Earnings Call: Q1 2019

Aug 3, 2018

Thank you very much for waiting and thank you for participating in the business results briefing for the 1st 3 months of fiscal year ended March 31, 2019. Let me introduce today's presenters. We have Yuki Onakajima, Managing Board Member, Senior Executive Officer, Senior Managing Director, CFO and we have Tomo Aramaki, Executive Vice President of Corporate Business Administration. First, Anokajima will go over the business results for 15 minutes, followed by Q and A session for half an hour. So we would like to get started now. And we are recording this conference call today, just so you know. So Nakajima will go over the financial highlights first. This is Nakajima from Sysmex. Nice talking to you all. So let me go through the business results for the 1st 3 months of fiscal year ending March 31, 2019. Please turn to Page 1. Financial highlights and net sales were 65,900,000,000 yen it grew by 6.9%. Operating profit was 13,800,000,000 yen and up by 11.3%. Net income was 9,420,000,000 yen It went up by 14.6%. Net sales increased driven by the reagent sales growth centered on hematology and hemat status and the OGT that was consolidated in July of last year. Operating income increased by the improved cost of sales ratio, by the increased reagent sales mix and the increased other income. Please take a look at the table at the left bottom. So FX, compared to the previous year, the yen trend is stronger by 2 yen to 1 dollar and yen trended weaker by 7.9 yen to euro and yen trended weaker by 0.9 yen to our Chinese yen. So the FX impact was 1.31 1,000,000,000 positive impact on the sales and 40,000,000 negative impact on operating income. Net income increased driven by the higher operating income, also reduced tax burden rate. The tax rate was 26.6%. It went down by 5.4 percentage points compared to the previous year. So the tax rate decreased by receiving the withholding tax refund by the Japan Germany tax treaty revision and the lowered corporate taxes in United States for our subsidiary by the tax system revision. Please turn to page next page. A breakdown of net sales and operating income. The external net sales by regions, they increased in all regions excluding FX impact. So the FX impact on the sales was positive despite the stronger yen to a dollar, but the weaker yen to euro and RMB. So there was a positive impact of 1,310,000,000 yen on the home. By regions, so 260,000,000 yen negative impact on the Americas. For EMEA, 650,000,000 yen positive impact. In China, 940,000,000 positive impact. AP was 20,000,000 negative impact. Operating income increased by the higher gross profit with the increased sales and increased cost of sales, which actually absorbed the increased SGA. The cost of sales ratio deteriorated due to FX impact, but basically improved with the increased reagent sales mix. The SG and A increased by transition to direct service in China and consolidation of OGT as well as FX impact. Please turn to the next page. Net sales by geographic regions. Please take a look at the year on year number at the right top. In all regions, the sales increased on local currency basis. The Americas saw slight decline on yen basis due to a stronger yen, but overall, the sales increased by 6.9%. Please turn to the next page. Sales by business. The core business sales increased by 6.7%, driven by the sales growth in hematology and hemostatitis. Hematology sales increased supported by the strong reagent sales. The urinalysis saw the decline in sales despite increased reagent sales, but affected by the instrument sales in China and the Americas. Immunochemistry sales increased by the instrument sales in China and reagent sales. The Hemostasis saw the increase in sales because of the reagent sales despite weak sales of instruments. Next core business increased by 71.6%. In Life Science business, sales increased by DLGT, which was subsidized in July of last year and ROS1 in Japan for companion diagnostic drug and replacement of AusNet with the new products in Europe. Please turn to the next page. And let me go through geographic segment information, starting with Americas. The net sales were 13,950,000,000 yen It went up it went down by 0.3%. So the sales decreased slightly despite the growth in hematology reagent for North America, also the hemostasis instrument sales, but the decline affected by the decline in the sales for the Central and South America. Operating profit was 680,000,000 yen down by 58.9%. So revision of intra group transaction prices, also the increased service cost affected the worsening in the cost of sales ratio and SG and A increase was higher than the increased sales to see the decline in profit. On a local currency basis, net sales increased by 1.5%. Operating income declined by 58.2%. The growth rate by regions, the Americas, grew by 6.5%. And despite declined sales of urea analysis, the hematology reagent sales grew by the increased number of installations and upgraded hemostasis instrument for the major commercial laboratories, the sales increased. Central and South America's sales went down by 17.9%. In Brazil, the sales increased by the sales of U. S. New products by the direct sales. In other Central and South America, the sales decreased by the weak sales of hematology instruments. Please turn to the next page. EMEA. The net sales was 18,700,000,000 yen It went up by 11.3%. The sales increased by the hematology reagent sales growth by the increased number of installations and the sales increase of OGT. Operating income was 1,320,000,000 yen up by 0.6%. So the SGA increased by reinforcing sales system in emerging countries such as in Russia. The operating income saw a slight increase by revising the intra group transaction prices and the increased sales of OGT and the impact of weaker yen. On a local currency basis, net sales increased by 4 point 6%, and operating income went down by 5.5%. The sales growth by regions. 5 major countries grew by 10.3%. So despite continuing due declines or delays in the UK because of Brexit, So the direct sales of Hemostasis grew in France. And also, new products contributed in Life Science in Spain, which helped to see the growth in sales. East Europe and Russia went down by 0.7%. So Eastern Europe sales declined, but the Russia sales increased despite the impact of weaker ruble. It was supported by the sales growth of Hemostasis. Middle East and Africa went up by 10.7%. Middle East sales declined, affected by a large deal that we had in the previous year, but Africa saw the increased sales by acquiring a large deal in Burkina Faso and the sales growth of hematology reagents. Please turn to the next page. China. Net sales was JPY 17,850,000,000 It went up by 10.4%. Centered on hematology, hemostasis and immunochemistry, the reagent sales grew. And with the transition to direct service, the reagent price increased to see the increased sales. Operating profit was 3.47 1000000000, up by 88%. Despite the impact of intra group transaction price revision, So the growth in reagent sales and the improved cost of sales ratio by FX impact, the operating income increased. On a local currency basis, net sales increased by 4.5%. Operating income increased by 70 7.9%. The sales growth by segment, hematology grew by 5.6%. Despite a decline in instrument sales, the reagent sales grew by the increased number of installations to see the sales growth. Hemostatis grew by 10.2%. Despite the weak sales in instruments, the reagent sales for fibrin grew to see the increased sales. Urinelysis declined by 25.2%. Although the reagent sales grew, but in Q1 of last year, we had the initial demand for the new instrument product. And because of that, we saw a decline in sales this year. Immunochemistry increased by 43.9%. In addition to infectious disease reagents, the multiple provinces applied insurances, the hemostasis molecular marker reagents, thus such sales growth contributed to see the growth in overall sales. Please turn to the next page, AP. The net sales was 5,320,000,000 yen It went up by 5.1%. The same time last year, there was a large deal in South Asia. However, we had a large deal obtained in Taiwan, which contributed to see the sales growth. Operating income was 490,000,000 yen up by 10.2%. Although the intra group transaction prices were revised, also the SGA increase impact existed by reinforcing sales system in different countries, we saw income increase by the reagent sales growth in hematology. Sales growth by regions. Southeast Asia grew by 3.3%. Thailand sales grew by the sales growth of instruments and reagents in hematology. South Asia sales declined by 24.1%. The sales declined due to the absence of large deals in India and Bangladesh that we had in the same time last year. South Korea and Taiwan increased by 28.2%. Sales increased because in Taiwan, we started to offer direct services, and we acquired a large hematology deal with a major hospital group. As well as in South Korea, we had more installations of new urinalysis instruments. Please turn to the next page, Japan. So the whole Japan, including both internal and external sales, the net sales were 33,060,000,000 yen It went down by 4.9%. In Japan, despite a dissolution of a joint venture with Biomeru, there was a growth in sales in immunochemistry and haemostasis, and we had the sales of RS1 of companion diagnostic drug, which helped to see the growth in sales. Internal sales declined because of reduced exports for our overseas affiliated companies. Operating income was 8,090,000,000 yen down by 14.1%. The income declined despite the reagent sales growth in Japan, but because of a decline in sales for the overseas affiliated companies. Please turn to the next page. Consolidated financial forecast have not been changed since what we have announced in May. This concludes my presentation.