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

This is Nakamura. I will now explain the financial results of the first quarter FY 2026. There are 3 points I'd like to cover today. First, FY 2026 first quarter results overview. Net sales were JPY 37.7 billion, up 24% year-on-year. Operating profit, JPY 2.9 billion, up 45% year-on-year. Net profit, JPY 2.4 billion, up 51% year-on-year. Both sales and operating profit increased, driven by the strong performance of the Analog Core Business Group. Second, future outlook. We expect it to remain generally steady from second quarter onward, led by the Analog Core Business Group. Third, front-runner strategy in the highly reliable small battery sector. We aim to become global #1 in the highly reliable small battery sector, including all solid-state batteries. FY 2026 first quarter results overview. Net sales increased due to the strong performance of the Analog Core Business Group, namely Energy, Functional Materials and Optics & Systems. Operating profit, ordinary profit and net profit increased due to the strong performance of the Analog Core Business Group, along with the positive impact of the foreign exchange rates. As shown in the table below, first quarter net sales for FY 2026 were JPY 37.7 billion, up JPY 7.4 billion year-on-year. Operating profit was JPY 2.9 billion, up JPY 0.9 billion year-on-year with a profit margin of 7.6%. Ordinary profit was JPY 3.1 billion. Net profit was JPY 2.4 billion. The exchange rate was JPY 159 to $1. Net sales year-on-year changes of the first quarter. Net sales were JPY 37.7 billion in the first quarter FY 2026, up JPY 7.4 billion year-on-year. By factor, the quantity variance was plus JPY 4.5 billion, including the volume increases in primary batteries, adhesive tapes, industrial materials, automotive optical components, semiconductor-related products and hydraulic tools as shown on the right. On the other hand, sales decreased due to the absence of the impact of onetime battery-related licensing revenue recorded last year, decreased in rechargeable batteries due to the discontinuation of the prismatic lithium-ion battery production in May last year and the decrease in health & beauty care products. Price variance was plus JPY 1.3 billion, mainly due to the price pass-through of increased raw material cost. Exchange variance was plus JPY 1.6 billion due to the impact of the weaker yen. Operating profit changes. Operating profit was JPY 2.9 billion in the first quarter FY 2026, up JPY 0.9 billion year-on-year. By factor, price variance was plus JPY 1.3 billion with a price pass-through of the increased raw material cost. Quantity variance, plus JPY 0.5 billion with increased sales volume of primary batteries, adhesive tapes, industrial materials, automotive optical components, semiconductor-related products and hydraulic tools. Profit decreased due to the absence of the license revenue recorded last year and decreased sales in health & beauty care products. Material cost worked negatively JPY 1.6 billion due to rising raw material costs for silver and naphtha, but selling price served as offset. In cost reduction, despite progress in cost reduction, as shown in the chart, strengthening investment in human capital, increase in depreciation and the goodwill related to Maxell Sakura, which joined the group, were a part of minus JPY 0.2 billion. Exchange variance was plus JPY 0.9 billion due to the impact of weaker yen. Review by segment. Let me start with Energy segment. In this Q1, net sales were JPY 15.2 billion, up JPY 4.9 billion year-on-year. Operating profit was JPY 0.8 billion, down JPY 0.1 billion year-on-year. As shown below, net sales increased in primary battery sales due to strong demand for medical devices and automotive applications, including Maxell Sakura, but they decreased in rechargeable batteries due to discontinuation of the production, as mentioned. Operating profit increased in primary battery due to strong sales and gradual price pass-through of soaring raw material costs. Profitability of rechargeable batteries improved as losses from prismatic lithium-ion batteries were eliminated despite continued development costs for all solid-state batteries. Overall segment profit decreased. But excluding the impact of onetime licensing revenue recorded in the previous year, profit actually increased. Functional Materials. In Q1, net sales were JPY 9.6 billion, up JPY 1.8 billion year-on-year. Operating profit was JPY 1.0 billion, up JPY 0.6 billion year-on-year. Sales increased as demand for inventory buildup arose due to the tight supply and demand for raw materials amid unstable conditions in the Middle East. Sales increased driven by strong real demand of high value-added tapes for construction and semiconductor manufacturing processes. Sales also increased in industrial materials with both coated separators and industrial rubber products performing well. Operating profit increased due to higher sales, as mentioned, and secured profits through price pass-through of soaring raw material cost. Optics & Systems. In Q1, net sales were JPY 9.2 billion, up JPY 1.4 billion year-on-year. Operating profit was JPY 1.1 billion, up JPY 0.6 billion year-on-year. Net sales increased in automotive optical components due to expanded sales of next-generation lenses. Semiconductor-related product sales, which was sluggish last year, recovered as customer inventory adjustment progressed. Licensing revenue progressed mostly as planned. Operating profit. Profit increased due to higher sales of both automotive optical components and semiconductor-related products. Value Co-Creation businesses. In Q1, net sales were JPY 3.6 billion, down JPY 0.6 billion year-on-year. Operating profit was 0, down JPY 0.2 billion year-on-year. Net sales increased in hydraulic tools due to steady domestic and overseas demand, but they decreased in health & beauty care products due to lower orders, mainly in Japan and North America. Operating profit increased in hydraulic tools due to higher sales, but decreased in health & beauty care products. Impact of the situation in the Middle East on business performance. Despite some difficulties in sourcing raw materials and sluggish sales in certain areas, negative impact on performance were avoided through pass-through of soaring raw material costs to selling prices and quick response to customer demand to build up inventory. By segment, in Energy segment, despite sluggish sales in some Asian routes, the overall impact on performance was minimal. In Functional Materials segment, demand for inventory buildup of adhesive tapes arose due to tight supply and demand for raw materials amid unstable conditions in the Middle East, while we secured profitability through price pass-through of higher naphtha-related raw material cost. In Optics & Systems and Value Co-Creation businesses segment, the impact on both production and sales was minimal. Future outlook. Outlook for the Analog Core Business Group. We expect it to remain generally steady from 2Q onward, led by the Analog Core Business Group. By segment, in Energy segment, primary batteries will continue to perform steadily, mainly for medical devices. Full-scale operation of the new production line will begin in the second half. Production capacity allocation between Maxell Ono and Maxell Sakura will be optimized to respond to growing demand. In rechargeable batteries, profitability improved as losses from the prismatic lithium-ion batteries were eliminated as mentioned. Development of the general purpose module for FA applications of all solid-state batteries was completed in June and full-scale sales will be accelerated. Second, in Functional Materials segment, adhesive tapes will remain firm in the second quarter, supported by the situation in the Middle East, although performance is expected to normalize from the second half onward. Tapes for semiconductor manufacturing processes are also expected to remain solid, driven by the increased demand from AI and data centers. Shipment of tapes for construction will increase by expanding production capacity in Kobuchizawa new line. In Industrial Materials, coated separators continue to perform well, mainly in hybrid EV, and they will continue to perform well in Q2 onward. In Optics & Systems segment, automotive optical components progress is expected to proceed as planned, mainly for next-generation lenses, and we will promote the development of new application in nonautomotive sector. In semiconductor-related products, semiconductor DMS orders increased due to expanding demand from AI and data centers as well as customer inventory reduction driven by the recovery in demand for general purpose types and orders will continue to grow. Production capacity expansion will be put in place during the first half to respond to stronger demand. Response to soaring raw materials, especially silver cost, whose impact is large in Energy segment. This slide shows a model diagram of the response. Silver price soared since January 2026, but it has been moderating recently. Our cost has been increasing as shown by red dotted line. But through the price pass-through with some time lag, we have been securing profitability in this fiscal year. Profitability will return to an appropriate level from the second half onward. Finally, I'd like to revisit our front-runner strategy in the highly reliable small battery sector. With the technological expertise and know-how that have been refined so far, Maxell will aim to become global #1 in both scale and advanced technology in the highly reliable small battery sector, including all solid-state batteries. While we are advancing all solid-state battery in rechargeable batteries, our current mainstay product remains the primary batteries. As for the market trend, with the advancement of electronic devices and the shift for high added value products, including smaller products and those with telecom functions, new applications are expanding. Under such circumstances, demand for high-reliability small batteries is rapidly expanding. Disposable primary batteries are being used in an increasing number of new applications and are playing an important role in compact power systems. Market share of heat-resistant coin-type battery for TPMS and market size of CGM for primary batteries for medical devices are shown here. Both are promising with expected continued growth, and we will expand our sales and profit in this market. We are accelerating customer development, expecting that the value of all solid-state batteries as a permanent power source will be further recognized. We provide a maintenance-free solution for customers' factory automation to expand customer base through the communication between engineers and customers. As for the target market size based on Maxell research, industrial robots are approximately 540,000 units and the industrial robots in operation is more than 4 million. In this large potential demand, we would like to acquire further customers. This is to review the progress from 2 perspectives of product development and customer development. In 2019, we selected sulfide-based technology for our all solid-state batteries since its manufacturing process is very close to that of our core micro battery products and allows us to leverage our core technology. We started sample shipment in the same year. From 2021, we consolidated our company-wide development resources, including all solid-state batteries into a single function, establishing a company-wide structure to firmly develop and accelerate the new business. In 2022, we managed to achieve commercialization, including ceramic packaging. However, for customers who place particular emphasis on reliability, adoption was difficult without process qualification using samples produced on genuine mass production equipment. Then in 2023, we established mass production equipment and using samples produced on that equipment received qualification evaluations. That same year, this was also adapted for the use in a Multi-Turn Absolute Encoder application. After that, development continued to accelerate across various areas. In 2025 last fiscal year, we were able to broaden the range of applicable temperature as shown in customer development on the right. And this fiscal year 2026, we are also accelerating the use of all solid-state battery as a main power source together with development of modules to replace primary batteries in existing market. Kyocera and Subaru are currently proceeding with demonstration trials. Going forward, in addition to the existing value of high reliability and long life, we plan to expand the heat resistance output and the capacity of all solid-state batteries. As their use expands into applications such as memory backup and main power sources, we intend to steadily advance this development. Underpinning all of this is our Analog Core Technologies. Through the processes of mixing, coating and forming, we create our final products. Competitors who have examined our products say they cannot determine how they are made. We intend to continue accelerating our efforts to differentiate through our manufacturing process, making it a source of our competitiveness. As we continue to expand our business centered on small batteries, including all solid-state batteries, we are in terms of scale expansion, advancing our collaboration with Maxell Sakura, while also working to broaden new battery types and use cases. At the same time, through collaboration with venture capital firms, we are steadily working to acquire new technologies with the aim of becoming the frontrunner in the small battery sector. And going forward, under micro battery maximum impact, we continue to work to enhance corporate value. That concludes my presentation. [Statements in English on this transcript were spoken by an interpreter present on the live call.]