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

I'm Nakamura. Today, I'd like to explain the financial results of the third quarter of FY 2025. Summary of today's presentation. First, FY 2025 third quarter results overview. Net sales were JPY 96.3 billion, up 0.7% year-on-year. Operating profit was JPY 7.2 billion, up 9.1%, and net profit was JPY 6.2 billion, up 12.7%. While sales declined due to lower sales following the discontinuation of prismatic lithium-ion batteries production, we were able to secure higher sales and profit overall despite the impact of rising raw material cost. Second, the progress of the analog core business group. Progress varies by segment, but the company will strive to meet the full year target. Third, regarding shareholder returns. On November 19, 2025, we executed a share buyback of approximately JPY 13.2 billion. Fourth, the acquisition of primary battery business from Murata Manufacturing is progressing as planned toward completion within FY 2025. Fifth, regarding the updates on all-solid-state batteries, we are receiving requests from a variety of customers and accelerating product development. As you may be aware that following Subaru Corporation, the product has also been deployed on industrial robot at Kyocera Corporation's manufacturing site. FY 2025 third quarter results overview. As shown in the table, net sales for the third quarter totaled JPY 96.3 billion, up JPY 0.7 billion year-on-year. Operating profit was JPY 7.2 billion, up JPY 0.6 billion, and net profit was JPY 6.2 billion, also up by JPY 0.7 billion. The exchange rate was JPY 149 to $1 with JPY 4 appreciation year-on-year. Overall, as shown above, net sales increased while sales declined in rechargeable batteries, semiconductor-related products and health and beauty care products, primary batteries mainly for infrastructure and medical devices application increased and license revenue rose, including the advanced recognition of the fourth quarter revenue. Operating profit increased due to higher profit from primary batteries for infrastructure and medical device applications, industrial materials such as coated separators and license revenue, despite the impact of reduced sales following the discontinuation of prismatic lithium-ion battery production and sharply rising raw material cost. Net sales changes. Net sales increased from JPY 95.6 billion to JPY 96.3 billion, year-on-year increase of JPY 0.7 billion. By factor, in quantity variance, as shown in the right part, sales growth was driven by increased sales of primary batteries, coated separators and license revenue, including advanced recognition from the fourth quarter as well as increase in hydraulic tools. These positive factors were partially offset by lower sales of rechargeable batteries, semiconductor-related products and health and beauty care products, resulting in a net positive impact of JPY 1.4 billion. Price variance was negative JPY 0.3 billion. As described, sales price changes impacted due to decline in some raw material costs. Exchange variance was negative JPY 0.4 billion due to stronger yen. Operating profit changes. Operating profit increased from JPY 6.6 billion in the previous year to JPY 7.2 billion, up JPY 0.6 billion. Volume variance contributed positively as observed in net sales, driven by higher sales of primary batteries, coated separators, license revenue and hydraulic tools. These gains were partially offset by lower sales of rechargeable batteries, semiconductor-related products and health and beauty care products. Price variance was negative JPY 0.3 billion, reflecting sales price changes due to cost decrease in certain raw materials. Raw material cost. Particularly the sharp rise in silver prices for silver oxide batteries had a negative impact of approximately JPY 0.2 billion. In cost reduction, we saw increase in fixed costs and in exchange variance, stronger yen impacted operating profit. I will talk about review by segment, starting from Energy segment. Net sales were JPY 31 billion, down by JPY 0.6 billion year-on-year. Operating profit was JPY 2 billion, down by JPY 0.5 billion year-on-year. Primary batteries, including those for infrastructure applications and medical devices, continued to perform steadily. However, sales declined due to the planned discontinuation of prismatic lithium-ion batteries production. Operating profit was negatively affected by lower sales, higher raw material costs, including rising silver prices for silver oxide batteries and the impact of stronger yen. At the same time, development project for all-solid-state batteries increased, focusing on larger capacity and higher heat resistance, and we intentionally expanded development cost in this area. Regarding tariffs, we have basically reflected all impacts on selling prices, minimizing the overall effect. Overall, as shown in the right top part, primary batteries for infrastructure and medical devices continued to perform steadily, but their profits were pressured by soaring silver cost, time lag in price pass-on and the stronger yen. Secondary battery profit declined due to the discontinued prismatic lithium-ion battery production, which was within our expectation. Functional Materials segment. Net sales were JPY 24 billion, up JPY 0.2 billion year-on-year. Operating profit was JPY 1 billion, up JPY 0.2 billion. Sales of adhesive tapes for semiconductor manufacturing processes recovered from the third quarter onward, allowing us to maintain sales levels comparable to the previous year. Industrial materials, particularly coated separators for hybrid applications performed very well and contributed to higher sales. Operating profit has not yet fully recovered, reflecting the weaker sales in the first half of the year. However, profit from coated separators increased in line with higher sales. The impact of tariffs on this segment was minimal as sales are mainly concentrated in the domestic market. Overall, as shown on the right top, sales of adhesive tapes for semiconductor manufacturing processes recovered recently to the level of the previous year. The impact of weak performance in the first half remains on profit. Coated separators, particularly for hybrid applications, continue to be robust. Optics & Systems. Net sales were JPY 27.9 billion, up JPY 2.2 billion year-on-year. Operating profit was JPY 3.5 billion, up JPY 1.3 billion. Sales of automotive optical components remained at the same level as last year through sales effort despite the challenging market environment. Semiconductor-related products showed a decline in sales, reflecting weakness in the general purpose semiconductor market. On the other hand, license revenue increased overall, including the recognized revenue advanced from the fourth quarter. Operating profit increased due to higher license revenue despite weakness in automotive optical components and semiconductor-related products. Regarding tariffs, in line with our company-wide policy, we are reflecting tariff impacts on selling prices. Overall, while automotive optical components and semiconductor-related businesses remain challenging, increased license revenue served to offset these factors. Value Co-Creation businesses. Net sales were JPY 13.4 billion, down JPY 1 billion year-on-year. Operating profit was JPY 0.6 billion, down JPY 0.4 billion year-on-year. Sales of hydraulic tools continued to perform well, mainly in Japan and the United States. However, health and beauty care products were affected by tariffs on export to the United States, and recovery from weaker performance in the first half has not yet been completed and sales declined. Operating profit increased in line with higher sales of hydraulic tools, while health and beauty care products remained under pressure. Tariff rates on products from China have declined, leading to some shift back from Japanese-made product. Demand has been on recovering trend since Q3. Though products made in Japan are partially shipped, as tariffs have been significantly reduced, we are also moving production back to China where appropriate. Progress and outlook for analog core business. First, regarding the progress as of the end of the third quarter, as shown on the right-hand side. For the Energy segment, the full year plan for net sales is JPY 40.3 billion, and we achieved JPY 31 billion, approximately 77% of the plan, roughly 3 quarters. On the other hand, operating profit reached JPY 2 billion, already achieved 112% of the full year plan, indicating the very strong progress. Looking at the current situation and the outlook, as noted in the comments below, primary batteries are expected to remain solid, mainly for infrastructure applications such as electricity, gas and water meters as well as for medical devices. Meanwhile, demand for automotive tire puncture sensor remains fundamentally strong. However, some customers continue to face difficulties in procuring semiconductors, which has resulted in a slight decline in orders. In addition, raw material cost, particularly silver prices have soared. While we are steadily reflecting these increases in selling prices, there is a time lag, and we aim to shorten this time lag as much as possible to minimize the impact on profitability. Regarding Murata Manufacturing's primary battery business, we aim to ensure that it contributes to Maxell Group's sales and profit from FY 2026 onward. As for secondary batteries, production ended in May 2025 and the sales decline along with discontinuation is within the plan. With respect to all-solid-state batteries, the number of development projects is increasing. We are accelerating development efforts, and they are beginning to contribute gradually to sales. Functional Materials segment progress and outlook. The progress of net sales and operating profit is shown in the table on the right. Against the full year plan of JPY 34.3 billion, net sales reached JPY 24 billion with approximately 70% progress. Operating profit reached JPY 1 billion against the plan of JPY 1.9 billion, representing about 53%, which remains somewhat behind the plan. As shown on the left, orders for adhesive tapes for construction are expanding orders in Japan, the United States and Asia. In semiconductor-related products, performance was weak in the first half, but sales have been recovering in the second half. In Industrial Materials, coated separators remained firm in line with expanding demand for hybrid applications. For industrial rubber products, we aim to improve profitability through strengthened sales of high value-added products. Optics & Systems progress and outlook. Net sales reached JPY 27.9 billion against a full year plan of JPY 42.3 billion, representing 66% progress, slightly behind the plan. Operating profit reached JPY 3.5 billion against a plan of JPY 5 billion, representing approximately 71% or roughly 3/4 of the target. As shown in the comments on the left, automotive optical components, in-car camera lens unit, continue to face challenging environment. However, joint development of next-generation product is progressing smoothly with OEMs and the Tier 1 customers, including initiatives under the next midterm management plan. Regarding LED headlamp lenses, full-scale production of next-generation lenses is scheduled to begin in the fourth quarter. In addition, as already press released, in-car camera lens unit business is being transferred to Maxell Frontier to improve management efficiency and overall profitability. In semiconductor-related businesses, in semiconductor assembly process, volume-tier commodity memory and power-IC semiconductors remain weak, but orders are gradually improving, and we aim for a full year recovery in FY 2026. Business progress by segment. At the company-wide level, as of the end of the third quarter, net sales reached JPY 96.3 billion, representing 71% progress, and operating profit reached JPY 7.2 billion, representing 72% progress. With 3 months remaining in the fourth quarter, although market conditions remain volatile, we aim to achieve the full year target. Shareholder returns. In line with the initial forecast, we paid an interim dividend of JPY 25 per share. In addition, on November 19, as we press released, we executed off-auction share buyback. We will continue initiatives to improve capital efficiency with the aim of enhancing ROE and PBR. Status of share buyback is shown on the table on the right. On November 19, we acquired 6.3 million shares for a total value of JPY 13.2 billion. Acquisition of primary battery business from Murata Manufacturing. Progress towards the completion of the business acquisition by the end of FY 2025 is proceeding as planned. Currently, we expect to execute the share purchase on March 1, 2026. The business contribution is expected from FY 2026. Including details on synergies, we plan to share further information in the next fiscal year, around the end of April 2026. Updates on all-solid-state batteries. As a repost, we are mass producing all-solid-state batteries, which do not use liquid and offer high heat resistance safety and long life. By leveraging our differentiated technologies of mixing, fine coating and molding and forming, we aim to enhance temperature range, durability, output and safety and contribute to society. Looking back at product development and customer development from 2 perspectives. In product development, in 2019, we began shipping initial development samples using sulfide-based all-solid-state batteries in the Energy segment. In 2021, given the resource in Energy segment was not sufficient, considerable development resources were consolidated under the new business producing division to accelerate company-wide development. In 2022, ceramic packaged all-solid-state batteries were successfully commercialized, accelerating customers' sampling. We commercialize our products with our strength of reliability. And customers expect to evaluate products produced with the mass production equipment. In 2023, mass production equipment for all-solid-state batteries were completed and began operation. As customer evaluations accelerated, these batteries were adopted for applications such as Nikon's encoders. In a subsequent year, in addition to expanding adoption by new customers and devices, we started development of modules to replace existing primary batteries to accelerate sales. In 2025, development accelerated further, including combination with energy harvesting and higher heat-resistant types, and coin-type all-solid-state batteries for expanded uses were developed as well. In the year, as shown on the right, we started joint development with CO-WORKS and Yoshinoya as well as partnership with Micro-Sensys GmbH in Germany on next-generation sensors. Furthermore, our batteries were installed in industrial robots operating at Subaru Corporation's plant and evaluation is making progress. In January 2026, this year, we began developing all-solid-state battery modules size compatible with ER battery to replace existing primary batteries. And Kyocera started evaluation of our product. This concludes the presentation of our third quarter financial results.