Earnings Call: Q3 2020

Feb 5, 2020

This is Nakajima from Sysmex. Let me explain our financial results for the 1st 9 months of the fiscal year ending March 31, 2020. Please turn to Page 2. Financial highlights. The net sales were 218,100,000,000 yen up by 4.7%. Operating profit was 40,400,000,000 yen down by 5%. Net income was 26,400,000,000 yen down by 8.3%. Net sales were affected by the yen appreciation, but both Japan and overseas businesses grew to support the overall growth. Operating income, despite the gross profit increase supported by the sales increase, the profit declined affected by yen appreciation, increased HGA by reinforcing sales structure outside of Japan and increased R and D spending due to a new biodiagnostic reagent base. Please turn to the left bottom chart, foreign exchange. Yen appreciated against dollar by 2.4 yen and euro by 8.4 yen and RMB by 8.1 yen compared to the previous year. The FX impact on sales was negative 9,430,000,000 yen On operating income, it was negative 3,270,000,000 yen Net income declined because of the FX loss impact as well as the increased tax burden. The tax rate was 29.2%, up by 1.4 percentage points year on year. Please turn to the next page. A breakdown of net sales. In all regions, sales grew on yen basis as well as on local currency basis. On a local currency basis, AP, EMEA and China had over 10% growth. Japan and the Americas had over 6% growth. The FX impact on the net sales was negative 9,430,000,000 yen for the whole company. By destinations, it was a negative 1,380,000,000 yen impact on the Americas and a negative 3,740,000,000 yen on EMEA, negative 3,610,000,000 yen impact on China and a negative 680,000,000 yen impact on Asia Pacific. Please turn to the next page. Sales by businesses and product types. IDD business, the sales grew by 9.2% if we apply the last year's rate supported by the growth in hematology and immunochemistry. Hematology sales grew by the increased number of installed bases as well as the increased reagent sales due to the spread of dengue fever in Asia Pacific. Hemostasis sales grew supported by Japan where the new instrument product solid performance and growth in China. Eurinosis business, despite a delay in new product introduction in the United States, sales grew supported by the growth of the direct sales in the U. K. And France and the reagent sales growth by the increased number of installed bases. Immunochemistry sales grew by reagent sales increase in Asia Pacific in addition to China and Japan. Life Science business sales grew by 11.1% when we apply the last year's rate. The sales grew by OZNA sales growth in EMEA as well as the increased number of NCC Onco panel contracted Breakdown of operating profit. Despite the gross profit growth supported by the sales growth, the profit decline affected by the appreciation of yen and increased SGA by reinforcing sales structures outside of Japan and the increased R and D spending by building a new biodiagnostic reagent base. FX impact was a negative 3,270,000,000 yen Cost of sales ratio worsened by 1.6 percentage point. Of this 1.6 percentage point, 0.7% was due to reclassification of service contract fee in China from SGA to the cost of sales. Substantially, it was a worsening of 0.9 percentage point. Despite the improvements in the product mix, the cost of sales ratio worsened because of increased purchases of third party instruments along with the increase in the service costs due to headcounts increase in the U. S. And China. There was no FX impact on the cost of sales ratio. SGA grew by the increased labor cost in Japan driven by the headcount increases and the stock option provisions along with the labor cost increase in the Americas and EMEA for reinforcing sales structure. R and D increased due to the investment into hematology new products and LS businesses and because of spending into biodiagnostic reagent base. Please turn to the next page. Let me share information by destinations. 1st, with Americas. Sales were 50,600,000,000 yen up by 3.9%. Despite a decline in hemostasis and urinalysis business in the U. S, overall sales grew by a growth in hematology business in North and Latin America. Instrument sales had a slight growth in the U. S. As sales declined in hamostasis, where we had a large commercial lab business in the preceding fiscal year and affected by the delay in introducing new products to the market in urinalysis. Reagent sales grew by the increased number of installed bases in hematology devices and solid sales of reagents in North America and South and Central Americas. On a local currency basis, net sales grew by 6.4%. Sales growth by regions: the U. S. Grew by 4.2%. Canada grew by 10.5%. South and Central America grew by 13.4%. From Q3, we changed the sales structure in Brazil to start a direct marketing for mid- and low end markets, resulting in reagent growth to drive the overall sales growth. Please turn to the next page. In app. Sales were 57,000,000,000 yen up by 3.2%. In addition to the sales growth in hematology in Northeastern Europe and Middle East, Direct sales grew in urinalysis in the U. K. And France to result in the overall sales growth. Instrument sales grew because of system product sales in Northern Europe in hematology business. We also received orders for the commercial labs in Eastern Europe, and we saw the increased sales in urinalysis in the U. K. And France. Reagent sales were supported by the increased number of installed instrument bases in hematology and urinalysis in the Middle East and Russia. On a local currency basis, sales were up by 10.4%. Growth rate by regions. For major 5 countries, sales grew by 5.6%. ADA Europe grew by 13.2%. Middle East grew by 19.3%. Eastern Europe and Russia grew by 16.1%. Africa was up by 6.9%. Please turn to the next page. China. Net sales were 56,500,000,000 yen up by 3.3%. In addition to the reagent and service sales growth in hematology, immunochemistry and urinalysis, the instrument sales in hemostasis increased to result in overall sales growth. On a local currency basis, sales were up by 10%. Instrument sales increased, driven by the growth of the Sysmex transport system, which we started to sell in Q3. Reagent sales increased by 8.9% despite a decline in sales due to the reclassification from reagent to service with solid sales growth in hematology, urinalysis and immunochemistry, excluding the reclassification impact. By the way, the reclassification impact amount was about 1,500,000,000. Sales growth by businesses on a local currency basis. Hematology was up by 13.7%. Hemostasis was up by 6.8%. Urinelysis was up by 3.8%. Immunochemistry was up by 15.9%. In China, we received a regulatory approval for breast cancer lymph node metastasis testing system using Osna method in December. We expect to start selling this system in Q4. Let me also explain our situation regarding the new coronavirus pneumonia. With the outbreak of coronavirus, there's been increasing demand for hematology testing and CRPs in China. Because of this, the number of installation and delivery requests increased for hematology instruments and reagents from some hospitals, and we are addressing them 1 by 1. At this point of time, there is no major impact on our production and supply. Please turn to the next page. 18, sales were 19,800,000,000 yen up by 12.1%. Sales increased due to the hematology sales growth in India, where sales structure was changed from April and hematology reagent sales growth, mainly in Southeast and South Asia. Instrument sales grew, driven by hematology in India and Thailand. Reagent sales grew because of the sales growth in immunochemistry reagents in addition to hematology reagent sales growth driven by the continued spread of dengue fever mainly in Southeast and South Asia. Sales growth by regions: Southeast Asia increased by 18.3%. South Asia was up by 29.3%. South Korea and Taiwan was down by 1.6%. South Korean business increased by 9.8% on a local currency basis, but the area sales declined because of the yen appreciation and the impact of last year's large project in Taiwan. In some areas, we still see an existence of dengue fever, which creates continued high demand for hematology testing. Please turn to the next page. Japan, sales were 33,900,000,000 yen up by 6.8%. Sales grew due to the instrument sales growth in hematology and hemostasis, along with the reagent sales growth by the increased number of instrument installation bases. Instrument business increased by 18.3%. Sales increased because of a large project in hematology along with a solid performance of new instrument products for hemostasis. Reagent sales increased by 4.6 percent due to the reagent growth in Hemostasis and Immunochemistry. Service and other grew by 3.8 percent due to the increased number of MCC Oncopara contracted testings, which started in June. Please turn to the next page. Consolidated earnings forecast. There is no change to the November forecast. This concludes my presentation.