Maxell, Ltd. (6810) Earnings Call Transcript & Summary

This is Nakamura. I'd like to present the financial results of FY 2021. Summary of today's presentation shows 3 points. First point is the outline of financial results for FY 2021. Operating profit marked a record high since relisting in 2014. Second point is the forecast of FY 2022. In FY 2022, we forecast sales decrease by intent, but plan to secure profit increase. And we plan to implement share buyback in addition to ordinary share dividend. Third point is toward the progress for mid- to long term. Despite the external environment, we managed to achieve steady progress in general towards the target setting MEX23. All solid-state battery, in particular, will move into the long-awaited business base. Outlining financial results for FY 2021. This slide shows the key points in consolidated financial results. FY 2021 results are shown in the highlighted blue column. Net sales were JPY 138.2 billion, and operating profit was JPY 9.3 billion. But as mentioned before, due to impairment losses, net profit was minus JPY 3.7 billion. As for net sales, as shown below, we managed to offset the sales decline by projector business reform by the increase in sales of products for the growth markets, including automotive and the semiconductor market, which have been recovering. Operating profit marked the record high since relisting because of large-scale business reform implemented in FY 2020 and strengthened efforts to grow existing businesses as well as enhanced response to rising raw material costs. Due to the recognition of extraordinary loss, net loss was recorded, unfortunately. Details of major extraordinary loss. Variation loss on shares of Vehicle Energy Japan, VEJ was posted this time. As for the overview of variation losses, the business of VEJ itself has been solid due to the demand for EV. But because of temporary demand decrease and part supply shortage caused by pandemic, the timing for profitability will be delayed from our initial projection. And in accordance with the accounting standard, variation loss of JPY 10.3 billion was recorded. As for the impact on the company's performance, VEJ is not consolidated nor equity method-affiliated company. And variation loss on VEJ shares is fully reflected in FY 2021 results. Also, this extraordinary loss has no impact on cash flows and future business performance. Therefore, we have no major concerns for the future, and we'll focus on the growth strategies again. Since 2019, when we invested in VEJ, how market and the synergy changed are described here. As for the market, as mentioned before, demand for EV continues to be firm. And later sales and demand have been shrinking partly due to the semiconductors impact, but we are confident for the recovery in near future. As for expected synergy for the automotive market, including TPMS battery, the future projection continue to be robust, and the synergy is secured. Joint technological development for the next-generation batteries, including all solid-state battery is progressing steadily and consumer lithium-ion battery resources, including technology and personnel are effectively mutually utilized. With the business environmental recovery in future again, we can continue to expect the growth of VEJ, and we'd like to support this growth. Let me come back to the business outline. This slide shows the net sales changes from FY 2020 to '21. Net sales declined from JPY 139.1 billion to JPY 138.2 billion, down by JPY 0.8 billion year-on-year. Quantity variance, JPY 1.6 billion includes the impact by the projector business reform, intentional sales downsizing. Sales increased due to foreign exchanges and price variances and affected by new accounting standard, we managed to secure JPY 138.2 billion sales. Operating profit changes. Operating profit increased from JPY 3.8 billion in FY 2020 to JPY 9.3 billion, up JPY 5.5 billion year-on-year. Benefit of business reform conducted in FY 2020 were clearly reflected in FY 2021 as plus JPY 2.5 billion. And the quantity variance, JPY 2.5 billion was supported by the volume growth in expected growth areas. And adding the cost reduction benefit, we were able to minimize the material cost increase, and we posted a record high operating profit of JPY 9.3 billion since relisting. This is cash flow change. Increasing free cash flow of JPY 14.5 billion from the beginning of FY 2021, cash and cash equivalent as of the end of FY 2021 were JPY 43.3 billion. Review on FY 2021 by segment is shown here, starting from energy. As for sales, as shown at the bottom, in FY 2020, demand for automotive was sluggish, but you covered in FY 2021, and that boosted sales. Batteries for hearing aids and smart meters captured customers and contributed to sales growth. Consumer lithium-ion battery in 2020 enjoyed strong sales supported by pandemic-created demand. But in 2021, due to the reduced production at customers caused by semiconductor shortage, sales decreased. As for operating profit, soaring raw material costs impacted widely on the Energy segment. But through our self-help effort, including cost reduction and pass on to prices and substantial sales increase of heat-resistant CR coin battery, operating profit for the segment increased. As for Functional Materials, net sales were JPY 28 billion, operating profit was JPY 1.9 billion, marking the increase in sales and profit. As for sales, as shown below, market contracted, affected by pandemic in 2020, but they recovered in FY 2021 in adhesive tape and the industrial rubber and their sales increased. Coated separator sales decreased due to the adoption of the new revenue recognition accounting standard. As for operating profit, environment was difficult, including soaring raw materials. But through self-help efforts, including pass-on and cost reduction, we managed to increase profit in adhesive tape business. Industrial rubber products and coated separator increased sales, and they also contributed to profit growth. Third segment, Optics & Systems. Net sales were JPY 39.5 billion, and operating profit was JPY 3.3 billion, marking growth both in sales and profit. As for sales, due to business reform in projector business, termination of sales in Europe, U.S. and Asia, except a part of Asia sales will be terminated. And sales dropped significantly. This is the intentional sales downsizing. Optical components for automotive contributed to sales growth due to automotive market recovery. Semiconductor-related products are currently enjoying a tailwind with demand expansion and sales increased. As for operating profit, profitability improved significantly as the projector business reform was mostly completed. And with the demand recovery of automotive market, along with the recovery in semiconductor-related products, it contributed to a profit increase. Finally, Life Solutions segment. Its net sales were JPY 32 billion, and operating profit was JPY 0.1 billion. It was an extremely tough year for this segment with a decrease both in sales and profit year-on-year. As for sales, the entire consumer markets substantially contracted in 2021 year-on-year, and our sales was extremely sluggish. Additionally, the business transfer implemented in FY 2020 led to sales decrease and domestic demand for antibacterial deodorizer which had brisk sales and profit in 2020 slowed down, and sales decreased. As for operating profit, profit of health and beauty care products decreased due to slowdown of consumer market. And for most of consumer business, we procure from overseas. So due to foreign exchange impact, profit was squeezed. This is a part of review of FY 2021. In the last few years, we have been focusing on projector business reform, and it was mostly completed in FY 2021. From now on, we will concentrate resources on new businesses to drive the growth in sales and profit. To be more specific, we terminated sales in Europe, North America and Asian regions in September 2021. And mainly in China, we reduced headcount of approximately 300, mainly in manufacturing. The technologies in this business will be shifted to new business to lead to further growth. Focus now on FY 2022. Key points for FY 2022. This year is particularly important as a midpoint of MEX23. There are 3 key points listed here. First, we enhance the organization and concentrate resources to expand growth business. Second, we will accelerate the development and investment to create new growth drivers. Third, we will strengthen business portfolio through solid financial discipline, which was insured in 2020 as well, including ROIC management, ABC/XYZ business control and PIPJ activities. Not only in the midpoint year of 2021 in 2022 as well, we'll continue to ensure these. Business forecast for FY 2022 is shown here. Net sales will be JPY 130 billion, down by JPY 8.2 billion year-on-year. In 2022, a part of the remaining projector business, we further contracted. So this is mainly intended sales downsizing. Operating profit is JPY 9.5 billion, up JPY 0.2 billion year-on-year. And we aim to achieve the net profit of JPY 6 billion. Assumed exchange rate is JPY 120 to $1, and as shown here, capital expenditure will be JPY 7 billion; depreciation, JPY 5 billion and R&D expense will be JPY 7 billion. Though sales will decrease due to the downsizing of remaining unprofitable businesses, profit is expected to increase due to expansion of profitable business. This is a business forecast for FY 2022 by segment. Details will be shown on the next slide. The Energy segment sales and profit will decrease year-on-year and Functional Materials sales and profit will increase. Optics & Systems sales will decrease due to projector business contraction. But by capturing gross business, profit will increase. Life Solutions sales will be slightly down, but by sales mix and the product mix changes and the launch of new products, profit will increase. Details of the previous comments are shown on this slide. In Energy segment, as for the primary battery, sales growth of TPMS application and the launch of the battery for medical applications are positive factors. But as for the rechargeable battery, we expect the production volume decrease due to semiconductor shortages on the side of customers. In Functional Materials segment, we will secure profit growth through order increase in the expanding market by applying our technologies despite soaring raw material cost. Especially for the adhesive tape, steady growth in orders is expected for the product for semiconductor market. And as for Industrial Materials, order increase is expected due to expansion of EV market. In Optics & Systems segment, as mentioned before, sales will be down due to the projector business downsizing, but profitability will be improved by expanding growth businesses. As for the optical components for automotive, with the recovery in automotive demand, we will increase sales and will invest to increase production capacity to that end as well. As for semiconductor-related products, currently, customer demand is very strong. And to meet that demand, we plan to make investment to increase production capacity. In Life Solutions segment, as mentioned before, we will improve sales mix of health and beauty care products and also launch high added value products to change profitability structure. Net sales changes from FY 2021 to '22. Sales will fall by JPY 8.2 billion year-on-year, but major declines due to project-related sales, intentional sales decline. Besides, we expect price and exchange variance as well. And considering these, we will strive to secure sales. Operating profit will increase from JPY 9.3 billion in the previous year, up by JPY 0.2 billion year-on-year. As mentioned before, volume decline is expected, mainly in lithium-ion battery, for its demand will be diminishing. And sales and profit of projector and consumer products will decline. And the material cost increase from FY '21, 2022 is expected to be JPY 1.7 billion. On the other hand, including pass-on to prices, price variance is approximately JPY 3 billion and cost reduction is JPY 2.3 billion and pushed up by the exchange variance as well. We would like to increase profit to JPY 9.5 billion. Based on the plan, risk consumptions and countermeasures are listed on this slide. Future continues to be highly uncertain, but will grasp changes in the market environment rapidly and take actions with agility. As for soaring material cost, at the end of the last year, it was anticipated that in FY 2022, material cost surge will be more or less saturated. But latest cost increase continues to be tough, so we continue to pass on to prices. As for delay in receiving materials, such as semiconductors, it will continue in FY 2022 as well. We will share information with customers and make advanced orders of parts and materials to meet customers' demand. As for automotive, recovery in FY 2021 was delayed. But in FY 2022, auto production volume is expected to increase year-on-year, and our plan is based on that projection. As for the final risk, geopolitical risk, direct impact on our business is minor, but for the indirect impact, we will monitor the situation closely and take best action promptly. This slide shows the response to the soaring raw material cost. In FY 2022, material cost surge is likely to continue, especially for the impact of soaring raw material costs linked to the market, we'd like to promote formula in reviewing selling prices. And we've shown in time lag between rising material costs and pass on to prices. Also as a part of our self-help effort, we ensure thorough reduction of manufacturing costs and costs in general. Through these initiatives, we aim to secure profit by minimizing the impact of soaring raw material costs. In FY 2022, we will prepare the next midterm plan and the new growth drivers, and we plan to accelerate the development and investment. This slide shows 4 products. As for semiconductor-related products, to meet the increasing demand, we make investment of approximately JPY 500 million to be completed in 2022. Also in the same semiconductor-related products for semiconductor DMS, investment of approximately JPY 2 billion is made with a scheduled completion in 2023. And it is positioned as a key investment for the currently growing demand. As for automotive shown below, demand expansion in lens is now visible, and we make investment of approximately JPY 1 billion with a scheduled competition in 2022. As for new business, whose sales and profit contribution will be in 2023 and onwards, we will make JPY 2 billion investment. Its schedule is moved forward by 1 year from the initial plan, and we'll move to commercialization. We'll continue the thorough financial disciplines. ROIC in FY 2021 was 5.5%, achieving remarkable improvement year-on-year. In order to achieve 7% in 2023, we will take every possible action. We continue business management through ABC/XYZ, and PIPJ delivers substantial results. So we'll continue to deploy these measures. As for strengthening business portfolio, this slide shows changes in net sales and operating profit by category, growth businesses and other businesses, starting from FY 2020. In net sales, we achieved steady growth from FY 2020 to '21 and 2022 in growth businesses. And in other businesses, including unprofitable businesses, we have been downsizing their sales with intent. As for operating profit as well, through business control with intent, we have been enhancing scenario which grows profits through growth businesses. Shareholder return is positioned as a principal factor in our business management with our basic policy of stable dividend payout ratio of 30% to 40%. In FY 2021 interim and year-end dividend will be JPY 20, respectively, and that level will be sustained in FY 2022 as well. And in FY 2022, we also planned the share buyback. Taking current condition of cash on hand, stock price and other factors into account, as a part of enhancement of shareholder returns, we implement share buybacks this time. As shown here, total amount is up to JPY 5 billion, and number of shares to be acquired is 5.75 million shares. And buyback period is from May 16, 2022 to March 10, 2023. All the shares bought back will be cancelled. Towards the progress for mid- to long term, this slide shows the products in growth businesses that drive the growth towards the final year of the midterm plan FY 2023. There were some external environmental changes, including pandemic semiconductor shortages and the soaring material costs, which was not expected initially at the time of making the plan and the progress varies by business, but overall performance is steady and we are poised to achieve the target set for FY 2023. All solid-state battery, which we have high expectations for growth in 2023 and onwards is a business field where we can take advantage of our unique analog core technologies of mixing powders, molding and forming to differentiate ourselves. And we have been focusing on and accelerating the development in this business. We are now completing the all solid-state battery with features that couldn't be achieved by the conventional lithium-ion battery to be ready for commercialization. We are having business negotiation with dozens of companies for order taking, and they are making good progress. By connecting joint development to orders steadily, we are striving to achieve sales of JPY 30 billion in 2030. As a specific measure to achieve the target in establishment of the production facility, we decided to invest approximately JPY 2 billion as a first step toward the start of full-scale mass production in FY 2023. Based on the progress of business negotiation with customers, we plan to gradually invest in capacity expansion and implement the plan. To summarize, all solid-state battery, we're moving to the long-awaited business phase. This concludes my presentation.