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

I am Nakamura. I'd like to present the financial results of the first half of FY 2025. Page 2, summary of today's presentation. As for the FY 2025 first half results overview, net sales were JPY 64.7 billion, up 2.4% year-on-year. Operating profit was JPY 5.1 billion, up 21% year-on-year. And net profit was JPY 4.2 billion, up 37.2% year-on-year. Energy segment performed well and licensing revenue, which was previously planned in the third quarter onward was advanced to the second quarter, and the results exceeded the company plan. Second, future outlook. While sales of primary batteries remain strong, we maintain the original forecast due to delays in the recovery of semiconductor-related businesses and potential risks of a slowdown in the global economy triggered by the U.S. tariff measures. Third, acquisition of primary battery business from Murata Manufacturing is progressing as planned toward the completion of the business acquisition within FY 2025. Fourth, updates on all-solid-state batteries. We started test operations at SUBARU's ’plant, and we are accelerating the development of larger capacity and further high heat resistance to meet customers' demands. Page 4, review on the first half FY 2025 summary. Net sales were JPY 64.7 billion, up JPY 1.5 billion year-on-year. Operating profit was JPY 5.1 billion, up JPY 0.9 billion year-on-year, with operating profit ratio of 7.8%. Net profit was JPY 4.2 billion, up JPY 1.1 billion year-on-year. And exchange rate was JPY 146 to $1, with yen's appreciation by JPY 7 to $1. Rechargeable batteries production was discontinued in May with intentional decrease in sales. And sales for semiconductor-related products and health and beauty care products were sluggish. But net sales increased due to sales increase of primary batteries and industrial materials as well as the advancement of licensing revenue. Operating profit increased due to sales increase of primary batteries, industrial materials and advancement of licensing revenues despite the adverse impact of stronger yen. Ordinary profit and net profit increased as well. Net sales changes show the year-on-year change as of the end of the first half. Starting from net sales in the first half FY 2024 at JPY 63.1 billion, quantity variance was plus JPY 2.9 billion. As described on the right part, increase in primary batteries offset decrease in rechargeable batteries. In line with the electrification of automotive, coated separator sales increased as well as the advancement of licensing revenue, which was originally planned for the second half and beyond. Additionally, hydraulic tools global sales increased, and they contributed to sales growth. However, semiconductor-related products and health and beauty care products sales decreased. Price variance was minus JPY 0.3 billion as the sales price partially linked to the material cost was impacted by the decline in some raw material costs. Exchange variance was minus JPY 1 billion, and they have led to JPY 64.7 billion in net sales, up JPY 1.5 billion year-on-year. Operating profit changes in the first half show JPY 0.9 billion increase year-on-year. From JPY 4.2 billion in FY 2024, quantity variance was plus JPY 2.2 billion, in line with the sales, they were both plus and minus. Material costs were positive by JPY 0.1 billion as the overall material cost was trending down despite some cost increases. Cost reduction was negative by JPY 0.5 billion with fixed cost increase. Price variance was negative by JPY 0.3 billion with the impact of sales price changes due to raw material cost decreases. Exchange variance was negative by JPY 0.6 billion, they have led to JPY 5.1 billion in operating profit. Review by segment, starting from Energy segment. Net sales were JPY 20.9 billion, up by JPY 0.3 billion, and operating profit was JPY 1.6 billion, up by almost JPY 0.1 billion. As described below, net sales increased in primary batteries due to steady sales of automotive applications, medical devices and infrastructure applications. Net sales decreased in rechargeable batteries due to sales decline from discontinuation of production in May this year. Operating profit in primary batteries increased despite the recent surging raw material cost of silver pushing down the profit. Operating profit in rechargeable batteries progressed within our expectation with certain costs continuing along with the shipment even after the discontinuation of production. Development cost for all-solid-state batteries increased to achieve larger capacity and higher heat resistance. U.S. tariffs impact has been reflected in selling prices in the Energy segment. Key points are sales of primary batteries performed well, centered on growth sectors, whereas rechargeable batteries decreased within expected range. Sales and profit increased despite the impact of rising raw material cost of silver. Functional Materials segment net sales in the first half were JPY 15.7 billion and operating profit was JPY 0.5 billion. Adhesive tapes for construction performed well, but tapes for semiconductor manufacturing processes struggled in the intensified competition environment in the first half. Net sales increased in industrial materials due to strong performance of coated separator for EVs. Operating profit decreased in adhesive tape due to the impact of product mix, but operating profit in industrial materials increased due to strong performance of coated separators contributing to profit growth. As domestic sales are dominant here, tariffs had effectively no impact on this business. As key points, sales and profit increased due to strong sales of tapes for construction and coated separators, which more than offset the struggled tapes for semiconductor manufacturing processes. Optics & Systems segment, net sales were JPY 19.7 billion, up JPY 2.1 billion year-on-year. And operating profit was JPY 2.7 billion, up JPY 1.1 billion year-on-year. Sales increased due to advancement of licensing revenue originally planned for the third quarter and beyond despite decrease in automotive optical components and semiconductor-related products. Operating profit increased with the contribution of advancement of licensing revenue. The effect of tariffs has been reflected in selling prices. As key points, sales and profit increased in the first half due to advancement of licensing revenue originally planned for the third quarter and beyond. Value co-creation businesses, net sales were JPY 8.4 billion, down JPY 1.2 billion year-on-year, and operating profit was JPY 0.3 billion, down JPY 0.4 billion year-on-year. Sales of hydraulic tools increased, but due to sales decline in health and beauty care products affected by the U.S. tariff measures, net sales decreased. Operating profit decreased due to sales decline in health and beauty care products, while profit of hydraulic tools increased. Our selling price of Chinese-made shavers was not affected by tariffs, but the real demand in terms of sales in the United States decreased in the second quarter following the first quarter. To minimize the U.S. tariffs impact, we will gradually shift production to Japan for lower tariff rate. As key points, sales and profit decreased due to health and beauty care products affected by the U.S. tariff measures despite strong sales of hydraulic tools centered on overseas market. Combining four segments, net sales were JPY 64.7 billion against the full year forecast of JPY 136.5 billion with a progress of 47%, achieving almost half. Operating profit was JPY 5.1 billion with a progress of 51%. Partly due to the advancement of licensing revenue, the progress exceeded the company plan. Shareholder returns. Interim dividend is JPY 25 per share, sustaining the same level as last year, in line with the basic policy of 30% to 40% of payout ratio. We have announced to aim for a total payout ratio of over 100% during the 3 year of MEX26, which includes next year. And we will maximize capital efficiency while controlling equity. Future outlook. Outlook for the Analog Core business group. Primary batteries will continue to perform steadily. Recovery of semiconductor-related business is expected to be later than our initial plan. We will maintain the full year forecast considering the potential risks of slowdown in the global economy brought about by the U.S. tariff measures. Looking more in detail, in Energy segment, primary batteries centered on automotive application, medical device and infrastructure application will continue to perform steadily. While we have a scheme to reflect the rise in raw material cost of silver in selling prices, a time lag is expected to occur. Rechargeable batteries volume will decrease due to discontinuation of production within the planned range. We accelerate development of all solid-state batteries. In Functional Materials segment, adhesive tapes for construction will be stable, mainly in the domestic market, with gradual expansion in overseas sales. Tapes for semiconductor manufacturing processes slowed down in the first half in the intensified competition, but the recovery in the second half is anticipated to make profit contribution. In industrial materials, coated separators are expected to perform steadily, particularly for the use in hybrid EV. In Optics & Systems segment, in-car camera lens unit continued to face tough conditions. In the previous midterm management plan period, we could not establish new customer acquisition model, partly due to COVID pandemic. But the business itself is progressing in line with initial plan. There is a concern about the slowdown in market conditions for LED headlamp lenses. In semiconductor-related products, full-scale recovery of semiconductor DMS is being delayed. And the latest forecast is that it will be in FY 2026 or later. Impact of U.S. tariff measure. For Energy and Optics & Systems products, the additional tariff is reflected in our selling prices, resulting in a minimal impact, but Chinese-made shavers affected by tariff impact in the second quarter following the first quarter in terms of our customers' demand and end customers' demand. So we are trying to mitigate the impact by shifting production from China to Japan. We will monitor the risk of global economic slowdown closely. Main tariff target products and countermeasures are listed below. Acquisition of primary battery business from Murata Manufacturing. Schedule until closing. We are making progress as planned towards the completion of the business acquisition by the end of FY 2025. Share purchase execution is planned for March 1, 2026, and business contribution is expected to begin from FY 2026. We plan to disclose business plans for the Energy segment and the entire company, including synergies from this transaction. Updates on all-solid-state batteries. We must produce all-solid-state batteries that achieve heat resistance, safety and long life, which were not achievable by liquid-based conventional lithium-ion batteries. Accelerating the development of our underlying unique Analog Core Technologies will continue to contribute to society. Looking back on the progress history, in September FY 2019, 6 years ago, we developed sulfide-based coin-type all-solid-state batteries and started sample shipment. In FY 2021, we consolidated future development project to the new business producing division with concentrated resource allocation toward all-solid-state batteries. And in FY 2022, we commercialized high-capacity ceramic packaged all-solid-state batteries. Following the very good evaluation feedback from customers, we completed mass production equipment in April FY 2023 and started sample shipment of all-solid-state batteries produced with the mass production equipment for evaluation purposes with an aim of adoption. In FY 2024, we promoted the use of all-solid-state batteries in-house. Maxell Frontier adopted them for their image recognition units. YOSHINOYA and Micro-Sensys GmbH in Germany decided adoption. As major industrial equipment manufacturers completed the variations for adoption, we started deliveries for customer mass production application, though their volume is not substantial yet. In this year, FY 2025, as press released, our power module for industrial robots at SUBARU CORPORATION's plant to replace the primary batteries were installed to start test operations as a step into the new phase. We appreciate it as it has triggered the increase in inquiries. We received request for the product for higher upper limit temperature, and we started sample shipment of 150-degree compatible ceramic-packaged all-solid-state batteries this November. We are accelerating the development of larger capacity and enhanced heat resistance has added new value going forward. Solving customer issues by all-solid-state batteries. In factory automation, without harness, reliability of robot is improved. And we offer a maintenance-free by minimizing the maintenance process. This is all-solid-state battery modules replacing primary batteries and test operation started at SUBARU's plant. With their feedback, we'd like to promote the further development. In solving customer issues, the second case is highly heat-resistant all-solid-state batteries. As was the case with Micro-Sensys, demand for sterilization is increasing with a growing interest in health. We can make proposals for highly value-added applications for data logging to ensure reliable sterilization effect. We continue to accelerate these initiatives. This is a specific case of our partnership with Micro-Sensys in Germany for data loggers application. For sterilization application, we received customers' request for higher heat resistance with higher upper temperature limit. We started sample shipment of 150-degree compatible all-solid-state battery developed from the conventional 125-degree type. So we are ready to have customers' evaluation. In solving customer issues, the third case is a sensing application, including those for pipelines. All-solid-state battery itself is an almost permanent power source in energy harvesting, but charging is one of the major issues in sensing application. As this energy harvesting technology development cannot be done on our own, we are promoting this infrastructure-related sensing system business through partnership. In evaluating usability for harvesting on customer side, stand-alone batteries are sometimes difficult to evaluate. So we launched power modules and energy harvesting compatible evaluation kits to accelerate development, collaborating with customers. This is our development road map for all-solid-state batteries. We have been progressing in line with the initial plan for small-sized all-solid-state batteries in terms of expansion of applications. For the further technological evolution of all-solid-state battery module, as shown in the case of SUBARU, we have been progressing steadily. The vertical axis shows the size of batteries, and expansion in size is an important growth point. We also plan to develop advanced functions in addition to size, including heat resistance in new aspects to promote development in two-pronged approach. This concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]