plan. I will explain the actual results and projections for financial KPIs of this midterm management plan. In FY '26 March, we achieved record high sales and profits at every level, meeting all of our KPIs. For FY '27 March, the final year of the plan, we will strengthen both financial and nonfinancial initiatives to achieve our targets and focus on capital profitability by further enhancing our strengths. Regarding the progress of our capital allocation policy, we initially expected roughly JPY 1 trillion in operating cash flow over the 3-year period. However, since the FCF exceeded our initial expectations in the first 2 years, we now forecast a total 3-year surplus of JPY 300 billion. Of this, approximately JPY 130 billion will be used flexibly for strategic investments. And for the CapEx, we are going to add JPY 200 billion, primarily for the Energy and Magnetic Application segment.

For energy, we are increasing investment in related equipment to meet the strong demand for innovative battery technologies. For magnetic applications, we are expanding the capacity to meet strong demand for both heads and suspensions. The investment for head is specifically for HAMR production launch. Regarding strategic investment, as we did with the acquisition of SoftEye last year, we will continue to invest actively in the AI ecosystem.

Next, I will explain the progress of 3 key points of our new midterm management plan. Regarding the first point, strengthening cash flow management. As I have explained, we have exceeded our initial projections. Regarding the third point, the evolution of Ferrite Tree strengthening nonfinancial capital, we have made various advances. We will continue to enhance these alongside our sustainability and DX initiatives to evolve the Ferrite Tree significantly. Regarding the second point, proactive business portfolio management, I will explain this in detail in the following slides. As I mentioned in last November, we are strengthening, accelerating and promoting proactive business portfolio management to achieve an ROE of 15% or higher an ROIC of 12% or higher. Our portfolio management is primarily about promoting growth strategy. The key points are: first, organic growth and profitability improvement of growth driving business; second, actions for business to be intensively monitored. Third, inorganic growth, including R&D, CVC investments and M&A.

As we have mentioned previously, we view various AI-related applications as part of an AI ecosystem. This slide shows the sales growth performance and projections for AI ecosystem market, which I explained last April. Last year, it accounted for slightly over 10% of total company sales. By FY '27 March, it is expected to grow by 25%, reaching around 15% of total sales. Today, I will focus on our blue and green existing products and the new green shaded business focusing on semiconductor manufacturing equipment. First, regarding our HDD head and suspension business among our existing products. Demand for storage capacity in the HDD market is growing stronger than initially anticipated. HDD manufacturers are responding to this demand by increasing storage capacity per drive rather than increasing unit volume. This presents a major business opportunity for us. We have already started mass production of MAMR technology, which enables high-density magnetic recording in 2 years, we plan to launch mass production of HAMR and increase our high value-added product ratio and make our HDD head business a high profit venture.

Next, regarding passive components, we possess a wide product lineup to support AI data center infrastructure. Data center power unit voltages will increase to 400 to 800 volts. We see this as an opportunity for our high-voltage capable products where we have a competitive edge in xEV applications such as aluminum capacitors, MLCCs and film capacitors. We are also strengthening the low-voltage domain. We announced the establishment of a joint venture with Nippon Chemical Industrial on April 2. This joint venture will accelerate the development and materials for low-voltage, high-capacity MLCCs used in data centers. We are also enhancing inductors. Vertical power deliveries, which addresses a low-voltage high current challenge is an opportunity for us to help reduce power consumption in data centers. We hold various inductor technologies, wire-wound, multilayer and thin film and are accelerating capacity expansion for thin film inductors, which will contribute to earnings in this term.

Demand for thin film inductors for optical transceivers and chip beads is also robust. Through these initiatives, we plan to increase sales of passive components for AI data centers by approximately tenfold. We will continue to refine our competitive edge in both high-voltage and low-voltage areas, executing each strategy with timely and aggressive investment.

Next, I will explain the progress of our initiatives for semiconductor manufacturing equipment as presented at the Investor Day on November 28. We sell equipments such as load ports and flip chip bonders. We plan to expand this business by combining high-density, high-precision mounting technology with high reliability and high heat dissipation materials to contribute to reduce power consumption in order to expand our business. And today, I will focus on the progress of our semiconductor bonding materials. We have acquired technology from Naphra related to nanocomposite materials, which offer higher heat dissipation than the precious metals like silver currently used for loaded and power IC bonding materials. This material offers numerous advantages of heat resistance reliability and heat dissipation.

We have decided to aim for the industry's first mass production of this material. We plan to begin mass production for some customers during the next fiscal year. We have already received many inquiries and are considering expanding this to our internal product lineup. This material holds great potential for reducing power consumption in high-density packaging and is expected to expand into many markets beyond semiconductors. Going forward, we will be collaborating with our partners and enhance this business. And therefore, please have great expectation to us.

Next, I will explain the progress of our portfolio management. Out of 29 total CBUs, 2 business units have reached profit base. The number of businesses under improvement that have a clear path to profit base have increased from 9 to 13. These are primarily passive component CBUs. We will determine the direction for the 5 CBUs currently under discussion by the end of this fiscal year, which is the final year of the midterm plan. Additionally, while the effect is about JPY 32 billion from FY '26 to FY '27 March, we estimate the cumulative improvement effect during this midterm plan to be approximately JPY 90 billion. Following the progress made of our portfolio management, ROIC by segment has improved as shown here. We will continue to focus on capital profitability to raise the ROIC-WACC spread and aim for expanded cash flow.

Finally, regarding inorganic growth, which is the third pillar. In April, we reorganized the corporate marketing and incubation group integrating the factory component and sensor sales teams to establish a sales and marketing headquarters responsible for company-wide sales. We have also made the incubation group independent and placing it within the R&D center to further strengthen new business creation. Through these changes, we will transform our value creation cycle to be more agile and more efficient. At the September Investor Day, we plan to explain our efforts regarding human capital, the root of Ferrite Tree and software technology such as SensEI and the AR platform. Through this transformation, our value creation chain, we will continue to grow the Ferrite Tree sustainably. This concludes my presentation. Thank you for your attention.

We would like to start TDK Corporation's Third Quarter Financial Results Briefing for the fiscal year ending in March 2026. Thank you for being here despite your busy schedules. Let me introduce the participants. Senior Executive Vice President, CFO, Tetsuji Yamanishi. Executive Vice President. Shigeki Sato. Corporate Officer Fumio Sashida. Corporate Officer, [indiscernible]. That's all the participants from the company side.

We will first cover financial results for the third quarter of fiscal year ending March 2026 and the full year forecast before moving on to Q&A. The entire session is about 60 minutes. The handout materials used during the briefing are available on the company's website, both in Japanese and English.

Now Mr. Yamanishi, the floor is yours.

This is Yamanishi speaking. Thank you very much for joining TDK's earnings call for the third quarter of fiscal year ending March 2026. I will now begin with a summary of our consolidated results. First of all, these key points for the 9-month period from April to December. In the electronics markets that drive our results, ICT-related production remained solid year-on-year and nearline HDD demand for data centers stayed strong.

In contrast, in the automotive market, battery EV demand remained weak and automotive parts demand was below our initial assumptions. In this environment, solid component demand in the ICT and the industrial equipment markets drove year-on-year revenue growth across all segments for the 9-month period. Overall, net sales rose 11.3%, and the operating profit increased 10.4%, both reaching record highs for the 9-month period.

Next, I will provide more details on the 9 months results. Including FX impacts, approximately a JPY 29.4 billion tailwind to net sales and a JPY 9.3 billion headwind to operating profit. Net sales were JPY 1,858.6 billion, up JPY 188 billion or 11.3%. And operating profit was JPY 230.7 billion, up JPY 21.6 billion or 10.4% year-on-year. Profit before tax was JPY 235.1 billion, up JPY 17 billion or 7.8%. Profit attributable to owners of parent was JPY 181.2 billion, up or JPY 20.3 billion or 12.6%. As a result, we achieved record high net sales and profit at every level for the 9-month period ended Q3.

EPS was JPY 95.48. FX sensitivity is JPY 2 billion on annual OP for a JPY 1 move against the U.S. dollar and JPY 0.3 billion against the euro. Next is performance by segment for the 9 months ended December. In Passive Components, net sales rose 3.2% to JPY 438.2 billion, as higher sales to industry equipment market more than offset the lower sales to the automotive market.

Operating profit fell 25.6% to JPY 30.4 billion. Ceramic Capacitors achieved higher sales on increased sales to Automotive and Industrial Equipment, while the profit declined due to lower average selling prices. Aluminum electrolytic and film capacitors posted higher sales, although sales to the automotive market decreased. Sales to industry equipment increased, especially for renewable energy and AI servers. Profit increased on a net basis, excluding JPY 2.7 billion restructuring costs recorded in Q2 as part of our portfolio management initiative.

Inductive Devices, saw higher sales on increased sales to ICT and Automotive, but profit fell slightly due to an unfavorable product mix. High-frequency components declined in both sales and profit, reflecting weaker sales to Industry Equipment and ICT. PSO Electric Materials and Circuit Protection Components increased net sales on stronger sales to Industry Equipment, but profit declined due to the stronger yen.

In Sensor Application Products, net sales increased 17.3%, to JPY 167.7 billion, and operating profit was JPY 19.2 billion, up about 3.5x year-on-year. Temperature and Pressure Sensors posted higher sales on stronger sales to automotive, but profit declined due to deterioration of product mix. Magnetic Sensors achieved higher sales and profit, driven by increased TMR sensor sales to the smartphone market.

In MEMS sensors, microphone sales to ICT market increased, and the motion sensor sales for Industrial Equipment also grew. As a result, MEMS sensors posted higher net sales year-on-year and returned to profitability greatly contributing to the Sensor segments expanded earnings.

In Magnetic Application Products, net sales increased 13% to JPY 186.8 billion and operating profit rose to JPY 19.4 billion, up nearly fivefold year-on-year. For HDD heads and suspension assemblies, nearline HDD related sales volume increased by 15% for heads and over 30% for suspensions, driving a significant growth in both sales and profit. Magnets declined in sales but cost improvements, including quality-related enhancements helped improving profitability, although the business remained at a loss.

Next, in Energy Application Products, net sales increased 14.4% to JPY 1,025.2 billion, and the operating profit rose 4.3% to JPY 205.1 billion. Rechargeable Batteries delivered higher net sales and profit overall with small capacity products for smartphones achieving higher unit sales, partly helped by a new model introduction and medium products achieving stronger sales to the industrial equipment market. Power supplies for Industry Equipment declined in sales as demand has not recovered meaningfully, but profit increased due to improved product mix.

Let me move on to Q3 quarterly performance. Including FX impacts of plus JPY 12.3 billion in net sales and minus JPY 0.1 billion in operating profit, net sales were JPY 675.2 billion, up JPY 94.2 billion or 16.2% year-on-year and operating profit was JPY 83.1 billion, up JPY 7.3 billion or 9.7% year-on-year. Profit before tax was JPY 87.6 billion, up JPY 6.8 billion or 8.4%. Profit attributable owners of parent was JPY 69.8 billion, up JPY 14.6 billion or 26.5% year-on-year. And EPS was JPY 36.77.

Next, I will explain about the factors contributing to the increase and decrease in segment sales and operating profit from the second quarter to the third quarter. The Passive Components segment saw net sales increase by JPY 5 billion or 3.4% from the second quarter and operating profit increased by JPY 4.5 billion, excluding onetime expenses of JPY 2.7 billion. Ceramic Capacitors saw increased sales and profits due to higher sales to the automotive market.

Aluminum electrolytic film capacitors remained largely flat in both sales and profits, excluding the JPY 2.7 billion restructuring cost recorded in the second quarter. Inductive Devices saw increased sales due to higher automotive market demand, but profit remained at the same level as the second quarter due to factors such as deterioration in the product mix. High-frequency components experienced a decline in sales due to reduced automotive market demand, but profit increased due to improvements in the product mix. Piezoelectric and circuit protection components saw increased sales and profit due to higher demand in the Industrial Equipment market. Sensor Application Products saw a JPY 1.7 billion or 2.7% decrease in net sales compared to the second quarter with operating profit decreasing by JPY 2.2 billion.

Temperature and Pressure Sensors experienced decreased sales and profits due to lower automotive market sales. Magnetic sensors saw a slight decrease in overall sales and profits partly due to seasonal declines in demand for TMR sensors in the ICT market. MEMS sensors saw reduced sales and profits overall as microphone sales to the ICT market declined due to seasonal demand reduction. And Motion sensor sales to the industrial equipment market decreased. However, the business overall remained profitable.

The Magnetic Application Products segment saw net sales increase by JPY 9.9 billion, 16.1% from the second quarter. And operating profit increased by JPY 1.9 billion, 34%. HDD heads saw sales volume remained largely flat but as the mix of new products improved and led to a higher average selling prices, sales increased. HDD suspensions saw sales volume increased by approximately 23% due to rising demand for nearline HDDs, leading to increased sales and profit for both HDD heads and suspension assembly.

[indiscernible] Also saw increased sales and reduction in losses as efforts to pass on higher material costs to selling prices progressed. Lastly, the Energy Application Products segment saw net sales increase by JPY 14.5 billion or 4% from the second quarter while operating profit decreased by JPY 14.9 billion, 18.1%. Sales of small capacity batteries for the ICT market declined seasonally in volume but increased sales of small capacity battery packages led to higher overall sales for rechargeable batteries.

Operating profit decreased due to the lingering impact of significant material price increases. Sales of power supplies for Industrial Equipment remained largely flat. Sales of EV power supplies decreased due to reduced battery EV demand, but the deficit narrowed.

Next is the analysis of the JPY 21.6 billion increase in 9-month operating profit up to the fourth -- third quarter sales volume growth for rechargeable batteries, HDD heads and suspensions and sensors contributed to a JPY 88.5 billion profit increase. This was offset by a JPY 41.7 billion decrease due to the impact of selling price fluctuations despite JPY 11.2 billion profit increase rationalization and cost reductions and a JPY 4.9 billion profit increase from benefits of restructuring implemented in the previous period.

SG&A expenses increased by JPY 29.8 billion, mainly due to higher R&D expenses, particularly for rechargeable batteries, where development of new technologies and products is accelerating. Although there was a JPY 2.2 billion decrease due to the absence of onetime gains recorded in the previous year and the JPY 9.3 billion decrease due to the impact of stronger yen, the overall increase in sales volume resulted in a net increase of JPY 21.6 billion.

Next, I will explain about the cash flow situation. With the first 9 months of this fiscal year, operating cash flow was JPY 353.2 billion. Investment cash flow increased by JPY 92.8 billion year-on-year, primarily due to increased CapEx focused on rechargeable batteries, including new products and new technologies. Free cash flow was JPY 104.9 billion, a decrease of JPY 108.6 billion year-on-year, but it remains above the projected level for the current period.

Next, I will explain about the full year forecast for the fiscal 2026 period. This is an overview of segment-specific sales fluctuations for the fourth quarter. The average exchange rate for the fourth quarter has been revised from the previously assumed JPY 145 to JPY 153 per dollar. For easier comparisons, we will explain the changes excluding exchange rate impact.

First, for the Passive Components. We expect inducted devices to increase for all for the automotive market and aluminum electrolytic capacitors to increase for AI servers. Overall, we anticipate flat to a 3% increase. Sensor Application Products, we expect sales of magnetic sensors, MEMS sensors for smartphones to decrease seasonally. Overall, we anticipate a decrease of 8% to 5%.

Going to Magnetic Application Products. HDD heads are expected to see an approximately 8% increase in sales volume for nearline HDD applications. Suspensions sales are projected to decrease by about 6% due to some orders being brought forward to the third quarter. Overall, we anticipate a plus 7% to plus 10% increase.

For Energy Application Products, we expect sales of small capacity batteries to decline due to seasonality in the smartphone market, resulting in an overall decrease of minus 18% to minus 15%.

Lastly, I will explain the consolidated earnings outlook for the fiscal 2026 period ending in March. As explained earlier, in the electronics market during the 9-month period up to the third quarter, sales of rechargeable batteries and sensors expanded driven by factors such as the launch of new smartphone models. Furthermore, demand for HDDs for data centers remain robust and sales of HDD suspensions performed well.

Under the circumstances, third quarter results exceeded the assumptions made at the time of the October 31, 2025 announcement, partly due to the weaker yen. Based on these factors, we have revised our full year earnings forecast upward from the previous announcement. We now project net sales of JPY 2.47 trillion, operating profit of JPY 265 billion and net income attributable to owners of parent of JPY 190 billion.

The fourth quarter exchange rate assumption is JPY 153 to the dollar. Free cash flow is also expected to increase by JPY 35 billion from the previous forecast to JPY 115 billion, partly due to the contribution from increased profits. As part of promoting business portfolio management, we expect to incur approximately JPY 3 billion in additional onetime expenses, including restructuring costs in the fourth quarter compared to the previous forecast, bringing the total for the full year to approximately JPY 13 billion in operating expenses.

Regarding the dividend per share outlook, based on the upward revision of the profit, the year-end dividend forecast is revised upward by JPY 2 per share from JPY 16 to JPY 18. Consequently, the annual dividend forecast is revised from JPY 32 to JPY 34 per share. We have revised our full year earnings forecast upward. At the same time, we have reviewed various expenses. CapEx is planned to increase by JPY 20 billion from the previous annual forecast of JPY 280 billion to JPY 300 billion.

Depreciation and amortization expenses are planned to increase by JPY 5 billion to JPY 205 billion and R&D expenses are planned to increase by JPY 20 billion to JPY 280 billion. This increase is primarily driven by planned new product launches, mainly in rechargeable batteries and accelerated development of new technologies. We are preparing for further growth to achieve the targets for the final year of the next medium-term plan.

This concludes my presentation. Thank you for your attention.

We would like to start the performance briefing of TDK Corporation for the first half of fiscal year ending March 2026. Thank you for your participation despite your busy schedules. First, let me introduce the participants. President and CEO. Noboru Saito. Senior Executive Vice President and CFO, Tetsuji Yamanishi. Executive Vice President, Shigeki Sato, Corporate Officer Fumio Sashida. Corporate Officer, Takao Tsutsui.

Those are the participants for today's meeting. We will explain the results for the first half for fiscal year ending March 2026 as well as the outlook for the full year to be followed by a Q&A session. Overall, this will be a 75-minute meeting. The slide deck we are using today will be posted on our website on a later day, both in Japanese and English.

Now let's start.

This is Yamanishi speaking. Thank you very much for taking the time to join TDK's performance briefing for the first half of fiscal year ending March 2026. Let me begin with an overview of our consolidated results. First, Key points of the first half results, starting with an overview of the market environment. In the electronics market, which has a significant impact on our business, ICT-related production remained steady year-on-year. Demand for Nearline HDDs for data centers also stayed firm.

And in the industrial equipment market, demand related to renewable energy remained solid. On the other hand, demand for BEVs, continued to stagnate, resulting in component demand that fell short of our initial expectations. Under these circumstances, the 3 business segments, namely Sensor Application, Magnetic Application and Energy Application Products benefited from solid demand in the ICT and the industrial equipment markets as well as tariff-related front-loaded demands.

As a result, net sales increased 8.6% and operating profit rose 10.7% year-on-year, both marking record highs for our first half period. By Market segment, sales of small capacity batteries and sensors to the ICT market increased and demand in the HDD market far exceeded last year's level, driving a sharp rise in HDD suspension assembly sales. Meanwhile, sales of passive components to the automotive market declined due to slower sales. In the industrial equipment market, sales of small capacity batteries, passive components and sensors all increased.

Next, I will explain the first half results in more detail. Including the impact of foreign exchange fluctuations, which reduced net sales by JPY 41.7 billion and operating profit by JPY 9.2 billion. Net sales totaled JPY 1,183.4 billion, up JPY 93.9 billion or 8.6% year-on-year. Operating profit was JPY 147.6 billion, up JPY 14.3 billion or 10.7% and profit before tax increased 7.4% to JPY 147.5 billion.

Net profit attributable to owners of parent rose 5.4% to JPY 111.4 billion. As a result, we achieved record highs in net sales and all profit items for the first half. Earnings per share were JPY 58.7. As for ForEx sensitivity, JPY 1 change in the yen-dollar exchange rate has an annual impact of roughly JPY 2 billion on operating profit and a JPY 1 change against the euro has an impact of about JPY 0.3 billion.

Next, let me explain the results for each segment. Starting with Passive Components. Although sales to the industrial equipment market increased, sales to the automotive market declined. Net sales totaled JPY 285.7 billion, up 0.2% year-on-year. While operating profit decreased 48.8% to JPY 14.8 billion, including JPY 2.7 billion in restructuring costs. Ceramic capacitors which have a high sales ratio to the automotive market, so both sales and profit declined. Sales of aluminum electrolytic capacitors and the film capacitors to the automotive market decreased, but demand for renewable energy applications remained solid. However, due to restructuring costs of JPY 2.7 billion booked as part of the portfolio management efforts, profit declined.

Inductive Devices posted higher sales but lower profit as increased demand for the ICT market was offset by weaker sales to the automotive market. High-frequency components recorded lower sales and profit due to reduced sales to the ICT and industrial equipment markets. For Piezoelectric Material Products and the circuit protection components, sales increased to steady demand from the industrial equipment market, but profit fell because of lower sales to the automotive market.

Turning to Sensor Application Products, Net sales increased 13.8% year-on-year to JPY 107.9 billion and operating profit rose sharply to JPY 12.1 billion, a significant improvement from the previous year. In Temperature and Pressure Sensors, overall sales were flat, but profit declined due to weaker sales to the home application -- home appliance market.

In Magnetic Sensors, sales of whole sensors to the automotive market decreased, but the TMR sensor sales increased with the smartphone production being in the peak season. Overall, Magnetic Sensors achieved higher sales and the profit was roughly flat, partly due to the stronger yen. For MEMS sensors, sales of microphones to the ICT market and motion sensors to the industrial equipment market increased. As a result, MEMS sensors as a whole returned to profitability.

Next, Magnetic Application Products. Net sales were JPY 115.8 billion, up 4.3% year-on-year and operating profit surged to JPY 11.9 billion, reflecting a sharp improvement in profitability. Sales of HDD heads and HDD suspension assemblies rose significantly, thanks to robust demand in the HDD market, particularly for Nearline applications. Auto-magnet sale, profitability improved through quality enhancements and cost reductions.

Next, Energy Application Products. Net sales were JPY 648.1 billion, up 13.3%. Operating profit was JPY 137.7 billion, up 11.6%. Rechargeable battery sales volume grew in small capacity batteries for smartphones with the effect of new models and spot orders contributed to sales and a significant profit increase. Sales of medium capacity batteries also grew in the industrial equipment market. Sales and the profit of power supplies for industrial equipment decreased due to the lack of meaningful recovery in demand.

Next, the results of the second quarter. Including exchange rates, a negative impact to sales of up JPY 4.1 billion and the operating profit JPY 2.1 billion, net sales were JPY 647.6 billion, an increase by JPY 76.9 billion or 13.5% year-on-year. Operating profit was JPY 91.2 billion, up JPY 15.8 billion or 20.9% year-on-year. Profit before tax, JPY 89.8 billion, up JPY 22.1 billion or 32.6% year-on-year. Net profit was JPY 69.9 billion, a significant increase by JPY 23.9 billion or 51.8% year-on-year.

On a quarterly basis, net sales and all levels of profit reached record highs. Earnings per share were JPY 36.06. Next, segment sales and the factors of changes in operating profit from the first quarter to the second quarter. The Passive Components segment, net sales increased by JPY 9.4 billion or 6.8% from Q1. Operating profit increased by JPY 5.7 billion, excluding a onetime expense of JPY 3.7 billion incurred in Q2. Semi capacitors sustained temporary production suspension due to flooding in Akita in August a loss of about JPY 1 billion. However, increased sales to the automotive market drove higher sales and profit.

Aluminum electrolytic capacitors and film capacitor sales increased to the automotive and industrial equipment equipment markets. Business portfolio management related structural reform cost of JPY 2.7 billion were recorded to improve future profitability and efficiency. This results in a slight loss, but in substance, profit increased. Inductor sales increased to the automotive and industrial equipment markets, along with sales to the ICT market, partly with seasonality leading to increased net sales and profit. High frequency devices sales increased to the ICT market due to seasonal factors, Piezoelectric and Circuit Protection Component sales increased to the industrial equipment market. Net sales increased. Operating profit increased with higher sales despite onetime expenses of JPY 3.7 billion.

Since Application Products, sales increased significantly by JPY 15.1 billion or 32.5% Q-on-Q and operating profit increased by JPY 6.7 billion. Temperature and pressure sensors posted increased sales and profits due to higher sales to the automotive and industrial equipment markets. For magnetic sensors, whole sensors and the TMR sensor sales increased with seasonality in the ICT market, achieving a significant increase in profit. MEMS sensors sales increased due to strong MEMS microphone sales Profitability also significantly improved, achieving breakeven in the first half.

Sales and profit of MEMS motion sensors also increased for Chinese smartphones and the game consoles. Overall, MEMS sensors turned profitable in the second quarter and secured a profit for the first half. The Magnetic Application Products segment, sales were up JPY 6.6 billion or 12.2% on Q-on-Q, while operating profit decreased slightly by JPY 700 million. HDD head volume increased approximately 14%, mainly in new Nearline head products.

The volume -- this volume growth combined with a favorable product mix led to increase in sales and profit. Suspensions volume also increased by up 4% due to rising demand for Nearline production, achieving higher sales and profit. Magnet sales remained flat. Profit decreased due to JPY 1 billion of gains from the sale of a welfare facility in Q1. Overall, Magnetic Application Products posted a slight decrease in profit.

Next, Energy Application Products segment. Sales increased by 27% or JPY 77.1 billion. Q-on-Q, operating profit was up significantly by JPY 26.9 billion or 48.6% for rechargeable batteries, sales of small capacity batteries for the ICT market grew due to seasonality better product mix with higher new models percentage and the spot orders leading to substantial sales and profit growth. Power supplies for industrial equipment sales and profit increased with a moderate recovery in demand, EV power supplies continue to post loss due to reduced BEV demand.

Next, let me elaborate on the fiscal year March 2026 projections. Next, let me explain the factors behind the JPY 14.3 billion increase in operating profit. The main positive driver was higher sales volume of rechargeable batteries, HDD heads and suspensions and sensors, which added about JPY 64.3 billion. Additional gains came from cost reductions of about JPY 7.2 billion, and the balance effects from restructuring cost of JPY 3.4 billion.

On the other hand, pressure had a negative impact of roughly JPY 27.2 billion, and SG&A expenses rose by JPY 20.6 billion, mainly due to higher R&D spending on rechargeable batteries. We also saw a JPY 3.6 billion decline from onetime gains recorded last year and the yen's appreciation reduced profit by JPY 9.2 billion. Even so the overall effect of higher sales outweighed these negatives, resulting in a JPY 14.3 billion increase in operating profit.

Turning to cash flows. Operating cash flow for the first half was JPY 189.4 billion, while investment cash flow totaled JPY 128.3 billion, including the acquisition of companies related to the AI ecosystem. As a result, free cash flow reached JPY 61.1 billion, exceeding our initial projection for the first half.

That concludes my explanation. Thank you.

Good afternoon. This is Saito speaking. Thank you very much for joining us today. I would like to share TDK's full year outlook the fiscal year ending March 2026. First, let me go over the key assumptions behind our forecast, particularly the revised production outlooks for major devices. In the automotive market, overall production volume has been revised upward from the April assumption. However, CV projection was revised downward due to a lower BEV production volume.

Next, for the ICT market, smartphone production has been revised down to 1.191 billion units from the April number of 1.2 billion units. As for the HDD market, demand remains firm, particularly for Nearline HDDs used in data centers. So we have revised the forecast upward to 67 million units compared with the projection as of April this year.

Next, let me touch upon the outlook for the third quarter based on the same exchange rate for the easier comparison. Although we have updated our assumption from JPY 140 to JPY 145 per U.S. dollar for the second half. First, for Passive Components, sales to the automotive market are expected to increase, while those to the industrial equipment market are likely to decrease, resulting in a decline of 0% to 3% Q-on-Q.

In Sensor Application Products, temperature and the pressure sensors for automotive are objected to grow, but Magnetic and MEMS sensors for smartphones are expected to decline after the seasonal peak and the front-loaded demand leading to a decline of 10% to 13% Q-on-Q.

Next for Magnetic Application Products, Sales of HDD heads and suspensions are expected to increase by 3% to 15%, respectively, due to -- due partly to capacity expansion, leading to an increase of 9% to 12% Q-on-Q.

Lastly, Energy Application Products are likely to decline by 3% to 6% with small capacity batteries for smartphones declining due to seasonal factors as well as the tariff-related strong demand during the second quarter. Next, let me elaborate on the fiscal year March 2026 projections. The impact of the U.S. tariff measures is considered to be limited to the fiscal March 2026 projections. Therefore, we provide projections based on the base scenario only rather than both base and risk scenarios.

As I explained earlier, in the electronic market in the first half, while demand in the automotive market remains sluggish. Production in ICT markets, such as smartphones and ATDs increased year-on-year and remains robust. The performance for the first half exceeded the levels anticipated at the time of the April 28 announcement. In the ICT market, with new model launches and the demand brought forward to tariff measures, sales of rechargeable batteries and sensors expanded.

Furthermore, demand for data centers continued to be robust and the sales of HDD suspensions were healthy. Based on these factors, we have revised our full year projections upward from what we announced on April 28, projecting net sales of JPY 2.37 trillion; operating profit, JPY 245 billion and net profit JPY 180 billion.

The exchange rate assumption for the second half has been changed to JPY 145 per dollar. To promote business portfolio management and address the businesses that are facing challenges, we plan to record approximately JPY 5 billion of additional onetime expenses including restructuring costs from the initial forecast, bringing the total for the full year to be JPY 10 billion.

Regarding the dividend per share, we plan to increase the annual dividend from the initially announced JPY 30 to an interim dividend of JPY 16 and a year-end dividend of JPY 16, to a total of JPY 32.

Finally, I have one announcement. We will hold the TDK Investor Day on November 28. We will present the road map to achieve our long-term vision the progress of our midterm management plan and portfolio management. For outside directors will also take the stage to engage directly with investors on topics such as governance effectiveness. The event will be held as a hybrid format, an on-site venue with a live stream. We sincerely look forward to your participation. This concludes my presentation. Thank you.