CMIC Holdings Co Ltd

TSE:2309

Earnings Call Transcript 2022-Q1

[Operator]

Thank you very much for taking time out of your busy schedule and joining the conference call today. We are now starting the CMIC Holdings First Quarter 2022 Financial Results Presentation Meeting. Today, our CFO, Wataru Mochizuki, will explain the financial results review. We are scheduled to end at 5:45 p.m. after the Q&A session. The video recording of this call will be posted later on CMIC's IR web page and be available to view on demand.

Now our CFO, Wataru Mochizuki, will explain an overview of financial results.

[Wataru Mochizuki, executive]

Hello. I am Mochizuki. First of all, I would like to express my appreciation to all the medical personnel and local government officials who are working hard to combat the spread of the COVID omicron strain. I would also like to express my deepest sympathy to those who have been infected by COVID and to those whose lives have been affected by the spread of the disease. We hope for a speedy recovery for those infected by the virus.

I will be giving an overview of financial results for the first quarter of the fiscal year ending September 30, 2022. This table shows our business segments and corresponding group companies as of the end of December 2021. CIMIC Group consists of 25 companies in total, which includes CMIC Holdings that is a holding company, 24 consolidated subsidiaries, including 15 from overseas. From this fiscal year, we have changed our reportable segments to 2 segments, Pharmaceutical Solutions and health care solutions.

The Pharmaceutical Solutions segment consists mainly of the CRO business, which provides development support to pharmaceutical companies; the CDMO business, which provides manufacturing support and the market solutions business, which conducts sales and marketing and orphan drug development and sales. The CRO business, CDMO business, CSO business and IPM business were the reportable segments until the previous fiscal year.

The Healthcare Solutions segment consists mainly of the Site Support Solutions business, which provides support to medical institutions and to health care professionals and the Healthcare Revolution business, which provides support to individuals and local governments. In the previous fiscal year, the segment corresponded to the health care business, the year-on-year increase, decrease in percentages of results by segment shown in today's materials are comparisons based on the classification after the change. This fiscal year is the first year of our midterm plan, fiscal year 2022 to 2025, which was formulated in November 2021.

We have begun to address our midstream business plan priorities: one, advancement of the health care business; two, strengthening of comprehensive support for disease prevention and treatment from R&D to marketing; and three, contribution to a sustainable society through businesses that are highly beneficial to society.

First of all, as for progress toward the advancement of the health care business, we are focusing on addressing the current social issues of COVID vaccination and PCR test support services. We are also working with Dai Nippon Printing to provide support services for correcting and proactively entered vaccination records and for utilizing vaccination record data, making effective use of harmo.

In the area of strengthening comprehensive support from our R&D to sales for disease prevention and treatment, CMIC concluded a partnership agreement with Science 37 of the U.S. to promote the centralized clinical trials, DCP and speed up drug development as part of its efforts to speed up and increase the efficiency of drug and medical device development.

With this agreement, CMIC will be able to expand its opportunities to win the increasing number of DCT projects. In addition, in the bioanalysis business, we are actively engaged in supporting drug discovery in advanced areas where modalities are becoming increasingly diverse such as next-generation biopharmaceuticals and gene therapy drugs, with regard to contribution to a sustainable society. The CIMIC Group, as a company, involved in businesses that support life and health, places importance on ethics and science and is actively engaged in developing talents, who can play an active role in these areas and providing them with opportunities to make contributions to the society.

During the quarter under review, CIMIC Corporation Limited acquired Kurumin Certification as the child-rearing support company in December 2021. In addition, as part of our ongoing social contribution activities, we awarded the 18th Society Prize and co-hosted the 13th International Children's Painting Competition.

This is an overview of consolidated income statement. Sales in the first quarter of fiscal year were JPY 24,629 million, which was up 30.4% year-on-year by JPY 5,744 million. Operating income was JPY 3,375 million, which was up 315.7% year-on-year by JPY 2,563 million. Ordinary income was JPY 3,462 million, which was up 330.9% year-on-year by JPY 2,658 million.

Profit attributable to owners of parent was JPY 2,107 million, which was up 275.0% year-on-year by JPY 1,545 million. Earnings per share were JPY 116.48. Effective from the first quarter of the current fiscal year, the company has adopted the accounting standard for revenue recognition. The amount of impact for the current quarter is as follows. For the first quarter of the current fiscal year. Net sales increased by JPY 630 million. Cost of sales increased by JPY 571 million and operating income, ordinary income and income before tax adjustments increased by JPY 58 million each.

As for the breakdown of nonoperating income loss and extraordinary income loss, foreign exchange gains, et cetera, JPY 137 million were posted as nonoperating income and interest expenses, et cetera, of JPY 50 million were posted as nonoperating expenses for the quarter under review.

As extraordinary losses, we posted a loss on retirement of noncurrent assets of JPY 23 million. Total income taxes is JPY 1,330 million, and net income attributable to noncontrolling interests of JPY 1 million.

Sales and operating income by segment are shown in a table below. Sales and operating income increased significantly from the same period of the previous fiscal year, mainly due to significant growth in Healthcare Solutions segment, including vaccine development and vaccination support services for new coronavirus infections.

Orders received and order backlog by segment are shown in a table below. Both orders received and order backlogs increased year-on-year in both segments. Orders received increased by 29.4% compared to the same period of the previous fiscal year, and the order backlog increased by 9.9% compared to the same period of the previous fiscal year. The percentage of sales was 71.5% for Pharmaceutical Solutions and 28.5% for Healthcare Solutions. The composition ratio of Healthcare Solutions increased compared to the same period of the previous fiscal year due to significant growth in vaccine development for new coronavirus infections and vaccination support services [ et cetera ] and Healthcare solutions.

The following is a sales composition by business segment of Pharmaceutical Solutions. The CRO business accounted for 51.5%, the CDMO business, 30%; and the Market Solutions business 18.4% of total sales, with growth in the CDMO and Market Solutions businesses. This is an overview of the Pharmaceutical Solutions CRO business.

Sales were at the same level as the same period of the previous fiscal year. CRO business was greatly impacted by the revenue recognition with the impact of an increase of approximately JPY 470 million in net sales. There was an increase in inquiries for post-marketing trials and development projects for new coronavirus infection treatments and other products.

In clinical development operations, we are promoting initiatives to speed up and improve the efficiency of drug and medical device development under nonclinical operations. We are actively working to establish bioanalysis analysis models in advanced fields, where modalities are becoming increasingly diverse.

This is an overview of the Pharmaceutical Solutions CDMO business. Sales increased by 8.5% year-on-year due to the spread of new coronavirus infections and generic quality issues that need to ensure a stable supply is expanding. In the U.S., we are continuing to focus on acquiring new projects. This is an overview of the Pharmaceutical Solutions Market Solutions business.

Sales increased by 11.7% compared to the same period of the previous year. In the MR dispatch business, the utilization rate increased due to the acquisition of new projects and steady progress in existing projects.

The following is a breakdown of the sales composition of the Healthcare Solutions business. the Site Support Solutions business accounted for 48% and the Healthcare Revolution business 52% due to significant growth in vaccine development and vaccination support services for new coronavirus infections. This is an overview of the Site Support Solutions business.

Sales were significantly higher than the same period of the previous fiscal year. There was an increase in the development of vaccines and therapeutic agents for new coronavirus infections and call center projects. In addition, we are strengthening our response to new support needs, such as clinical research for medical institutions, including university hospitals.

The following is an overview of the Healthcare Revolution business. Sales were significantly higher than the same period of the previous fiscal year. In addition to continuing vaccination support services for new coronavirus infections, we are working to expand opportunities to utilize the health care communication channel harmo.

Here, I'd like to explain our consolidated balance sheet. Total assets at the end of the first of the current fiscal year increased by JPY 2,509 million compared to the end of the previous fiscal year to JPY 93.702 billion, mainly due to an increase in tangible fixed assets and cash and deposits.

Capital expenditures for the first quarter of the current fiscal year totaled JPY 2.86 billion. Depreciation was JPY 1.259 billion and amortization of goodwill was JPY 5 million. Total liabilities increased by JPY 1.079 billion from the end of the previous fiscal year to JPY 57.786 billion, mainly due to an increase in commercial paper and to loans payable, net of a decrease in provision for bonuses. Net assets increased by JPY 1.430 billion to JPY 35.916 billion, mainly due to an increase in retained earnings.

Finally, I will explain the full year earnings forecast for the fiscal year ending September 30, 2022. The company has revised upward its full year forecast for the fiscal year ending September 30, 2020, to JPY 95,000 million in sales, JPY 6,000 million in operating income, JPY 5,800 million in ordinary income and JPY 3,000 million in net income attributable to shareholders of the parent company. Based on currently available information, due to higher-than-expected growth in vaccine development and vaccination support services for new coronavirus infections during the first quarter of the current fiscal year.

That is all about an overview of financial results. Thank you.

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