CMIC Holdings Co Ltd

TSE:2309

Earnings Call Transcript 2020-Q1

[Wataru Mochizuki, executive]

Thank you for joining the call amidst your busy schedule today. My name is Wataru Mochizuki, Chief Financial Officer of CMIC Holdings. Today, I would like to speak about the first financial results in accordance with the PowerPoint slide deck that is disclosed to you.

Please take a look at this table for business segments and group companies as of the end of December 2019. Our group consists of total 26 companies that include CMIC Holdings, a holding company, 23 consolidated subsidiaries and 2 equity-method affiliated companies.

Here is a summary for the first quarter ended December 31, 2019. To achieve sustainable growth in the healthcare and pharmaceutical industry at this time of change, CMIC Group is pushing forward Project Phoenix. To achieve the mid- to long-term corporate value improvement of our group, the midterm plan includes focus activity items such as acceleration of PVC model, expansion of globalization and creation of Healthcare business. We are implementing various group-wide measures to execute such activities continuously to achieve the midterm plan.

This is a summary of consolidated income statement. In the first quarter of the current fiscal year, we are addressing the top priority items identified in the midterm plan, including business incubation in healthcare arena. Sales in the first quarter of fiscal year 2020 was JPY 19.8 billion, grew JPY 2.4 billion or 13.8% year-on-year. Operating income was JPY 923 million, down JPY 42 million or 4.4% year-on-year. Ordinary income for the first quarter of the current fiscal year was JPY 911 million, up JPY 50 million or 5.8% year-on-year. Current profit attributable to owners of parent for the first quarter of the current fiscal year was JPY 481 million, down 10.3% year-on-year. Earnings per share was JPY 26.63.

For nonoperating income, we recorded JPY 51 million of rent income and foreign exchange gains; and for nonoperating expenses, we recorded JPY 63 million of interest expenses and share of loss of entities accounted for using equity method. For extraordinary income, we recorded JPY 3 million as gain on sales of noncurrent assets; and as for extraordinary losses, we recorded JPY 25 million as loss on retirement of noncurrent assets. JPY 460 million was recorded as total income taxes and JPY 8 million as loss attributable to noncontrolling interests.

This table shows sales and operating income by segment. Please note that reported segment was partly changed. We compare the percentage change in sales and operating income by segment versus the same period during the previous year using the segments after the changes as the basis. Sales in the first quarter of fiscal year 2020 was JPY 19.8 billion, grew 13.8% year-on-year, driven by the CDMO and CSO business growth. Operating income was JPY 923 million, down 4.4% year-on-year mainly due to decrease in profits of CRO business, despite the improvements of CDMO business and CSO business.

This table shows orders received in backlog. Please note that reported segment was partly changed. We compare the percentage change in orders received in backlog by segment versus the same period during the previous year using the segments after the changes as the basis. While orders received for CSO business decreased compared to the same quarter of the previous year due to the impact of some large-scale project we had in the previous year, CDMO business grew due to the contribution of CMIC CMO Nishine, which became a CMIC Group company in June 2019.

For CDMO business, only firm orders are included in the orders received in backlog and the annual order plans proposed by customers are excluded.

This shows the trend in consolidated sales and operating income during the first quarter. We achieved increase in income but profit decreased for the first quarter and operating profit ratio was 4.7%.

This shows the trend in CRO sales and operating income. In the first quarter of the current fiscal year, we are supporting overseas companies entering the Japanese market and non-healthcare companies entering the healthcare sphere, promoting measures to address sophisticating development needs, including biopharmaceuticals and regenerative medicines and expanding our presence in Asia. Further, we are promoting globalization, such as through establishment of a local affiliate in Australia.

For clinical services, we are promoting our order-receiving activities for global studies and PVC projects with involvement of multiple business units and improving the expertise and technical capabilities of our human resources. For nonclinical services, our laboratories in Japan and the United States are further collaborating to provide drug discovery support for advanced medicine, including nucleic acid drugs and regenerative medicine.

Sales was about the same as first quarter 2019, but operating income is below that of the same period of the previous year due to lower occupancy rates and listing of unprofitable projects. Sales for this term increased by 1.0% to JPY 9.193 billion, operating income was JPY 1.541 billion and operating profit ratio was 16.8%.

This shows the trend in CDMO sales and operating income. In the first quarter of the current fiscal year, CDMO business is further improving technical capabilities, developing low-cost production structure and enhancing competitiveness through strategic capital investment as a global pharmaceutical drug manufacturing platform that includes formulation design, investigational new drug manufacturing and commercial production. Sales exceeded that at the same period of the previous year mainly due to increase of contract protection sales in Japan and the contribution of CMIC CMO Nishine, which became a CMIC Group company in June 2019. While operating loss was recorded due to listing of depreciation cost for the new injectable drug manufacturing facility in Ashikaga and the decrease of contract production sales in the United States, the loss amount has decreased. Sales of CDMO business increased by 13.8% to JPY 5.081 billion and operating loss was JPY 42 million.

This shows the trend in CSO sales and operating income. In the first quarter of the current fiscal year, in addition to the medical representative dispatch service and related new services, CSO business is strengthening sales activities for the Medical Affairs-related services and providing comprehensive solution that combines multiple communication channels and various services. We will further focus on talent hiring, responding to the strong demand of MR dispatch service.

Sales and operating income exceeded significantly that of the same period of the previous year, thanks to the steady progress in MR dispatch projects acquired in the previous period. CSO sales increased by 22.8% to JPY 2.188 billion, operating income was JPY 233 million and operating profit ratio was 10.7%.

This shows the trend in Healthcare sales and operating income. In addition to the SMO, site management organization operations, we provide services to medical institutions, patients and general consumers in the area of medical treatment, health maintenance and health promotion. In the first quarter of the current fiscal year, we are further strengthening the oncology capabilities in the SMO operations and providing new services. We are creating new business for early detection and prevention of aggravation of disease, including harmo electronic prescription record service and SelCheck, self-screening service. We will strive to win new SMO business orders and aim to expedite the inflow of income for the new Healthcare business.

Sales exceeded that of the same period of the previous year due to the growth of both SMO operations and healthcare service. Operating income is below that of the same period of the previous year due to prior investment to create new Healthcare business opportunities. Healthcare sales increased by 1.9% to JPY 2.392 billion, and operating income was JPY 97 million and operating profit ratio was 4.1%.

This shows the trend of IPM sales and operating income. IPM business provides new business solutions to pharmaceutical companies that combine value chains and marketing authorization licenses and intellectual properties possessed by our group. We are mainly delivering development and marketing services for orphan drugs. In the first quarter of this fiscal year, we are selling orphan drugs, including products developed in-house. Further, we are strengthening business foundation through provision of the IPM platform such as supporting foreign companies entering the Japanese market and providing strategic options to pharmaceutical companies in accordance with their business model changes. We will further expand the business scale and reach profitability by continuing to provide new business solutions.

Sales exceeded that of the same period of the previous year due to sales increase of orphan drugs and achieved operating surplus. IPM sales increased by 20.4% to JPY 1.149 billion. Operating income was JPY 51 million.

Next, I would like to explain our consolidated balance sheet. Total assets at the end of the first quarter of the current fiscal year increased by JPY 234 million year-on-year to JPY 80.414 billion. This is mainly due to an increase in notes and accounts receivable trade against the decrease in cash and deposits. Capital investment for the first quarter of the financial period is JPY 1.49 billion, depreciation is JPY 970 million and amortization of goodwill is JPY 74 million. Total liabilities increased by JPY 303 million year-on-year to JPY 47.489 billion. This is mainly due to an increase in commercial papers and long-term debt against the decrease in short-term borrowings and provision for bonuses. This concludes my presentation.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]