Terumo Corp

TSE:4543

Earnings Call Analysis

Record First Quarter for Terumo with 20% Revenue Growth

In the first quarter, Terumo Corporation achieved record financial results with a 20% revenue growth, reaching JPY 258.2 billion. This was driven by strong demand in cardiovascular, neurovascular, and other segments, alongside favorable exchange rates. Operating income also reached a record high of JPY 44.6 billion due to profit improvement measures and cost control. The company projects continued strong performance, despite potential macroeconomic volatilities such as changes in raw material prices and transportation costs. Guidance remains positive, with no revisions planned for the full year.

Record Quarterly Highs

In the first quarter of the fiscal year ending March 2025, Terumo Corporation achieved record highs in revenue, operating income, and net income. This impressive performance saw revenue growing by about 20%, thanks to sustained demand and favorable exchange rate contributions. The company's proactive profit improvement measures and stringent cost controls allowed for profits to outpace sales growth.

Revenue and Profit Growth

Terumo’s revenue hit a record high of JPY 258.2 billion, driven by a combination of continued high demand and favorable pricing strategies. Operating income reached JPY 44.6 billion. The company's effective strategies in managing costs and increasing manufacturing efficiency contributed to these gains. Despite the easing of inflation, Terumo remains vigilant about fluctuations in raw material prices and transportation costs.

Sector-Specific Performance

The increased overall sales were significantly boosted by the cardiovascular and neurovascular segments, particularly by Transcatheter Interventions (TIS). The gross margin benefited from measures aimed at reducing cost and maintaining manufacturing efficiency, further supported by steps taken previously to adjust pricing.

Impact of Foreign Exchange Rate Changes

The volatility in exchange rates has had a notable impact on business performance. The switch from using the spot rate of the closing date to the average rate during the inventory month supply for calculating unrealized profits led to an uplift of JPY 2.2 billion due to the depreciation of the Japanese yen. This change is expected to stabilize the impact of foreign exchange rates on profitability rather than constantly improve it.

Regional Performance Highlights

All regions showed steady progress, with the Americas posting double-digit growth even after excluding exchange rate effects. The cardiovascular and neurovascular product lines performed particularly well. Additionally, the blood center business showed strong leadership in blood and center technology.

Earnings Call Transcript 2025-Q1

[Operator]

Good afternoon, everyone. Thank you for joining the Terumo Corporation's financial results briefing for the first quarter of the fiscal year ending March 2025 despite your busy schedule. Today, Mr. Hagimoto, our Executive Officer and CFO, will present an overview of the financial results followed by Q&A session.

We have 45 minutes in total. This webinar can be viewed in either English or Japanese using the Zoom simultaneous interpreting function. Please click the bottom at the bottom of the Zoom screen the language as needed. Please note that the presentation slides are shared on the screen will be in Japanese only. English language materials are available on our website.

Just in case if we have an [ integral ] program during this webinar, we will contact you by e-mail.

Before we begin the presentation, we'd like to remind you of the following. Today's presentation may include some outlook information based on the current assumptions. And it all has risks and uncertainties. Please be mindful that the actual results may differ from the outlook we present today.

Without further ado, I'd like to invite Mr. Hagimoto to present the overview of the financial results. Mr. Hagimoto, the floor is yours.

[Jin Hagimoto, executive]

I'm Hagimoto, Terumo's CFO. This presentation will provide an over -- thank you for joining our financial results briefing. My presentation will provide an overview of the financial results for the first quarter of the fiscal year ending March 31, 2025. These are the highlights of the financial statement.

In the first quarter, revenue, operating income and net income both reached record quarterly highs, revenue growth was about 20% company-wide due to continued demand in other companies and the contribution of the exchange rate. Profits grew faster than sales growth due to profit improvement measures and appropriate cost control.

Next slide, please. So these are P&L results. Revenue growth was double digit in other companies reaching a record high of JPY 258.2 billion. Whilst some onetime demand contributed to the increase in revenue. pricing measures also contributed alongside continued demand in generally favorable business environment. I will cover the details in the following region and the company pages. Operating income also grew outpacing sales growth reaching a record high of JPY 44.6 billion.

This was due to improved profit margins achieved through appropriate cost controls in response to increased sales. Although inflation has eased, we will continue to monitor changes in the macro environment, such as rising raw material prices and transportation costs.

Next slide, please. This is an analysis of changes in profit in the first quarter compared to the same period last year. Overall, the sales increased largely due to sustained demand. First, G/P increase incremented by sales increase despite including some longtime factors, was driven by cardiovascular, especially TIS and neurovascular.

The gross margin benefited from the effect of easing inflation and cost reduction measures such as efficiency improvement in manufacturing. As for price, the effect of measures to revised pricing, which were expanded in the previous year has become evident. The price review implemented in the second half of last year in Japan will have a positive impact over the first half of this fiscal year.

The SG&A increase is a healthy increase due to business expansion and is in line with our planned figures. FX were at positive JPY 3.8 billion inflow and positive JPY 2.5 billion in stock. JPY 2.2 billion of this positive JPY 2.5 billion increase in stock is the effect of a change from this fiscal year in the exchange rate used to calculate the estimation of unrealized gains on inventory. I shall explain the details of this in the following slide.

Next slide, please. Here, I explained the effect on -- of the exchange rate on P&L. The recent increase in exchange rate volatility has a significant impact on the business performance. until FY '23, we have calculated the unrealized profit using the spot rate of the closing date. And this has had a positively -- and positive significant impact on the profitability. But from FY '24, we have changed the exchange rate from the spot rate to the average rate during the inventory month's supply.

As the unrealized profit included within the inventory is the total of all the internal profits recorded throughout of the inventory month supply period. We believe that this change will be able to -- enable us to more accurately capture the profit situation for the given period. As a result, due to the depreciation of Japanese yen, we have recorded an uplift of JPY 2.2 billion. This change will not contribute to raising profitability at all the times, but we believe it will contribute to stabilizing the impact of foreign exchange rates to profitability.

Next slide, please. This slide shows earnings by region. Although [ Sosei ] growth was due to change and demand, all the regions of our -- are making steady progress. In Americas, all the companies posted double-digit growth, even when excluding exchange rate effects. In cardiovascular, the status of Neurovascular in the vascular products were strong as was the recovery of TIS, which had experienced supply issues with some access products in the same period of the previous year. In blood and center technology, the blood center business led the way.

In Japan, Medical Care Solutions grew substantially, this was due to the effect of the pricing measures in hospital care solutions as well as a temporary sales decrease in the same period of the last fiscal year due to a delay in deliveries leading a steady progress in pharmaceutical solutions.

In Europe, cardiovascular, neurovascular in the vascular grew at a double-digit rate, excluding exchange rate effects. In blood and center technology, the blood center business and apheresis therapy performed well.

C&V led the way in China. Neuro showed significant growth as there was a decrease sales in FY '23, Q1 due to inventory adjustments by distributors. In addition, TIS access products exceeded planned figures due to a rebound from order holdback induced by start of the application of a new centralized purchase and investment pricing. In emerging markets like Asia and the Middle East, revenues declined in the TBCT blood center business, which performed well in FY '23, Q1.

C&V's cardiology and Medical Care Solutions, Pharmaceutical Solutions led the way with a double-digit growth even when excluding exchange rate effects. Next page. I will now explain our performance by company. First is a cardiovascular company. Excluding exchange rate effect, sales revenue grew by 8% and was strong globally, especially in Europe and U.S. In terms of the growth by business segment, Neurovascular and vascular led the way, in addition to continued strong demand, Neuro showed a significant increase in revenues, partly due to onetime factors in the same period of the previous year.

In the vascular business stent grafts and the surgical grafts enjoyed strong sales growth and high body products also expanded steadily, especially in North America and Europe. In addition, some access products that had some supply issues in North America have recovered. Profits increased due to an increase in sales including a onetime factors as well as the effect of the product, profit improvement measures and steady progress in controlling SG&A expenses.

Next slide. This is the TMCS, Medical Care Solutions. Revenue growth was strong in Hospital Care Solutions and the Pharmaceutical Solutions. In Hospital Care, the effects of pricing measures and the strong sales of infusion sets and syringes continued. The price revision implemented in Japan in the second half of last fiscal year is expected to take effect in the first half of this fiscal year. In addition, a temporary increase in demand in North America was a factor that boosted sales.

In the Pharmaceuticals business, the CDMO business is making steady progress against the plan, which also factored in lower sales due to the delay in deliveries in the same period last year. Overseas projects in North America performed well, these increases in the sales and effects of pricing measures resulted in an increase in profit.

Next slide, TBCT Blood and Cell Technologies. revenue was driven by the blood center businesses and the therapeutic solutions. In the blood center business, the sale of apheresis collection systems and the whole blood collection related to products were strong in Europe and the U.S. Rika is also developing well.

Therapeutic Solutions saw strong sales, mainly in the U.S. and in Europe as a result of a growing demand for cell collection for cell and gene therapies. Profit, excluding exchange rate effects, remained on par with FY '23 Q1 with a profit margin at 14%.

Next slide, please. Finally, I will review our assessment of the environment surrounding the Terumo. First, Terumo's fundamentals are generally sound, demand and growth potential remain unchanged and the overall growth potential of the cardiovascular company and other companies is unfaltering.

On the other hand, the macro environment, including inflation and exchange rate fluctuations remain volatile and will require close monitoring. Due to the uncertain outlook, we plan to revise our guidance cautiously as we assess these situations. We will be accelerating our strategy.

In addition to steadily implementing the strategies outlined in GS26, we'll thoroughly reexamine our business portfolio and then work to roughly [indiscernible]. In addition, as part of our efforts to strengthen innovation, we have begun corporate venture capital activities. This will accelerate the speed with which we can acquire new technologies and create an M&A pipeline. This is all from me. Thank you very much for your attention.

[Operator]

[Operator Instructions] Hagimoto and [indiscernible] will participate in the Q&A session.

[Hidemaru Yamaguchi, analyst]

This is Yamaguchi speaking. Can you hear me?

[Jin Hagimoto, executive]

Yes, we can hear you Yamaguchi san.

[Hidemaru Yamaguchi, analyst]

We did note on the revised year, full year guidance forecast about your progress has been very good so far. That's how it looks like, at least. Your expectation for Q1, do you have any expectation? And the result in Q1 was it better than expectation or not? Do you have such a situation segment -- can you explain segment by segment? That's my first question.

[Operator]

For that question, Hagimoto is going to answer.

[Jin Hagimoto, executive]

Concerning the entire company, of course, we have the impact from FX rate. But looking at the overall situation, it has been -- our performance was good. On the other hand, thinking of a projection on a full year basis. We cannot with -- we had our initial assumption for the excess -- our FX rate is close to our current rate. So I think our performance has been in line with our expectations so far. But Q2 onwards, we want to be prudent. We want to be conservative in Q2 onwards.

[Hidemaru Yamaguchi, analyst]

Next, about Rika, it was 60 centers in the U.S. according to your disclosure last time and how much you have installed at how many centers and are you [indiscernible] speed of replacing your centers? I want to know the progress in the business.

[Jin Hagimoto, executive]

So I want to entertain the question. About Rika, our current status as of today, 98 centers. We were able to open 98 centers until today. So it's just -- we have only a few more to reach 100. So we have been making good progress so far. 2025 from spring to summer, we want to complete our installation. That means it's on track or in line with our schedule.

[Operator]

We have from SMBC, Nikko Securities, Tokumoto.

[Shinnosuke Tokumoto, analyst]

My name is Tokumoto, Nikko [ Shokun ], Securities. Thank you. I joined the meeting halfway through. So I'm sorry, if you mentioned it. And regarding the sales revenue, there are some onetime demand what kind of a onetime demand has been there? And how big is such a onetime demand?

[Jin Hagimoto, executive]

Okay. Thank you very much for your question. Let me respond. So onetime, one-off the factors include some -- well, China, VBP refraining from purchasing. And because of that, compared against the typical year, the sales revenue was a bit low.

And in addition, in North America, there was instability in supply. So the TIS business in North America suffered from some decrease last year. So against that, this particular year, things are generally recovering in terms of the trend.

So as against the last fiscal year, we see that there have been some onetime factors. So Miyoshi san will talk about some numbers.

[Takashi Miyoshi, executive]

As Hagimoto mentioned it, last year had some onetime special factors as of last year. Neuro products suffered from some supply issue in China VBP was there. And because of that, the distributors refrain from purchasing in the size of JPY 1.5 billion. And it's on access product suffered from some delay in deliveries.

So these factors were there. So last year, about JPY 2 billion in sales revenue was the shrinkage because of the onetime effect for it and compared against that, in terms of a onetime factors, there have been some special factors, at TIS, China business.

Well, as I mentioned, VBP, the pricing has been a bit lower, but the distributors have been increasing their inventory, they used to suppress the inventory, but that they're now increasing their inventory. So more than our expectations, they have inventory -- more inventory, say, JPY 900 million. Last year, there was some Neuro product delay.

And this year, there has been some recovery, say, JPY 700 million. So all in all, we are seeing a recovery in the trend. So let's say, 30, without the mention of the unit currency, we see better figures.

[Shinnosuke Tokumoto, analyst]

Okay. So regarding the TMCS in North American demand, what do you have to say about that?

[Jin Hagimoto, executive]

Oh, I see that question is about that. So AGS, North America, the veterinary market is performing very nicely. The veterinary distributors are increasing their inventory say JPY 700 million. So that is a onetime factor say, for recovery.

[Shinnosuke Tokumoto, analyst]

Okay. So all in all, the total will be say JPY 3 billion?

[Jin Hagimoto, executive]

Yes, JPY 3 billion.

[Shinnosuke Tokumoto, analyst]

Okay. In relation to the second question, the cardiovascular, the vascular business, I understand that things have been very good. Your performance has been very good. Since last year, you say the cardiovascular or the catheter business, you're performing nicely and because of what, well, I understand that China numbers have been a bit small, but in terms of the Vascular business, what is particularly noteworthy?

[Jin Hagimoto, executive]

Okay. Regarding Vascular, the business has been -- is progressing it smoothly globally, especially in North America and Europe. Very good progress, I should say. And since last fiscal year, the sales force has been picked up and [indiscernible], Relay and Throaflex hybrid has been deployed very smoothly. So things have been growing very steadily.

And if you look at Europe, TAA, stent graft the type of the products say, for special, particular, finished related product, I call say, customize it to the individual patients. That business has been progressing very nicely. So compared against the standard of the product, they are higher ASP. They are more value added. So that type of product has been progressing very nicely.

[Operator]

From Mizuho Securities, Kohtani-san, it's your turn.

[Motoya Kohtani, analyst]

This is Kohtani speaking. Earlier you said that like in a onetime sales increase, will you please give you a breakdown on that. [ PMDS ] and C&V out of JPY 3 billion, how much is from C&V?

[Jin Hagimoto, executive]

Other special impact in the previous year. It was like JPY 2 billion. As I said, out of that, neuro, JPY 1 million, TIS access JPY 500 million or together JPY 1.5 billion, remaining JPY 500 million, that's from MCS. That's a TIS-related portion.

Sales was declined slightly in the area and JPY 3 billion as a special impact this year for C&V. TIS China, that's plus JPY 900 million, in neuro plus JPY 700 million all to -- in MCS, as I said, North America HCS, vet distributors, plus JPY 700 million. And in [ inflow VSN ] like stocking we were marketing those two, but now it was transferred to another lender or company.

And we posted some sales in Q1 over JPY 600 million. So JPY 1.3 billion, that's about MCS. So JPY 2 billion last year. that was onetime, and there was a reduction. It was not recovered this year. That's why JPY 3 billion.

[Motoya Kohtani, analyst]

That's right. I understood. The second point, other than Rika, we had other expected -- we had other expectation CDMO. You used to push that business in Japan so far, but maybe there is a potential business outside of Japan. So on top of the progress there, and projects in North America, your business is going well.

But Hulio, I think it was sold in Takasaki, but it posted in Japan. But one sold in North America, maybe those are one minor products using projects. That's my assumption. But as far as I know, like generic products, which were loans lately.

And there's also the ones being used or -- how can I interpret it that the project business is going well in North America. So when you can announce the new CDMO business. And what do you mean by project business in North America. Can you give me more color on that?

[Jin Hagimoto, executive]

Thank you for the question. To answer your first question, the first CDMO business overseas to give you the update on that business, in July, we are concerning the agreement on the contract, it was -- the contract has been signed already in July. But since we have partnered, the name with the companies and other information we want to refrain from disclosing that today, a CDMO business. we have been talking about finding a partner outside of Japan for CDMO business.

And finally, we were able to sign an agreement with our partner. So please look forward to this business going forward. Plus one more, projects business in North America market, pharmaceutical company in the U.S., and they want to commercialize there so we are supplying our products to them. Not CDMO, but the syringes -- for project syringes, those are the products we are selling.

[Motoya Kohtani, analyst]

Just to confirm with you, the CDMO business. You said you signed a contract with them. Is that like an antibody medicine or any other business? The projects in North America, you said your performance is strong. It has been commercialized already, right?

[Jin Hagimoto, executive]

Your first question, I'm sorry, but we cannot give you a clear or direct information. The second question, it will be commercialized on a [indiscernible] basis going forward. That's what I heard. Thank you.

[Operator]

Now let's move on from UBS Securities, Yoshihara-san.

[Tomoko Yoshihara, analyst]

This is Yoshihara, UBS Securities. Well, regarding SG&A, well, in your presentation, you mentioned that you will maintain a tight control of SG&A, so as I look at the SG&A rate in Q1, that remained pretty low, I think, and there's some transient or onetime factors. I just wonder, so what is the level you're going to maintain the SG&A and into the future? What do you have to say about the level of the SG&A?

[Jin Hagimoto, executive]

Okay. Thank you very much for your question. Regarding SG&A, the HR cost -- labor cost is trending to go up. And in relation to sales, of course, we're going to enforce -- emphasize the sales. So performance has been pretty good. So there has been some remuneration the bonuses, and that explained it for the increased labor cost.

And in terms of the onetime factor or the transient factor, R&D is one such factor. And once analyzed, of course, it is trending to slightly go up. And in Q1, it is pretty well contained.

So I think we can call it transient. But wherever we can control tightly, we are willing to keep controlling it tightly. So the variable cost, we are always thinking about how to push down the range of the fixed cost, and we're not going to spending more than the inflation rate it justifies it.

[Tomoko Yoshihara, analyst]

Okay. Let me ask you a confirmatory question. In terms of additional project, am I right to understand that you're running an additional project?

[Jin Hagimoto, executive]

Yes, in terms of the BC square, we've been implementing a cost cut initiatives. Of course, all of them were not taking effect immediately, but the cost cut initiatives are continuing.

[Tomoko Yoshihara, analyst]

Okay. Let me ask you a second question. U.S. market environment, let's say, centering around TIS, no big change. I understand, but your specific factors can be excluded about the number of the patients, a number of the subjects have been shifting very nicely. But what do you have to say about your outlook towards the end of the year-end. And U.S. presidential election is just around a corner. So what do you have to say about that kind of factor?

[Jin Hagimoto, executive]

Well, in the near term, the market environment Well, as I mentioned towards the end of the presentation, there is no particular concern in our understanding. So in the TIS business, things are -- things should proceed smoothly in our opinion.

Okay. Regarding the number of the subjects, the number of the patients. Well, when it comes to the cardiovascular say somewhere between 1.5% is the current progress I have been told. And when it comes to peripheral, the neuro, marinas, sometime -- somewhere between 6% and 10%, higher single digit. So the market, the patient count should not change dramatically.

[Operator]

[Operator Instructions] From Mizuho Securities, Kohtani-san.

[Motoya Kohtani, analyst]

Just one additional point. Kofu plant, you invested about JPY 52 billion, including projects, you wanted to strengthen the supply of projects and others. But with the new contract you signed, you will need to spend more CapEx, I believe. What is going to be the size of CapEx you're going to spend and also the timing around which point of time you are planning to announce the CapEx. I just want to know the size of your investment.

[Jin Hagimoto, executive]

Concerning the concrete details my sincere apologies, but I cannot share that information with you today, but you are right. As I mentioned already, finally, we were able to sign the contract. So going forward, we need to work with the partner together. Including our R&D initiatives, we need to make [indiscernible] move forward.

And if we have more concrete views or more specific information about the investment we want to be able to share with you that our existing plans, basically, we are going to spend more CapEx at our existing plant. That means Kofu and also Yamaguchi, you will manufacture those plants, but you need to add more facilities. Yes. What you said is correct as your understanding.

[Operator]

Saito san, JPMorgan Securities, please ask your question. Do you hear me Saito san? We are not hearing you.

So next, BofA Securities, Watanabe san, please ask your question.

[Ritsuo Watanabe, analyst]

This is Watanabe speaking. Regarding the margin, TDCP -- TBCT OP margin. I want to ask a question. So 14%, which is a great number. I see, and correct me if I'm wrong, but annualized, what's the plan -- if I remember correctly, you're shooting for 12% or 12.5%?

Yes. Okay. So in this case, so in later quarters, the margin get better well, I understood that way. But as of Q1, there's being so much. So what's going to happen to the margin in the subsequent quarters? There may be special factors, but what you have to say, what's your outlook? Are you seeing a discrepancy between what's real and what you expected? Or is this just as you expected and what do you have to say about the percentages?

[Jin Hagimoto, executive]

Okay. Thank you very much for the question. Regarding the numbers, the PI business wise the profitability is not that high as the core business. So PI business expands and then overall, the average profitability may trend slightly down, but the business goes up and running and is a greater scale and more contribution in terms of the profitability. But regarding this particular year, compared against the core business, the profitability is a bit lower.

So partly because of the allocation regarding TBCT, the rate may slightly go down in the future.

[Ritsuo Watanabe, analyst]

Okay. So let me ask you a confirmatory question. 14%, this is not too good in your opinion, or you expected this much figure in Q1?

[Jin Hagimoto, executive]

Yes, right. Well, It's a few percent different from our expectations, but it is not hugely different from what you initially expected.

[Operator]

From Jefferies , Mr. Barker, please ask your question.

[Stephen Barker, analyst]

This is Stephen Barker. About Rika, I have some questions. Based on the promise with the same source you cannot sell to others. That's the current situation. But when you don't -- such restriction will be lifted -- about market share, next year -- by summer next year or [indiscernible] centers you, based on your calculation, by then, how much global market share you think you can acquire? Would you please answer my questions?

[Jin Hagimoto, executive]

As I said, about 100 centers, that means about 1/3 of the contract with CSL, even though we have been able to roll as we planned. April -- so the -- before spring or summer 2025. I think we will finish implementing this. But even after that, CSL partnership will continue even after that and within the market machines, machines must be used by other users.

And both parties have been committed to trying to achieve that. So that's what we are going to do. And for the others, we have about other potential partners.

So first of all, we want to make sure we can complete the rollout with the CSL, and after we install our machines in the market then and after FY '26 or thereafter, that will be the next step with CSL, after the rollout with the CSL is completed, and we should be able to gain about 1/3 of the total markets in the U.S. So it will be about 20% to 25% market share. That's our assumption.

That means, in the future, with the CSL in the [indiscernible] machines in their home centers in the U.S., and you will be able to sell to other customers to -- in order to expand your global market share.

The question is, I understand there is anti monopoly law that you need to consider, but how much market share can you achieve eventually with Rika platform and also partners who -- which are relevant to that, I mean we can offer excellent value to those customers. And with those partners, we want to keep discussing with them so that we can think about how to expand the business in the market.

[Operator]

With Nomura Securities, Mori-san, you have a question?

[Takahiro Mori, analyst]

This is Mori speaking, with Nomura Securities. Let me just ask you one qualitative question about M&A. Well, the BOD, the shareholders -- after the Shareholders General Meeting, the Board makeup has changed. So M&A has been progressing in a more active way or any change in the pursuit of the M&A? Just answer qualitatively.

[Jin Hagimoto, executive]

Okay. Let me respond to the question. Thank you very much for the question. Regarding M&A, of course, the discussions may get more active or less, say, in the executive management meetings and other meetings with executive members. We often talk about the potential M&A and at this time, there is nothing we're ready to make announcements about specifics.

And after the new executive make up more or less kind of a discussions about M&A have been progressing. After April, no big announcement. And after the Board member makeup change, no big development Well, of course, in June, there was some change in the Board members, but there has been a new executive member recently launched. And among the members that there has been even more active discussions about the M&A.

[Operator]

Next from JPMorgan Securities, Saito-san.

[Naoko Saito, analyst]

My name is Saito with the JPMorgan Securities. My apologies from my side. Can you hear me now?

[Jin Hagimoto, executive]

Yes, we can.

[Naoko Saito, analyst]

But China VBP impact in the country? That's my question. In plan for this year for access products, and there is no big impact from VBP. That was what you planned. But situation difference by province. And on a quarterly -- every quarter, I think impact is going to progress. So impact in Q1 and also your future outlook, would you please share that with us?

[Jin Hagimoto, executive]

Thank you for the question. But the impact from VBP in China, our TIS products have a heavier weight in China and access products have a larger share among the two. So access products and we have relatively large impact from VBP on our access product business. So that's the guidance.

And we -- our guidance includes that impact. And from April, we started to apply new prices in 19 provinces in July, for all access products, we have new prices on quarter, we have about JPY 1 billion impact from lower price.

That was our assumption. But for this particular impact, in Q1, impact was negative JPY 800 million. On the other hand, as I said, customers are trying not to place orders and distributors, they are trying to destock and we have -- there is an ease in that situation. But TIS revenue in China and the VBP related sales, that's almost flat. That has been flattish so far. But going forward, our dealers or distributors, they bought more than they needed, and it will be normalized.

Going forward. And also the pricing, we will still have some impact remaining on the price. So for access products, we will have some negative effects.

[Naoko Saito, analyst]

That means completely initial plan for this year. So there is no revision in your full year guidance?

[Jin Hagimoto, executive]

Your understanding is correct.

[Operator]

SMBC, Nikko Securities, Tokumoto-san.

[Shinnosuke Tokumoto, analyst]

Okay. Thank you very much. Let me ask you the questions again. And regarding gross profit, let me ask you a question. In Q1, 53.3% was mentioned. So it's been quite a number after quite a while. So Rika advanced investment has been made and that's a pretty big number, considering the demand. And towards the second half of the fiscal year, you're going to -- do you expect more improvement in the G/P, the gross margin and Rika will be even stronger?

And then do you expect a greater margin. And let me ask you a question about the primary. Well, the sales number, you mentioned JPY 3 billion. So I just wanted to get a bit more details.

[Jin Hagimoto, executive]

Okay. you be please regarding the G/P well, as of now, say Q1, there's no big problem in operation and the production has been pretty stable. So it's been quite a good number after quite a while. And what's going to happen in the future? Well, of course, in terms of our business structure, well I say it's been pretty stable as of now.

So G/P will not changed dramatically due to internal factors. But when it comes to higher prices for raw materials and the Middle Eastern situation well, say, the ocean freight may suffer the changes in the situation for which we need to keep watching. So these could negatively impact the G/P, we understand.

[Takashi Miyoshi, executive]

Okay. So let me add. So regarding the possible margin improvement, there is so much impact that can be exerted from the ForEx. And as Hagimoto-san mentioned, the G/P rate has been positive. And last year, there was a heavy inflation impacting in freight and utility, the electric equipment power and it's selling it down, thankfully. And we have been pursuing a BC Square, producing a positive impact. also helping with G/P and you also mentioned a question about the JPY 3 billion.

Well, let me streamline what TIS China is about, say, additional JPY 900 million in Neuro, additional JPY 700 million in MCS, say, North America, in the veterinary, that's plus JPY 700 million in net destocking plus JPY 600 million, is that okay?

[Shinnosuke Tokumoto, analyst]

You mentioned the sales revenue.

[Jin Hagimoto, executive]

Yes, revenue.

[Operator]

We have other people raising their hands, but it's overly time for us to finish, so we want to conclude our Q&A session. And the questions we are not able to entertain today, would you please contact IR department separately?

And this concludes the Terumo Corporation first quarter financial results meeting for the fiscal year ending March 31, 2025. Thank you very much for your participation.

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