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

I am Nakamura. I'd like to present the financial results of FY 2022. This is a summary of today's presentation. As for the outline of financial results for FY 2022, sales decreased due to the impact of the drastic downsizing of the project business and the lower sales of rechargeable batteries and B2C products. Operating profit decreased due to the temporary expenses caused by the business reform for domestic B2C sales in addition to shoring raw material costs. Foreign exchange gains by the depreciation of yen and the sales of noncurrent assets positively affected net profit. As for the forecast of FY 2023, sales increase of growth businesses will cover the drop of the domestic B2C business. Operating profit increased due to the expansion of growth businesses, price reflection of soaring raw material costs and business reform. Outline of financial results for FY 2022. This is consolidated financial results of FY 2022. Net Sales were JPY 132.8 billion, down by JPY 5.4 billion year-on-year. It was down by JPY 2.2 billion compared to the forecast revised in the first half. Operating income was JPY 5.6 billion, with OP ratio of 4.2%, down by JPY 3.7 billion year-on-year. But compared to the revised down forecast, it was up by JPY 0.1 billion. Net income was JPY 5.2 billion, up by JPY 8.9 billion year-on-year and up by JPY 0.2 billion compared to the forecast. Sales decreased due to the business downsizing of project conducted in the previous year and sales decrease of rechargeable batteries and B2C products. despite our sales increase in automotive and semiconductor-related business. Operating income decreased due to the temporary expenses for B2C business reform in addition to the soaring raw material cost. Foreign exchange gains by the depreciation of the yen and the sales of noncurrent assets positively affected net profit. Net sales changes from FY 2021 to '22. Sales decreased JPY 5.4 billion year-on-year. The largest variance was by quantity, minus JPY 17.4 billion, which includes minus JPY 8 billion in Energy and minus JPY 4.4 billion in Life Solutions segment. As for price variance, selling price revision corresponding to the soaring material cost was plus JPY 4.2 billion. Exchange variance was plus JPY 8 billion, and net sales resulted in JPY 132.8 billion. Operating profit changes. From JPY 9.3 billion in the previous year, operating profit decreased to JPY 5.6 billion in FY 2022, down by JPY 3.7 billion year-on-year. The largest impact was quantity variance, mainly in struggling rechargeable batteries variance was minus JPY 2.4 billion. And in Life Solutions, Health and Beauty Care products struggled and the temporary cost of business reform also affected. Material cost increase squeezed the profit by JPY 3.6 billion. While price variance was plus JPY 4 billion through selling price revision of for soaring material cost and the exchange variance was JPY 1.5 billion. Cash flow changes from JPY 43.3 billion in March 2022, operating cash flow was plus JPY 4 billion. Investing cash flow was plus JPY 1.7 billion, and free cash flow was plus JPY 5.7 billion. Investing cash flow, JPY 1.7 billion includes JPY 5.6 billion for sales and fixed assets and JPY 1 billion for sales of investment securities. Financing cash flow was minus JPY 14 billion, including repayment of the long-term borrowings, purchase of treasury shares and dividends paid. And with exchange variance of JPY 1.5 billion, cash and cash equivalent as of the end of March 2023 was JPY 36.6 billion. Review on FY 2022 by segment. Let me start with Energy. Net sales in FY 2022 were JPY 36.8 billion, down by JPY 1.9 billion year-on-year. As shown below, Sales for primary batteries increased due to the steady orders by automotive and medical equipment. While sales of rechargeable batteries decreased due to a customer demand decrease caused by the shortage of semiconductors. Operating profit was JPY 2.4 billion, down by JPY 1.7 billion year-on-year. Besides sales decline average channel batteries, operating profit decreased due to the soaring raw material cost that progressed in the first half despite the recoveries by cost reductions and selling price revisions. This slide shows the Functional Materials segment. Net sales were JPY 29.3 billion. As shown below, sales of adhesive tape increased due to order increase mainly for construction. Sales for industrial materials increased due to the strong sales of industrial rubber products. Operating profit was JPY 0.9 billion, down by JPY 1 billion year-on-year. Despite the recoveries by cost reductions and selling price revisions, operating profit decreased due to the soaring raw material cost that progressed in the first half, which was not fully absorbed. This slide shows Optics and Systems. Sales were JPY 37.5 billion, down by JPY 2.1 billion year-on-year. Sales decreased due to the substantial downsizing of the Project business. But the sales of automotive optical components increased due to the recovery of orders and production. And semiconductor-related products contributed to the sales increase as orders for semiconductor DMS remained strong. Operating profit was JPY 3.9 billion, up by JPY 0.6 billion year-on-year. Strong sales in automotive optical components and the semiconductor-related business contributed to profit growth. This is a Life Solutions segment. Net sales in FY 2022 were JPY 29.2 billion, down by JPY 2.8 billion year-on-year. It was mainly due to the struggling sales of health and beauty care products, primarily by the antibacterial deodorizers. Operating profit was minus JPY 1.5 billion, down by JPY 1.6 billion year-on-year. Sharp depreciation yen adversely affected profit prominently in the first half as we procure product overseas for domestic sales. And the temporary expenses were recognized due to the reform in domestic B2C sales business. Operating profit changes from the third quarter to fourth quarter by segment. Operating profit in the third quarter FY 2022 was JPY 2.1 billion, and it went down to JPY 1.1 billion by JPY 1 billion quarter-on-quarter. In Energy segment, despite the global economic stagnation, as a temporary license revenue was recognized, operating profit increased slightly. In Functional Materials segment, operating profit was minus JPY 0.1 billion, affected by the global economic stagnation. In Optics & Systems segment, operating profit decreased due to slightly more sluggish automotive market in the fourth quarter. In Life Solutions segment, after the year-end sales in the third quarter, fourth quarter tends to be slow due to seasonality, and the temporary expenses were recognized due to the business reform for domestic B2C sales. So profit decreased substantially as minus JPY 0.9 billion. As a whole, operating profit decreased by JPY 1 billion from the start to fourth quarter due to the global economic stagnation and the reform-related expenses in Life Solutions segment. As for B2C business reform, based on the plan announced in the first half results meeting, we have been making steady progress. As for Maxell brand business, including batteries, AV equipment and Hair and Beauty Care products with sales of approximately JPY 9 billion, we transferred the product planning, development and the sales function to Denkyosha. Remaining B2C overseas, B2B and hydraulic tools with approximately JPY 20 billion sales will continue to be within Maxell Group to pursue business recovery. Purpose of business scheme is, as shown here, to strengthen and develop B2C business. By integrating back sales strength of planning and development capabilities with the strength of Denkyosha sales capabilities, we will further expand B2C business. And we maximize corporate value Maxell. By concentrating resources on our strength and our local core technologies and mixing, coating and forming will accelerate the maximization of corporate value. As for the progress, we completed a transfer of product planning, development and service functions for domestic consumer products to Denkyosha as of April 1. And that we continue business reforms, including reorganization to improve profitability. Status out soaring raw material cost and selling price reflection. As explained before, we managed to more than offset the accumulated raw material cost surge in FY 2022 by selling price reflection in the cumulative fourth quarter. In FY 2023, electricity costs continue to rise as well as raw material costs. we'll continue our effort to reflect them in selling prices. From here, I will explain the forecast of FY 2023. FY 2023 is the important year as a final year of MEX23, the current midterm plan. We strengthened business portfolio through thorough Financial discipline and we'll shift to mass production phase of all solid-state battery which will serve as a growth driver in the next midterm plan. And we'll take full fleet actions to achieve materiality KPIs target. This is a business forecast for FY 2023. FY 2023 forecast is shown in the blue box. Net sales will be JPY 133 billion, up JPY 0.2 billion year-on-year. Operating income will be JPY 7.5 billion, up by JPY 1.9 billion year-on-year. Net income will be JPY 5.2 billion. ROIC is 4.8%. ROE is 6.2%, and exchange rate is assumed as JPY 130 to a dollar. When you compare them to those in MEX23 shown at the right hand, there are a considerable gap in net sales and operating income. As for points of difference versus MEX23 target, especially on the sales front, at the time of making the midterm plan, we were not able to conceive the severe change of economic circumstances across businesses due to the prolonged spread of COVID-19, among others. In particular, the demand of B2C business, antibacterial deodorizer business where we had a high growth expectation sagged substantially. On the cost side, there were foreign raw material cost and electricity costs, which were not expected initially. We are striving to reflect those cost increase in our selling prices, but as we are not able to reflect fully and that squeezed the profit. As for the points of difference versus FY 2022, the largest one is a sales drop of domestic B2C business, which underwent the reform. On the other hand, the business first demand recovery is expected, will make contribution for OP growth. And the cost increase will continue to be reflected in the selling prices and the business reforms will continue to be accelerated. Those are incorporated in the forecast. This is a net sales changes from FY 2022 to '23, plus JPY 0.2 billion. Business reform for domestic B2C sales business through the business alliance with Denkyosha FX by minus JPY 4.3 billion. Exchange variance sales decreased JPY 3.4 billion. Price variance, including those in Energy & Functional Materials segment is plus JPY 2.4 billion. And the quantity variance increases sales through segment where demand recoveries are expected. Through all of these, we are aim at JPY 133 billion. As for operating profit from JPY 5.6 billion in the previous year, we aim to increase by JPY 1.9 billion. In B2C business, we expect about JPY 0.6 billion of reform related expenses, exchange variance is minus JPY 0.8 billion, and soaring raw material costs, including electricity cost is minus JPY 1.4 billion. While beside the cost reduction in price variance cost increase will be reflected in the price showing plus JPY 2.4 billion. And with quantity variance, we aim to achieve the OP growth to hit JPY 7.5 billion. This is a business forecast by segment. Key points by segment. In Energy segment, as for the primary battery, full-scale shipment of batteries for medical application will start. But for the broad general purpose primary battery, we continue to be in severe condition by the global economic stagnation until the end of the first half. As for the recharge batteries, we continue to secure the demand. We strive to improve profitability by cost reduction through leveled production among others. In Functional Materials segment, adhesive tapes for construction continues to be steady. But in the first half, especially for semiconductor, economy will be sluggish, and we expect to see the recovery in the second half. As for the industrial materials, orders in materials for separator for EV battery are expected to grow year-on-year. In Optics & Systems segment, in optical components for automotive, we continue to accelerate growth investment to develop new functions such as ADB. In semiconductor-related products, we expect the continued robust sales and the profit of DMS. As for B2C, we continue the thorough Business Reform to create value in the next midterm plan onward. As a whole, in our plan, we expect the global economy remain stagnant in the first half. but demand is expected to recover from the second half, including one in the semiconductor-related business. We implement initiatives through continue thorough financial discipline. As for ROIC, in FY 2022, we promoted assets reduction bearing the index in mind. In FY 2023, we implement PDCA in a more accelerated manner. As for ABC-XYZ for monitoring by business, last year, we implemented a reform for struggling consumer businesses in our effort of business replacement with the severe forecast. In FY 2023, we promote portfolio management through monitoring, and we increased the proportion of A&B business, highly profitable businesses. And as for PIPJ, P&L management for more granularity. In FY 2022, we reduced loss of JPY 1 billion plus. And in FY 2023, we continue those initiatives. We'd like to make all solid-state battery a growth pillar in the next midterm plan and it is moving into the mass production phase. In April 2023, mass production facility was completed. And in June 2023, we plan to ship mass-produced products to be used for the customer evaluation of mass-produced products. As shown on the right, we plan to make it the new sales pillar of JPY 30 billion in 2030, making the steady progress. As for materiality and KPI, we set the materiality in FY 2021. And in the previous year, we set the specific KPI. And for the same materiality, the progress of the specific activities has been monitored and supervised by officers in charge as shown here. I have visited the group companies in Japan for the in-person contact with employees to convey the management intent on the materiality and initiatives. Investment plan and the distribution to shareholders. In FY 2023, planned capital expenditure is JPY 8 billion with significant increase year-on-year. it includes the investment for the mass production facility for all solid-state battery as mentioned. And the expansion and the renewal of DMS business maturity for semiconductor to expand that production is also planned. Depreciation and R&D expenses are planned to be almost unchanged from the previous year. Dividend will be based on the payout ratio policy from 30% to 40% for the continuous and stable dividend payout. Dividend in FY 2023 will be JPY 20 for interim dividend, JPY 20 for the year-end dividend for the total of JPY 40 for the full year. Information and business briefings for institutional investors. On June 1, 2023, at AP Tokyo Marunouchi, management executive members will explain the corporate strategy and sales business and the new business strategies institutional investors. We do hope you to participate in the briefing. This concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]