CREATE MEDIC CO.,LTD. Q4 FY2024 earnings call

• Company Milestone & Leadership

• Create Medik marked its 50th anniversary in 2024, with a new CEO taking office in January 2025. The company remains committed to its mission of "Building a future of gentle medicine for the body" and focused on delivering sustainable growth and increasing enterprise value for all stakeholders.
• Domestic medical device demand has normalized after the COVID-19 pandemic, while overseas operations face headwinds from slowing Chinese economic growth, rising geopolitical risks from the prolonged Russia-Ukraine conflict, and supply chain disruptions.

• 2024 Operational Summary

• Management strengthened sales efforts for new product launches, improved production productivity across facilities, reduced costs via new supplier sourcing, and implemented hedging to mitigate foreign exchange risk. The company also expanded promotional efforts to lay groundwork for future market entry into India and Southeast Asia.
• The prior mid-term plan (Mid-Term Plan 2025) completed 2 of 3 years, with mixed progress: domestic in-house sales expanded via price adjustments, but OEM sales fell short due to a cancelled large project; new market development progressed, with continued growth in Europe, expanded coverage in China from tier-1 to lower-tier cities, and foundational outreach completed for emerging markets like India; product development progressed, with expanded urology product lines and launch of a new gastrointestinal guidewire; new business exploration was completed, with a new New Business Development Department established to pursue commercialization including potential M&A and alliances; a 10-year long-term vision was finalized aligned with the company's 50th anniversary.

• 10-Year Long-Term Vision (2034 Targets)

• Long-term financial targets: Over 20 billion yen in total revenue, over 3 billion yen in operating profit, 50%+ of revenue from overseas markets (split 10 billion yen domestic / 10 billion yen overseas), 15% operating margin, and 8% ROE.
• Aspirational goals: Become a company that contributes meaningfully to society via healthcare, builds strong brand recognition and awareness, and is a workplace where employees feel engaged and motivated.
• The 10-year strategy is split into 3 phases: Phase 1 (2025-2027, covered by new Mid-Term Plan 2027) focuses on building foundational infrastructure and investing in growth areas, improving profitability for existing businesses while investing in new businesses, new markets and growth opportunities; Phase 2 (through 2030) focuses on pursuing and deepening new business lines; Phase 3 (through 2034) focuses on strengthening profitability of new businesses and restructuring existing businesses to achieve the 10-year vision.

• New Mid-Term Plan 2027 (2025-2027) Core Priorities

• Financial targets for the 3-year period: 16 billion yen total revenue, 1.3 billion yen operating profit, and 7.0% ROE.
• Three core strategic priorities:
  1. Improve brand recognition: Restructure the business portfolio, concentrate management resources to grow group-wide profit, strategically expand overseas business, pursue M&A and alliances, and develop new business lines.
  2. Drive social contribution: Continue exploring unmet needs from patients and healthcare workers to develop products that improve patient QOL and reduce burden on medical settings; assess market needs in emerging and developing economies to identify areas where Create Medik can contribute.
  3. Improve employee engagement: Implement corporate culture reform and strengthen human capital management to boost employee engagement; develop talent pipelines and implement appropriate workforce allocation to strengthen the company's competitive position.

• Capital and Shareholder Strategy

• Current 2024 metrics: 4.6% cost of equity, 0.50x PBR, and 5.5% ROE, which fall short of the 1.0x PBR and 8% ROE targets. Underperformance is attributed to lower operating margin and underutilization of equity for growth investments like M&A.
• Mid-term targets for capital-conscious management: 8% operating margin, 0.70x PBR, and 7.0% ROE, to be achieved via improving net margin and total asset turnover to increase enterprise value.
• Shareholder return policy: The company prioritizes continued, stable returns while retaining capital to strengthen its business foundation for future growth. 2024 full-year dividend is set at 39 yen per share (19 yen interim including 2 yen 50th anniversary special dividend, 20 yen year-end). The 2025 full-year dividend is planned at 37 yen per share (17 yen interim, 20 yen year-end). The company also announced a new share repurchase program of up to 200 million yen for 220,000 shares, to be completed over approximately 6 months via open market purchases.

Create Medik reports total 2024 fiscal year revenue of 13.03 billion yen, a 3.5% increase year-over-year, broken out by sales channel/segment:

1. In-house Sales: Total revenue of 7.182 billion yen, up 3.8% YoY. Within this segment:
   • Urology catheter-related products: 3.734 billion yen, up 9.9% YoY, driven by strong growth of Foley tray kits and ureteral stents, plus full-year benefit from 2023 price hikes
   • Gastrointestinal products: 2.253 billion yen, down 2.9% YoY, due to competitive pressure from new competitor products for gastrostomy-related products In-house sales contributes 55.1% of total company revenue.
2. Overseas Sales: Total revenue of 4.608 billion yen, up 8.3% YoY. Within this segment:
   • China sales: 3.333 billion yen, up 7.9% YoY, led by growth of ileus tubes for intestinal obstruction treatment, supported by expanded academic outreach and physician collaboration, plus 191 million yen in incremental revenue from Renminbi exchange rate fluctuations
   • Export sales (primarily Europe): 1.117 billion yen, up 3.2% YoY, with urology product sales down after a strong prior year, offset by growth in gastrointestinal gastrostomy products Overseas sales contributes 35.4% of total company revenue.
3. OEM Sales: Total revenue of 1.239 billion yen, down 12.0% YoY. While gastrointestinal OEM products grew on strong new product sales, the discontinuation of certain vascular system product contracts led to an overall decline for the segment. OEM sales contributes 9.5% of total company revenue.

Other key segment financials: Total operating profit was 692 million yen, down 13.8% YoY; total selling, general and administrative (SG&A) expense was 5.011 billion yen, up 336 million yen YoY, with 2882 million yen in personnel costs (up 93 million yen) and 2128 million yen in other expenses (up 243 million yen); total capital expenditure was 456 million yen; total R&D expenditure was 835 million yen.

• 2025 (first year of Mid-Term Plan 2027) full-year financial guidance: 13.583 billion yen total revenue (+4.2% YoY), 1.002 billion yen operating profit (+44.7% YoY), 1.043 billion yen ordinary profit (+39.0% YoY), and 796 million yen net profit (-5.3% YoY). Net profit is expected to decline due to the absence of the 2024 one-off land sale gain from the headquarters relocation.
• In-house sales guidance: Revenue growth is expected from new product launches and revised pricing strategy.
• Overseas sales guidance: Growth will be driven by new market development in high-potential markets including India and Indonesia, with region-specific tailored sales strategies. In China, sales expansion will continue via moving from major cities to lower-tier cities and from top-tier hospitals to general hospitals.
• OEM sales guidance: A revenue decline is expected due to the discontinuation of certain contracted production, but the company will strengthen its sales organization to pursue new OEM orders.
• Profit guidance: Management will target growing operating profit via expanded cost reduction efforts, revised pricing to ensure appropriate margins, and strict control of personnel and other operating expenses.
• The prior mid-term plan (Mid-Term Plan 2025) is being terminated early, with 2025 full-year revenue now projected at 13.58 billion yen (below the original 14 billion yen target) and ordinary profit projected at 1.04 billion yen (below the original 1.4 billion yen target) due to the cancelled OEM project, rising raw material and logistics costs, and yen depreciation headwinds.

• Macroeconomic and geopolitical risks: Prolonged Russia-Ukraine conflict has increased geopolitical risk and disrupted global supply chains; slowing Chinese economic growth driven by the real estate downturn creates uncertainty for the company's largest overseas market.
• Input cost and currency risks: Yen depreciation has increased import procurement costs; rising raw material and logistics costs have pushed up cost of goods sold and compressed margins; foreign exchange fluctuations create revenue and cost volatility, even with implemented hedging strategies.
• Market and competitive risks: Domestic gastrointestinal gastrostomy product sales have declined due to new competitor product launches; China's bidding system has created downward pressure on selling prices, reducing profit by 25 million yen in 2024.
• Operational and strategic risks: The prior mid-term plan missed both revenue and profit targets due to unforeseen cancellation of a large OEM project; the new 3-year mid-term plan relies on successful new market development and new business creation, which carry inherent execution and market uncertainty; current capital metrics (PBR, ROE) are below target levels, requiring meaningful improvements in profitability and capital allocation to meet medium-term goals.
• One-off cost impacts: 2024 operating profit was reduced by temporary higher expenses related to the company's headquarters relocation, including accelerated depreciation of the old headquarters and facility preparation costs for new offices.

The provided transcript does not include a transcribed Question and Answer section, so no key exchanges can be summarized.