CMIC Holdings Co Ltd
TSE:2309
Earnings Call Analysis
Summary
Q3-2023
In the third quarter, sales rose by 9.5% year-on-year to JPY 85,816 million, with an 8.8% increase in operating profit to JPY 10,095 million. However, there was a slight dip with ordinary profit down by 4.3% to JPY 9,996 million, and profit attributable to owners jumped by 28.7% to JPY 7,636 million. The company has experienced growth in its Pharmaceutical Solutions and Healthcare Solutions segments. Looking forward, conversion of CMIC CMO Group to an affiliate impacted the balance sheet, leading to decreased total assets to JPY 70,720 million and liabilities to JPY 31,295 million, but increased the equity ratio to 52.8%. The fiscal year-end forecast remains unchanged with net sales predicted to be JPY 105,000 million, and net income per share expected at JPY 424.07.
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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 Third Quarter 2023 Financial Results Presentation Meeting. Today, our CFO, Wataru Mochizuki will explain the financial results overview. We are scheduled to end at 10:45 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.
I am Mochizuki. I will be giving an overview of financial results for the third quarter of the fiscal year ending September 30, 2023. The following is a description of our group's business activities. CMIC Group is expanding our business across our pharmaceutical solutions in which we support the development and manufacturing activities with pharmaceutical companies as well as our health care solutions to provide services to medical institutions, health care professionals, local governments and individuals.
In addition to promoting drug development and digitalization based on new drug discovery platform technologies, CMIC is expanding its business domain into the health care field and promoting business that contribute to total disease care initiatives from prevention to diagnosis, treatment and prognosis. This table shows CMIC Group size. As of June 30, 2023, the CMIC Group consists of 27 companies, including CMIC Holdings, the holding company and 22 consolidated subsidiaries and 4 equity method affiliated company and has 61 sites, including plants and laboratories in Japan and overseas.
In the third quarter, 3 CMIC CMO group companies changed from consolidated subsidiaries to equity- method affiliates. In the fiscal year ending September 30, 2023, the second year of the midterm plan from 2022 to 2025, we will steadily implement measures to address each of these pillars in order to achieve our goals. Following the conclusion of the strategic business alliance agreement with DNP and the conversion of CMIC CMO Group to an equity-method affiliate, the income statement of CMIC CMO Group is consolidated for the third quarter of the current fiscal year with June 30 as the due date, while the balance sheet is excluded at the end of the period.
This business alliance aims to create new value by combining DNP's expertise in both pharmaceuticals and packaging technology and efficient production processes with CMIC's extensive knowledge in the medical and health care fields. CMIC CMO is already developing value-added pharmaceuticals using oxygen-free packaging technology and establishing a generic product development platform within trend coverage from both pharmaceuticals to manufacturing.
First, let me talk about our progress toward evolution of the Healthcare business. As for municipal support services, we have received various requests from municipalities with which we have established a relationship of trust through comprehensive support for coronavirus infection control, ranging from the medical field to the area, the public health. In the third quarter of the current fiscal year, the company began to support the promotion of digitization of maternal and child health services for health checkups and vaccinations, for instance, by Rusutsu Vila and Rankoshi Town in Hokkaido in accordance with Digital Garden Cities and Green Transformation.
Under this project, CMIC will link pediatric vaccination records using harmo Vaccine Care and the maternal and child health management app using the daily integration app, OKEIOS Inc. an equity method affiliate as a data distribution platform to create a system that allows parents, medical institutions and local governments to share data in real time.
We are also strengthening our digital platform to improve the health value of individuals through our group companies, KNOCK ON THE DOOR, Inc., OKEIOS Inc. and harmo. KNOCK ON THE DOOR is developing its business based on “nanacara”, a support platform for epilepsy patients and their families. The platform enables specialists in various locations to check the patients' daily seizure records, medication histories, et cetera, and provide online medical care and is in the process of expanding its target diseases from epilepsy and make the immunization management at harmo Vaccine Care was linked to My Number Portal to provide a function to retrieve vaccination information from My Number Portal.
Public immunization records can be viewed on the app to improve the efficiency of cumbersome immunization management. We have joined the PHR Service Business Association, which was established on July 10, 2023, and will make the discussion on PHR standardization as the chair company of the Standardization Committee within this organization.
This slide explains our initiative to comprehensive support for disease prevention, treatment R&D and marketing. In order to strengthen support for overseas biotech ventures, entering the Japanese market and foreign companies from other industries and during the healthcare field, we have established a consulting and navigation unit to respond to the various needs of our clients across the entire group and have received many inquiries. In addition, for DCTs, which are expected to improve patient access to clinical trials and increase the efficiency of clinical trials, we are supporting the National Cancer Center Hospital, first fully remote online clinical trial. Drug lag and loss in Japan is an issue, and CMIC will actively support drug discovery in Japan.
Regarding contribution to sustainable society through services with high social benefits as a company involved in the business of supporting people's life and health. The CMIC Group places a high priority on ethics and science and is proactively developing human resources who can play an active role in these areas and providing opportunities for them to do so. We are focusing on securing and fostering a diverse workforce and are launching “Yuzuriha, a next generation education and international exchange center as well as preparing for the introduction of a flexible compensation system.
This is an overview of consolidated income statement. Sales in the third quarter of fiscal year were JPY 85,816 million, which was up 9.5% year-on-year by JPY 7,448 million. Operating profit was JPY 10,095 million, which was up 8.8% year-on-year by JPY 815 million. Ordinary profit was JPY 9,996 million, which was down 4.3% year-on-year by JPY 444 million. Profit attributable to owners of parent was JPY 7,636 million, which was 28.7% year-on-year by JPY 1,704 million. Earnings per share were JPY 422.19 (sic) [ JPY 442.19 ]. Nonoperating and extraordinary profit and loss consisted of JPY 110 million in nonoperating income and JPY 209 million in nonoperating expenses, including interest expenses. Extraordinary income includes JPY 3,388 million and gain on sales of investment securities, et cetera, and extraordinary loss includes JPY 283 million and loss on retirement of noncurrent assets, et cetera. In addition, income taxes is JPY 5,350 million in profit attributable to noncontrolling interests of JPY 113 million were recorded.
Net sales and operating profit by segment are shown in this table. Both net sales and operating profit increased year-on-year due to the continuation of municipal support services related to new coronavirus infection in the Healthcare Solutions segment through the second quarter and growth in each business in the Pharmaceutical Solutions segment.
Orders received and order backlog by segment are shown in a table below. Following the conversion of CMIC Group into an equity-method affiliate, orders and order backlogs of JPY 6.835 billion for CMIC CMO Group, which will be booked as sales from the fourth quarter onwards, have been deducted from the [indiscernible] for the 9 months ended June 30, 2023. Before deductions, orders received and order backlogs for the Pharmaceutical Solutions segment were minus 7.7% and minus 2.6%, respectively, compared with the same period of the previous fiscal year.
The composition of sales in the reportable segments was similar to that of the same period last year with Pharmaceutical Solutions and Healthcare Solutions accounting for 72.3% and 27.7% of total sales, respectively. The following is a sales composition by business segment of Pharmaceutical Solutions. Sales grew in all businesses reaching JPY 62,840 million, up 10.3% year-on-year and operating income also increased to JPY 4,402 million, up 6.4% year-on-year. The CRO business accounted for 49.7%. The CDMO business, 31.2% and the Market Solutions business, 19.1% of total sales.
This is an overview of the Pharmaceutical Solutions CRO business. Our sales has increased compared to the previous fiscal year. Due to the steady implementation of projects on order and the increase in utilization ratio, the business profit margin exceeded that of the same period of the previous year, along with the strengthening of comprehensive consulting services with the launch of the consulting and navigation unit, there has been an increase in efficacy and safety evaluation and analysis projects in advanced areas where modalities are becoming more diversified.
This is an overview of the Pharmaceutical Solutions CDMO business. Sales increased from the previous year due to an increase in contract production volume in Japan. Likewise, our EBITDA margin and profit rate exceeded that of the same period in the previous fiscal year. In Japan, new projects are steadily expanding and the Ashikaga injectable drug facility has successfully launched production and sales of large projects. We will continue to focus on sales activities for our U.S. business and promote collaboration with the DNP Group in the future.
This is an overview of the Pharmaceutical Solutions Market Solutions business. Although net sales increased year-on-year, the business profit margin was lower than in the same period of the previous year, mainly due to an increase in R&D expenses for orphan drugs. The MR dispatch market is expanding as pharmaceutical companies accelerate outsourcing to address their workforce. We are receiving strong inquiries from pharmaceutical companies.
The following is a breakdown of the sales composition of the Healthcare Solutions business. Sales and profit have increased with sales rising to JPY 24,102 million, increased by 10.3%, compared to the previous fiscal year, and operating profit rising to JPY 7,040 million (sic) [ JPY 7,007 million ], increased by 13.4% compared to the previous fiscal year. The sales composition is 37.1% for the Site Support Solutions business and 62.9% for the Healthcare Revolution business. While the number of related development projects declined, the sales composition of the Healthcare Revolution business increased due to growth in vaccination support.
This is an overview of the Healthcare Solutions Site Support Solutions business. Due to decrease in large COVID vaccine development projects, net sales were lower than in the same period of the previous year, but the business profit margin remained at the same level as in the same period of the previous year due to steady progress in projects. Orders are firm, and we are also expanding our business to support the clinical trial offices, medical institutions.
Healthcare Solutions Healthcare Revolution, business overview. Continuation of COVID vaccination related services resulted in higher sales and higher business profit margin than in the same period of the previous year. We are expanding our business, integrating disease prevention, health information, and [ TX ] to expand our health care business and post-COVID.
Here, I'd like to explain our consolidated balance sheet. There was a significant change due to the conversion of CMIC CMO Group into an equity-method affiliate. Total assets at the end of the quarter amounted to JPY 70,720 million (sic) [ JPY 70,072 million ], down JPY 37,517 million from the end of the previous fiscal year, mainly due to decreases in tangible fixed assets, trade receivables and inventory assets.
Capital expenditures totaled [ JPY 4,486 million ]. Depreciation totaled for [ JPY 1,220 million ] and amortization of goodwill totaled JPY 77 million. Liabilities amounted to JPY 31,295 million, a decrease of JPY 35,525 million from the end of the previous fiscal year, mainly due to a decrease in interest-bearing debt. Net assets decreased by JPY 2,492 million from the end of the previous fiscal year to JPY 38,776 million, mainly due to a decrease in noncontrolling interests and an increase in retained earnings.
The impact of the deconsolidation of CMIC CMO group on our balance sheet is as follows: Regarding assets, total assets will decrease by JPY 37,522 million due to a decrease in trade receivables of JPY 3,035 million, inventory assets of JPY 5,496 million, fixed assets of JPY 2,842 million, et cetera. Liabilities decreased by JPY 29,101 million due to decreases in interest bearing debt of JPY 15,080 million and lease obligations at JPY 4,075 million, et cetera. Net assets decreased by JPY 8,421 million, mainly due to a decrease in noncontrolling interests. As a result, the equity ratio will increase from 34.4% before exclusions to 52.8%.
Next, I would like to present our full year forecast for the fiscal year ending September 30, 2023. There is no change in the full year earnings forecast for the fiscal year ending September 30, 2023, from the figures announced in the second quarter earnings announcement on April 28, 2023. We forecast net sales of JPY 105,000 million, operating profit of JPY 10,300 million, ordinary profit of JPY 9,000 million, profit attributable to owners of the parent of the company of JPY 7,300 million and net income per share of JPY 420.07 (sic) [ JPY 424.07 ].
With this, I conclude my presentation, and I will be happy to take your questions now. Thank you.