Earnings Call: Q2 2027

Oct 29, 2026

Summary

H1 FY2026 sales and profit increased, supported by strong performance across core segments, pricing, and yen depreciation. The outlook remains generally solid, with demand normalization, raw-material costs, and geopolitical risks being monitored.

I will now explain the financial results for the first half of FY 2026. First, the summary of today's presentation. The first point is the overview of FY 2026 first half results. Net sales were JPY 74.9 billion, up 15.8% year-on-year. Operating profit was JPY 5.8 billion, up 14%, and net profit was JPY 4.7 billion, up 12.1%. The Analog Core Business Group, Energy, Functional Materials, and Optics & Systems performed very strongly, and both sales and profit increased. The second point is the future outlook. From Q3 onward as well, we expect performance to remain generally solid, led by the Analog Core Business Group. At the same time, we intend to closely monitor the pullback in demand following the last-minute purchases of primary batteries prior to price revisions, the decline in demand following customers' inventory buildups of adhesive tapes, and the geopolitical risks. The third point is our front-runner strategy in the highly reliable small battery sector. We aim to become global number one in the highly reliable small battery sector, including all-solid-state batteries. In addition, to improve management efficiency and enhance competitiveness, we have resolved to conduct an absorption-type merger with Maxell Sakura Co., Ltd., effective April 1, 2027. First, I will explain the results, starting with the overview of the FY 2026 first half results. This is a review on the first half FY 2026 summary. Net sales were JPY 74.9 billion in FY 2026, up JPY 10.2 billion year-on-year from JPY 64.7 billion in the previous year. Operating profit was JPY 5.8 billion, with an operating profit margin of 7.7%, up JPY 0.7 billion year-on-year, an increase in both sales and profit. Ordinary profit was JPY 5.8 billion, with a margin of 7.8%, up JPY 0.7 billion. Net profit was JPY 4.7 billion, up JPY 0.5 billion. Exchange rate moved from JPY 146 to JPY 159, JPY 13 depreciation of the yen. As noted in the comments at the top, net sales continued following Q1, driven by the strong performance of Analog Core Business Group, Energy, Functional Materials, and Optics & Systems. Operating profit also increased, as did ordinary profit and net profit. Although there were somewhat negative factors from soaring raw material cost, we were able to pass them through to selling prices properly, and we secured profit. In addition, the depreciation of yen at present is also contributing to higher profit. Next is the net sales changes from the first half of FY 2025 to first half of FY 2026. Net sales rose from JPY 64.7 billion in the previous year to JPY 74.9 billion, up JPY 10.2 billion year-on-year. In the breakdown, the quantity variance was JPY 4 billion. As the comments on the right show, this reflects increases in primary batteries, adhesive tapes, industrial materials, automotive optical components, and semiconductor-related products. Quantity was positive in those areas. On the other hand, among rechargeable batteries, prismatic lithium-ion batteries, whose production discontinued intentionally, had a negative effect on quantity. In addition, health and beauty care products are struggling in sales at present. Quantity was negative for those. Moreover, in the previous year, licensing revenue was recorded in this period, so this portion has a negative effect on quantity in comparison with the previous year. Next, the price variance was JPY 3.3 billion, which reflects the increase in raw material cost in selling prices. Exchange variance was positive JPY 2.9 billion due to the depreciation of yen. Next is the operating profit changes, comparing the end of Q2 with the previous year. Operating profit rose from JPY 5.1 billion in the previous year to JPY 5.8 billion this year, up JPY 0.7 billion year-on-year. The price variance was JPY 3.3 billion, and material cost was JPY 3.1 billion in the negative direction. Cost reduction was negative JPY 0.7 billion, quantity variance was negative JPY 0.5 billion, and exchange variance was JPY 1.7 billion. The breakdown is shown on the right. The price variance reflects that we were able to pass the increase in raw material costs through to selling prices, and the increase in material cost is the effect of rising cost of raw materials related to silver and naphtha at present. The breakdown of cost reduction includes progress in cost reductions and the negative side by factors such as an increased investment in human capital, an increase in depreciation, and the recording of goodwill. As for the quantity variance, in addition to the sales effects I mentioned earlier, there is a struggle in sales of health and beauty care products, as well as the effects of licensing revenue that was recorded in the first half of the previous fiscal year. The effect of the depreciation of yen is JPY 1.7 billion as the exchange variance. From here, I will go through the results by segment. First is the Energy segment. As of the end of Q2 FY 2026, net sales were JPY 29.6 billion, up JPY 8.7 billion year-on-year. On the other hand, operating profit was JPY 1.5 billion, down JPY 0.2 billion year-on-year. As the comments below show, net sales increased as sales continued to be strong, including the Maxell and Maxell Sakura Co., Ltd. in applications such as medical devices and automotive. On the other hand, as I mentioned earlier, sales decreased for the rechargeable batteries where we discontinued production. As for operating profit for primary batteries, silver prices have soared sharply, and we are reflecting this in selling prices, including those through formulas, but there is a time lag until it actually contributes to profit, which had a slight negative effect on profit. For rechargeable batteries, we continue to strengthen development of all-solid-state batteries, which will be our next mainstay product, and we continue to record the related cost. On the other hand, we discontinued production of prismatic lithium-ion batteries, which had profitability issues, and this has contributed to improved profitability. The reason the segment shows slightly negative profit is that one-time licensing revenue was recorded last year but could not be recorded this year. Excluding this effect, profit increased. Second is the Functional Materials segment. As of the end of Q2 FY 2026, net sales were JPY 19.4 billion, up JPY 3.6 billion year-on-year. Operating profit was JPY 1.9 billion, up JPY 1.5 billion year-on-year. As the comments below show, net sales increased as high value-added adhesive tapes for construction and for semiconductor manufacturing processes performed solidly. In industrial materials, both coated separators and industrial rubber products increased sales. Also, we see customer demand to build up inventories following the impact of the situation in the Middle East as continuing. As for operating profit, both adhesive tapes and industrial materials increased in sales, clearly contributed to higher profit. We also properly passed the soaring raw material costs through to prices, thereby maintaining profit levels. Third is Optics & Systems. As of the end of the first half, net sales were JPY 18.4 billion, down JPY 1.3 billion from the previous year. Operating profit was JPY 2.5 billion, down JPY 0.2 billion year-on-year. In the breakdown of net sales, automotive optical components increased, including through the expanded sales of next-generation lenses. In semiconductor-related products, against the backdrop of the expansion of AI and data center businesses, customers' inventory reduction has progressed, and the sales have recovered. In the previous fiscal year, we recorded large licensing revenue in the first half, but this absence in this year had a negative effect on net sales. In operating profit, automotive optical components increased, supported by strong sales and by the depreciation of yen. Semiconductor-related products also increased with the recovery in sales. As a segment, profit is down overall because our licensing revenue recorded in the previous year was absent this year, but excluding this effect, the underlying business saw an increase in profit. Last is the Value Co-Creation Businesses segment. As of the end of the first half of FY 2026, net sales were JPY 7.5 billion, down JPY 0.9 billion from the previous year. Operating profit went from JPY 0.3 billion to negative JPY 0.1 billion, a decrease of approximately JPY 0.4 billion. As noted for net sales, hydraulic tools continue to perform steadily and increase sales, but orders for health and beauty care products decreased, mainly in Japan and North America, so it is somewhat challenging situation. As for operating profit, hydraulic tools clearly saw an increase in profit, while health and beauty care products saw a decrease in profit along with lower sales. In addition, we recorded allowance for doubtful accounts at an overseas subsidiary. As a result, profit decreased by JPY 0.4 billion. Next is the situation in the Middle East, which we have been concerned about this year. We have summarized its impact on our business. Overall, while the situation in the Middle East mainly affected the Functional Materials segment as expected, prompt action helped us to avoid negative impact. Specifically, the situation differs by segment. For the three segments of Energy, Optics & Systems, and Value Co-Creation Businesses, the impact on production and sales was considered to be minimal. On the other hand, in the Functional Materials segment, tight supply and demand for various materials continues, with customers' demand for inventory buildups. On the demand side, we think demand is somewhat above the actual demand, or rather inflated, and this situation continues. In addition, regarding naphtha-related raw materials, prices of materials continue to rise, but we are properly passing this through to selling prices and thereby securing profit. Difficulty in procurement of raw materials and supplies seem to continue, but with the cooperation of our suppliers, we are proceeding without a major impact on our business. Next is future outlook. Overall, from Q3 onward, we expect performance to remain generally solid, led by the Analog Core Business Group. On the other hand, some concerns remain: the pullback in demand following last-minute purchases of primary batteries prior to price revisions, the demand decline following the customers' inventory buildups of adhesive tapes, and geopolitical risks. Specifically, by segment, first, for primary batteries, we expect sales to continue to be solid, mainly for medical device applications. Also, we have been making various investments at Ono Works, and the new line will start operating from the second half, so we expect its contribution to net sales. In addition, we reflect the soaring raw material cost in selling prices, but because there was a sales spike prior to price revisions, we monitor closely the potential pullback. For rechargeable batteries, we began mass production of All-Solid-State Battery Backup Modules for FA in November, so we expect them to contribute firmly to net sales and profit. For Functional Materials in adhesive tapes for construction will see the new production line. The new line at Kobuchizawa Works enters a full-fledged operation, so we expect the firm growth in volume. For tapes for semiconductor manufacturing processes, we see demand for AI and the data centers continuing to be solid. As for the impact of the situation in the Middle East, customers' demand to build up inventories is continuing in Q3. So, at present, we expect some of its effect to emerge in late Q3 or in Q4 onward. For industrial materials, particularly coated separators, hybrid applications are very strong at the moment, and we expect them to continue to perform well. Lastly, in the Optics & Systems segment, for automotive optical components, we expect progress to remain on track, centered on next-generation lenses. For semiconductor-related products, in the DMS business, demand for AI and data centers continue to be solid, and as general-purpose types recover, we expect the progress in customer inventory reduction. We are also putting production capacity in place for further increasing shipment volumes from Q3 onward. Among the soaring raw material costs that significantly affect profit, as for silver prices in particular, as I have explained before, we are making progress in price pass-through. As of the end of the first half, we were still slightly behind, but from Q3 onward, we expect to properly reflect the cost increase in selling prices, and we expect to secure appropriate profit levels from the second half onward. Next is shareholder returns. For the interim dividend, we have a basic policy of 30%-40% payout ratio, and we will pay the dividend in line with it. The annual dividend forecast is unchanged from the announcement of April 27, 2026. The interim dividend for FY 2026 is confirmed at JPY 28. For the end of the year and the full year, we forecast JPY 28 and JPY 56, respectively. In the current medium-term management plan, MEX26, we have committed to a total payout ratio of 100% or higher. With the dividend I just described for FY 2026, we expect to secure a total payout ratio of 100% or higher. Finally, I'd like to share the frontrunner strategy in the highly reliable small battery sector. Once again, this is our corporate byline, "Micro batteries. Maximum impact." The products we handle will increasingly center on components and materials based on Analog Core Technologies of mixing, coating, and forming. Such products create value that is indispensable to our customers' final products. We will firmly grow such businesses, and we hope to advance various management strategies in line with this byline. The front-runner strategy in the highly reliable small battery sector is shown in the diagram. In the immediate term, while striving to reduce negative factors, in particular responding to soaring raw material cost, we at Maxell are advancing this jointly with Maxell Sakura, which newly joined us. Going forward, with Maxell Sakura, we will create new synergies, increasing the positive factors, including technology synergies. In addition, through external collaborations, we will pursue advanced technology by developing new high-value-added products, including all-solid-state batteries. In terms of expanding scale, while growing our own business firmly through technological innovation, we also explore new external collaborations in the medium to long term. In the immediate term, including synergies with Maxell Sakura, we are optimizing the production base structure and the stable supply capacity. To increase net sales, we must also raise our production capacity, and we are now working on this steadily. In the Energy segment, at Ono Works, our mainstay base, and the Koriyama Works, which has newly joined us, rather than simply combining the capacities of these works as new value, but beyond that, we will create new synergies that enable us to respond promptly to demand for each product type with minimal investment. To that end, we will build a flexible supply system and strengthen activities that link this to net sales in the short term. As shown below in steps one, two, and three, the synergy with Maxell Sakura at present gives approximately 2% capacity expansion that we can secure right away. At Ono Works, with substantial investment, we are enhancing capacity approximately 20% for coin-type lithium batteries, and we expect that they will contribute to boost sales and profit. Also, in synergies with Maxell Sakura, by leveraging its Indonesian production base as well, we expect to expand capacity by approximately 10%, and we will advance these steps firmly in the short term. To advance this swiftly, as noted below, we will proceed absorption-type merger with Maxell Sakura, effective April 1, 2027. Regarding the expansion of future new technologies and new products, above all, we intend to grow all-solid-state batteries. We have been developing since 2019, and in 2021, as a company-wide cross-divisional effort, we significantly expanded development resources. Since 2021, we have been taking initiatives listed there, and in 2026, our all-solid-state batteries were adopted in our customers' new equipment and machinery, while also accelerating effort to replace the primary batteries in robots, production equipment, and the PLCs already on the market with all-solid-state batteries. Through this, we are working to accelerate growth in all-solid-state battery sales volume. Since mass production starts in November, we hope it will make a firm contribution to future sales growth. To reiterate, we developed an All-Solid-State Battery Backup Module compatible with existing primary batteries and began mass production in November, as shown on the right. We hope to advance the expansion of all-solid-state battery sales as mentioned. We compiled our Integrated Report 2026. We aim to be the front-runner in the highly reliable small battery sector. In terms of monozukuri manufacturing, we will communicate externally that we are advancing the front-runner strategy, including the strengthening of the four-region global structure, business integration through M&A, in particular with Maxell Sakura, and the pioneering of new applications, especially in space application, including collaboration with JAXA. That concludes my presentation.