Earnings Call: Q1 2018

Aug 4, 2017

My name is Nakajima from Sysmex. Thank you for your participation today. We would like to go over business results for 1st 3 months of fiscal year ending March 31, 2018. Let's take a look at the first page. Net sales, financial highlights. Net sales was 61,700,000,000 yen. The growth rate was 4.3%. Operating profit was 12,400,000,000, 10.4% down. Profit attributable to owners of the parent was 8.2%, down 13%. Net sales despite the impact of large scale projects in Americas, EMEA and AP because of growth in Americas and China, overall sales increased. For operating profit, annualized worsening cost of ratio because of annualized profit, higher SG and A expenses in line with business expansion, profit was down because of such reasons. And for 1st quarter, profit was down because of sales decrease. For foreign exchange and yen depreciation against darter by yen 0.2 yen against euro. And foreign exchange impact was 180,000,000 yen for sales and three positive impact for sales, yen 310,000,000 negative impact for operating profit. Tax rate was 31.9 percent and 8.6% increase compared with the previous fiscal year. This was due to the estimated amount of tax on future dividends of foreign subsidiaries increased due to foreign exchange impact. Next, the breakdown of net sales and operating profit. Despite the large scale project in Mexico, Saudi Arabia, Africa, Australia, Overall, the sales increased in all areas except EMEA. And foreign exchange impact was minimal, overall 180,000,000 positive impact. In Americas, 380,000,000 positive impact EMEA, JPY 30,000,000 negative impact China, JPY 310,000,000 negative impact and AP 140,000,000 positive impact. Though gross profit increased, thanks to sales increase, profit was down because of worsening cost of sales due to unrealized profit. SG and A increased due to business expansions such as direct sales, urea analysis and hemostasis products in France and transition to direct service in China and also conversion of Arikken Genesis, the valuation gain of 5,300,000 yen from the previous year. Next page please. This is net sales by geographic region. The year on year is shown on the right hand side. The profit was down in Americas, China AP and Japan EMEA. And then sales to external customers include export to IDEX. Next, by business, sales by business, Core business increased by 4.7%. Hematology, despite the impact of large scale project in Mexico, Saudi Arabia, Australia in the previous fiscal year because reagent sales remained strong and also the instrument sales was quite good in the United States, we saw 4.9% increase. For Yuri Analysis, the new product launched in EMEA and China, 36 point 8% increase for instrument sales. Immunochemistry, because of increase in instruments in China, reagent sales went up. And sales decreased in Siemens, the instrument sales was low and therefore the revenue was down. For next core business, 11.3% down. And for FCM business, because of a large scale project impact from the previous year, the sales was down. Next page, sales by regions. For starting with Americas, 13,900,000,000. Growth rate was 12.2%. Latin America, despite the impact of large scale project in Mexico, because of the Hematology business being strong in United States, we are able to achieve sales increase. Operating profit grew substantially, thanks to the impact of higher sales and improved cost of sales ratio due to a rising percentage of sales in areas where we conduct sales directly and reduced SG and A. Local currency base, sales increased by 9.2%. Operating profit increased by 180.4%. And the growth rate by region, United States, 16.7% increase. Sales increased due to favorable results in the hematology field stemming from a strategic focus on the West Coast area and increased sales to prominent commercial labs. And on the other hand, Central and South America sales fell by 32%, owing to the impact of acquisition of large scale government tender stagnation in Brazil. Started direct sales of unit analysis products in Colombia, Chile and Brazil, acquired several projects. Next page, EMEA. Sales is JPY 16,800,000,000. Gross rate is 3.6% down. And sales were down due to acquisition large scale tender in the Middle East and Africa in the 1st 3 months of the previous fiscal year as well as sales delays in the United Kingdom as a result of Brexit. Operating profit fell because of lower sales and a rise in SG and A expenses stemming from an increase in sales and service inc employees. Operating profit was 1,300,000,000 yen down by 13.7%. Local currency basis, sales was down by 3.8%, sales profit down by 13.8%. And sales increased by region, 5.4% down. And in France, even though sales increased due to urinalysis and hemostasis sales, direct sales, the sales was down due to impact of U. K. And for Eastern Europe and Russia, 81.6% increase Middle East, 25.0% down and Africa 39.5 percent down. Sales fell in Middle East as a result of tender project in Saudi Arabia and the impact of our large scale project for global funds in Africa in the 1st 3 months of the previous fiscal year. Next page. China. Following the transition to direct service, starting in June, hematology, urine analysis, hemostasis, reagents sales price was increased, targeting for distributors. On the other hand, service related cost increased. Currently, direct service is only conducted for some regions. And until the service transition completes to Sysmex, distributors will continue providing service. That is the reason why we are paying service fee to the distributors in the meantime. Sales was 16,100,000,000 yen 11.8 percent increase. And hematology, hemostasis instruments sales was down. But because of price increase for urea analysis and reagents, sales increased. The operating profit was 1,800,000,000, 134.1 percent increase. And that the sales cost of sales ratio improved because of the intra group transaction price division and rising competition ratio of reagent sales. Local currency base, 14% increase. Sales operating profit 138.7 percent increase and for hematology, 17.4% increase. The instrument sales was down, but the LIAGENT sales increased, and overall sales increased. Hemostasis, 8.2% down. Both instrument and reagent sales were down. For urea analysis, 55.6% increase. New products sales started and instrument sales significantly improved, so is reagent sales. And for immunochemistry, sales increased by 68.3%. The number of instruments increased as well as reagent sales. Please take a look at the next page. The geographic segment information for AP. Sales, 5,000,000,000 yen 4.6 percent increase. Despite the impact of large scale projects in Australia previous year, the business was transferred from distributors in Taiwan and direct sales started and large scale project was acquired for India. And operating profit 450,000,000, 23.3 percent increase. The agent sales increased and the gross profit increased due to start of direct sales in Taiwan. And by region, Oceania 46.8 percent down due to the impact of large scale project from the Q1 previous year. And in Korea and Taiwan, 33.9% increase because of direct sales started in Taiwan and the sales grew for hematology and hemostasis reagents in Korea. In South Asia, 82.5% increase because large scale tender acquisitions in India and Bangladesh led to higher sales. Next page, Japan. Both sales to external customers and intra area transfers, the sales is JPY30,700,000,000. It grew by 4.5%. And hematology and reagents remained strong for Japanese market. And sales grew due to higher exports to group affiliates overseas such as U. S. And China. Sales operating profit 9,400,000,000 yen 5.7 percent down because of intergroup transition price revision. And because of that one off factors in the previous fiscal year due to the conversion of RiK and Genesis to subsidiary. Next page. The consolidated earning forecast remained the same. By the way, if we exclude intra group transaction price impact, that yen base for Americas will be 160.5% increase EMEA, 10.7% down, 10.7% down and for China, 12.8% increase for AP, 16.5% increase and Japan, 5.2% increase. That will be the operating profit growth for each region based on the same criteria as last year. Local currency base for Americas 153.8 percent increase EMEA 10.8% down China 50 0.1% increase. This concludes my presentation.