Terumo Corporation (TRUMF) CEO Shinjiro Sato on Q4 2021 Results – Earnings Call

Terumo Corporation (OTCPK:TRUMF) Q4 2021 Earnings Conference Call May 13, 2022 7:00 AM ET

Company Participants

Naoki Muto – Chief Accounting and Financial Officer

Shinjiro Sato – President and CEO

Conference Call Participants

Operator

I am the CFO, Muto. I will now explain the results for the fiscal year ending March 2022. First, here is the highlights of this financial statement.

In sales revenue, Japan saw factors including a return to normal of infection prevention product demand, resulting in a slight increase. However, regions outside Japan and FX rates drove the Q4 and year-to-date sales result to our highest ever.

In adjusted operating profit, although negative impacts anticipated at the beginning of the year combined with inflation and reduced factory utilization as downward factors, the contributions of strong overseas sales and FX rates resulted in an annual result of 16% year-on-year growth.

Our FY ’22 guidance anticipates double-digit growth in both sales revenue and profit. In sales revenue, the number of procedures and other demand are expected to emerge from COVID impact, driving growth in each company. FX rates are also expected to have a positive impact.

Although inflation impact will occur throughout the year, we expect that impact to lessen toward the end of the year. For this reason, we expect to see an increase in gross profit as well.

Next slide please. Here are the FY ’21 full year and Q4 standalone results. Sales revenue was the highest-ever, for both a Q4 and full year. COVID recovery continued into Q4 in the Cardiac and Vascular Company outside Japan, especially in the TIS business, and Neurovascular was also strong in Q4.

FX rates were also a positive factor. As a result, Q4 standalone sales revenue was JPY179.8 billion, and the full year JPY703.3 billion.

Adjusted operating profit experienced the negative impacts that we anticipated at the beginning of the year, including production adjustment for safety stock level and price reductions in China tenders, as well as inflation.

However, sales outside Japan were strong and FX rates had a positive impact, resulting in an adjusted operating profit amount of JPY134.4 billion and 16% growth year-on-year. And we saw the gross margin down in Q4 due to the negative impact for unrealized profit from inventory assets with FX rapid change and the ahead expenditure for global production optimization. However, both were the temporal.

Next slide please. This is the adjusted operating profit variance analysis for the full year. Gross profit increment by sales increase was positive for all companies, to total JPY35 billion, with the previous year comparable being COVID-impacted.

Gross profitability on sales was minus JPY1.8 billion, as inflation and other factors exceeded the positive effect of product mix improvement that resulted from increased sales at Cardiac and Vascular, with TIS as a driver.

Items like Price down and SG&A increment were as initially anticipated, with SG&A having a previous-year comparable impacted by activity restrictions. FX was a wash, as Chinese Yuan and euro appreciation caused big positive impacts, while rapid Japanese Yen depreciation in the year end caused negative impact on unrealized profit on inventory assets.

Next slide please. This is a standalone adjusted operating profit variance analysis for Q4. Gross profit increment was positive JPY4 billion, with Cardiac and Vascular Company the driver, as it continued to recover from COVID.

On the other hand, gross profitability on sales decreased JPY1.5 billion as the inflation outweighed positives. Production adjustment was positive as demand recovered. Production adjustment has been similar level of stock as of the year end of March 2019, before COVID. Therefore, we will control the appropriate stock level with monitoring the market trend from FY ’22.

SG&A increased with a previous-year comparable in which activities were limited; however, it was lower percent than that of sales while a smaller amount increase, and expense controls due to concerns about the decline in profit enacted after Q3 were effective. FX was as I explained for the full year. The positive flow in Q4 completely absorbed the negative stock.

Next side please. Next is revenue by region. In Japan, Cardiac and Vascular Company saw TIS and Neurovascular recover slower than other regions, but the recovery trend nevertheless continued.

Medical Care Solutions saw growth in businesses including Pharmaceutical Solutions, for a steady 2% positive year-on-year growth. In the EU, TIS and the TA drove the Cardiac and Vascular Company, and all companies saw increased sales.

Compared to Q3, the Cardiac and Vascular Company slowed in the first half of Q4 due to reduced number of procedures amid Omicron Variant impact, however, the other two companies were steady.

In the Americas, TIS and Neurovascular drove the Cardiac and Vascular Company, and all companies saw increased sales. The slowing seen in Europe compared to Q3 did not happen in the Americas, instead, strong results continued. The Americas became the second market after Japan to reach sales volume of JPY200 million, showing that the US market strategy has entered a new stage.

China also saw TIS driving the Cardiac and Vascular Company, while each company grew. Year-to-date growth was 30%. However, results of the Neurovascular business were in comparison to a previous year in which the distributor network was reorganized in the first half, temporarily increasing demand in the second, this means that the FY ’21 second-half result actually showed even faster growth than it appears. Excluding this impact, growth was approximately 20%.

Compared to Q3, seasonal factors including the Chinese New Year caused some slowing. In other Asian countries, recovery had continued up to Q3, but Q4 saw slowing.

Tender timing for Medical Care Solutions and Blood and Cell Technologies was concentrated in Q3, while Cardiac and Vascular was impacted by the Omicron Variant in the first half. Nevertheless, year-to-date growth was 18%.

Next slide please. I will now explain results by company. Starting with Cardiac and Vascular. Overall, sales revenue continued to grow in all businesses. Q4 growth was 14%, and year-to-date was 21%. Sales grew 2% from Q3 through Q4.

TIS grew outside Japan, especially in North America and Europe. Although there was some Omicron impact in the first half of Q4, Access products recovered rapidly thereafter. As a result, even compared to Q3, growth recovered to low single digits.

Amid overall decreased demand in Japan, Cardiology products grew with the release of the new Ultimaster Nagomi. In Neurovascular, aneurysm care demand grew especially in North America and Europe, while aspiration catheters used in stroke treatment also maintained high growth.

Compared to Q3, the Q4 results were affected by China distributor orders focusing in Q4, so that overall growth was in the double digits, however, when this impact is excluded, growth was approximately flat.

In Q4, there was also the news that the flow diverter FRED X for treating aneurysm was used in the United States for the first time. CV also saw a significant recovery in number of procedures in North America and Europe, and instrument sales were strong as hospitals resumed investment in such devices.

Compared to Q3, North America continued to grow in Q4, but Omicron Variant impact in the first part of Q4 brought the whole down to the mid-single digits. TA, like CV, saw a recovery of number of procedures in North America and Europe. And again, similarly, compared to Q3, North America continued to grow in Q4, but the first part of Q4 brought the whole down to the mid-single digits for TA as well.

In profit for the full year, price erosion of China tenders and production adjustment combined with inflation and the rest, which emerged during the period, to bring gross profit down, cancelling out increased sales and positive FX impact, for an adjusted operating profit result of 23%.

Next slide please. TMCS is Terumo Medical Care Solutions Company. Sales revenue grew 6% annually. Q4 standalone was similar to the previous year, and flat compared to Q3. High-demand pumps and infusion products such as anticancer drug-related devices grew along with HCS, which saw demand for vaccine syringes, resulting in the Hospital Care Solutions business driving the company as a whole.

In HCS, COVID demand for infection prevention products returned to normal after spiking, while pharmaceuticals such as adhesion barrier and pain management continued to grow. Pumps grew greatly compared to Q3, while Omicron Variant impact caused slowing in IV solutions as well as disposable products other than pumps.

LCS, Life Care Solutions saw high demand shift from thermometers to blood pressure monitors, driving the whole to finish the year at plus 2%. New diabetes products had some impact, but the whole increased only slightly. Compared standalone to Q3 as well,…