Fujifilm Holdings Corp

TSE:4901

Earnings Call Transcript 2019-Q2

[Kenji Sukeno, executive]

I would like to present FUJIFILM Holdings' financial results for the first half of the fiscal year ending March 2019. Let me explain the main points for the first half of the fiscal year. In the first half of the fiscal year, revenue slightly decreased due to an intentional reduction of low-profit business compared to the initial target, while operating income was in line with the initial target. Compared to the previous fiscal year, revenue remained at the same level, while operating income largely increased. Regarding performance by segment. Sales increased in the medical systems, bio CDMO, display materials and electronic materials business. Though sales decreased in the document business due to a reduction in low-profit, low-end printers and a change in an accounting method for recognizing revenue from purchased products, if these negative impacts are excluded, the overall revenue had increased. In the second quarter, structural reforms at Fuji Xerox announced in January this year made good progress. We started buyback of the company's shares of up to JPY 100.0 billion and bought back JPY 22.2 billion by the end of September. In October, we established FUJIFILM Toyama Chemical to accelerate a development of new drugs. Let's move on to detailed performance information for the first half of the fiscal year ending March 2019. Consolidated revenue totaled JPY 1,172.7 billion, almost at the same level as the previous fiscal year due to the reasons mentioned earlier. Operating income increased due to improvements in profitability in each business and due to a positive impact from structural reforms in the document business to JPY 83.9 billion, up 16.0% from the previous fiscal year. Income before income taxes came to JPY 98.8 billion, down 1.3% from the previous fiscal year. Net income attributable to FUJIFILM Holdings totaled JPY 65.5 billion, down 7.6% from the previous fiscal year. These reductions are because of a profit gained from a stock valuation booked in the previous fiscal year at the time of consolidating Wako Pure Chemical Industries, Ltd. Let's move on to segment-specific information. The Imaging Solutions segment recorded revenue of JPY 175.9 billion, up 0.6% year-on-year. Operating income totaled JPY 21.6 billion, down 9.1% from the previous fiscal year due to such factors as advertising and promotion costs and upfront R&D investment. The Healthcare & Material Solutions segment recorded revenue of JPY 499.0 billion, up 3.8% year-on-year. Though expenses related to an integration of pharmaceutical subsidiaries were recorded, operating income totaled JPY 37.5 billion, up 1.0% from the previous fiscal year due to such factors as profit increase in accordance with higher revenue. Within the Healthcare & Material Solutions segment, the health care business recorded revenue of JPY 223.4 billion, up 11.3% year-on-year. Operating income totaled JPY 2.4 billion, up JPY 1.2 billion from the previous fiscal year. Document Solutions recorded revenue of JPY 497.8 billion, down 6.5% year-on-year due to the reasons mentioned earlier. Operating income totaled JPY 43.3 billion, up 63.0% from the previous fiscal year due to improved profitability in each business and a positive impact from structural reforms. First, I would like to present the results for our Imaging Solutions segment. In the photo imaging business, sales were strong for instant photo systems, such as the instax series and instax films. The sales volume of the instax series totaled 3.5 million units in the first half of this fiscal year. instax SQUARE SQ6, the instant camera launched in May 2018, has gained popularity with the younger generation familiar with SNS. We will work on a further increase in sales and brand awareness of instax through a global promotion featuring Taylor Swift as the instax global partner. In the electronic imaging business, we launched FUJIFILM X-T3, which carries the fourth-generation new sensor and high-speed image processing engine for the X series. It has received recognition for its high-speed, high-precision auto focus and high video performance and contributed to a revenue increase. Sales of interchangeable lenses were also favorable and to capture the increasing demand for interchangeable lenses, an expansion of production facilities has been decided. In the optical device business, sales of various industrial-use lenses proceeded steadily. We are strengthening our product lineup to address expanding needs for 4K video creation, announcing a launch of 4K portable broadcast lenses with the world's highest 46x zoom. Next is our Healthcare & Material Solutions segment. In the health care business field, the medical systems business enjoyed brisk sales in such business areas as x-ray imaging diagnostics and endoscopes. In the pharmaceutical business, overall sales increased due to the supply of the Avigan Tablet, the anti-influenza drug, to a national stockpile in Japan. Also, FUJIFILM made Toyama Chemical a wholly owned subsidiary and merged the company with FUJIFILM RI Pharma to form FUJIFILM Toyama Chemical as of October 2018 in order to accelerate the development of new drugs. In the bio CDMO business, the contract process development and manufacturing business of biopharmaceuticals progressed favorably. Expansion of facilities, which has been conducted since last fiscal year, contributed to the sales increase. In the regenerative medicine business, sales increased due to favorable sales of cell culture media for biopharmaceuticals by Irvine Scientific Sales Company and IS JAPAN, which FUJIFILM acquired in June 2018. As for the highly functional materials business field, in addition to solid sales of TAC products, strong sales of products related to touch panels and OLED were seen in the display materials business. Among the industrial products, the sales of EXCLEAR, touch panel sensor films, showed steady growth along with industrial-use x-ray film and Prescale pressure measurement film. In the electronic materials business, sales increased mainly for advanced products of photoresists and peripheral materials related to photolithography. As the semiconductor market expands, FUJIFILM aims to achieve growth that exceeds the market rate with its extensive product lineup. In the recording media business, though sales decreased, we are expanding the sales of magnetic tapes for data storage using unique technologies, such as barium ferrite particles. In the graphic systems business, sales decreased due to a decline in total demand for graphic arts film and CTP plates. In the printing plates field, we are expanding the sales of such high value-added products as process-less plates with high environmental performance. Lastly, I would like to talk about the Document Solutions segment. First, as for the office products business within the office products and printers business, though the overall sales volume decreased from the previous fiscal year, the sales of multi-function devices developed for the Chinese market remained solid. In the office printer business, we reduced business of low-profit, low-end printers. In the production services business, strong sales were seen for an on-demand production color printer called the Iridesse Production Press, mainly in the U.S. and Europe. In May 2018, Fuji Xerox opened Future Edge, a hub for open innovation to work together with its customers on transforming communications utilizing printing technologies. Expansion of sales is targeted through demonstration of enhanced productivity of print operations and work style innovations. In the solutions and services business, though the sales of business-specific solutions and BPO, business process outsourcing, contracts showed steady growth, overall sales decreased due to a change in an accounting method for recognizing revenue from purchased products. With the new value-creation strategy called Smart Work Innovation, Fuji Xerox launched Smart Work Entry, a solution to improve efficiency in cumbersome processing of handwritten information with the use of unique AI technologies in July. We aim for further growth in the service field by continuously providing services that support our customers in improvements of work efficiency and productivity. Next, let's look at our balance sheet. Assets as of the end of September 2018 totaled JPY 3,399.2 billion, down by JPY 93.7 billion from the end of March 2018, mainly due to a decrease in cash and cash equivalents. Liabilities decreased by JPY 81.1 billion to JPY 1,113.1 billion, while shareholders' equity increased by JPY 5.1 billion to total JPY 2,084.2 billion. The current ratio increased by 1.0 percentage points to 281.1%. Our debt equity ratio decreased by 4.0 percentage points to 53.4%, and our shareholders' equity ratio increased by 1.8 percentage points to 61.3%. Next, with regard to our cash flow. Net cash provided by operating activities totaled JPY 85.3 billion due to a decrease in notes and accounts receivable and other factors. Net cash used in investing activities amounted to JPY 131.1 billion due to the acquisition of Irvine Scientific Sales Company and IS JAPAN and so on. As a result, free cash flow without acquisitions of businesses and others was JPY 39.1 billion. Let me talk about our initiatives for structural reforms of Fuji Xerox. Onetime expenses including structural reform costs in the first half of the fiscal year ending March 2019 totaled JPY 5.1 billion, while a positive impact from the structural reforms was JPY 8.5 billion. By executing structural reforms, we aim to establish a business base where sustainable growth can be realized by reducing expenses and maintaining profitability and productivity to withstand market changes and competition, while reinvesting in new growth areas. Regarding our consolidated financial forecast for the fiscal year ending March 2019, we lowered our forecast for revenue by JPY 40.0 billion to JPY 2,470.0 billion by intentionally conducting a reduction in low-profit business in the Document Solutions segment. We will retain 1.5% revenue growth compared to the previous fiscal year. The forecast for income has not been revised. The annual dividend for the fiscal year ending March 2019 is expected to be JPY 80 per share, an increase of JPY 5 from the previous fiscal year. We will strengthen shareholder returns in addition to achieving the operating profit target through business activities. Finally, we would like to introduce our global branding campaign, NEVER STOP, started from October. In our history, we enhanced our presence in the global market by never stopping to challenge and technically surpass Kodak, who was the global leader in the photographic film industry. From the year 2000 onwards, we bravely confronted a crisis of losing our core business, which was a sudden decline in demand for photographic film, and we never stopped taking the bold decision to launch the second foundation of the company, greatly transforming its business structure. Now we provide new value through innovative, advanced technologies, contributing to the solution of various issues facing society and never stop building on our innovations and expertise to achieve continued corporate growth. Through this campaign, we will communicate our diverse array of business operations as well as its corporate mindset, continuing to take on new challenges around the world as we aim for further growth globally. Now please take a look at our campaign's concept movie. [Presentation]