Maxell Ltd

TSE:6810

Earnings Call Transcript 2020-Q3

[Yoshiharu Katsuta, executive]

Good afternoon. Thank you for joining us in the conference call on Maxell Holdings' Fiscal 2019 Third Quarter Financial Results. Let me now start my presentation.

Please turn to Slide 2. Shown here are management efforts in fiscal 2019 that we have been sharing with you at the outset of every briefing this fiscal year. Of those 4 listed here today, I would like to focus on 2 shown in blue, namely, business portfolio strategy and disciplined fiscal policy. I will comment on them towards the end of my presentation.

From Slide 3, results for fiscal 2019 third quarter, the cumulative 9-month period.

Slide 4. Here, you can see the highlights. Net sales increased by JPY 3.2 billion year-on-year, supported by newly joined businesses under MBP scheme, but profits decreased significantly due to downturn of semiconductor and automotive markets added with such internal factors as delay in market development and improvement of productivity. Operating income was down JPY 2.4 billion year-on-year at JPY 1.4 billion. Net income or profit attributable to owners of parent was down JPY 1.8 billion at JPY 1.3 billion. Exchange rate for the period was JPY 109 to the U.S. dollar, yen appreciating by JPY 2 year-on-year.

Moving on to variance analysis, starting with net sales changes on Slide 5, up from JPY 108.2 billion in fiscal 2018 to JPY 111.4 billion, an increase of JPY 3.2 billion. Quantity variance, main factors of which are listed in the brackets, had a large impact, minus JPY 12.4 billion. Exchange rate variance, minus JPY 1.5 billion due to the appreciation of the yen against the U.S. dollar by JPY 2. Price variance, plus JPY 100 million. And businesses newly joined in 2018 under MBP had a positive impact of JPY 17 billion. In total, year-on-year change of JPY 3.2 billion.

Slide 6, changes in operating income, down from JPY 3.8 billion for fiscal 2018 third quarter to JPY 1.4 billion. Prior cost, JPY 2.4 billion, consisting mainly of delay in brand switching for projector and development cost, negative JPY 2.4 billion. Quantity variance, minus JPY 3.4 billion due to significant change in volume. Exchange rate variance had minimum impact on our operating income. Price variance directly reflected changes in sales. New businesses under MBP, not much impact during the third quarter period, plus JPY 100 million. Cost reduction, plus JPY 3.2 billion. In total, operating profit was JPY 1.4 billion for the third quarter period.

Next, review by segment. Slide 7, Energy segment. In Energy segment, net sales were up JPY 100 million year-on-year. Sales of lithium-ion battery, LIB, for consumer market decreased due to price reduction and quantity decrease, but coin type lithium rechargeable battery for hearing aids and microbatteries contributed to an increase in sales. Sales totaled JPY 30 billion, up JPY 100 million. As for operating income, while consumer LIB kept profitability despite lower sales through cost reduction, heat resistant coin-type lithium battery, which is a main growth product, decreased due to the downturn of the automobile market. Overall, operating income was down JPY 100 million at JPY 2.1 billion.

Slide 8, Industrial Materials. In the Industrial Materials segment, growth driver products such as optical components for automotive market and embedded systems relating to semiconductor and camera lens all posted significantly lower sales. But newly joined businesses, such as coated separator and industrial rubber products, made a big contribution to increased sales, which increased by JPY 3 billion at JPY 40.6 billion. As for operating income, as mentioned earlier, there was a major negative impact of embedded systems related to semiconductor and optical components for automotive market. Operating income was down by JPY 1.7 billion at JPY 500 million.

Slide 9, Electronic Appliances and Consumer Products segment. In this segment, projector business struggled due to delay in brand switching, but newly joined businesses of electric home appliance and hydraulic tools contributed to increased sales. Altogether, sales totaled JPY 40.8 billion, about the same level as in the previous year. Operating loss deteriorated by JPY 700 million year-on-year for a big loss of JPY 1.2 billion, resulting from lower projector profit due to sales quantity decrease and an increase in development cost for head-up display towards commercial base production. Those were the operating results for the third quarter period.

Slide 10, capital policy. As main measures for fiscal 2019 have almost completed, I would like to report on the results.

Slide 11, as for special dividends with recorded date of June 30 and effective date of September 20, we carried out a special dividend payment of JPY 250 per share. This has been completed. We also carried out share buybacks under the scheme of JPY 5 billion as total value of shares to be bought between July 1 and December 19. This has also been completed. As additional capital policy measures, we executed shareholder return totaling JPY 18.2 billion.

At the bottom half of the slide, we are showing the capital policy announced in April 2019 comparing March 2018 period and the target envisioned for the March 2021 period. The current state as of December 2019 is shown in the middle. Through leveraging debt and reducing net assets by enhanced shareholder return, we are approaching the target equity ratio of about 50%, meaning we almost completed optimization of capital structure by the implementation of capital policies.

Next, revisions of full year forecast for fiscal 2019. We have issued a press release on this notice.

Slide 13, full year forecast. Net sales forecast is revised downward by JPY 18 billion from JPY 167 billion to JPY 149 billion. Operating income forecast is revised downward by JPY 3 billion from JPY 5 billion to JPY 2 billion. And net income revised downward by JPY 1.3 billion from JPY 3 billion to JPY 1.7 billion.

Slide 14, segment overview. For Energy segment, net sales forecast revised upward by JPY 3.9 billion at JPY 39.4 billion. Operating income revised upward by JPY 1.4 billion to JPY 2.8 billion. Reasons for upward revisions of sales and profit forecast are that commercial LIB is down year-on-year but is doing better than the original guidance and there is an increase in coin rechargeable batteries for hearing aids and others.

For the Industrial Materials segment, net sales revised downward by JPY 10.3 billion. Reasons are described in the first 2 bullet points at the bottom: One is a decrease in optical components for automotive market due to market downturn. And secondly, for embedded systems relating to semiconductor, while there are signs of market recovery, recovery of our sales is not expected before fiscal 2020. Operating income forecast revised downward by JPY 2.2 billion to JPY 1.1 billion.

For Electronic Appliance and Consumer Products segment, net sales forecast revised downward by JPY 11.6 billion. Two last bullet points at the bottom describe the reasons. Projector is far behind plan in brand switching. And for beauty care products, development of new sales channel is behind the plan. Sales forecast is revised downward by JPY 11.6 billion at JPY 54.3 billion. As for operating income, we originally forecasted to turn to profitability, but it is now revised with a JPY 2.2 billion deterioration for a loss of JPY 1.9 billion. We find this to be truly regrettable.

Now on to measures towards fiscal 2020 and beyond as mentioned at the outset.

Slide 16, disciplined financial policy. This has been explained several times. As for ROIC, return on invested capital, we have made transition from education phase to implementation phase during this fiscal year. And we have decided on the full-scale adoption and deployment from fiscal 2020. As for ABC/XYZ, which is an initiative to visualize profitability improvement by business, we are working on improving profitability of about 60 businesses by decreasing to about 40 businesses by means of shrinking, withdrawal and/or sell-off of businesses for which improvement cannot be expected. Detailed measures are being implemented towards next fiscal year.

As for PIPJ, which is a project to manage profit and loss on a model basis, we are working to establish a system for clear profit and loss management of about 8,000 models. Especially during this fiscal year against the backdrop of worsening market conditions, we launched a special project in which worst 150 models are selected, 10 models each from 15 business units for a rigorous execution of countermeasures. We have completed price increase for 83 models. In fiscal 2020 through more strict control, we will work on and decide on reducing unprofitable models, including possible withdrawal. We are committed to improving profitability for fiscal 2020 and beyond by firmly implementing these measures.

Next slide, implementation of measures addressing unprofitable businesses. I would like to give you an update on the 3 unprofitable businesses. As for consumer LIB, we have completed the shifting of resources, involving approximately 80 employees having been transferred to the automotive business division of Vehicle Energy, Japan. We plan to gradually expand the scope so as to utilize technical capabilities cultivated in consumer LIB business in automotive area. As for projector, during fiscal 2019, we are struggling in increasing the ratio of new light source due to inventory, but we will work on further increasing ratio of new light source towards fiscal 2020. As for head-up display, we are making preparations for the start of commercial base production for the China market, which is currently projected by the end of fiscal 2020. For health and beauty care, we have completed consolidation of design departments for beauty care products. We will work on further functional consolidation. We will take steady steps for sales expansion through developing new sales channels, such as beauty salons.

In summary, in addressing these unprofitable businesses, as mentioned at the last earnings briefing, we will execute concrete measures so as to realize financially independent businesses.

Lastly, but not the least, major change to business portfolio. During fiscal 2019, 3 themes have been announced on 3 different occasions: fiscal 2018 earnings briefing, business briefing 2019 and fiscal 2019 second quarter earnings briefing, as shown on the top of the slide, focusing, respectively, on selection and concentration, replacing old with new and financially independent businesses. We are looking into measures for unprofitable businesses, concentration of management resources to businesses that must be grown and revisiting business portfolio strategy for the growth of the Maxell Group. We would like to make decisions by the time of announcing the fiscal 2019 full year financial results, so as to be executed in fiscal 2020.

By sharing the measures towards fiscal 2020, I would like to conclude my presentation on the fiscal 2019 third quarter results. Thank you very much for your kind attention.

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