PHC Holdings Corporation

Today's PHC Holdings financial results briefing for the third quarter of the fiscal year ending March 2026. I am Hirai from the IR and Public Relations Department. I will be moderating today's session. I will now explain how to participate in this call. simultaneous interpretation in Japanese and English will be provided. You may select your preferred language for the presentation materials displayed. Instructions for setting this up are available in the Zoom chat box. Please use it as needed. Please note that due to audio system settings, our presenters' personal microphones are muted. Audio will be streamed from a separate account. Now let me introduce today's presenters, President and CEO, Kyoko Deguchi, and Director, Senior Managing Executive Officer and CFO, Kaiju Yamaguchi. Following their presentations, we will have a Q&A session. Ms. Deguchi, please rise. Good afternoon, ladies and gentlemen. I'm Meguchi, President and CEO. Today, I will outline the summary of the FY25 Q3 results and our four-year forecasts. I will cover the executive summary, and our CFO, Yamaguchi, will explain the Q3 results and four-year forecasts. These are the financial highlights for Q3. Revenue reached 269.3 billion yen. While benefiting from federal exchange rates due to weaker yen against the euro, revenue also increased a year excluding the FX impact. Overall, as in the first two quarters, BGM business did extremely well, maintaining strong performance, particularly in Europe and the United States despite ongoing market contraction, growing even excluding the FX impact year-on-year. Diabetes management revenue increased by 3.9% year-over-year, driven by CGM growth, offsetting the revenue decline in diagnostics and life sciences, where demand for equipment in the U.S. remained sluggish. Operating profit was 17.1 billion yen. Healthcare solutions and diagnostic life sciences saw lower profits due to declining demand for e-prescriptions and tariff impacts. But BGM achieved a significant increase in profit driven by revenue growth in high-margin developed markets and cost improvements, resulting in consolidated results on par with last year. Results exceeded the underlying internal plan for the four-year forecast, which had previously been revised upwards. However, due to the continued depreciation of the yen against the euro, unrealized FX losses were recognized as in the second quarter. FX losses for the first three quarters amounted to 10.5 billion yen, with profit attributed to owners of the parent at 700 million yen. Moving on to foyer performance forecasts. Revenue and operating profit forecasts remain unchanged from the previous announcement. Although Q3 results exceeded expectations, for now we have a conservative forecast for the future business environment. Profit attributable to owners of the parent is forecast at the 2 billion, reflecting the FX loss recognized in Q3. Recognizing that this FX loss is an unrealized valuation loss and does not represent a cash outflow, the year-end dividend is planned at ¥21 and changed. This page provides a revised overview of the diabetes management domain's current-term performance and forecasts reflecting the transfer of the CGM business. Firstly, the CGM business transfer in the United States was completed closed in January 2026. The associated runoff costs were recognized in Q3 results. In Europe, transactions will be closed sequentially in each target country as the buyer Sessionix gets its operations ready. Until then, we will support the transition period, but no PL impact is expected from Q4 onwards. CGM will report an operating loss of 6.4 billion yen for the full year, but from the start of the next fiscal year, from the beginning of the fiscal year, the negative impact of CGM will disappear. For BGM, the VCP aims to shrink the sales decline to a CAGR of minus 2.4%. Regarding the US, the key market, we outlined the fiscal year's measures during the first quarter results briefing. In addition to the progress of these initiatives, we would like to explain our global profit improvement efforts and the profitability we anticipate going forward. Our U.S. initiatives are currently progressing smoothly. Despite the ongoing contraction of the total U.S. market, in the first nine months of the year, we have achieved double-digit growth on a local currency basis, excluding FX effects, with expected four-year growth in the high single-digit. Regarding price measures, ASP has stopped declining thanks to withdrawing from low-margin channels and introducing new, competitively priced products. ASP has, in fact, increased by just over 2% year-over-year. Furthermore, new product launches have significantly contributed to securing new private insurance contracts, leading to volume expansion, increasing effects from the competitive landscape. Within the OTC channel, where our company holds high share and where prices and profit margins are higher compared to other channels, so-called cash segment, the national ground market grew by 6%. We continue to maintain our leading position with our share exceeding 30%. Ongoing cost cut measures are yielding results. Specifically, we have internalized the packaging and labeling of meters equipment previously outsourced and consolidated the packaging and labeling of sensors at the sites of our outsourcing partners. The low-cost products introduced in the United States have also contributed to reducing manufacturing costs for meters by limiting functionalities. Through measures such as procurement cost reductions via job sourcing, logistic contract-driven negotiation, reductions in office and warehouse space, and rationalization, we anticipate total savings of approximately 900 million yen for the current fiscal year and another 900 million also in the next fiscal year. The combined effect of maintained revenue and cost reduction has stabilized BGM margins, and the OPM is projected to remain above 20% for the next fiscal year and beyond. Next is a business progress toward the achievement of a value creation plan. I will explain the progress of key initiatives under structural reform to strengthen the profit base, one of the priority measures in our value creation plan. Cost optimization is a key pillar of our profitability improvement efforts. We have established a group-wide procurement organization to drive company-wide cost optimization initiatives. We are implementing further cost reductions, primarily in indirect purchasing expenses, through measures such as establishing group procurement guidelines and conducting rigorous quotation reviews with early involvement of procurement departments. Regarding manufacturing site optimization, taking into account tariff responses, cost competitiveness, and the need for localized production, we are advancing the optimization of manufactured items at each production site toward realizing a lowest cost and closest to customer production model. As an example, in the pathology business, we are optimizing production bases by implementing TRIF countermeasures, enhancing cost competitiveness and optimizing destination markets, including transferring some equipment manufacturing from China to the UK, and shifting part of UK equipment production to Indonesia in the biomedical business as a countermeasure to meet China's domestic production needs. We have transferred part of the CO2 incubator manufacturing from Indonesia to China, contributing to increased sales in China. In the diagnostic life science domain, one of our key focus areas, we first consolidated domestic sales operations at the start of this fiscal year. This has yielded benefits such as consolidation of sales offices and reducing outsourcing costs through the cross-department utilization of the customer service resources. Additionally, measures to reduce working capital through improving accounts receivable and accounts payable terms and reducing inventory have also been successful. Today, I have briefly presented some of the initiatives and their effects as a progress update, but at the next earnings briefing, we plan to provide an overview of the entirety as a summary of the fiscal year of the value creation plan. Now moving to the right side of the page, LSI Medians has continued its efforts to address the precision control chart issue and to improve quality and restore trust. And on November 28, 2025, It reacquired ISO 15189 certification. With this, all major certifications related to the business have either been reacquired or had their validity renewed. We will continue to promote recurrence prevention activities as well as cross-departmental culture reform initiatives and will strive to further earn trust. In the biomedical division, we have launched a compact model of our mainstay product, the ultra-low temperature freezer. We aim to further expand sales with a lineup that meets a wide range of customer needs. As a sustainability initiative, in EcoBadis' 2025 sustainability assessment, we received the bronze medal, which places us in the top 35% of assessed companies worldwide. receiving the bronze medal is one of the esg targets set out in our value creation plan and we were able to achieve it ahead of schedule in the very first year that concludes my presentation i will now hand over to cfo yamaguchi I will first explain the results of the third quarter, followed by the revised four-year earnings forecast. I will start with the overview of the Q3. Revenue for the first nine months increased year-over-year, even excluding favourable Euro 6 impact. Operating profit was flat. Progress towards the four-year forecast, which was previously revised upwards, is exceeding our internal plan. Details by segment will follow later, but similar to the second quarter, driven by the strong performance of BGM, although business performance was good. Financial expenses included interest payments of €4.2 billion and cumulative FX losses of €10.5 billion, resulting in pre-tax profit of €2.5 billion. The FX losses were primarily due to the valuation losses from weaker yen against the euro, with the exchange rate at the end of the period reaching €184 billion. compared to 161 at the end of the previous period. This point will be explained with further details later on. Affected by the FX losses, profit attributable to the owner's apparent was 700 million, but excluding FX impact, OPI was strong, exceeding both the plan announced in the start of the period as well as the previous year's results. Excluding FX impact, Britax profit was estimated at 13 billion yen, a 3% increase YOY, while profit attributable to the owner as a parent is estimated at 8.5 billion, 11% increase. EBITDA was down by 900 million year-over-year. The difference from the operating profit is attributable to smaller depreciation. Adjusted EBITDA decreased by 200 million, and the adjustment items are explained on page 17. Exchange rates applied to the first nine months for the PL was 172 yen to the euro and 149 yen to the dollar. While the dollar appreciated against the yen year by year, but the euro depreciated significantly against the yen, positively impacting the revenue.

Next, I would like to explain more about the FX losses.

Please turn to page 26. In accordance to accounting standards, FX gains and losses arising from the settlement or variation of foreign currency-dominated receivables and payables held by the company and its subsidiaries are recognized as financial income or expenses. This time, the cumulative amount reached 10.5 billion. In our global business operations, we manage funds by aggregating cash generated outside of Japan into a company through dividends from subsidiaries and intercompany loans. This valuation loss was caused by the change in the exchange rate for euro-denominated loan from subsidiaries from 161 yen to 184 yen per euro from the previous year end to the current fiscal year end. Since these valuations fluctuate with FX, valuation gains are recorded when the yen appreciates. These gains and losses remain unrealized until settled and have no impact on cash, excluding tax, as this transaction as an intergroup loan, even when payment is made, no cash outflow to external parties would occur, apart from some related expenses. Should a loss arise from the variation of loans held by the company in the P&L, a gain arises from the conversion difference of the loans held by the counterparty subsidiary, and this gain is recognized through other comprehensive income in the consolidated financial statements and the purchase of the equity and the balance sheet. Consequently, the numbers offset each other. The variation loss in the P&L does not directly constitute reduction in equity. Although the impact on cash outflow in capital is minimum, equity is minimum, We will continue to explore measures to reduce volatility in the P&L. Returning to the presentation now. This page shows the quarterly trends in revenue and operating profit. Due to the nature of our business, revenue tends to grow towards the second half of the fiscal year. But in Q3, revenue increased compared to Q2 across all segments, in particular BGM, which has continued to perform strongly, and Biomedica, which saw an increase in demand in Q3, contributed. Year on year, revenue increased, also aided by the favorable foreign exchange impact, but operating profit declined due to market conditions in diagnostic life sciences, tariff impacts, and a decrease in electronic prescription revenue, which carries a high profit margin. Next, I will explain revenue by segment. Diabetes management recorded a 3.9% year-on-year revenue increase and 2.1% even excluding currency effects. Strong BGM sales in Europe and the U.S. continued, and CGM also achieved revenue growth year-on-year. For BGM, while market contraction continues mainly in developed countries where our market share is high, the fact that we have been able to secure revenue growth is, we believe, important progress toward stabilizing BGM, which is a key element of the value creation plan. Healthcare solutions saw a decline in e-prescriptions, but this was offset by sales related to electronic medical records and medical research system. Healthcare IT solutions and LSI business compensated for the decrease in revenue from the CRO business. Diagnostic and lab sciences revenue was minus 3.8% year-on-year, given the high proportion of the U.S. revenue. The favorable impact of yen depreciation against the euro was almost entirely offset by the impact of yen appreciation against the dollar. The pathology business and biomedical was affected by the stagnation of market conditions centered on the U.S., and the diagnostics business recorded a revenue decline due to a decrease in sales of digital injector. and the effect of one-time gains recorded in the same period of the previous year. And the bridge chart on page 12 shows the breakdown of year-on-year changes. The upper chart shows revenue. Although there was a negative impact from yen appreciation against the US dollar, the yen depreciation against the euro was large, resulting in a positive foreign exchange impact of 1.2 billion yen, Excluding the currency effects, growth was 0.4%. In addition to sales growth of diabetes management, LSIM and healthcare IT solutions, contract manufacturing-related revenue and of Indonesian factor DORI has continued to grow and the other segment recorded revenue growth. The lower chart shows operating profit, strong performance of BGM in high margin Europe and the US, along with significant profit growth in diabetes management driven by the revenue improvement measures, offset the decline in diagnostic lab sciences resulting in year-on-year flat performance. The ¥4.4 billion decrease in diagnostic lab science includes ¥1.5 billion from target impacts and ¥0.8 billion from the impact of headquarters function restructuring. Regarding the organization of headquarters functions, details are described on page 25. But since some roles were transferred to individual business divisions this fiscal year, headquarters and other expenses have decreased year-on-year. While expenses in each business have increased, relevant impact amounts are reflected in this chart as ¥1.1 billion for headquarters and other ¥-0.8 billion for diagnostic and lab sciences. Now about each segment. First, diabetes management. Revenue increased 3.9% and operating profit increased significantly by 39.8%. The profit margin was 19.1%, an improvement of 4.9% in the current year. For BGM, while there are no major changes in the market environment, including a continued market contraction in developed countries and a shift toward lower-priced channels, Sales in Europe continue to be firm and we are gaining market share in the U.S. As I explained earlier, both unit price and volume are growing, and both U.S. and Europe performed extremely well. CGM achieved revenue growth year-on-year driven by strong performance of the 365-day product. Operating profit recorded a significant increase as the effects of profitability improvement measures in the U.S. and the strong performance in developed markets are significantly boosting overall profit margins, supplemented by the effects of cost reduction measures being implemented globally and the decrease in amortization expenses. Please note that ¥0.4 billion in one-time costs related to the CCM transfer was recorded in Q3 and from Q4 onward, there is essentially expected to be no peer impact. from CGM. Next, healthcare solutions. Revenue was a slight increase year-on-year, but operating profit declined by 1 billion yen. And also, the profit margin improved from Q2. It remained at 5.2%. LSIM was partially affected by revenue decline due to the precision control chart issue. But, you know, testing demand has been stable, and revenue growth was achieved through increased sales in the genetics field, which is a focus area for growth. Healthcare IT solutions saw revenue increase by 1.3 billion yen with core businesses related to EMR and medical receipt systems maintaining strong performance despite a decline in demand for e-prescriptions offsetting a decrease in CRO business revenue. The CRO business has seen a decrease in orders, particularly for clinical trials, due to the impact of LSI Medians' ISO certification being revoked last year. But, as I mentioned earlier, LSI Medians was able to reacquire ISO certification in November, so we are now strengthening our sales activities again to expand orders. Operating profit decreased by 1%. Billion Yen. Although revenue increased from EFSI and EFSI guarantee, this has offset by decreased revenue from e-prescription sales, reduced revenue from the CRO business, rising procurement costs and increased amortization expenses associated with new product launches.