Maxell 2007 Annual Report to Shareholders, 'Change for Growth'.
To download the Maxell 2007 Annual Report to Shareholders, please visit the Company's website at http://www.maxell.co.jp/e/ir/annual/annual2007.html
President and Chief Executive Officer Yoshito Tsunoda explains in his 2007 Address to Stakeholders, however, that "fiercer competition, falling product prices, hikes in raw material prices... Maxell is facing very tough conditions in its mainstay businesses. On the other hand, the seeds Maxell has sown have sprouted and grown and are steadily bearing fruit. By stepping up the pace of initiatives, we will tackle difficult business conditions head on and overcome them to achieve 'Change for Growth.'
'The Maxell Group in Fiscal 2006'
- Overview of fiscal 2006 business results -
"In fiscal 2006, ended March 31, 2007, the Maxell Group's net sales were roughly the same year on year, with higher revenues from the Battery and Material-Device-Electronic Appliance segments counteracting a decline in revenues from the Information Storage Media segment that resulted from lower unit prices. In earnings, the effect of foreign currency exchange rates, product-mix improvements, and cost reduction efforts led to increases of 42.0% in operating income, to JPY 7.94 billion, and 24.8% in ordinary income, to JPY 9.06 billion. However, net income decreased 10.5%, to JPY 2.90 billion, due to an increase in deferred income taxes that resulted from a reversal of deferred tax assets in accordance with tax effect accounting.
Steady implementation of action plan for 'Reconstructing and Newly Developing Core Operations' plans in fiscal 2006 to realize its medium-term management vision of 'Change for Growth.' In those efforts, we pursued our action plan for Reconstructing and Newly Developing Core Operations, focusing on mainstay operations for computer tapes, optical discs, and batteries. In computer tapes, we developed the world's largest-storage-capacity data cartridge, Maxell LTO Ultrium4, which has compressed capacity of 1.6 terabytes. Moreover, we continued advance development aimed at realizing products with even higher storage capacities. In optical discs, we concentrated efforts on the early commercialization of next-generation discs.
At the same time, we took a large step toward restructuring operations by beginning Super ODM (Original Design Manufacturing) strategic outsourcing of production for write-once DVD-R discs, prices of which have fallen sharply. In rechargeable batteries, we focused on next-generation development of high-capacity lithium ion rechargeable batteries. And, we achieved increased sales of products for hand-held device applications, centered on cellular phones. Further, we increased production capacity for lithium ion rechargeable batteries to cater to future demand. In primary micro batteries, we strategically concentrated on high-value-added lineups. For example, we increased sales of heat-resistant, coin-type lithium manganese dioxide batteries, which require advanced technological capabilities, for automotive tire pressure monitoring systems.
- Concrete Results from Action Plan for 'Developing Robust New Businesses Early and Acquiring New Technology for the Future' -
Our second action plan focuses on 'Developing Robust New Businesses Early and Acquiring New Technology for the Future.' In line with this action plan, we steadily expanded the optical components business by raising production capacity and doubling revenues year on year. In functional materials, we began operations in earnest for functional films for flat panel displays. Meanwhile, we significantly grew sales of such high-value-added materials as pigment inks for high-speed commercial printing systems. Further, we took steps to establish new business early through Business Projects - projects tasked with accelerating the commercialization of selected development themes - for SVOD (stacked volumetric optical disc)cartridges and power-source-type lithium ion rechargeable batteries, both of which were begun in April 2006.
Based on our third action plan, 'Bolstering and Exploiting Our Organizational Strength,' we reinforced Group management and implemented process innovation initiatives to improve management efficiency. Through such measures, in fiscal 2006 we steadily implemented our three action plans.
'Business Condition Changes and Background for Revision of Medium-Term Business Plan'
- Responding to ownwardly trending prices in Information Storage Media and strong growth potential of operations for Batteries and new businesses -
Year-on-year, Maxell's fiscal 2006 business results may seem favorable. However, the Company faces business conditions that invite a sense of crisis rather than optimism. This is primarily due to the downwardly trending profit margins in the Information Storage Media segment - the Company's largest source of earnings-affected by the advancing structural price decreases. In the segment, the prices of mainstay computer tapes are trending downward, and the profitability of optical discs, such as recordable DVDs, is declining yearly as prices decrease. In response to those trends, it is very clear to me that we have to tackle structural reform more boldly and rapidly than ever to ensure Maxell's growth in the medium-to-long term.
On the other hand, I think that during the year the Battery segment, one of our other mainstay businesses, and new businesses for optical components and functional materials showed strong growth potential. Not only are the markets for the products of those businesses expanding, the further evolution of high-valueadded multifunctional products and diversifying applications in these markets enable Maxell to take full advantage of its original technologies. And in those businesses, we are increasing market share for high-valueadded products by drawing on our original technologies.
- Accelerating reweighting of Business Portfolio to dramatically improve profitability -
Given that the decrease in the profitability of the Information Storage Media segment - our earnings mainstay - is due to structural change, I believe we need to fundamentally change the structure of the Maxell Group. Therefore, we revised our medium-term business plan to ensure 'Change for Growth' by achieving an early course correction. In other words, we want to reweight our business portfolio even more boldly toward areas with high growth potential in which we can establish strong positions by exploiting our original analog core technologies to realize differentiation, such as batteries, optical components, and functional materials.
'Revised Management Vision'
- Accelerating achievement of our medium-term mission of 'Change for Growth' while pursuing long-term vision of 'Breakthrough to New Horizons' -
To reinforce understanding inside and outside the Company of our determination to change Maxell, we added a long-term vision - 'Breakthrough to New Horizons' - to complement our 'Change for Growth' mediumterm mission. Under that long-term vision, we will pursue new possibilities in technologies, product areas, and organizational formats.
Maxell has a track record of successes in its mainstay Information Storage Media segment that stretches back to the Company's founding. However, given the very tough conditions the segment is facing, we will put past successes and unneeded attachments behind us. In line with our new long-term management vision, we will take completely fresh approaches to technologies and products as well as change the kind of company that Maxell aspires to become. While pursuing that long-term vision, we will make a concerted effort to advance toward the achievement of our medium-term mission of 'Change for Growth.'
'Acceleration of Business Portfolio Reweighting'
- Pursuing selection and concentration in batteries, optical components, and functional materials as businesses for priority strengthening -
To advance 'Change for Growth,' we have identified batteries, optical components, and functional materials as business areas that promise high growth and profitability. Accordingly, we will concentrate the investment of management resources on cultivating and strengthening those priority business areas. The medium-term business plan we launched in April 2006 called for increasing the percentage of net sales accounted for by Battery and Material-Device-Electronic Appliance by fiscal 2010. Under the revised medium-term business strategies, we will speed up the reweighting of our business portfolio so that the Information Storage Media segment accounts for 40% and the Battery and Material-Device-Electronic Appliance segments each account for 30% of net sales by fiscal 2010.
- Stepped-up investment in three-year period through to fiscal 2009 -
In order to accelerate business portfolio reweighting, we have positioned the three years from the current fiscal year through to March 2010 as a period for concentrating investment on developing and increasing the production of next-generation offerings of the three businesses identified for priority strengthening. Over the Operating income Stepped-up investment in three-year period through to fiscal 2009
In order to accelerate business portfolio reweighting, we have positioned the three years from the current fiscal year through to March 2010 as a period for concentrating investment on developing and increasing the production of next-generation offerings of the three businesses identified for priority strengthening. Over the three years from fiscal 2004 to fiscal 2006, we invested roughly JPY 36 billion. In the three-year period from fiscal 2007 to fiscal 2009, we plan to invest approximately JPY 50 billion, 65% of which we have earmarked for the priority strengthening of those three businesses. In the first two years of that period, we will invest particularly heavily in these businesses.
As a strategy to accelerate the reweighting of our business portfolio, other than through the JPY 50 billion allocated for investment, we consider mergers and acquisitions as an option that has become more important than ever. In July 2007, aiming to strengthen our ability to rapidly develop and commercialize functional films with even higher added value, we concluded a basic agreement for the acquisition of almost all of the shares of Sliontec Corporation, which has advanced technologies for coating and pressure-sensitive adhesive processing. Also, we will move forward with the reconstruction of Information Storage Media as our earnings mainstay.
'Numerical Management Targets'
Aiming for a 6% operating income margin by fiscal 2010 Through focused investment to strengthen the three priority businesses and reconstruct our mainstay businesses, we aim to heighten the overall profitability of our business portfolio and achieve an operating income margin of 6% by fiscal 2010.
'Initiatives to Improve Management Efficiency'
Introducing MPI (Maxell Process Innovation) initiatives at all operating bases to reduce costs and establish a unique 'Maxell Way.'
Since 1998, Maxell has implemented cost reductions based on Six Sigma activities. In April 2006, we launched MPI (Maxell Process Innovation) initiatives as a new initiative combining Six Sigma activities with lean production systems. Under MPI initiative, we are heightening management efficiency by innovating all operational processes related to orders, procurement, production, sales, and distribution and eliminating various types of waste to reduce costs and shorten lead times.
For example, in June 2006 we introduced MPI initiatives at our Ono Works, which manufactures micro batteries. The facility is already seeing concrete benefits, having shortened lead times by approximately 65%, reduced inventory by roughly 30%, and established a system that responds flexibly to demand fluctuations. Using that success as a model, we want to introduce MPI initiatives throughout the Maxell Group to establish a unique 'Maxell Way.'
To that end, we incorporated MPI initiatives at the Osaka Works, which manufactures alkaline dry batteries, in January 2007; at the Kyoto Works, which manufactures magnetic tapes, from April 2007; and at the Tsukuba Works, which manufactures optical discs, from April 2007. In addition, we have been improving the cost competitiveness and profitability of DVD-R discs by introducing Super ODM and reducing costs.
- Advance of VE (Value Engineering) initiatives targeting comprehensive cost reductions -
Aiming to improve management efficiency, Maxell is pursuing VE (Value Engineering) initiatives that focus on 'top-down' Companywide comprehensive cost reductions. Established in January 2007, the Value Engineering Division leads efforts to reduce defective work costs, processing costs, materials costs, and other costs across the Company. For power-source-type lithium ion rechargeable batteries, we are implementing VEC (Value Engineering for Customers) initiatives, which realizes rigorous cost reductions from the development stage.
For lithium ion rechargeable batteries and computer tapes, we are taking comprehensive cost reduction steps that reflect medium-to-long-term sales price trends. Further, as Companywide projects, we are reducing overhead costs and promoting VEC initiative that integrates production and sales. Moreover, we are training employees to ensure that value engineering becomes firmly rooted in Maxell's corporate culture.
'Our Basic Approach to Corporate Value and Returning Profits Creating a company with greater growth potential to maximize corporate value'
To heighten corporate value, we should focus efforts on changing Maxell into a company with greater growth and earnings potential by steadfastly carrying out each one of our various initiatives. Another requirement for improving corporate value is earning the trust of all stakeholders, including shareholders, other investors, customers, and employees, through equitable,n transparent corporate activities and efforts to realize a truly rich society by achieving harmony with the environment and contributing to society. Maxell will require more funds than previously because accelerating Change for Growth calls for higher capital investment in the three businesses for priority strengthening.
Moreover, the Company will undertake mergers or acquisitions. Therefore, we will use internal reserves to strategically invest for growth while continuing to pay stable dividends. In fiscal 2006, we increased interim and year-end cash dividends JPY 0.50 per share, giving a full-year cash dividend of JPY 20.00 per share, up JPY 1.00 per share from the previous fiscal year. As a result, the consolidated payout ratio was 66.3%. For the current fiscal year, we project a full-year cash dividend of JPY 20.00 per share.
'Our Commitment to Change'
- Moving forward with unflagging resolve -
I believe that to change Maxell the most important task at hand is to foster a new sense of crisis among all of our employees. Since becoming president last year, I have discussed with many employees what kind of company we should strive to be and what we need to do to create such a company. I see concrete evidence that Maxell is steadily changing. However, I realize that it takes time to change people's way of thinking.
Therefore, I intend to continue measures to instill a new mind-set based on my strong belief that the effect of one person changing their way of thinking can spread to teams and bases worldwide and, finally, increase the organizational strengthen of Maxell as a whole. The time for increasing the pace of change is upon us. I am completely committed to meeting that challenge and fulfilling my responsibilities as the individual entrusted with management of the Maxell Group and its approximately 5,000 employees and with the steady implementation of our medium-term business plan as we move forward to fiscal 2010 - my largest responsibility."
Yoshito Tsunoda, President and Chief Executive Officer, June 2007
To learn more about Maxell, and download the 2007 Annual Report to Stakeholders, please visit the Company's website at http://www.maxell.co.jp/e/ir/annual/annual2007.html
About Hitachi Maxell
Since its foundation in 1960, Hitach Maxell, Ltd. (TSE: 6810) has led the electronics industry at home and abroad in the fields of memory and mobility. Maxell is a leading manufacturer of information storage media products including magnetic tapes, optical disks, and battery products including lithium ion rechargeable batteries, micro batteries and dry cell batteries. For more information on Maxell, please visit the Company's web site at www.maxell.com
Source: Hitachi Maxell
Takanori Yamashita Public & Investor Relations Group Tel: +81-3-3515-8283 E-mail: firstname.lastname@example.org
Japan Corporate News Network. All rights reserved.
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|Date:||Oct 29, 2007|
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