Terumo Corp

Everybody, thank you very much for taking the time to attend Terimo's financial results presentation for the fourth quarter of 2021. So today, Mr. Hagimoto, Terimo's CFO, will be beginning today's explanation, followed by CEO and G26 plan, after which we will have time for questions and answers. It's six hours allocated overall. We have simultaneous interpreting available, so please do make use of either English or Japanese on the Zoom function. The material shared will be Japanese only today. If you require reference to English materials, please refer to our homepage. If there are any problems with the transmission, we will inform you by email. And before we begin today's session, I would just like to give the disclosure. The explanation that is about to be given is based on current predictions and forecasts. This includes some element of risk and uncertainty. So please do understand in advance that there may be some discrepancies with the actual results to the forecast. Thank you. Now I'd like to hand over to Mr. Hagimoto for today's financial results meeting. Mr. Hagimoto, please. I'm CFO Hagimoto. Thank you for your time to listen to our financial results meeting. First of all, I'd like to provide an overview of the end of year financial results for the fiscal year ending March 31st, 2025. First of all, as was announced in the press release, as of April this year, we've changed some business names and disclosed segments. So please do note that today's explanation uses these changed names and segments. Continuing on, now here are the highlights of the financial results. In fiscal 24, sales revenues have passed 1 trillion yen for the first time. Revenue growth was 12% over the previous year due to continued demand growth globally, especially in the U.S., as well as the trend toward a weaker yen. The operating profit, in addition to this 12% revenue growth, operating profit recorded a one-time expense of 24.2 billion yen, but achieved a record high profit for the fourth consecutive year due to growth exceeding that amount. Net income and free cash flow also reached record highs, respectively. Now, for the 25 guidance, we expect continued growth on a global basis with revenue growth of plus 7% on a local currency basis. Operating profit is expected to increase by plus 32% on a local currency basis due to business expansion and the absence of one-time expenses in the previous year. Next slide, please. These are the PL results. As mentioned at the beginning of this report, sales revenue reached a record high of 1,036.2 billion yen for the full year due to increased demand amid a generally favorable business environment. Operating profit and adjusted operating profit also reached record highs of 157.7 billion yen and 203.4 billion yen respectively through pricing measures, improved manufacturing costs and expense controls. In particular, in addition to an increase in the amount of profit, adjusted operating profit as a percentage of sales showed a significant 2.6 point improvement. Free cash flow also increased significantly from the previous fiscal year due to the expansion of operating cash flow. And for the first time, the company was able to generate cash at a scale exceeding 100 billion yen. Next slide, please. The following are highlights of profit changes in the fourth quarter compared to the same period of the previous year. First of all, the increase in gross profit due to higher sales was mainly driven by blood solutions in BCT. The negative gross margin effect was due to the loss on write-down of old products in preparation for the expansion of new products. General and administrative expenses meanwhile increased due to additional provision for bonuses, which were added as a result of higher-than-expected sales, as well as one-time litigation expenses. Next slide, please. Turning now to an analysis of profit changes for the full year. Overall, the increase in sales was largely due to continued demand growth. In addition to blood solutions, the cardiovascular company led by TAS was a key driver of this continued demand growth. The gross margin effect increased significantly due to the effect of profit improvement measures. and easing inflation as well as an improved mix due to the resolution of supply issues in the last fiscal year and the expiry of one-time expenses. Turning to price, price declines due to the China value-based purchasing were offset by the effect of price increases in Japan and overseas. The reimbursement rate revision is also having a positive effect. Under increased general administrative expenses, we have improved the ratio of general administrative expenses to sales for the full year. And a breakdown of the impact of exchange rates shows that both flow and stock contribute to increased profits. Next slide, please. I'd now like to explain the breakdown of one-time expenses of 24.2 billion yen recorded for the full year of 24. This year, looking ahead to the final year of GS26, we conducted an aggressive business review resolving to do what we can do now. And specifically, portfolio optimization and restructuring, which are positioned as investments for the future, were the main elements of this aggressive business review. Regarding the TIS impairment charge recorded in the fourth quarter, the discontinuation of the project to develop a large diameter hemostatic device and the termination of sales of radiation emitting beads were decided strategically based on profitability and the balance with other projects. And so we will continue to operate and rebuild our production facilities in China. But the as if but we will continue to look closely at the impairment charge recorded in the fourth quarter and the restructuring of the European TIS business. This was also a reallocation of resources to further improve the profitability of the TIS business. We closed some plants as we optimized production items with consideration for profitability. And, again, in the European TIS business, at the same time, we're preparing to reuse resources in business areas that we'll focus on more going forward. We will report back to you at the appropriate time on our specific resource reutilization policy. One-time expenses amounted to 24.2 billion yen, but from a cash flow perspective, a cash decrease occurred only in restructuring. So as per the chart, it was owning in restructuring where cash decrease occurred. Next slide, please. Now turning to our free cash flow results. This increased 63.5 billion yen over the same period last year, reaching a record high. And the increase in profits due to business scale expansion contribute to a significant improvement in free cash flow. Next slide, please. Next, turning to revenue by region. Steady progress was made in all regions, particularly in the Americas and Europe. In the Americas, all companies posted double-digit growth even in local currency terms, the highest growth rate among all regions. In China, meanwhile, TIS rebounded from price declines due to the value-based purchasing with increased volumes, while euro growth substantially due to increased demand. Next slide, please. Now turning to business performance by company separately. First is the cardiovascular company. Sales revenue grew by 8% on a local currency basis and was strong globally, especially in the U.S. In terms of growth rate by business segment, Euro and Arctic led the way. Profits also increased significantly due to increased revenues and various other measures. Next slide, please. Turning next is TMCS, Terramo Medical Care Solutions. Revenue was driven by the effects of domestic pricing measures in hospital care and strong performance of Plagex overseas in pharmaceuticals. Profits increased due to the effects of pricing measures as well as control of general and administrative expenses. Next slide, please. Lastly is TBCT, pteromote blood and cell technology. The plasma innovations business included under Blood Solutions made a large contribution to revenues. As of today, RICA has been installed in approximately 90% of plasma collection centers. And profit has increased significantly due to higher sales in core businesses and improved profitability at RICA. Next slide, please. Now I'd like to turn to guidance for fiscal 25. Revenue growth of plus 7% on a local currency basis is expected with continued company-wide growth centered on blood and cell technologies. Operating profit is expected to grow by 32%, significantly outpacing sales growth, which is due in part to the absence of one-time expenses from the previous year. We aim to improve the operating margin by 3.3 percentage points to 18.5% by continuing to focus on company-wide profit improvement measures and cost control. while ensuring the growth of high-profit growth drivers in each company. So we aim to improve the operating margin from 3.3 percentage points to 18.5%. We will continue our efforts to improve capital efficiency. Furthermore, the impact of the U.S. reciprocal tariffs, which is highly uncertain, has not been fully incorporated into this guidance, but we will explain the impact of these reciprocal tariffs separately. Next slide, please. Here we have factors for affecting profit in our guidance for fiscal 25. Increased gross profit from higher sales is expected to be driven by higher sales in all companies led by blood and cell technologies. The gross margin effect in the previous year was significantly higher due to easing inflation and the removal of the one-time recall impairment charge the year before last, but is expected to return to normalised speed in the current fiscal year. The effects of continued profit improvement measures are expected to be partially offset by worsening inflation. And the fact that depreciation on the new Corfu building, which is scheduled for completion this year, that depreciation will begin prior to the accrual of sales revenue, and that will also be detrimental to the current year's mix. Under price, meanwhile, we will continue our domestic and international pricing measures. We've also factored in price declines due to China's VBP. General and administrative expenses are expected to grow at a healthy rate in line with business expansion. Next slide, please. I'll now turn to an outlook on the impact of the US reciprocal tariffs. A simple calculation on the impact of tariffs announced at this stage indicates that the maximum impact for the current fiscal year is approximately 17 billion yen. This estimate is based on the assumption that most of our sales to the US, other than those produced in the Americas, are imported from Japan, and that less than 5% of our sales in China are imported from North America. So those are the assumptions for this estimate of approximately 17 billion yen. And since we already have inventory on site, we assume that the economic impact will be felt from the second quarter onwards. But, however, since this situation remains slightly fluid, we have not factored it into our fiscal 25 guidance, but we will closely monitor the trend and minimize the impact by passing on price increases. So the situation does remain fluid, but we will closely monitor this trend and minimize the impact. So the next slide, please. This is now GS26, has two years left to go. Here I'll just explain some of our key measures and product and regional development strategies for 2025 and beyond. So the cardiac and vascular company will continue to expand its therapeutic business and promote radial procedures. Therapeutic devices will strategically put more focus in growth segments. Medical care solutions will expand its preoperative solutions with smart pumps with digital IC tag reading capabilities. We will also promote overseas expansion by matching our strengths with regional needs. Meanwhile, in blood and cell technology, we launched Revios last year, an automated blood product system using automated whole blood processing in the last U.S. fiscal year. So this fiscal year, we will accelerate our global expansion. And at the same time, we will be expanding our software and service businesses to ensure competitive advantage and differentiation. Next slide, please. This is my last slide. So our dividend policy remains unchanged. with stable dividend increases going forward. The annual dividend for 24 is expected to be 26 yen per share with a payout ratio of 33% for fiscal 24. For fiscal 25, we expect to increase the dividend by 4 yen to 30 yen per share for a payout ratio of 31%. We will continue to give priority to investment in growth, and we will consider targeting a total return of 50%, depending on the state of acquisitions and other capital needs during the GS26 period. So over the next two years, we will continue to give priority to investment in growth. That concludes my explanation. Thank you very much for your time. Moving on now, I would like to hand over to Terimo's CEO, Mr. Samejima. Mr. Samejima, the floor is yours. I am Samejima, Terimo's CEO, and this year sees us into the final two-year sprint to the end of GS26, Terimo's five-year growth strategy. So GS26 has three main financial goals, and I believe that while there have been some fluctuations, we have generally made good progress in terms of sales, profits, and capital efficiency. The 15.2% operating margin includes restructuring charges, which are positioned as investments for the future. Impairment costs are also a result of aggressive portfolio optimization, so excluding these one-time expenses, operating margin for 24 was 17.5%. Our business fundamentals remain strong, and we will continue to build on this momentum to produce steady results for 26.

As you can see, immediately after the GS26 announcement, profit margin implemented in response to rapid changes in the external environment, including the COVID-19 pandemic, inflation, and exchange rate instability. Since then, however, the company has forged ahead with the pricing measure, cost reduction measures, and product mix improvements to improve profit margin. Our 17.5% profit margin for FY24, excluding one-time cost, shows the strength of the current business. Heading into FY26, we will further accelerate our efforts in plasma innovation and expanding our CDMO business as well as profit improvement measures. From this point on, I will look back on the results of the past three years, both company-wide and by company. Progresses on a company-wide sales and profit target is as I explained earlier. In the past fiscal year, our innovation strategy was essential for future growth to go off in a big way. First, we took inventory of all the hundreds of R&D teams and WA first globally reviewed resource allocations based on the comprehensive assessment of scale of development, timeline, and categorization as innovation or iteration to align management strategy with innovation strategy. This visualization has enabled us to draw a more concrete strategy, a concrete picture of a growth strategy, which itself is a major achievement. We also established D-Tech, a U.S.-based for corporate R&D. In the U.S., the largest market for medical devices and center of innovation, we will push ahead with exploring new technology and creating cutting-edge products. In corporate venture capital, we have completed a full Additional commitments and are steadily expanding the scope of our investments. Next, in the cardiac and vascular company, both sales and profit targets are solid, and we are already seeing the achievement of GS26 targets. In the treatment business, we new products have launched as planned, mainly in the neurovascular and aortic areas as initially envisioned. Driving the expansion of the treatment business, we aim to gain further market share with these product lines. Transfer of production to Costa Rica has also progressed smoothly. Although the large-scale transfer is already done, going forward, we will continue to transfer production while carefully choosing target products. Smart factories reforms are also underway at Ashitaka plant in Japan. Uptake of radial access has been generally very favorable, especially in the coronary and cerebrovascular fields. Next is TSMC medical care solution. Challenges in the external environment such as inflation and weak yen had the most pronounced negative effect on TMCS. However, by taking prompt actions, we have achieved a B-shaped recovery in profitability. We are one step away from the GS26 target, but we expect to turn around both sales and profits with the launch of combination product for Alzheimer's disease. We also worked to provide solutions that go beyond providing value at the individual product levels, including contribution to minimally invasive surgery in the area of cancer. women's healthcare and supporting operational efficiency in medical field through the use of digital technology. We also actively moved ahead with portfolio reviews. While withdrawing from certain businesses or product each year, we have entered into capital partnership with new external partners and begun joint development to promote officially in medical settings. Lastly is TBCT, blood and cell technology. While sales growth has already met the GTS26 target, profit margin continually needs to catch up. The main reason for this being that the start of the plasma innovation business rollout of RICA was pushed back by the COVID-19 pandemic. The weak yen has also negatively affected TBCT's profit merging. As you can see, when based on actual value excluding exchange rate effects, that profit merging is quite close to 20%. Although the development of Ricca has been delayed somewhat from the original plan, we plan to revamp by acquiring new customers. After CSL, we signed an exclusive agreement with Joint Parachute. In terms of optimizing product sites, we have successfully curved logistics costs by opening sites in Costa Rica and China, and by restructuring logistics. As a future area of focus, Terumo will differentiate itself through software solutions that help customers improve their operating efficiency. Turning to the regional development of our businesses, we have also established an important foothold for future expansion in emerging markets, especially in Africa. GS26 is a 5-year growth strategy that keeps the subsequent 10 years in mind. Even as we keep the goal of GS26 in mind, FI26 is just a checkpoint for us, and looking even further ahead, our goals are even higher. We have set forth the 3Ds, delivery, digital, and device-critical as our vision for the mid to long-term term. From device to solution. This is a statement of Terumo's determination to provide not only products and services, but also bringing innovative and comprehensive solutions to medical issues. Today, I'd like to reiterate the strength and the further prospect of device theoretical, also known as Terumo's CDO businesses to you all. Generally speaking, CDMOs for pharmaceutical products are based on divisions of labor by processes. Despite the fact that drug substance and device manufacturing processes, as well as the combination of these into formulation and fillings, feelings are essentially linked to a series of processes. Financial companies are required to sign individual contracts with companies responsible for each process. And the reality is that there are inevitably limits to cooperation across the fragmented processes. Here, Telmo can come in as a one-stop-shop CDMO solution. In order to develop devices that combine the right material technology with the right drugs, Telmo usually initiates alliances with pharmaceutical companies earlier in the drug development process. This is a unique position in the CDMO market. So what is the Telmo CDMO's greatest strength? is the capability to develop innovative drug delivery devices. As you all know, Terumo has more than a century, a 100-year long history as a medical device manufacturer. We take pride in our knowledge of devices, including development, manufacturing, and quality control. Terumo also has more than 50 years of experiences in handling pharmaceutical products, having launched its first pharmaceutical product in 1969. The development of innovative administration devices suited to drug characteristics made possible precisely because of Terumo's expertise in both medical devices and pharmaceuticals. That is the wellspring of Terumo's competitive advantage. By combining one-stop services with Terumo's development capabilities, Terumo CDMO has created a very unique differentiated business model that is without rival in the industry. Terumo CDMO is not something that you can create overnight. Even if a company were to acquire the individual basic technologies that Terumo prides itself on, such as plastic modeling and aseptic filling technology, it would be impossible for them to replicate our CDMO. As you can see, Terumo's CDMO business is built on a combination of technologies we have developed over many years. The goal of Thermo-CDMO is the creation of new value sought by participants and medical communities. As healthcare needs and trends change, our CDMO is working with a sense of mission toward its goal of contribution to the development track administration methods. and ultimately maximizing the value of pharmaceuticals to support, for example, the uptake of home care and consistency with chronic diseases. One example of the embodiment of device medical in the CDMO business is the on-body injection. This is one of the solutions Terimo has arrived at in solving issues such as the burden places upon patients having to go through the hospital process for the drug administration when they are feeling unwell, and the shortages of healthcare professionals. While it was also an option to provide only a partial solution to these major challenges, our solution created new comprehensive value propositions, reliable, automated drug administration in home care setting, This on-body injector is truly a feat of technology. The primary device, especially shaped projects, is incorporated into this drive unit, a precision instrument which utilizes the technology cultivated through our pump equipment, while the needle itself is based on needle technology developed by Cifalo. The CDMO market is very attractive. with high growth potential among injectable drugs, which account for a large proportion of pharmaceutical. Self-administrative drugs, in particular, are growing twice as fast as in-hospital administration drugs. The key to self-administrative drugs lies in how innovative administration devices can be created. And this is precisely Terumo's area of expertise. Since the official launch of a CDMO business in FY17, Terumo has achieved market-beating business growth. We are now preparing to make further strides as we move toward 2030s. The CDMO market is attractive, but there's also a lot of competition. Chaomo's winning edge is its one-stop service and development capability. I think I've already gone long enough about this topic. There's also planned expansion of production capability. Terumo Yamaguchi has expanded its production line over the last two-year period starting from 2021. A new building at the Kofu plant, as Hagimoto-san has earlier said, is scheduled for completion in September of this year. Production capacity has expanded to appropriately 2.5 times bigger compared with the FY15 levels as of FY24. And it will be expanding to more than four times compared to FY15 level by 2030. 100 billion in revenue is already in sight at last. But to Terumo, this is only a stepping stone along the way. I hope you will have a chance to read the release concerning the acquisition of European base for the CDMO business announced today. Terumo has fully launched its entry into the global CDMO market. Europe, with its concentration of world-class pharmaceutical companies, is one of the most important markets for pharmaceuticals. Thermo Europe in Belgium already plays a major role as a device development and manufacturing center, and together with the newly acquired drug-fulfilling plants in Germany, will establish a strong footprint in Europe. Terumo began its overseas approach around two years ago as we looked to expand our CDMO business globally. We saw a tremendous positive response during the direct talks with a number of company customers. In fact, we were able to sign our first contract with our overseas pharmaceutical company last year. We are confident in our one-stop CDMO model and our development capabilities. We are confident enough to compete in Europe. We have now simultaneously acquired cutting-edge assets and excellent professional human talent all at the same time. Compared to setting up our own business organically by ourselves, we have saved a lot of time by having this transaction. Given the instances where we have received the positive feedback but have not been able to agree contract due to geographical distance, establishing this base in Europe is a very important first step. Beginning from Europe and Japan, we are already looking to the US and Asia markets as well as next regions in steps. As long as we are termal, We will continue to pursue not only the expansion of our locations and businesses, but also further technologically innovate. Terumo is dramatically taking on challenges, becoming a leading CDMO company. Thank you very much. We would like to take questions. Today is a hybrid event. Today is a hybrid, both for real and virtual. Raise your hand physically if you are in this room. If you are joining on Zoom, use the raise hand mode on Zoom. If you want to cancel, lower the hand. You can click on the hand button once again to cancel the raise hand. But we want to take as many people to ask questions. We'd like to limit only two questions per person. Miyoshi-san from IR is also joining compared with the CEO and CFO. We can now start taking questions. So Yamaguchi-san from City Securities, please. Hello, can you hear me? Yes, Yamaguchi-san. Hello, good afternoon. I can hear you. Thank you. My first question is about one-time cost, 12.9 billion yen. At the beginning, I remember, if I'm not mistaken, 8.9 billion. But one-time cost has expanded quite big because you try to cover a lot of things all at once. But I guess for this kind of thing, do you think you already bled it everything taken care of everything do you not expect something like that to happen not again anything is like that this is much bigger than previously so what drove that change

So I will reply to your question. Thank you very much. So regarding the 8.4 billion was the amount reported previously, but within that, GS26, as we move towards the first year, we wanted to remove any negative influence as soon as possible as we get towards the last year of GS26. Okay, sorry. And this time we had many – we had a considerable review of our portfolio. So many – we had a pretty comprehensive review of our calculations. So as we move towards the end of GS26 and further on beyond there and implement some strategic investment beyond GS26, we will continue to thoroughly look back on past investments. So I think this kind, it is not the case that there will be several similar developments as this, but We will reflect carefully on strategic investment from the past when preparing decisions for our future strategic investment. Thank you very much. That's all from me. So is that correct to say that in some sense you try to revise as much as possible at this juncture and to restructure and reallocate the strategic investment? Yes, that is correct. My second question is regarding the CDMO. Thank you very much for explaining CDMO. I think in particular this time in China. Wushu, the filling factory, you've bought this new factory in Europe for filling in China and in Belgium. So I think, you know, Asia and America were both referred to in your presentation. But these bases overseas, you will increase M&A through these and increase the global footprint. Is that really the – was that why you have really – Spread out into Europe. Is that the first step of a major rollout into other global bases to increase the footprint? Yes. Basically, CDMO will go into full tilt from now. We will go into full overseas in a full tilt fashion from now on. And we would need. We have spoken to several pharmaceutical manufacturers within Japan, but we would like to have capacity near to the market as possible. That is one keen index. So first of all, in Europe, where it's a very important market for us to get our footprint there, to establish that footprint. In future, you know, in terms of what kind of negotiations we have with which pharmaceutical makers, in future that will implement where our next global footprint expands. Thank you. What about the sort of concrete pipeline for that? If you could have any – if you've decided about how that pipeline will work? I mean, the pipeline, I understand, is increased. Is that true? Well, pharmaceutical manufacturers – you know, that also concerns them as well. So it's hard for me to be, you know, more specific about the pipeline. But, you know, there are we are in discussions with multiple pharmaceutical manufacturers at the moment. So that's what I can say at this point. Thank you very much. Very good. Moving on. So I'd now like to take our next question, please. Macquarie Capital, Tony Rain, please.