Earnings Call: Q3 2018

Feb 6, 2018

This is Nakajima from Sysmex. Thank you very much for coming to this financial results briefing meeting. So let me start to go over business results for the 1st 9 months of fiscal year ended March 31, 2018. Please turn to Page 1. Financial highlights. Net sales were 202,500,000,000 yen The growth was 12%. Operating income was 44,500,000,000 yen It went up by 13.8%. Profit attributable to owners of the parent was 30,500,000,000 yen. It went down by 4.4%. Net sales increased in all regions, both on the local currency and yen basis. Operating income increased due to the profit gross profit growth by the sales increase and the yen depreciation. Please turn to the table on the left bottom. FX trended to a weaker yen by 5.1 yen to 1 dollars, 10.5 yen to euro and 0.6 yen to a Chinese yuan compared to the previous year. The FX impact was 9,090,000,000 yen on the sales on positive, and operating income positive impact was 1,620,000,000 yen and net income went down due to the tax treaty revision with Germany last year. Tax rate was 32.7%. It went up by 18.3% year on year. Due to an impact of tax treaty revision with Germany previous year and a post in tax expense because of a temporary reversal of deferred tax assets under the U. S. Tax system revision, we saw the increase in tax rate. Please go to the next page, breakdown of net sales and operating income. The external sales by regions, even by excluding FX impact, we saw increases in all regions. FX impact on sales was positive by 9,090,000,000 yen due to yen depreciation, a 2,200,000,000 yen positive impact in the Americas. EMEA had 3,800,000,000 yen positive impact. And China had a 2,250,000,000 positive impact. AP had 810,000,000,000 positive impact. Operating income. Income increased due to the gross profit increase by the sales growth, and the weaker yen absorbed the worsened cost of sales ratio and SG and A increases. The major reason for the worsened cost of sales ratio was due to the sales increase in Immunochemistry and Urinelysis and Life Science Business and clearing up the old products by introducing new products in the urinalysis area and the cost increases of the foreign currency denominated procurement due to yen depreciation. The major reason for the increase in HGA was due to business expansions such as consolidation of OGT and direct sales of urinalysis and haemostasis business in France and the shift to direct services in China. Please turn to the next page, net sales by geographic regions. Please take a look at the right top showing the year on year comparison. In all areas on a local currency basis, we achieved increases in net sales. Affected by the weaker yen, we achieved double digit growth in the net sales in yen terms. Please turn to the next page, sales by business. The core business grew due to the impact of yen depreciation and the growth of hematology and urinalysis. It went up by 11%. Hematology sales increased, supported by strong sales of reagent cells. Urinalysis increased due to the growth in instrument sales by introducing new products into China. Immunology increased by growing the reagent sales by adding installments in China. Hemostasis stayed flat due to the FX impact despite the weakness in instrument sales. Next core business grew by 61.9%. Life Science Business grew by consolidating OGT and other elements. Please turn to the next page. Geographic segment information, starting with the Americas. Net sales were 44,100,000,000 yen It grew by 8.7%. In the United States, hematology reagent service sales grew. And in Canada, we won a large commercial lab project. This offset as a sales drop in Central and Southern Americas to see the increase in net sales. Operating income was 3,800,000,000 yen up by 53.1%. In addition to the sales increase impact, we had reagent service sales increase and intra group transaction pricing revision, which helped to see substantial growth in the profit. On a local currency basis, net sales went up by 3.7%. Operating income went up by 46.2%. The sales growth by regions. The United States went up by 6.1%. At some facilities, we did see delays in deliveries of instruments, but Aweisso Hematology Reagent service sales grew along with the increased number of installments, resulting in sales increase. Central and South Americas went down by 9.9%. In Brazil and other countries, the region is on a recovery trend. However, sales went down because of the winning of a large project in Mexico previous year. Please take a look at the next page. EMEA. Net sales of our 54,500,000,000 yen. It went up by 15.5%. Businesses in France, Russia and Turkey went up, and the sales increased by consolidating OGT, offsetting the impact of delays of project in the U. K. Due to Brexit. Operating profit were JPY 4,350,000,000 went up by 17.8%. The SGA increased by consolidating OGA. And we also revised intra company transaction prices, but these were offset by the reagent sales growth to see the growth in profit. On a local currency basis, net sales increased by 6.1%. Operating income went up by 8.2%. The sales growth by regions. In 5 major countries, it went up by 4.4%. Despite the ongoing impact of sales delays in the U. K, sales were up due to a direct sales in France in urinalysis and haemostaties. Eastern Europe and Russia, up by 18.8%. Sales rose due to higher reagent sales in hematology, urea analysis, hematitis in Russia Middle East, up by 0.4%. And despite a large project impact from last year in Saudi Arabia, sales were flat by winning reagent project this year. Africa, down by 28.7%. Sales decreased due to the impact of large tenders last year for global funds. Please turn to our next page. China. Net sales were 52,200,000,000 yen Growth was 15.1%. In all categories, reagent sales trended strongly. And with the shift to direct services, the reagent price increased to see operating income was JPY 6,060,000,000 up by 135%. With the introduction of the direct services, the SG and A increased, revising the intra group transaction prices and growth of the reagent sales helped to see the increased profit. On a local currency basis, net sales increased by 10.3%. Operating income went up by 125.3%. The sales growth by categories in hematology, it went up by 13.2%. Despite a slight increase in instrument business, reagent growth contributed to sales growth. Hemostasis went down by 4.4%. Despite sales growth of the Reagent business, we saw weakness in instrument business to see a drop in our sales. Uroanalysis business went up by 27%. We have strong sales of new products, and we saw substantial growth mainly driven by instrument sales. Immunochemistry went up by 59.1%. Along with the increased installation of instruments, we saw the growth in reagents business to see the overall sales growth. Please turn to our next page. The net sales for AP was 17,900,000,000 yen The growth was 21.4%. We won large project in India and Bangladesh. We started direct sales in Taiwan to see the increased sales. Even by excluding e region currency impact, sales grew by 16%. Operating income was 2,200,000,000 yen up by 38.2%. With direct sales in Taiwan, we saw the increased SGA, But revising intra group transaction prices and growth in the reagent sales helped to see the growth in profit. Sales growth by regions. South Asia grew by 89.7%. 1 in government tenders in India and Bangladesh grew hematology instrument sales, resulting in substantial sales growth. South Korea and Taiwan went up by 37.3%. Direct sales in Taiwan and instrument sales in South Korea was strong to see the growth in net sales. ASEANIA went down by 23.7%. Although we saw growth in Hemostasis sales, we saw a decrease in sales due to the impact of large tender in Australia that happened last year. Please turn to next page, Japan. By combining external and internal sales, for overall Japan, net sales were 106,200,000,000 yen The growth was 3.1%. So in Japan, thermostat is the immunochemistry reagent business was strong to see the growth in net sales, whereas export sales for IDEX decreased. The exports for overseas group companies saw the increased sales due to the yen depreciation. Operating income was 29,800,000,000 yen up by 9.5 percent, Despite an impact of intra group transaction price revision, we saw increase in profit by restraining SGA spending. Please turn to next page. Full year earnings forecast. Despite uncertain currency elements, business is trending almost as expected. Therefore, no changes were made to November forecasts. This concludes my presentation.