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

This is Nakamura speaking. And I would like to start the presentation on financial results of FY 2023. And this is the summary of today's presentation. Outline of financial results for FY 2023. Sales decreased mainly due to the transfer of domestic consumer product sales business. Operating profit increased year-on-year and also exceeded forecast. Net profit increased, thanks to exchange gain in addition to operating profit increase. Revised year-end dividend forecast upwards, dividend increase, with increase in net profit. And the second point is the forecast for FY 2024. We expect slight decrease in sales due to reduced rechargeable batteries sales and the licensing revenue, despite sales increase in growing business. Despite decrease in licensing revenue, operating profit remains at the same level as previous year by sales increase and the profitability improvement of other businesses. Whereas net profit will decrease, it remains the same level as previous year considering the exchange gains added in the previous year. The dividend forecast for FY 2024 is expected to be maintained at the same level as FY 2023. Third point is medium-term management plan, MEX26. We will further accelerate the policy of previous plan, “Commit to Value, and implement management with a greater emphasis on corporate value and profit growth. We intend to accelerate investments in growth businesses to achieve PBR of over 1x, while implementing shareholder return policy prioritized on total payout ratio. Next slide, please. I will start with the outline of financial results for FY 2023. This is the consolidated financial results. Starting with net sales. JPY 129.1 billion, down by JPY 3.6 billion year-on-year. And as you can see in the comment below, despite sales increase of automotive optical components, adhesive tape and license revenue, net sales decreased due to the transfer of the domestic consumer product sales business and reduction in sales of rechargeable batteries and semiconductor-related products. Going back to the table. Operating profit was JPY 8.1 billion, OP ratio of 6.3%, which was up by JPY 2.4 billion. And as you can see in the comment below, operating profit increased due to higher sales of automotive optical components and licensing revenues as well as the improved profit of health and beauty care products. Going back to the table, net profit was JPY 7.5 billion. And as you can see in the comment below, net profit increased due to exchange gain in addition to operating profit increase. As a result, ROE improved from 6.3% to 8.5%. Net sales changes. Net sales of FY 2022 was JPY 132.8 billion. Net sales in FY 2023 was JPY 129.1 billion, which is down by JPY 3.6 billion. Looking at the breakdown, quantity variance, JPY 9.6 billion. As you can see to the right, good sales of automotive optical components and adhesive tapes and license revenue also remains strong, including temporary cases. But on the other hand, there was a decrease due to the transfer of our domestic consumer product sales business and the sales decrease of consumer LIB. And the primary battery decreased due to sluggish demand of electronic devices in China and global markets. There was also a temporary inventory adjustment by customers for semiconductor-related products. And in total, there was a negative variance of JPY 9.6 billion. As for price variance, we continue to optimize the sales prices. So this was up by JPY 1.7 billion. And also, there was JPY 4.2 billion of positive impact of exchange variance. And in total, we had net sales of JPY 129.1 billion. Next slide, please. Operating profit changes. FY 2022 was JPY 5.6 billion, and FY 2023 was JPY 8.1 billion, up by JPY 2.4 billion. And for the quantity variance, these are the same factors as for the sales. Material cost increase. Trends vary by material, but soaring material costs are moving towards resolution, in general. And then there was cost reduction of JPY 2.3 billion, positive impact, effect of cost reduction and improved product mix. And price variance was JPY 1.7 billion, effect of selling price optimization. And business reform effect of JPY 1.6 billion, fixed cost reduction due to transfer of domestic consumer product sales business. And exchange variance was JPY 1.5 billion, and we had a negative impact of JPY 1.2 billion of others. And all in all, we posted JPY 8.1 billion in operating profit. Cash flow changes. Cash and cash equivalents beginning of FY '23 was JPY 36.6 billion. And including the inventory, cash flow from operating activities of JPY 14.2 billion and from investing activities was minus JPY 4.8 billion. Free cash flow was JPY 9.4 billion. And from finance activities, minus JPY 9.5 billion, and exchange variance of JPY 2.2 billion. And cash and cash equivalents at the end of FY '23 was JPY 38.7 billion. Now we will look at the results by segment, starting with Energy. Net sales was JPY 35 billion, down by JPY 1.8 billion year-on-year. As you can see in the comment below, despite decrease in sales volume for electric devices due to sluggish demand in China and global markets, sales of our primary batteries kept the same level as previous year with a strong performance for automotive applications. And on the other hand, sales of rechargeable batteries decreased due to a decrease in sales of consumer LIB. Going back to the table. Operating profit was JPY 0.5 billion, down by JPY 1.9 billion year-on-year. Profit for primary batteries decreased due to lower sales of electronic applications and deterioration of product mix. And despite much lower sales, profitability of rechargeable batteries improved due to fixed cost reduction. We also recognized expenses for developing all-solid-state battery and for building mass production system. Next slide, please. This is the Functional Materials segment. Net sales for FY '23 was JPY 30.1 billion, up by JPY 0.9 billion year-on-year. As you can see in the comment below, sales of adhesive tape increased due to the recovery in orders mainly for semiconductor manufacturing process. In addition, sales of industrial materials decreased due to delay in order recovery of industrial rubber. Operating profit, going back to the table, was JPY 1.4 billion, up by JPY 0.5 billion year-on-year. As you can see in the comment below, profit of adhesive tape increased due to sales expansion of high value-added products and selling price optimization. Profit of industrial materials increased due to improved profitability. Next slide, please. This is the Optics & Systems segment. FY 2023 net sales was JPY 41.4 billion, which was up by JPY 3.9 billion year-on-year. And as you can see in the comment below, sales of automotive optical components increased due to recovery in automotive market and improved installation rate. Sales of semiconductor-related products decreased slightly due to the impact of inventory adjustment of some customers. On the other hand, license revenue contributed to sales increase. Operating profit, going to the table, was JPY 5.6 billion in FY 2023, up by JPY 1.7 billion year-on-year. And as you can see in the comment below, profitability of automotive optical components improved due to growth in high value-added products. And the profit of semiconductor-related products decreased due to lower sales, and the profit of license revenue increased due to higher sales. Next slide, please. Last segment is Life Solution. And these are the highlights. Net sales for FY 2023 was JPY 22.7 billion, down by JPY 6.6 billion year-on-year. As you can see in the comment below and as has been announced, sales of consumer products and health and beauty care products decreased as a result of transfer of the domestic consumer product sales business to partner. Going back to the table, operating profit was JPY 0.6 billion, up by JPY 2.1 billion year-on-year. As you can see in the comment below, profitability improved as a result of our Life Solution business reform and the continued improvement of productivity at overseas production plants. In addition, improved product mix in health and beauty care products centered on shavers contributed to profit growth. We also recognized onetime expenses relating to reform of Life Solution business in the third quarter. Next slide, please. From here, I would like to explain the forecast for FY 2024. This is the business forecast for FY 2024. Starting with net sales, JPY 128 billion, which will be down by JPY 1.1 billion from the prior year. And as you can see in the comment section below, a slight decrease in sales due to reduced rechargeable battery sales and licensing revenue, despite sales increase in growing business. So there's going to be a slight decrease. As for operating profit, we expect JPY 8 billion, which is down by JPY 0.1 billion year-on-year. And as you can see in the comment below, operating profit remains at the same level as previous year by sales increase and profitability improvement of other businesses, despite a decrease in licensing revenue. As for net profit, the forecast is JPY 6 billion. Whereas net profit will decrease, it remains at the same level as the previous year considering the exchange gains added to the previous year. Next slide, please. This is the net sales change from FY 2023 to 2024 from JPY 129.1 billion to JPY 128 billion, down by JPY 1.1 billion. Price variance is minus JPY 1.1 billion. Quantity variance is minus JPY 0.6 billion, and exchange variance is plus JPY 0.5 billion. Operating profit changes, JPY 8.1 billion in '23. Price variance is minus JPY 1.1 billion, and then quantity variance is zero. And then cost reduction of JPY 0.8 billion, including progress of general cost reduction and the difference between onetime expense relating to reform of Life Solution in FY '23 and increase of depreciation as well as enhancement of human capital investment. And in addition, we have exchange variance of JPY 0.2 billion, resulting in JPY 8 billion. This is business forecast for FY '24 by segment. Energy, net sales forecast is JPY 32.5 billion, down by JPY 2.5 billion year-on-year. And operating profit is JPY 0.7 billion, up by JPY 0.2 billion. Functional Materials net sales, JPY 32.4 billion, up by JPY 2.3 billion. And operating profit forecast is JPY 1.6 billion, up by JPY 0.3 billion. In Optics & Systems, net sales forecast is JPY 40.2 billion, down by JPY 1.2 billion. Operating profit forecast is JPY 4.7 billion, down by JPY 0.9 billion year-on-year. For Life Solution, net sales forecast is JPY 22.9 billion, up by JPY 0.2 billion. And operating profit including business reform in FY '23 is forecast at JPY 1 billion, which is up by JPY 0.4 billion year-on-year. All in all, for the whole group, we expect JPY 128 billion in net sales. And these are the key points of what I have just explained. Starting with the Energy segment, primary batteries. We expect order increase for medical applications, which is expanding, and demand recovery for electronic applications. We also expect an increase in sales for automotive applications because of a higher number of inquiries by enhancing production capacity. As for rechargeable batteries, we anticipate significant order decrease for consumer LIB, proceeding with production efficiency improvements to enhance profitability. We plan to start full-scale mass production of all-solid-state battery for FA equipment. Moving on to Functional Materials. In adhesive tapes, orders for high value-added products such as tapes for construction and the tapes for semiconductor manufacturing processes are expected to expand steadily. So we want to increase the sales in this area. For industrial materials, we want to expand orders for automotive products due to the expansion of xEV markets as well as gaining adoption to new vehicle models. And in Optics & Systems, automotive optical components. We want to concentrate on the development of the high value-added products for next-generation models. And for semiconductor-related products, orders will be recovering in line with the recovery of the semiconductor manufacturing equipment market. And we want to enhance production capacity in response to the mid- to long-term order increase. And in others, we anticipate a decrease in revenue for FY '24 due to temporary licensing revenue in FY '23. But underlying licensing business is expected to remain strong. Last but not least, Life Solutions, health and beauty care OEM. We want to accelerate improvement of product mix by enhancing OEM business in order to improve profitability. This is capital investment, depreciation and R&D expenses. FY '24 capital investment is forecast at JPY 8 billion, which is up by JPY 1.2 billion year-on-year. Adjustments for depreciation is forecast at JPY 5.5 billion, up by JPY 0.7 billion. And R&D expenses, JPY 6 billion, up by JPY 0.5 billion. Major capital investments in FY '23, as you can see with the photograph, was focused on all-solid-state batteries. And in April '23, we completed mass production facility. And in June '23, started shipments of mass production products, and approximately JPY 2 billion of investments have been completed. We also plan sequential investments aligned with the order increase and the development of high-capacity products. On the right-hand side, you can see semiconductor DMS. And just in March this year, we have completed the building at Yonezawa plant. And we will implement investment that is our plant in line with the growth of the semiconductor market so that we can expand the production. Next slide, please. This is the dividend forecast. In April '23, we indicated that the interim dividend would be JPY 20 and the year-end dividend JPY 20, total of JPY 40. But thanks to increase in net profit according to our guidance and policy, we have decided to increase the year-end dividend from JPY 20 to JPY 30, which makes the total amount of dividend to JPY 50. And for FY '24, as was explained before, in line with the profitability improvement, we intend to pay out dividend at a similar level to FY '23. Now I would like to start the medium-term management plan, MEX26. We posted a deficit in 2019. And also, we implemented major business structure reform in 2020. And following that, from 2021 to 2030, we have embarked upon this medium-term management plan to enhance corporate value in 3 different phases. First phase was completed in FY '23. And this was focused on shifting strategy from expanding sales scale to creating value, implementing the reforms for unprofitable businesses, so that we can prepare the growth business and the growth products from phase 2 and beyond. We also had projects ready to [ project ] as well as business reform of consumer business. And we are proud that we could start new business pillars, including all-solid-state battery, which will lead to MEX26 and beyond. But in 2023, we did not achieve the target of JPY 12.5 billion. So starting with the second phase from 2024, we want to accelerate further enhancement of business foundation and accelerate business portfolio reform. And also, toward 2030, we will execute advanced development and develop new markets, so that we can develop new markets and make advanced investments. And as a result, we want to realize PBR of over 1x. Next slide, please. Initiatives toward achieving PBR over 1x. We have shared already some analysis in relation to this. And within the midterm plan towards 2026, we would like to share some of the thinking behind this plan. Our ultimate goal is maximization of corporate value. More specifically, we want to achieve PBR over 1x. And based on this, we have three main initiatives. First of which is ROE improvement. We want to enhance our business values, which includes increased asset efficiency and the implementation of efficient capital allocation. In addition to that, we want to focus on financial leverage so that we can reevaluate the balance between shareholder equity and borrowing. And in terms of profitability, accelerate business portfolio reform and resource concentration to growing business, reform of unprofitable businesses. In line with that, as for PER improvement, we want to make sure that investors can expect us to grow mid- to long-term. And specifically, we want to have a stable, executable and concrete growth strategies and enhance our efforts in nonfinancial areas as well. Under the new midterm plan, we will be actively promoting shareholder return policies as well, with a focus on total payout ratio during MEX26 period, FY '24 through '26. Next slide, please. Based on what I've just explained, we would like to hold a briefing session for our institutional investors with regard to MEX26. This will be held on Wednesday, June 5, at AP Tokyo Marunouchi. This is going to be live as well as an online session. And expected attendees include myself, Nakamura; our four directors, outside of myself, is Ota-san, Masuda-san and Takao-san; and also, all executive officers. We will be also displaying products and showing the demonstration of new business products. Thank you very much for your kind attention. [Statements in English on this transcript were spoken by an interpreter present on the live call.]