Maxell Ltd

TSE:6810

Earnings Call Transcript 2022-Q2

[中村 啓次 (なかむら けいじ), executive]

I am Nakamura. I will explain the financial results of the first half FY 2021. Summary of today's presentation contains 3 points. The first one is the outline of consolidated business results; second, the full year forecast for FY 2021; and the third one is towards the progress for the mid- to long term. Maxell has implemented a large-scale business reform in the previous year FY 2020. From this year of FY 2021, over 10 years to FY 2030, we will strive to achieve mid- to long-term growth through 3 phases with plans and their executions. In the first phase of MEX23 from FY '21 to 2023, we will basically expand earnings through the growth of existing businesses. And we will prepare a new business for the second phase and establish structure for profit growth. We will aim to grow operating profit margin from 5% in the first year FY 2021 to 10% in the final year of FY 2023.

Outline of consolidated business results. This slide shows a review on the first half FY 2021 as a summary. In the first half, net sales were JPY 69.3 billion, up JPY 5.6 billion year-on-year. Sales increased due to the recovery of demand in automotive and the semiconductor market. Operating profit was JPY 6.1 billion, up JPY 5.3 billion year-on-year. Operating profit increased due to profit growth with the recovery of demand in automotive and semiconductor market as well as the positive effect by business reform conducted in the previous year. Both sales and profit were well above the initial forecast. And after the careful investigation on the prospect for the second half, we revised the full year forecast upward.

Net sales changes. Compared to the sales of JPY 63.6 billion in the first half FY 2020, net sales increased JPY 5.6 billion to JPY 69.3 billion in the first half FY 2021. As for variance factors, quantity variance was JPY 6.2 billion with major contributions by Energy, Functional Materials and Optics & Systems. Exchange variance, new accounting standard due to the applied accounting standard for revenue recognition and price variance also impacted.

Operating income changes. Operating profit increased from JPY 0.8 billion in the first half FY 2020 by JPY 5.3 billion to JPY 6.1 billion in the first half FY 2021. Quantity variance was JPY 3.3 billion with major factors of Energy, Functional Materials and Optics & Systems. Business reform in the previous year added operating profit by JPY 1.4 billion. Cost reduction was accelerated mainly in Optics & Systems, and the positive impact on operating profit was plus JPY 1.7 billion. With other variance included, operating profit was JPY 6.1 billion.

From here, let me explain by segment. In Energy segment, net sales were JPY 20.1 billion, up JPY 2.4 billion year-on-year. Heat resistant coin type lithium battery sales increased due to year-on-year recovery of demand in automotive market. Coin type lithium rechargeable battery sales increased mainly for hearing aid. Consumer lithium-ion battery stayed at the same level as the previous year. Operating profit was JPY 2.5 billion, up JPY 1.5 billion year-on-year. Sales growth mainly in primary battery and transfer of laminated lithium-ion batteries business and other business reform implemented in the previous year contributed to the profit growth.

In Functional Materials segment, net sales in the first half FY 2021 were JPY 13.6 billion, up JPY 0.9 billion year-on-year. Adhesive tape and industrial rubber products increased sales due to market recovery. Coated separator sales decreased by applying accounting standard for revenue recognition. Operating profit was JPY 1 billion, up JPY 0.9 billion year-on-year. Adhesive tape and industrial rubber products increased profit due to sales increase. Coated separator increased profit by the influence of vehicle electrification.

Thirdly, in Optics & Systems segment, net sales in the first half FY 2021 were at JPY 19.8 billion, up JPY 2.5 billion year-on-year. By demand recovery in the mainstay automotive market, sales increased in optical components such as in-car camera lens unit and LED headlamp lens. Semiconductor-related embedded system sales increased in line with the latest demand expansion. Operating profit was JPY 2.2 billion, up JPY 3 billion year-on-year. In addition to the strong sales of lens products for automotive, profitability improvement by the remarkable progress of business reform in projector business, which includes the temporary influence contributed to the substantial profit growth of JPY 3 billion.

Finally, the fourth segment is Life Solution segment. In Life Solution segment, net sales in the first half FY 2021 were JPY 15.8 billion, down by JPY 0.2 billion year-on-year. In Japan, partly due to the long rains in summer, overall consumer electronics market slowed down. But beauty care products and hydraulic tools managed to increase sales. Health care products decreased sales due to the peak out and the slowdown of domestic demand for ozone antibacterial deodorizers. And massage chair mechanical components business was transferred in the previous year, and that also led to the sales decline. Operating profit stayed unchanged at JPY 0.4 billion. Sales declined by struggling deodorizers was offset by the recoveries in beauty care products and hydraulic tools.

So far, I have talked you through the first half results, including the information by segment. Next, I will explain the full year forecast for FY 2021. Toward the second half FY 2021, market prospect is extremely uncertain due to numerous factors. As shown here, we laid out 4 aspects to examine the potential impacts on the second half. And the overview of the second half is described here. As for COVID-19, with the progress of vaccination, we assume the overall economic and demand recovery despite lingering infection cases. And in all segments, including Energy and Functional Materials, positive overview is reflected in the plan. As for rising cost of raw materials, we have been feeling the impact lately. Throughout the second half, the price of raw materials and oil-based materials will be surging further. And these impacts are incorporated in the plans for Energy & Functional Materials segment.

As for the delivery delay or shortage of key components including semiconductors, we have a negative prospect. Not only our own procurement, but our customers on demand side will also be affected by semiconductor shortage toward the second half. These impacts are incorporated as risks in the plans for Energy, Optics & Systems and Life Solution segment. As for production decrease of automotive, the cause is the semiconductor shortages. Although Maxell does not see major immediate influence based on the customer information and media reports, we made plans, assuming the tough third quarter and the recovery in the fourth quarter. Market environment continued to be extremely fluid, but we minimize the negative impact by promptly grasping sign of changes.

Based on the overview, we revised our full year forecast for FY 2021. Forecast by segment is as shown here. And the total net sales are revised to JPY 136.5 billion. Operating profit is revised to JPY 9.5 billion, and net income is revised to JPY 5.7 billion. As operating profit and net income are substantially revised upward, dividend is revised up from JPY 12 for interim dividend and year-end dividend, respectively, as of the 28th April to JPY 20, respectively. Originally payout ratio target of Maxell has been from 30% to 40%. And keeping the discipline, payout ratio will be 35%.

Finally, let me explain on towards the progress for the mid- to long term. As already presented in the press release, as of the 1st of October 2021, Maxell Holdings became operational company after dissolving the holding company structure and changed the name from Maxell Holdings Limited to Maxell Limited. This slide shows the company structure. Since 2017, Maxell has expanded through MBP in our words, but more commonly through M&A and companies and businesses have joined Maxell Group. And they have contributed for the sales and profit growth. In the midterm management plan since 2021, as we observed the positive contributions of these added companies through their technologies and the customer channels, we like to achieve the business growth towards 2030, leveraging the group synergy so that in-house synergy would be driving growth.

As explained in July, in Maxell's midterm plan of MEX23 from 2021 to 2023, we will grow business mainly through expansion of existing businesses and their profitability. As shown here, we positioned 13 businesses as core growth businesses to drive business growth. This slide shows a brief overview of the status quo at the end of the first half of FY 2021. Operating profit growth of 13 core businesses that we aim to achieve in 3 years vis-à-vis FY 2020 is listed here, and the latest status is described here. In Energy segment, as battery business for hearing aid usually requires customer contact in person, COVID-19 delayed our business talks. And the production capacity expansion is ongoing, but components delivery is partially delayed, and the progress is slightly behind the initial schedule. But other primary battery businesses are in line with the initial plan, including profit expansion and new customer acquisitions. As for Functional Materials, as demand for semiconductor-related product is strong, generally steady progress has been made. But tape for construction and tape for industrial processes are to be expanded overseas, including North America and Southeast Asia. And as customer contact in person are limited due to COVID-19, progress is slightly delayed compared to the plan. We will make utmost effort to recover the delays. As for Optics & Systems segment, as mentioned at the beginning, automotive demand has been steadily recovering. And the progress in new customer acquisition has been mostly in line with the initial plan. Semiconductor-related system has been growing steadily as our latest semiconductor demand has been extremely strong. And in line with the demand growth, we'll be able to grow the business steadily. As for Life Solution segment, domestic demand of health care products -- consumer products such as antibacterial deodorizer, in particular, fell slightly, mainly in summer and the progress is slightly behind the schedule. We'd like to recover the delay by enhancing the overseas business. In beauty care products and hydraulic tools, the progress in business tools has been in line, and the progress in initiatives to expand profit has been steady. In terms of what we should do and what we did in the first half of the year, the progress has been generally steady with some variance by business. We will grow these 13 existing businesses as driving force to expand earnings in MEX23. And further down the road, after 2024 and in the second phase and onward, we will prepare the new core businesses.

This slide explains all-solid-state battery. As Maxell originally started business as battery company, as the strength of Maxell, we have technologies and know-hows, including mixing and dispersion technology. All-solid-state battery is highlighted in the media as the application for automobile. And as the secondary battery, due to its features of long-life, heat resistance, high output and large capacity, it is prominently extensive applications and high expectation is placed on this secondary battery. We have been accelerating the development.

As shown on the right, in September 2019, we started a sample shipment ahead of other peers. In March 2021, we developed mountable all-solid-state battery joining hands with a partner. In September 2021, we developed bipolar structure all-solid-state battery specialized for high voltage and high output and started its sample shipment. Currently, we are focusing on the small-sized battery. But we are accelerating the development of mid- to large-size all-solid-state battery under NEDO subsidy program. We are promoting the development to start customer delivery in FY 2021. And we aim to grow this business to JPY 30 billion in FY 2030 as the business pillar of Maxell. By contributing to reduce environmental burden through all-solid-state battery, we aim to be the indispensable company. to be the indispensable company in the sustainable society, as shown here, in July 2020, we formulated management philosophy, mission, vision value as a part of MVVSS followed by sustainability vision. In August 2021, we identified materiality. And in October 2021, we endorsed the TCFD recommendation. As such, we established foundation to realize sustainable growth. Specific businesses contributing to solve social issues are listed below, micro battery, tape for construction and in-car camera lens unit. With this, we'd like to be the indispensable company in the sustainable society. By accelerating these initiatives, Maxell will be the indispensable company in the sustainable society. This is for your reference. This video describes Maxell's history, among others. I would appreciate if you could spare some time for it. This concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]