Maxell Ltd

TSE:6810

Earnings Call Transcript 2023-Q1

[中村 啓次 (なかむら けいじ), executive]

This is Nakamura. I would like to present the financial results of the first quarter FY 2022.

As summary of today's presentation, we have 3 points. First, as for the outline of the consolidated business results, sales of the projector business shrunk with our intentional contraction. And sales of rechargeable batteries and BtoC products were also weak. But does the sales in automotive optical components increased. Overall sales progressed generally in line with our plan.

Operating profit decreased due to the soaring raw material costs that exceeded cost reductions and the revision of selling prices by far. Second, as for the risk and countermeasures, the impact of soaring raw material costs and the shortage of semiconductors is tougher than our initial forecast, and we expect that they will continue for a while. The entire company will strive to secure profits by reviewing selling prices and enhance actions for cost reduction.

Third point is the initiatives as a midpoint of MEX23. We will enhance organization and concentrate resources to expand growth businesses and accelerate the development and investment to create new growth drivers. And we will continue to strengthen business portfolio through thorough financial discipline.

This slide shows the initiatives as a midpoint, as I just mentioned. Now let me explain the outline of consolidated business results. This slide shows a summary. Net sales in the first quarter of FY 2022 was JPY 32.2 billion, down JPY 2.7 billion year-on-year. In addition to the intentional shrinkage of the projector business, sales decline of rechargeable batteries and BtoC products affected while sales of products for automotive and semiconductor markets increased.

Operating profit was JPY 1.3 billion, down JPY 2.3 billion year-on-year. Besides the impact of sales, soaring raw material costs moved much faster than the progress in our cost reduction and the revision of selling prices. This slide shows the net sales changes. Net sales in this year were JPY 32.2 billion, down JPY 2.7 billion year-on-year. As mentioned, there were sales impact, selling price revision for soaring material cost and exchange impact and net sales ended at JPY 32.2 billion. Although there were some differences in each business, sales progressed generally in line with our plan as a whole.

This shows operating profit changes from JPY 3.6 billion of operating profit in the previous year, it decreased to JPY 1.3 billion, down JPY 2.3 billion year-on-year. Besides the sales impact, as mentioned, material cost increase made impact of minus JPY 1.4 billion, affecting greatly. To counter this, we will accelerate formalization of selling price revision and reduced manufacturing cost salary and self-pay effort and accelerate in shortening time lag between material cost increase and selling price revision.

This shows the review by segment. This slide shows Energy segment. Its net sales were JPY 8.8 billion, down JPY 1.2 billion year-on-year. Sales for primary batteries increased due to steady sales for automotive and medical equipment. But sales of rechargeable batteries decreased due to a continuing decrease in customer production caused by shortage of semiconductors.

Operating profit was JPY 0.3 billion, down JPY 1 billion year-on-year. Rechargeable batteries' operating profit decreased due to customer production decrease, as mentioned. Soaring material cost also squeezed profit of the primary batteries, whose sales have been robust.

This is Functional Materials segment. Its net sales were JPY 7.3 billion, up JPY 0.6 billion year-on-year. Sales of adhesive tape increased due to order recovery mainly in construction and the semiconductor market. In Industrial Materials, sales of products for automotive slightly struggled, but with steady orders for industrial rubber products, overall sales increased. Operating profit was JPY 0.3 billion, down JPY 0.4 billion year-on-year.

Industrial Materials were affected by production decrease of customers and both adhesive tapes and Industrial Materials were not able to absorb the soaring material cost and the profit was squeezed.

This is for Optics & Systems segment. Its net sales were JPY 9 billion, down JPY 1.2 billion year-on-year. Sales decreased due to significant downsizing of the projector business conducted in last fiscal year, but orders of in-car optical components recovered year-on-year and semiconductor-related products. Semiconductor DMS were running well. Operating profit was JPY 0.8 billion, down JPY 0.2 billion year-on-year.

Last year, with the downsizing of projector business, we posted one-off earnings, which is absent in this year. But profit for in-car optical components increased due to the higher sales and profit for semiconductor DMS increased.

This is for Life Solutions segment. Its net sales were JPY 7.1 billion, down JPY 0.9 billion year-on-year. Sales of BtoC products decreased due to demand saturation of health and hygiene-related products in addition to the stagnation of the whole consumer market. Operating profit was minus JPY 0.1 billion, down JPY 0.6 billion year-on-year. In addition to the sales decrease impact, sharp depreciation of the yen substantially affected the products manufactured overseas and sold in Japan.

I will explain risk and countermeasures. As for the risk of showing material cost, talking about the current status, let me reiterate that cost reduction and the selling price revision are progressing, but unfortunately, lately, raw material cost surge is moving faster. So to counter this, in addition to the self-help effort of cost reduction, with selling price revision, we will strive to cover 100% of soaring material cost. And we will accelerate formalization of selling price revision, which is partially already implemented.

As for delay in receiving materials such as semiconductors, some customers are still affected. And on our side, we sometimes were not able to fulfill orders due to the procurement difficulties of parts and materials. For this, by collaborating with suppliers and customers, we'd like to optimize production system and materials procurement, joining hands with stakeholders.

As for automotive production decrease, we see mixed picture in our businesses, observing both the positive and negative aspects. But in the automotive area, where sales were sluggish recently. With the demand expansion in line with accelerated electrification, we prepare for order increase so that we will not miss the sales opportunity. And for the other products also, we will establish a system that can respond flexibly to secure sales and profit.

Finally, as for geopolitical risk. Direct impacts by Russia and Ukraine issue and Shanghai lockdown were minor on us, but we continue to monitor the indirect impact closely and will act appropriately. Given the very rapid changes in external environment, we take appropriate actions promptly keeping track of the situation.

Finally, let me explain the initiatives as the midpoint of MEX23. To expand growth businesses, we are progressing measures to enhance organization. First, as for the sales structure, since last year, we established a sales headquarter system and have been strengthening organization through the shift from product-oriented sales to account-oriented sales. We completed office consolidation of sales force for Metropolitan area in February 2022 and in Kansai area in June 2022. Taking this opportunity, we'll accelerate the shift to account sales and generate the synergy effect through development of cross-selling.

For growing certain businesses, which are key businesses to support growth, we prioritized their capital investment. For primary battery, we invest to increase production in line with the increased demand for medical use and infrastructure. For robust semiconductor-related products, we invest to increase production to meet increasing demand. For in-car optical components, we invest to increase production in line with long-term order acquisition. With these growing certain businesses, where we prioritize investment, we'd like to ensure further growth of Maxell.

As for acceleration of development and investment to create new growth, last year in FY 2021, in order to consolidate the initiatives for large development project, which had been previously dealt with by each business division, we established a new business producing division. We have been promoting 10-plus development themes, but in this year of FY 2022, we narrowed down the scope to ensure earnings contribution during the next midterm plan to 3 businesses of development, as shown here. Here, we are going to concentrate resources.

As for all-solid-state batteries, we are in the leading position among competitors. In the mid- to long term, we will be able to aim for the highly profitable areas, medical and mobility equipment. We are installing the mass production facilities, and we aim to launch the beginning of FY 2023, and the sales target is JPY 30 billion in FY 2030. As for the advanced floating image display, given the market size of display is huge, we'd like to grow this business of noncontact display. Its development is almost completed and few trials have begun at each site in June 2022. And we are now enhancing marketing, including the offering how to use them. We expect that it will make firm contribution to sales in FY 2024 and beyond.

As for foamed sheet, in order to realize the sustainable society, weight reduction is a major mission for mobility, including aircraft, training and automotive. We are promoting the development of foamed sheet, which are applicable to engineering plastic and super engineering plastics. Timeline for the mass production is FY 2024 and beyond.

We concentrate resources into these 3 development areas, which will be the business pillars of Maxell in future and ensure to achieve the target in MEX23 and the growth with revenue expansion.

As for strengthening business portfolio through thorough financial discipline, we will accelerate ROIC, ABC-XYZ and PIPJ in FY 2022 as well. Last year, ROIC was introduced to the personal evaluation system, including the corporate offices remuneration.

In FY 2022, we will improve capital efficiency by implementing share buyback and concentrating investment in all-solid-state battery and high profit businesses as shown before. As for ABC-XYZ, up to last year, it has been quarterly monitored. But as the business environment has been rapidly changing, now businesses are monitored monthly.

As for PIPJ, P&L management by Model Project. This year, we pick up 120 unprofitable models to make them profitable. And we will streamline the number of models by approximately 30% compared to FY 2020. Through those measures, we do whatever it takes to achieve MEX23 targets.

From here, let me walk you through the topics. First, most are already press released, and the first one is share buyback. Period and other information are described here. As of June 30, 2022, total number of shares bought is 916,200 shares, and the total value of shared was JPY 1.175 billion. We decided to adopt the restricted stock remuneration for managers to encourage the awareness of management participation and promote value sharing with shareholders for the awareness change of managers. Scope of recipients, managers and above. Criteria is based on the bonus assessment score and transfer restriction period is 5 years.

Agenda, there are 4 topics. First one is head-up display. Since April last year, we started the launch in the market for Chinese customers. We are also promoting the compact size products, almost half the volume in acceleration of business development. As for image processing technology on the right, our new Drive Recorder, which will be launched on August 12 by COMTEC is equipped with our image processing technology.

As for all-solid-state batteries, development of compact size all-solid-state battery is progressing. And the development of all-solid-state battery was almost double the energy density versus the conventional one was completed as a product. Its advertisement are posted in various media, and we'd like to grow this as our next major growth pillar of Maxell.

This concludes my presentation.