Maxell Ltd

TSE:6810

Earnings Call Transcript 2022-Q1

[中村 啓次 (なかむら けいじ), executive]

I am Nakamura. Now I'd like to explain the financial results of the first quarter FY 2021. Page 2 shows a summary of today's presentation. Positioning of MEX23, the current midterm plan in the long-term plan, is shown here. In the previous year of FY 2020, we carried out a large-scale business reform. During MEX23, we expand growth businesses, prepare new business for the second phase and established structure for profit goals. In the final year of the midterm plan FY 2023, we would like to achieve the operating profit margin of 10%.

I'd like to take you through 2 key points today. Firstly, outline of consolidated business results is presented. Sales were JPY 34.9 billion, up JPY 5 billion year-on-year. Operating profit was JPY 3.6 billion, up JPY 3.9 billion year-on-year and net profit was JPY 2.7 billion, up JPY 3.2 billion year-on-year. Secondly, towards value creation, I will explain the financial discipline, utilization of intellectual properties and new management organization.

Page 4 shows review on the first quarter consolidated results. Net sales were JPY 34.9 billion, up JPY 5 billion year-on-year. Operating profit was JPY 3.6 billion, up JPY 3.9 billion year-on-year. Net profit was JPY 2.7 billion, up JPY 3.2 billion year-on-year. As shown below, sales increased due to the recovery of market from pandemic and continue to stay-at-home demand. Operating profit increased due to sales increase as well as profitability improvement by business reform conducted in the previous year. Progress against the full year forecast is running well at present.

Page 5 shows net sales changes. Starting from net sales of JPY 30 billion in FY 2020, quantity variance was plus JPY 4.9 billion, exchange variance was plus JPY 0.8 billion, new accounting standard was minus JPY 0.8 billion, and net sales in FY 2021 were JPY 34.9 billion.

Page 6 shows operating profit changes. Starting from minus JPY 0.3 billion operating loss in FY 2020, quantity variance was plus JPY 2.5 billion. Business reform conducted in the previous year was plus JPY 0.7 billion. Cost reduction was plus JPY 0.8 billion. Exchange variance was plus JPY 0.1 billion, and the material cost increase was minus JPY 0.2 billion, and operating profit in FY 2021 was JPY 3.6 billion, up JPY 3.9 billion year-on-year.

Page 7 shows segment information. Starting from Energy segment. Net sales in the first quarter was JPY 10 billion, up JPY 1.6 billion year-on-year. Operating profit was JPY 1.3 billion, up JPY 1 billion year-on-year. As for sales, consumer lithium-ion battery maintained sales due to continued stay-at-home demand. Heat-resistant, coin-type lithium battery increased sales due to recovery of automotive market in a wake of pandemic. Cylindrical-type lithium batteries for smart meters also increased sales. As for operating profit, it increased by sales increase of primary batteries, including heat-resistant, coin-type lithium battery and cylindrical-type lithium batteries. Business reform implemented last year, including business transfer, also contributed to improved profitability.

Page 8 shows Functional Materials segment. Sales were JPY 6.7 billion, up JPY 0.6 billion year-on-year, and operating profit was JPY 0.7 billion, up JPY 0.6 billion year-on-year. As for sales, coated separator sales decreased in appearance by applying accounting standard for revenue recognition for the sales amount. But adhesive tape and industrial rubber product sales increased due to the market recovery in the wake of the pandemic. As for operating profit, coated separator profit increased by demand recovery and adhesive tape and industrial rubber products profit increased due to sales increase.

Page 9 shows Optics & Systems. Net sales were JPY 10.2 billion, up JPY 1.8 billion year-on-year. Operating profit was JPY 1.1 billion, up JPY 1.9 billion year-on-year. As for sales, projector sales decreased by the influence of business downsizing to improve profitability. Sales of optical components, such as in-car camera lens unit and LED headlamp lens increased by recovery of automotive market. As for operating profit, profit increased by projector business reform and by profitability improvement of optical components for recovering automotive market.

Page 10 shows Life Solution. Net sales in the first quarter were JPY 8 billion, up JPY 1 billion year-on-year. And operating profit was JPY 0.5 billion, up JPY 0.4 billion year-on-year. As for sales, health care product sales continued to increase due to increased hygiene awareness. Hydraulic tool sales increased due to market recovery in the wake of the pandemic. As for operating profit, profit increased due to sales increase of health, beauty care products and hydraulic tools. And profitability improvement by business reform implemented last year, including business transfer, contributed to profit increase.

Page 11 shows forecast by segment. In Energy segment, Consumer lithium-ion battery will continue to be firm due to continued stay-at-home demand. Heat-resistant, coin-type lithium battery will continue to be robust due to automotive market recovery and cost reduction. Cylindrical-type lithium batteries will continue to be profitable by sales volume increase. In Functional Materials, market of tape for construction is expected to recover both in Japan and overseas, and coated separator will stay stable due to market recovery of EV and HV. In Optics & Systems, demand increase for semiconductor-related embedded system is expected to continue for the time being. Profitability improvement of projector by business reform is running on schedule. In Life Solutions, we aim overseas sales expansion of ozone antibacterial deodorizer to compensate domestic demand decrease. Recovery trend of hydraulic tools has observed affected by domestic overseas demand recovery.

As for expected risks, downturn of operation at our manufacturing plants in Southeast Asia due to re-expansion of COVID-19, production delay due to shortage of semiconductors and order decrease of automotive products, pressure on the profit due to raw material cost increase and international logistics delay and transportation cost increase are conceived. Although demand is expected to continue stable, as mentioned, we examine the influence on the production and supply side.

Toward value creation, Page 13 describes enhancement of financial discipline. We have been working on that but we will ensure that financial discipline through ROIC, return on invested capital, ABC-XYZ and PIPJ. Our initiative of ABC-XYZ to accelerate the business portfolio replacement through quarterly monitoring is described below. As shown on the left, we assess business-by-business portfolio evaluation through revenue growth and business value. Businesses are positioned to ABC and XYZ into quadrants to maximize profitability.

On the right, for your reference, the present ABC-XYZ revenue composition is shown. In addition to the AB, highly profitable businesses where resources are concentrated, we secure profit in X business. We will develop business to make them future core businesses. For Y business, we observe them closely considering the replacement, if in need. We continue selection and concentration of the businesses by enhancing financial discipline.

Page 14 describes the utilization of intellectual property. Our intellectual property vision and policy is as shown here. To ensure Maxell's superiority and support the realization of technologies that create sustainable societies through the cycle of intellectual property basic duties, intellectual property utilization and innovation activity.

To be specific, as IP basic duties, we create, develop and manage the rights intended for adequate production of Maxell brand and other intellectual property. In IP utilization, we create value through the active use of IP. In innovation activity, we will contribute to a sustainable society by innovating unique and original technologies. Through the circular activities of these 3, as shown on the right, we will promote the utilization of wide range of IP to enhance corporate value.

Page 15 describes the latest utilization of IP. Maxell group possesses more than 8,000 patents in Japan and overseas. Number of domestic and foreign patent application has been declining during business reform, due to smaller human resources for invention, but it will expand after its completion. Patent composition by business segment on the right shows large composition of Optics & Systems, but Life Solutions and Energy also have substantial number of patents. We will continue to monitor product and utilize IP rights and take appropriate and strict action against the infringement of IP rights.

As for the contribution to the business results, as we promote patent activities in a wide range of technology fields, we have already secured IP licensing revenue exceeding JPY 10 billion. And it will be recognized within 10 years from FY 2021 and onward. As for the litigation-related expenses recorded as extraordinary loss in the previous fiscal year, JPY 6.643 billion were compensated as the IP licensing revenues. IP revenues are important resources for new business creation and technological development and others, so we will ensure to reinvest them to those ends.

Finally, this slide describes new management organization. As announced by press release, Maxell Holdings Limited and Maxell Limited will be merged after dissolving the holding company structure. To be specific, we will execute an absorption-type model wherein Maxell Holdings Limited will be subsidiary company and Maxell Limited will be the absorbed company to be dissolved, after which the company name of Maxell Holdings Limited will be changed to Maxell Limited where it will take lead of the whole group and a new structure, and we will realize intersectional cooperation between business division and operating companies and synergies among the group, shifting to new management organization.

And this slide may be familiar to you. Since loss-making FY 2019, we executed large-scale business reform in FY '20, and from this FY 2021, we will proceed toward the new progress. Last year, we established MVVSS--Mission, Vision, Value, Spirit and Slogan--where we integrate the strengths of our employees to create and maximize the corporate value. For your reference, we produced a documentary video that unravels Maxell's history and future. And please take a look through the address presented here.

This concludes my presentation.