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Thank you for joining today's PHC Holdings Corporation financial results briefing for the first quarter of the fiscal year ending March 2026. I am Hirai from the IR and Public Relations, and I will be moderating today's session.

I would like to explain how to participate in this meeting. Simultaneous interpretation in Japanese and English is available. You can select your preferred language for the presentation materials displayed on screen. [Operator Instructions]

Now let me introduce today's presenters: Kyoko Deguchi, President and CEO; and Kaiju Yamaguchi, Director, Senior Managing Executive Officer and CFO. After their presentations, we will have a Q&A session.

Deguchi-san, please begin.

Hello, everyone. I am Deguchi, Representative Director, President and CEO. Today, I will explain the first quarter of the fiscal year ended March 2027 financial results and the full year forecast. I will present the executive summary and CFO, Yamaguchi, will explain the Q1 earnings summary and the full year forecast.

These are the financial highlights for the first quarter. Q1 actual results significantly exceeded our internal plans, marking a strong start to the second year of our value creation plan, which emphasizes strengthening our earnings base.

Revenue was JPY 90.7 billion. BGM in the Diabetes Management maintained the strong performance seen since the previous fiscal year. Even amid continued market contraction in developed countries, revenue increased in both Europe and the Americas, offsetting the decline in revenue from the CGM business transfer. It was up 8.1% year-on-year. Even excluding the foreign exchange effects, revenue grew 1.3% year-on-year. BGM in particular, grew 24.5% year-on-year or 10.5% excluding foreign exchange effects.

Operating profit was JPY 10.4 billion. This was a 171% year-on-year increase or JPY 6.6 billion increase. Excluding the positive impact of the foreign exchange, operating profit grew 152%. The main contributors were the strong revenue growth of BGM, particularly in developed countries as well as the CGM business transfer, pricing revisions and the company-wide cost reductions, all of which substantially improved profitability.

Company-wide operating margin was 11.5%, an improvement of 6.9% year-on-year. Both revenue and operating profit reached record highs for the first quarter since our listing.

Profit attributable to owners of the parent increased by JPY 8.7 billion compared to the previous year, which had been significantly affected by foreign exchange valuation losses. At this point, the full year forecast, including foreign exchange rate assumptions, remain unchanged from the initial forecast.

We intend to make a determination after closely monitoring factors such as first half BGM performance, particularly the European environment, progress in medical DX, market conditions in Diagnostics & Life Sciences centered on North America and foreign exchange trends. The dividend forecast also remains unchanged at JPY 42 per share for the full year as previously announced.

Next, here is an update on our business progress toward achieving our midterm management plan. Ascensia, which operates the Diabetes Management business, has launched the CONTOUR Comfort pen needle in Europe. This new product features a proprietary design that provides stability and superior control during daily insulin injections.

Sales have gotten off to a strong start in Germany, Austria and Switzerland, where the product was launched in June, and we plan to roll it out to other countries going forward. In the Diabetes Management segment, in addition to the strong performance of BGM, this launch will expand our product portfolio and further enhance the cash-generating capacity of this core business.

Wemex, our health care IT solutions provider, is capitalizing on the growing demand for digital transformation in the health care sector. Demand for electronic prescriptions is increasing, partly due to the revision of medical reimbursement rates in June. As of May, Wemex had installed over 25,000 systems, accounting for around 30% of all installations nationwide. Leveraging its strong market position and status as the industry leader, Wemex is contributing to the advancement of digital transformation in healthcare.

Mediford, a company operating in the CRO sector, utilized the grant from the Ministry of Health, Labour and Welfare's Drug Discovery Cluster Campus Development Project last July to establish a new Biosafety Level-3 infectious disease facility at the Kumamoto site, which began operations in April. Biosafety Level-3 facilities are capable of handling high-risk pathogens such as Microbacterium tuberculosis and coronaviruses.

As one of the few facilities in Japan equipped to support regulatory submissions, Mediford will continue to support academic institutions, start-ups and venture companies to develop vaccines and anti-infective drugs in the infectious disease, thereby contributing to the revitalization and acceleration of domestic drug discovery and development.

In our focus area of Diagnostics & Life Sciences, we have launched several new products to strengthen our competitive position and drive growth. The E1000 Dx, a new product in the field of digital pathology, has received regulatory approval in Japan following approvals in Europe and the United States and we have begun sales for clinical use.

This product is compatible with existing testing equipment and software and contributes to more efficient cancer diagnosis by streamlining laboratory workloads. Recognized for its advanced technology, including high-speed processing and high image quality, the E1000 Dx received the Best New Diagnostic Technology Solution award at MedTech Breakthrough 2026.

In addition, the Pathology business has launched a new thermal slide printer called the SlideMate. Furthermore, the Life Sciences business had expanded its CO2 incubator product range by adding 6 new product models, including a comfort model with humidity control to drive further growth.

This concludes my presentation. I hand over to CFO, Yamaguchi.

I will first explain the actual of the first quarter and then give you the full year forecast. First, an overview of the first quarter.

Revenue was JPY 90.7 billion, up 8.1% year-on-year. And operating profit was JPY 10.4 billion, up 171% year-on-year, representing a substantial increase in profit. Against the JPY 6.8 billion increase in revenue, operating profit increased by JPY 6.6 billion. This was due to the impact of the CGM business transfer conducted in the previous fiscal year, which reduced revenue by JPY 800 million, but increased operating profit by JPY 2.1 billion as well as improved operating margins across all segments.

There was also a positive foreign exchange impact, but all segments achieved both revenue and profit growth. And as in the previous year, we consider this a good start for the group as a whole

Profit before tax increased by JPY 10.1 billion to JPY 8.1 billion, a substantial increase. The main factors were the increase in operating profit, together with a significant decrease in foreign exchange losses from JPY 4.1 billion recorded in the same period last year to JPY 600 million this year. Profit attributable to owners of the parent increased by JPY 8.7 billion to JPY 6.3 billion.

EBITDA increased by JPY 6.6 billion year-on-year. Adjusted EBITDA, which adjusts for onetime revenues and expenses, increased by JPY 6.3 billion to JPY 17.3 billion. The foreign exchange rates applied to the P&L for the first quarter were JPY 185 to the euro and JPY 159 to the U.S. dollar, both significantly weaker when compared to the same period last year.

This page shows the quarterly trends in revenue and operating profit. Our company's revenue tend to grow towards the second half of the fiscal year. So first quarter revenue is smaller relative to other quarters, and the progress rate against the full year outlook is often lower. This quarter, however, revenue increased across all segments, aided by favorable foreign exchange effect and the progress rate was strong.

The main factors were that BGM market conditions continue to trend more positively than expected, as they had since the previous fiscal year, and there was solid demand centered in Europe and the U.S., although we also see some positive impact from the shift in timing carryover from the previous fiscal year. Operating profit increased due to substantial improvement in the profitability of Diabetes Management.

This shows revenue by segment and by business unit. From this half year, within the Diagnostics & Life Sciences segment, we have integrated the former Biomedical and Diagnostic reagents into Life Sciences and have included the B2B businesses in Indonesia, previously included in headquarter and others, within Life Sciences. Prior year figures on the following pages have been restated accordingly.

Diabetes Management's revenue increased 20.2% year-on-year or 6.7% even excluding foreign exchange effects. BGM continued to perform well in developed countries and also grew in emerging markets. Market contraction in developed countries is continuing, but revenue increased in the first quarter, continuing a stable trend from the previous year.

Healthcare Solutions saw a rebound effect from the strong replacement demand for e-medical records and medical receipt systems in the same period last year, but achieved revenue growth due to strong performance in clinical testing and the CRO business.

Diagnostics & Life Sciences achieved 5.4% revenue growth, driven by strong sales in pathology consumables and strong Life Sciences sales in Asia, but this was minus 3.1% excluding the positive foreign exchange impact from Europe and the U.S. This explains the breakdown of year-on-year changes.

The graph above shows revenue. This quarter, the yen depreciated against both the euro and the dollar, contributing a positive impact of JPY 5.7 billion. Even excluding the foreign exchange effects, growth was 1.3%. Healthcare IT Solutions, Pathology and Life Sciences saw revenue decline, but these were offset by Diabetes Management, clinical testing and CRO.

The graph below shows operating profit. Diabetes Management achieved a substantial increase in profit and every segment achieved profit growth even excluding foreign exchange effects.

I will now explain each segment in turn. First, Diabetes Management. Both revenue and operating profit increased substantially and operating margin improved significantly to 33%, up 15.9% year-on-year. Even excluding the impact of the CGM business transfer, business operating profit -- BGM operating profit increased by JPY 3.2 billion. While the major trends of the market contraction in developed countries and the shift towards low-priced channels for BGM remain unchanged, revenue increased in developed countries due to higher sales volume in the U.S. and strong sales in Europe centered on Germany, Italy and Greece.

And revenue also increased in emerging markets, supported by the recovery in the Middle East as well as the contribution from Algeria. The local production began in the previous fiscal year. With the added benefit of favorable foreign exchange, revenue increased substantially despite the decline caused by the CGM business transfer.

Operating profit improved substantially due to the effect of revenue growth and improved sales mix from increased sales in developed countries, cost reductions from structural reforms combined with favorable foreign exchange effect and narrowing losses resulting from the CGM business transfer.

Next is Healthcare Solutions. Revenue increased 1.6% year-on-year. Operating profit increased 27.6% and operating margin improved to 3.5% from 2.8% year-on-year. Clinical testing revenue increased due to growth in general testing as well as increased sales in the genetics field, an area of focus for growth and progress in sales price optimization initiatives.

Healthcare IT Solutions saw increased demand for e-prescriptions, but this was offset by a rebound decline in EMR and medical-receipt systems revenue, which has seen strong replacement demand last year. CRO revenue increased due to higher order backlog at the start of the period, resulting from strengthened order taking activity at [ PSI ] meeting following ISO recertification and the completion of a large-scale safety study. Operating profit increased due to the effect of revenue growth and an increase in high-margin e-prescription sales and price optimization in clinical testing.

Finally, Diagnostics & Life Sciences. Revenue increased by 5.4%. Operating income rose by 108.2% and operating margin was 5.7%. Although the Pathology business was affected by sluggish demand for equipment and the absence of a major digital pathology projects in the same period last year, revenue increased due to steady consumable sales, price revisions and favorable exchange rates.

Revenue in Life Sciences business also increased partly due to favorable exchange rates. Sales of Life Sciences equipment and other products remained strong in Asia and Japan and orders increased in the Americas. However, revenue declined in Europe due to sluggish demand in France, Germany and other markets. Overall, revenue in the IVD segment increased due to strong sales in Europe and Asia despite the decline in the Americas. For a breakdown of Life Sciences revenue by traditional segment, please see Page 24.

Operating income increased due to improved profitability driven by price adjustments, cost-cutting measures and the impact of U.S. tariff refunds.

Here are the sales figures by region. Thanks to favorable exchange rates, revenue increased in all regions. Japan saw a slight increase in revenue due to higher sales of healthcare solutions. Europe posted revenue growth even with a positive impact of foreign exchange rates, driven by strong performance in Diabetes Management.

North America posted revenue growth due to increased sales volume in the U.S. for Diabetes Management products. Revenue in other regions increased significantly by 19.2% due to growth in Diabetes Management in emerging markets and robust sales of Diagnostics & Life Sciences products in Asia. Page 16 provides details of adjustments made to operating income to calculate adjusted EBITDA.

Depreciation and amortization totaled JPY 6.7 billion, which was roughly the same as in the previous year. In adjusting EBITDA to adjusted EBITDA, we recorded restructuring-related expenses of JPY 270 million last year and JPY 140 million this year.

Next, I will explain the major assets and liabilities on the consolidated balance sheet. The balance of goodwill was JPY 223.4 billion. There was no change on a local currency basis, but it increased by JPY 1.9 billion due to effects of foreign exchange.

Interest-bearing debt, we paid a net debt of JPY 6.0 billion, but the figure decreased by JPY 5.3 billion due to foreign exchange effects. The ROE increased from 0.3% to 6.0%, primarily due to rise in the profit attributable to owners of the parent company. The net leverage ratio decreased from 3.7x to 3.2x as a result of an increase of adjusted EBITDA and a decrease in net interest-bearing debt.

Operating cash flow totaled JPY 14.3 billion, driven by strong business performance. Investing cash flow resulted in an outflow of JPY 3.3 billion, including JPY 2.7 billion in capital expenditure. Financing cash flow resulted in an outflow of JPY 10.0 billion, including JPY 6.0 billion in loan repayment and JPY 2.5 billion in dividend payment. We are beginning to see the results of our efforts to improve profitability and strengthen cash generation. We intend to continue making steady progress in these areas.

Next, I will explain our full year earnings forecast for the fiscal year ending March 2027. For now, we are maintaining our full year forecast, including our assumptions about exchange rates. Although our internal targets for revenue and operating income were significantly exceeded in the first quarter, we anticipate potential future impacts such as the fact that the demand for equipment in Diagnostics & Life Sciences has not yet recovered as well as the risk of rising prices due to the situation in the Middle East and the increasing risk of price hikes and supply chain disruptions for semiconductor-related products such as servers and PCs.

Additionally, current exchange rates show that the yen has appreciated due to currency interventions. Compared to the forecasted rate of JPY 165 and JPY 145, the yen is currently weaker. This has a positive impact on revenue and operating income. However, compared to the average exchange rate for the first quarter, the yen is currently stronger. If this level persists, a positive impact of exchange rates will diminish.

In light of these circumstances, we have decided to closely monitor the business environment and foreign exchange trends and will maintain our full year forecast for the time being. In addition, I would like to provide some supplementary information on the foreign exchange gains and losses. In the first quarter, we recorded a foreign exchange loss of JPY 600 million, with a significant improvement on last year's loss of JPY 4.4 billion.

Based on the exchange rates of JPY 183 and JPY 160 at the end of last fiscal year, JPY 1 appreciation would result in a positive impact of JPY 400 million for the euro and a negative impact of JPY 40 million for the dollar. Therefore, based on the sensitivity estimates, we expect to record financial income at the current exchange rate.

The total amount and breakdown of our earnings forecast for the current fiscal year remain unchanged. However, we have revised the actual figures for the previous fiscal year to reflect the impact of the reorganization.

This concludes my explanation.

Now we would like to switch to Q&A session. Joining us as responder is Senior Executive Vice President, COO/CSO, Shoichiro Sato. [Operator Instructions] The first, Mr. Seiji Wakao.

I'm Wakao, JPMorgan. My first question is regarding the full year forecast. As you explained, this time in the first quarter, you didn't make any revisions, and I understand the reasons very well. Then moving forward, when you have better visibility of variables, then the timing of potential revision, can we consider it will be in the second quarter?

And Diagnostics & Life Sciences forecast in the U.S. or the costs are also one of the variable factors, we understand it. But looking at the progress of OP, I think currently the progress rate is at 40% in the full year forecast. Therefore, usually considering this situation, I think that on a net basis, there will be a revision upward. Can we consider that way?

Thank you. I'd like to answer to your questions. In May, we announced the full year forecast. And back then, BGM, if it outperforms the expectation, then we may potentially make upward revision. I think we discussed in that way. And the way of our thinking is that we'd like to closely monitor the situations in the first half, and I discussed the potential risk factors. So we'd like to look into the situations, verifying the situations, what's going on and we would like to make a decision.

At this point in time, we cannot make any promises making upgrade revision. But in the first quarter, we had a strong performance. Therefore, in the second quarter and in the second half, I think the major point is how risk factors will show up. And we need to monitor and verify how the things will be moving on in the quarter 2 and beyond.

My second question is that Diabetes Management performed very well. I have a question. In the first quarter, the emerging markets performed very well. And if I look at my information in Excel, I also thought that the performance in Europe was also good. And I couldn't really understand the emerging markets strong performance. So could you give us more details about actual of the first quarter? And of course, the momentum in the first quarter, whether or not it will continuing in the second quarter, I think Diabetes Management is a big factor for you to look at overall performance. And if there is any risks, please also let us know.

Thank you for your question. Sato would like to answer to your question. The first quarter performance was strong, including Europe and the U.S. We could expand the market share. That's the first element.

Regarding emerging markets, as Yamaguchi mentioned, in Algeria, once again, we made the entry into the market. And also in the Middle East, which showed some decline in the previous year. Now we see the recovery there. So these are the contributions from the emerging markets.

And also India, Australia, compared to the last year, they are growing. Therefore, it's mixed situations. But mainly, we have been expanding market share in the Europe and the U.S. That's the main contributor. And what's our forecast from the second quarter and beyond, I believe that the first quarter momentum will be able to be maintained. And we don't expect any major changes.

Regarding the margin, as you progress your restructuring, I think situation is quite favorable. So from the second quarter and beyond, is there any risk factors showing any decline in the margin in the business management?

Yes. If you look at the year-on-year comparison of the first quarter results, about 70% is a volume improvement, but 30% is a profitability improvement. That's effective. And I believe that they will continue to contribute the profitability or margin.

If I supplement a little, in the first quarter, we had a strong results. The growth rates and numbers were big. But in the second quarter and the third quarter, in terms of the rates, it will be more gradual in our view. But rather than having any particular risk factors, I think overall, it's growing larger and there are some impact of the phasing. Therefore, the growth itself won't be continued, but it will be more gradual growth observed going forward.

And this time, margin was 33%. It was very good as the first quarter. But in terms of the competition mix, relatively speaking, Europe and the U.S. performed very strong. And I don't expect any sudden decline in those businesses, but it will be probably becoming more gradual.

Talking about the phasing, what was the amount of the phasing?

Well, it is difficult to identify how much. But in the Q4, mainly in Western countries. In the U.S., last year, we could obtain the deals, and they are contributing the full year. And there were things that we didn't have the last year, but it produced results in the Q1. So last year, we obtained some deals successfully and that's producing results in this fiscal year.

For Europe, there are some crossing the fiscal years. And also their inventories and our inventories, the adjustments or shipments, they are coordinated and impacting. Therefore, looking at the results of Q1, I believe that distributors' Q1 inventory level was not too high and the sales shipment was also strong. Therefore, how much it is difficult for us to say accurately, but that is the overall situation.

The next question, Tokyo Tokai Intelligence, Mr. Yoshida.

My name is Yoshida. I would like to pose my first question. You said BGM is booming and you explained the background. Could you please give me the explanation regarding the competitive situation that LifeScan issued Chapter 11 bankruptcy protection. And is there any change since then? What about the profit margin? Depending on quarters, when you present equipment, the profit margin tend to be lower. I'm talking about BGM. But this time, that was not the case. Was that part of the reason of the brisk BGM results?

Thank you for the question. Regarding the competition, LifeScan filed Chapter 11 bankruptcy protection. That's in the United States. As a result of that, commercial contracts are coming to us, and that's one favorable factor. Another thing is we have Roche, our regular competitor. They are selling CGM and they are shifting resources from BGM to CGM. That is why we had BGM with everything, but that resources, we do not have to spend anymore, and we're shifting that to BGM, thereby increasing the share, particularly in Germany and Italy. And as I have mentioned in the United States, we are getting the share from LifeScan, and that's the background.

With regard to profit margin, meter introduction, we are continuing to do that. But meter introduction efficiency, we introduced into the market, and we see the reactions of the customers. So the profit margin does not change throughout the year.

If that is the case, internal situation, external situation, both are giving you the favorable impact. What about the external environment? Other than LifeScan, you mentioned about Roche, which is shifting resources from BGM to CGM. But what about the other competitors? What are they doing? Most of them are withdrawing from BGM. That's my assumption, but is that true?

With regard to competitive situation, there are only a limited number of players in BGM. Amongst that, LifeScan was BGM-only company, but it filed Chapter 11. Roche has both BGM, CGM, but their focus is shifting towards CGM. And we are BGM-only company. So we can focus our resources on that, and we are increasing our shares in our strong market. That's what we are seeing right now.

The second question I'd like to pose. With regard to Wemex, you said that e-prescription sales were up. This may not be a quarter-by-quarter issue, but electronic medical record compared to last year, this year was not that good. There may be a cloud impact, which may be small, but what about the situation there? And also cloud standardization is being progressed by the Japanese government. By this summer, the government is set to present some policies, but what about the latest situations?

Thank you. With regard to electronic medical records, we have the dispensing pharmacies and ethical market. With regard to dispensing pharmacies, our share is increasing, and there is smooth introduction of the system.

With regard to medical ethical market, the government is continuing to offer subsidies However, clinics have high cost of introducing the system, which is more than they receive in the form of subsidies. And that is why the clinic, the introduction is slower than dispensing pharmacies. The trend will become weaker. That's not the case. But the introduction is gradually growing in clinics. That is why we are doing the promotion so that we can get more market with EMR.

The second question regarding the cloud situation. Some have introduced the system, and we have just presented the system into the market, and we want to make sure that we get the market share. But compared to the budget, we are a little bit behind, but we are capturing new customers as well as the existing customers. So we would like to get our competitors' customers so that we can get more market share.

The last question that you mentioned, [indiscernible] Japanese government the 17th growth policies included the medical DX and cloud native, which are relevant to us. This is government policies, which are determined by the government. We have medical policy team within the company. And of course, we are part of the discussion. But still, the government does not have the clear policy, and we don't have the clear measure. But as soon as the government is ready to put in the policies, we are ready to offer our measures.

Let me comment with regard to some figures with regard to EMR compared to the second half last year, the current figure is up. And in June, we believe that there was an uptick in demand. But just as Sato mentioned, distance in pharmacies versus clinic and the introduction speed is a bit different.

With regard to the cloud standardization, 100% cloud, that's not the case. So they are considering on-premise and cloud, the mixture. And also, there are systems to be presented and also be presented, but these are not clear, and we want to make sure that we are ready and 100% into on-premise and cloud systems combined. This is all I have to say.

Next, Mr. Ryotaro Hayashi, please.

I am Hayashi, Morgan Stanley Securities. Can you hear me okay?

Yes. Thank you. Go ahead.

Regarding discrepancy from your plan, I'd like to ask several questions with that as a focus. For example, BGM are performing very well in Europe and the U.S. And looking at the numbers, I understand that. But originally, in this fiscal year, the plan was the negative growth of revenue in BGM. But thinking about the situation progresses since the previous year, Chapter 11 was originally discussed as well. So at the time that you made a plan, it's been visible. But in planning, you had a plan of negative growth, but actually, you increased the revenue. So what are the reasons behind? For instance, in Europe and the U.S. what are the different points that you saw there were some differences between your plan and the actual?

Thank you for your question. Especially talking about Europe, the differences from our planning, was talking about developed countries in Germany, Italy and Greece compared to the initially planned numbers. They performed stronger. But the CGM business transfer affected. However, we needed to continue the support for resources. And how much how long we need to provide this support, it was unclear to some degree when we made a plan. But including the salespeople, we could make a shift of resources well. And as a result, as I mentioned earlier, we could increase the market share. That has a relatively big impact.

If I make a supplement, because this is the first quarter, differences are larger, relatively speaking. As I mentioned earlier, in terms of the markets, both the Europe and U.S. markets overall are declining. That situation unchanged. Talking about the U.S., last year, we could get deals. And as time passes by, we could see the results. So that showed up as larger differences in the Q1.

And regarding Europe, there are phasing from the Q4. And also overall market has been shrinking, but we are taking shares and that's how we planned. And there are some positive results that came up with a larger number in the Q1. But in the full year basis, BGM Western situations recovered overall, the market will be shrinking. And how it will be progressing, I think to a certain degree, there were risks and incorporating that into our plan, we are making plans. That's the situation. Therefore, reimbursement expansion that we have been talking about, there are still risks in this regard.

Talking about the fiscal year this year, it's not too high, but including them, we have internal discussion and come up with the plan. So as I mentioned earlier, throughout the year, this will be more or less flattened. Therefore, in Q1, we had seen the results showing up as a very strong numbers, but it will be more gradual. But overall, I'm sure that the performance was positive, more positive than we originally expected. We are taking market shares and also the market view is also positive than our original expectation.

My second question is about Diagnostics & Life Sciences. Again, the discrepancy from your planning. Basically, the Europe and the U.S., I think the segment performance was lower than your plan. Is it true? And I think you said in Japan and Asia, performance is better. And probably, I guess, they were above the plan. But I do not remember completely that Japan and Asia are highlighted in terms of this segment of Diagnostics & Life Sciences. Could you give us some more explanation on this?

Regarding Diagnostics & Life Sciences, whether or not the U.S. and Europe demand are driving factors, if that's the question, the answer is yes, especially the pathological diagnostic testing and also freezers instruments, these are 2 major components of the businesses. And basically speaking, European and American weights are heavier. And basically, their market situation affects our business.

Second question is that there were not much highlighted events in Asia or Japan. But in Japan, not just our in-house products, but also we are purchasing the cell therapy or gene therapy-related instruments, they are performing smoothly and well. And also before moving on to the digital pathology, there are analog pathology instruments. And they are in some research institutes, we could take large-scale orders. So they are kind of steady constant businesses. And the weight was not so heavy traditionally. But in Japan and Asia, they are performing well. That contributed to the good performance in Japan and Asia.

And also in Asia, talking about China, as you know, the government has a local production policy, local production, local sales, and it's been the case for some years now. But those instruments have been produced overseas, but now it's been internalized in China, and that's contributing to our Biomedical performance in China.

And talking about the numbers, in Western countries in local currency basis, they were below the plan. And Europe, starting from the second half of the last fiscal year, we saw some recovery. But in April and May this year, it was slow, but it's coming back in June. And the July seems to be so good. So I think startup was a bit slower. But overall, I think it's not much different from our original plan.

And the U.S., the tariff impact or subsidies impact, they still remain. But centering around pharmaceutical companies, we see the deals coming up. But in academia or public sectors, they are still continuously weak. So overall, it's in line or a bit below the plan. That's about Bio or Life Sciences. And China, APAC, China is a little bit better than our plan and Asia as well. And starting from the second half of the last fiscal year, it's getting better and they are continuously doing better.

So as for Q1, whether or not the market changed to a degree that we need to change our forecast, it's not. But overall, regional mix is that the Western market is a bit weaker and Asia better. So that's the situation contributing factors in overall performance.

Next, Yamaguchi Hidemaru, it's your turn.

I have 2 quick questions. In Q1 compared to the budget, I believe that it was on par with last year. So Q1 weaker and gradually stronger in Q2, Q3, Q4. But this particular fiscal year, Q1 is stronger. And what about the Q2, Q3, Q4? Will it going to be even stronger than last year or on par with last year?

Last year, there was a peak. Compared to last year, this year Q1 is very much up. And we need to monitor the situation in Q2. But I do not believe that we will have the same peak this year as we had last year. So including all of these, we would like to monitor the situation in Q2 onwards so that we can make the decision.

You may not be able to share the figures, but in the past, Q1, I believe that you had a certain percentage. So considering the Q1 by itself, is it double of what you have assumed this year?

I believe that our assumption was almost the same as the consensus.

You mentioned about the U.S. tariff refund. What about the forecast for the total return for the whole year?

With Q1, $2 million for U.S. tax refund. And full year, probably in Q2, most of the refunds will be realized. So probably JPY 12 billion plus -- JPY 12 million plus.

Is this included in the original company plan?

No, that's not included in the original company plan. Thank you.

With this, I would like to conclude the briefing. Thank you very much for your participation despite your busy schedule.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you for joining 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 chatbox. 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, floor is yours.

Good afternoon, ladies and gentlemen. I am Deguchi, President and CEO. Today, I will outline the summary of FY '25 Q3 results and our full year forecast. I will cover the executive summary and our CFO, Yamaguchi will explain the Q3 results and full year forecast.

These are the financial highlights for Q3. Revenue reached JPY 269.3 billion, while benefiting from favorable exchange rates due to weaker yen against the euro, revenue also increased year-on-year, excluding the FX impact. Overall, as in the first 2 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 impacts year-on-year.

Diabetes Management revenue increased by 3.9% year-over-year, driven by CGM growth, offsetting the revenue decline in Diagnostics & Life Sciences, where demand for equipment in the U.S. remained sluggish. Operating profit was JPY 17.1 billion. Healthcare Solutions and Diagnostics & 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 improvement, resulting in consolidated results on par with last year.

Results exceeded the underlying internal plan for the full 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 3 quarters amounted to JPY 10.5 billion with profit attributable to owners of parent at JPY 700 million.

Moving on to full year performance forecast. Revenue and operating profit forecast 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 parent is forecast at JPY 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 JPY 21 unchanged.

This page provides a revised overview of the Diabetes Management domain's current year performance and forecast reflecting the transfer of the CGM business. Firstly, the CGM business transfer in the United States was completed, closed in January 2026. The associated one-off costs were recognized in Q3 results.

In Europe, transactions will be closed sequentially in each target country as the Bayer, Senseonics gets its operations ready. Until then, we will support the transition period, but no PL (sic) [ P&L ] impact is expected from Q4 onwards. CGM will report an operating loss of JPY 6.4 billion 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 U.S., 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 will like to explain our global profit improvement efforts and the profitability we anticipate going forward. Our U.S. initiatives are currently progressing smoothly.

And despite the ongoing contraction of the total U.S. market, in the first 9 months of the year, we have achieved double-digit growth on a local currency basis, excluding FX effects with expected full 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, including 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 brand market grew by 6%.

We continue to maintain our leading position with a share exceeding 30%. Ongoing cost cutting 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 dual sourcing, logistic contract renegotiation, reductions in office and warehouse space and rationalization, we anticipate total savings of approximately JPY 900 million for the current fiscal year and another JPY 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 the business progress towards the achievement of value creation plan. I will explain the progress of the 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 towards realizing the lowest cost and closest to customer production model.

As an example, in the Pathology business, we are optimizing production basis by implementing tariff countermeasures, enhancing cost competitiveness and optimizing destination markets, including transferring some equipment manufacturing from China to the U.K. and shifting part of U.K. 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 (sic) [ Diagnostics & Life Sciences ] 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-departmental utilization of 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 Medience 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 we 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 EcoVadis' 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 revised full year earnings forecast. I will start with the overview of the Q3. Revenue for the first 9 months increased year-over-year, even excluding favorable euro FX impact. Operating profit was flat. Progress towards the full 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, overall business performance was good. Financial expenses included interest payments of JPY 4.2 billion and cumulative FX losses of JPY 10.5 billion, resulting in pretax profit of JPY 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 JPY 184 compared to JPY 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 owners of parent was JPY 700 million. But excluding FX impact, OP was strong, exceeding both the plan announced in the start of the period as well as the previous year's results.

Excluding FX impact, pretax profit was estimated at JPY 13 billion, a 3% increase Y-o-Y, while profit attributable to the owners of parent is estimated at JPY 8.5 billion, 11% increase. EBITDA was down by JPY 900 million year-over-year. The difference from the operating profit is attributable to smaller depreciation. Adjusted EBITDA decreased by JPY 200 million and the adjustment items are explained on Page 17.

Exchange rates applied to the first 9 months for the PL (sic) [ P&L ] was JPY 172 to the euro and JPY 149 to the dollar. While the dollar appreciated against the yen year-over-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 valuation of foreign currency-denominated receivables and payables held by the company and its subsidiaries are recognized as financial income or expenses. This time, the cumulative amount reached JPY 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 JPY 161 to JPY 184 per euro from the previous year 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 cash -- excluding tax, excuse me. 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 valuation of loans held by the company in the P&L, the 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 that pushes up the equity on the balance sheet.

Consequently, the numbers offset each other. The valuation loss in the P&L does not directly constitute reduction in equity. Although the impact on cash outflow and 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 Biomedical, 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 Diagnostics & Life Sciences, tariff impacts and the 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 towards 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 receipt system. Healthcare IT Solutions and LSIM business compensated for the decrease in revenue from the CRO business. Diagnostics & Life 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 the 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 onetime 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 U.S. dollar, the yen depreciation in Western Europe was large, resulting in a positive foreign exchange impact of JPY 1.2 billion. Excluding currency effects, growth was 0.4%. In addition to sales growth of Diabetes Management, LSIM and Healthcare IT Solutions, contract manufacturing related revenue and our innovation at [indiscernible] has continued to grow and the Other segment recorded revenue growth.

The lower chart shows operating profit. Strong performance of BGM, the high-margin Europe and the U.S., along with significant profit growth in Diabetes Management driven by the revenue improvement measures offset the decline in Diagnostics & Life Sciences, resulting in year-on-year flat performance.

The JPY 4.4 billion decrease in Diagnostics & Life Sciences includes JPY 1.5 billion from tariff impacts and JPY 0.8 billion from the impact of headquarters function restructuring. Regarding the reorganization 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, the relevant impact amounts are reflected in this chart as plus JPY 1.1 billion for headquarters and other, minus JPY 0.8 billion for Diagnostics & Life 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 percentage points year-on-year. For BGM, while there are no major changes in the market environment, including the continued market contraction in developed countries and the shift toward lower-priced channels, sales in Europe continued 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 the cost reduction measures being implemented globally and the decrease in amortization expenses. Please note that JPY 0.4 billion in onetime costs related to the CGM transfer was recorded in Q3 and from Q4 onwards, there is essentially expected to be no P&L impact from CGM.

Next, Healthcare Solutions. Revenue was a slight increase year-on-year, but operating profit declined by JPY 1 billion. And also the profit margin improved from Q2. It remained at 5.2%. LSIM was partially affected by the revenue decline due to the precision control chart issue. But general 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 JPY 1.3 billion 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 Medience's ISO certification being reported last year.

But as I mentioned earlier, LSI Medience was able to reacquire ISO certification in November. So we are now strengthening our sales activities again to expand orders. Operating profit decreased by JPY 1 billion, although revenue increased from LSIM and Healthcare IT. This was 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.

Finally, Diagnostics & Life Sciences, the revenue was down by 3.8% Pathology business, robust revenue in Europe, including slide glass and consumables. Revenue in Asia was also strong, driven by expanded local production in China, price revision in the U.S. also had a positive effect.

However, overall, it was insufficient to offset the impact of the stagnant demand for equipment in the United States, resulting in a decrease in revenue. Biomedical saw recovery in Japanese and European markets. In the United States, demand for midsized business increased year-over-year with the pharmaceutical companies' business beginning to move forward.

However, stagnant demand for equipment impacted by budget cuts from government agencies and academia persisted. The Diagnostics revenue declined due to lower testing volumes in China, weaker reagent sales in Russia and weaker demand for digital injectors, which was stronger last year.

Operating profit was down by JPY 4.4 billion. This includes JPY 2.3 billion of one-offs compared to the last year, such as JPY 1.5 billion tariff impact and JPY 0.82 billion of corporate functional transfer. So without this variance, on a apple-to-apple basis, OP decline was approximately JPY 2 billion or approximately 30%.

Although cost was down in Pathology from optimized manufacturing sites and price revisions due to U.S. tariff impacts, and it could not really offset the revenue decline in the Biomedical and Diagnostics.

Page 16 shows sales by region. In Japan, growth in LSIM and Healthcare IT Solutions offset declines in CRO and Diagnostics, resulting in flat revenue. Europe saw a 6.9% increase in revenue driven by strong performance in BGM and Pathology, even excluding FX impact.

North America saw a decline in revenue despite growth in Diabetes Management due to the impact of the stronger yen and the stagnation in sales for Diagnostics & Life Sciences equipment. Other regions saw a slight increase in revenue in BGM, Diagnostics & Life Science, offset by increased sales in Indonesia.

Page 17 shows the adjustments to OP to arrive at the adjustment EBITDA such as depreciation as well as one-off income and expenses. Depreciation increased in Healthcare Solutions due to startup amortization associated with product launches, but decreased by JPY 1.1 billion year-over-year due to the completion of amortization of certain intangibles in Diabetes Management.

Reconciliation from EBITDA to adjusted EBITDA includes restructuring cost of JPY 900 million, including JPY 400 million one-off expense related to CGM transfer. And last year, we earned JPY 600 million related to the conclusion of the agency agreement. This year, we have JPY 300 million with office relocation.

Next, the consolidated BS. To briefly explain the major assets and liabilities, the goodwill balance is JPY 220.3 billion, an increase of JPY 13.8 billion from the end of the previous fiscal year. This is mainly due to the impact of yen depreciation against the euro with no change on a local currency basis.

As for interest-bearing debt, we repaid JPY 16.8 billion on a net basis. The balance decreased by JPY 8.8 billion to JPY 246.5 billion due to currency effects. From the end of Q1 of the current fiscal year, existing borrowings maturing in June 2026 have been reclassified to current liabilities, but refinancing was the premise from the onset -- outset, and we are currently in discussions with financial institutions.

ROE calculated based on profits over the most recent 12 months was 2.3% due to decrease in profit attributable to the owners of the parent in the third quarter, resulting from the recognition of foreign exchange valuation losses and other factors. Cumulative cash flow -- operating cash flow reached JPY 27.2 billion, driven by the reduction in working capital.

Capital expenditures totaled JPY 6.2 billion and financial cash flow, including borrowings and dividend payments, resulting in an outflow of JPY 22.6 billion. However, due to foreign exchange effect, cash and deposit increased by JPY 5.3 billion compared to the end of the previous fiscal year.

The effects of our efforts to improve capital efficiency, enhanced working capital efficiency and the strength in total cash generation as outlined in our value creation plan are becoming evident. We will continue to drive these improvements forward.

That concludes the explanation of the actual results. Next is about the full year forecast. Revenue and operating profit forecast remain unchanged from the previous forecast. While third quarter results exceeded internal plans, we maintain a conservative outlook for the fourth quarter business environment. This includes factoring in deterioration in gross profit in Diagnostics & Life Sciences due to inventory reduction. The U.S. market is showing signs of year-on-year recovery, primarily driven by pharmaceutical companies, where we anticipate a certain level of market recovery next fiscal year.

We will maintain a flexible structure to respond to market trend with agility from the perspectives of asset efficiency and cash flow. The impact from the CGM transfer remains unchanged. The onetime expenses was recorded in third quarter results as expected, and we don't anticipate any future impact on earnings.

Pretax profit is revised downward (sic) [ upward ] by [ JPY 3.6 billion to JPY 4.4 billion ] and the profit attributable to owners of the parent is revised downward by JPY 2.4 billion to JPY 2 billion. This revision reflects the incorporation of the actual foreign exchange losses into the outlook as explained.

Although profit attributable to the owners of the parent is being revised downward, given the majority of the foreign exchange losses is an unrealized valuation loss with no cash impact, we are maintaining our dividend forecast.

Page 22 contains a breakdown by segment for revenue, operating profit and adjusted EBITDA. There are no changes from the previous forecast. Finally, an update on tariff impacts. The cumulative impact on the PL (sic) [ P&L ] for the first 3 quarters was approximately JPY 1.5 billion. Well, this represents the upper limit of our initial forecast. For the fourth quarter, the price increase effect from mitigation measures is expected to offset the additional cost from tariffs. Consequently, the full year impact is also projected to remain around the initial forecast of JPY 1.5 billion.

This concludes my presentation. Thank you.

We will now open up for questions. We also have COO, CSO, Koichiro Sato, participating in the Q&A in addition to the 2 presenters so far. [Operator Instructions] Mr. Seiji Wakao, please unmute yourself and ask your question.

This is Wakao, JPMorgan. Can you hear me?

Yes.

My first question is you have not revised the full year plan. Why not? That does management is strong? And the fourth quarter business environment, you applying a conservative view, but Diagnostics & Life Sciences also, I think you're applying a conservative view. Can you please explain why? I think you talked about suppressing the inventory level as well. Can you provide some more details about that as well?

Up to the third quarter, BGM business has been quite strong, outperforming the internal plan. But looking at the fourth quarter, there are some risks. And this is why the forecast up to the OP line is unchanged. For Diagnostics & Life Sciences, the North American market, academia, government still weak.

And also pharmaceuticals is moving -- started to move forward. There are signs of recovery there. But still overall, from the second half of last year but -- of this year, the revenue has been trending a little bit on the weaker side. So this year, we have decided to lower the level of inventory as well.

And in preparation for the market dynamics next year, we will be deploying our business flexibly. So there are certain negative factors that we have to take into account for. This is what we have reflected in the forecast.

With regard to Healthcare Solutions, Healthcare IT Solutions, EODx -- medical Dx excuse me, is a little bit weaker than we had expected. And we have incorporated such risks when we look at Q4. But as Deguchi has mentioned, we are applying a slightly conservative perspective. So the situation in the North American region and BGM, the result could be better than what we expect, in which case we -- perhaps we could expect some upside.

That's very clear. My second question is about BGM. BGM is doing very well. Starting from the second quarter, it's been quite strong. How long do you think the situation will continue? And to what extent do you think BGM will grow? What is your outlook on this?

Thank you for your question. As we said in the previous quarter, as far as the profit is concerned, there is depreciation and also see improvement and also gross profit improvement. These are basically all balanced in terms of improvement.

BGM is doing well in terms of gaining share in the United States, of course. But also we have strong share in some of the European markets, and we are gaining more in those markets as well. That's another positive factor.

How do we see the market dynamics going forward?

Well, 4% to 5% decline for the overall market. This is still the same kind of forecast. But still, we will continue to gain market share. And by doing so, we want to reduce the rate of decline to minus 2.4%. So this is basically the same as the plan that we had for the value creation plan.

Right. So in that case, you are maintaining the outlook you had in VCP, next year, you will no longer have CGM and the overall revenue will be smaller in the next fiscal year. Is that the correct understanding? I'm talking about Diabetes Management on a stand-alone basis.

Right. As far as this fiscal year is concerned, we are seeing a revenue increase year-over-year. But as we said in VCP, the overall market environment has not really changed very much, but we will be gaining share. So 2.4% CAGR. In that time -- and this outlook has not really changed.

In this fiscal year -- current fiscal year, the United States is doing well, even better than our prediction. But we believe that this is going to be flat. This is successful. In Europe, the business environment was actually a [ hero ] for us in the current fiscal year, but the market will continue to decline.

This is our read and that will have an impact next fiscal year. CGM revenue will shrink accordingly, and we are still working on the numbers for the next fiscal year. But yes, there will be an impact.

Last but not least, I think you are going to summarize the first year of VCP at the end of the fiscal year earnings call. But you're not really talking about reformulating your strategy.

Last November, we announced the VCP, and we are progressing according to plan. So please do not expect a major change in the strategy. When we provide the overall summary -- or today, we are talking about the various measures from the qualitative perspective. So at the end of the fiscal year, we want to talk about how they're producing specific numbers. That's what we want to share and present to you at the next earnings call.

Next is Ms. Masao Yoshida, please.

I am Yoshida from Tokai Tokyo Intelligence Lab. My first question is kind of a follow-up question of the previous question. You haven't changed full year plan, but there are potentially several risks you mentioned. And I'm sorry to ask you in more details. But talking about restructuring cost for the second half, your plan hasn't been much realized in the third quarter. And there is an item, other adjustments, which is minus JPY 9.3 billion. What is this breakdown? And in case you have any negative factors as a risk, you may make adjustment. So please elucidate on this point.

Thank you for your question. As you said in this adjustment items, actually Q3, it's not much spend as we expected. Therefore, that has positive impact, but toward Q4, as we implement our measures, certain spending -- expenses will be necessary.

And therefore, we keep our forecast. But depending upon the business conditions, of course, there is a possibility that we may adjust our policy, but we'd like to do what we should do steadily.

And talking about Diabetes Management, in Q3, I think performance was good. I'm talking about the BGM. And there have been in the past some accelerated shipments in high volume. Did you experience the same this time? And I think last time there was such shipment, but it's just comparing to the third quarter of previous year. So can you just simply compare this Q3 with the previous Q3 or how much favorable it was the performance of the current Q3?

You may be on mute.

Excuse me. On a quarterly basis, in each country, there are some accelerations or decelerations. But talking about this Q3, it's more or less stable. There wasn't any big variances. And talking about full year this fiscal year, I think we'll be able to maintain those fluctuations and performing well.

And then [indiscernible] input and coverage increased to JPY 80 million. Could you give us more quantitative degree comparing the coverage, how many users or patient numbers increasing? Please give us more details.

Thank you for your question. Regarding this particular point in the U.S. so far, multifunctional products were put in the market. But regarding this particular item by introducing products with limited functions, we are actually gaining the cost reduction benefit.

And in almost all the countries, this meter itself is distributed for free. But regarding the U.S., this meter is sold. It is not distributed for free. So these 2 are beneficial for us. And conventionally, for annual outlook, this meter portion is about 400,000 units, and that's the incremental increase.

I see. My last question is that on 23rd January from MHLW, there was a list announced for the each individual reviewing items. And there are some newly added items that you are requested to make a notification for data production premium. And is it like providing any beneficial impact to the meters? Is it to promote the electronic medical record usage?

Regarding insurance points, every 2 years, it is revised. And talking about this particular point, if there's any quantitative impact, we think that it will be limited. So in our business, we don't incorporate any big number expectation from that. Whereas for new customer acquisition, we launched a cloud-based new electronic medical record.

So far, it's mainly on-premise. But in terms of additional customer acquisition, I think we are expanding our business by introducing a cloud-based e-chart. So this data production, I don't know specifically what's meant by that. But this is not going to promote the dissemination of e medical record or not.

Well, this particular list you are talking about, well, this is a part of policy promoting the medical or Dx and ex verifications toward 100%. And the way that the insurance point is given, I think that's in accordance with that policy.

Therefore, with just one initiative, I don't believe that there will be a major acceleration of some part of our business. But including some financial aid, well, I believe that overall, there is a Dx -- medical Dx promotion flow, and including this 100% and the e-chart, there are business opportunities that's unchanged for us.

And we have done some hearings with medical institutions. And this is to provide the data from medical institutions, hospitals and clinics to MHLW. Therefore, we are building the cloud data or the e-chart providing the system.

But that itself wouldn't make any big changes, but how to promote the utilization of the users of those systems. Therefore, for that end, this is created. Therefore, we don't think that this premium system, that will be one of our business opportunities, but not much drastically changing or beneficial for our businesses.

Next, Mr. Hidemaru Yamaguchi, please ask your question.

Yes, this is Yamaguchi from Citi. Can you hear me?

Yes.

I may have asked the same question before about FX impact. I understand it doesn't affect the fundamentals, but it seems to have a big impact on the surface. FX conversion method and also combining overseas subsidiaries and the head office. By combining, you cannot eliminate the whole thing. You always have to have some kind of FX impact. Is that the correct understanding? And do you have countermeasures that you are discussing?

We borrow money from the subsidiary denominated in euro, and that is the source of this. So as long as we have a balance of the loan yes, this situation will keep happening. And the countermeasure is to reduce the balance or another thing we can do is maybe owning euro-denominated bonds and that would be helping to offset and minimize the impact.

This is an intercompany loan, which means that the cash will not flow out of the group to an external entity. But if we try to hedge against this, we have to pay the hedging cost. And if we settle right now, then yen is quite weak. So the cumulative losses cannot be regained.

So including these aspects, we are considering the timing internally as well. Now BGM is quite strong right now. We are earning our cash outside of Japan through this business and have to repatriate this cash to Japan. The overall cash management in that sense will have to be looked into. So we will not be touching the loan balance immediately. However, we do understand the impact is bigger now. So we will continue to think about the countermeasure.

Another question about Biomedical. U.S. pharmaceutical, you said there are signs of improvements. And all the pharmaceutical companies are building things in the United States or they're trying to, and we are beginning to see the impact of that change. Is that the correct interpretation? And also, do you think you will see more improvements going forward?

As you have mentioned, in North America, Biomedical market, well, there are basically 2 big segments that we focus on. One is academia and the government research institutions. We have -- we are quite strong there. But the demand is stagnant in this particular segment.

Biotech and big pharma investing into the United States according to the reports that we see. Some companies have already done that. And starting from the third quarter, we have seen some specific orders coming in from that scenario.

And based on that situation, we do apply a conservative view for the [ first ] quarter. But if the trend continues in Q4 and in FY '26, the North American market should recover, and we should be able to capture the upside.

So rather than just focusing on the government customer with our strength, not just there, but we also want to expand our channels into biotech and pharma as well. We started doing this in the second quarter, and we are now beginning to see the results, little by little.

We still have some time. If you have any questions, please raise your hand. Thank you. Thank you very much for all of you asking your questions. There seems to be no more questions. So with this, we would like to conclude this briefing. Thank you for your participation despite your busy schedule.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]

Thank you for joining the PHC Holdings Corporation financial results briefing for the second quarter of the fiscal year ending March 2026. My name is [ Hirai ] from IR and Public Relations. I will be moderating today's session. I will explain how to participate in the meeting. Simultaneous interpretation in Japanese and English is provided. You can select your language for the slides. Instructions are available in the Zoom chat box if you need help. Please note that due to audio equipment settings, the microphones of our presenters are muted. Audio will be streamed from a separate account rather than from the presenters themselves.

Now let me introduce today's presenters: Kyoko Deguchi, President and CEO; Kaiju Yamaguchi, Director, Senior Managing Executive Officer and CFO. After their presentations, we will hold a Q&A session. Now Ms. Deguchi, please begin.

Good morning, ladies and gentlemen. I'm Deputy President and CEO. Today, I will present the summary of the financial results for the second quarter of the fiscal year ending March 2026 and the full year forecasts. These forecasts have been revised this time. I will present the executive summary, and CFO Yamaguchi will explain the financial results and full year forecasts.

First, financial highlights for the second quarter to date. Revenue was JPY 173.4 billion. Although this was slightly lower than in the same period last year due to yen appreciation against the dollar, revenue increased, where an impact of exchange rates was excluded. Overall, as in the first quarter, the BGM business performed well. Despite the ongoing market contraction, strong performance was maintained in Europe and the United States. Revenue from Diabetes Management increased from last year. Healthcare Solution also saw an increase in revenue driven by sales of electronic medical records and medical-receipt systems despite a decline in sales in electronic prescriptions business. This offset the ongoing stagnation in equipment demand within the diagnostics and life sciences sector, which was affected by yen appreciation against the dollar and the U.S. market environment.

Operating profit increased by JPY 1.2 billion year-on-year to reach JPY 10.4 billion. Driven by revenue growth in high-margin developed markets and significant contributions from profit improvement measures, the BGM business exceeded internal targets. Meanwhile, due to the yen depreciating against the euro at the end of September, we recorded foreign exchange losses similar to those in the first quarter. The cumulative valuation loss for the second quarter was JPY 6.8 billion, resulting in a net loss of JPY 600 million for the owners of the parent company. The interim dividend is decided at JPY 21 per share, in line with previous forecasts.

Next are the full year forecasts. Considering the fact that results through the second quarter exceeded internal plans and the impact of the CGM business transfer announced in September, we are revising our full year forecast upwards by JPY 2.6 billion in operating profit. The assumed exchange rates have been revised to JPY 171 per euro, JPY 146 per dollar, reflecting the current market conditions. Negotiations regarding the transfer of CGM are currently ongoing, primarily focusing on practical matters with the aim of concluding the business transfer agreement. Assuming to maintain the planned transfer date of January 2026, the anticipated impact has been reasonably factored in at this stage. Full year revenue is expected to remain at the same level.

By segment, Diabetes Management incorporates the assumption that CGM business will be excluded from consolidation from the fourth quarter onwards. For BGM, we have revised our forecast upwards, taking into account strong performance throughout the second quarter and anticipating increased revenue, which includes favorable impacts from exchange rates. The Healthcare Solutions was revised downwards to reflect the current order situation in the CRO business. The Diagnostics & Life Sciences was revised downwards due to continued weak demand for equipment resulting from the stagnant U.S. market situations.

Operating profit is revised downward for Diagnostics & Life Sciences, reflecting lower revenue. For Diabetes Management, the forecast is revised upward due to the higher revenue of strong BGM, especially in highly profitable U.S. and European markets through Q2.

As a result, overall operating profit forecast is revised upward to JPY 20 billion, up JPY 2.6 billion from the previous forecast. With JPY 6.8 billion unrealized FX losses due to the recent weaker yen against euro, full year profit attributable to owners of the parent forecast is JPY 4.4 billion. Since FX losses are unrealized, dividend forecast remains unchanged, JPY 21 for interim dividend and JPY 21 for year end. Total annual dividend forecast is JPY 42 per share, which is unchanged.

Next is the progress of businesses. Due to strengthened profit base and profit portfolio management under the value creation plan, the other day, we announced the basic agreement about the CGM business transfer. As mentioned earlier, we are currently negotiating the business transfer contract. As soon as we sign the contract, we will report to you.

And on October 1, health care IT solution business Wemex merged with its subsidiary, Wemex Healthcare Systems. In October 2023, Fujifilm Healthcare Systems' EMR and medical-receipt systems businesses were transferred to us. Since then, both companies promoted optimization through product integration, office consolidation and exchange of personnel. This integration aims for faster decision-making and improved operational efficiency to accelerate synergy creation. It expands the customer base to over 55,000 accounts and establishes a structure to maximize management resources. We would ensure support for health care DX led by the government and will contribute to Japan's health care, extending beyond clinics to include pharmacies, hospitals, telemedicine and health management.

On the right-hand side is an example of focus on D&LS, the third key initiatives of value creation plan, showing the latest new products and external evaluations. Major products of Biomedical and IVD, incubator and PATHFAST Immunoanalyzer were newly launched after functional improvement and the improvement of ease of use. The products that we developed and manufactured received multiple awards in this quarter for their concepts, technological capabilities, design and quality. This exemplifies our steady progress towards sustainable growth centered on diagnostic and life sciences.

2025 integrated report was published in October. With our new vision announced in VCP last year, we are leader in precision technology that powers the future of health care. The report showcases the PHC Group's long-standing expertise in precision technologies and features specific experiences of employees in our value creation efforts in 3 areas: monitoring, examination/diagnostics/treatment and R&D. We will be grateful if you take the time to read it.

That concludes my presentation. Now I will hand it over to Yamaguchi, CFO.

First, I will explain the results for the second quarter and then the full year forecasts, which were revised this time. First, an overview of our second quarter results to date. Revenue for the first half of the fiscal year decreased slightly due to the yen appreciating against the dollar. However, when the impact of foreign exchange is excluded, revenue increased. Operating profit rose by 12.7% year-on-year, exceeding our initial internal plan for the second consecutive quarter. We will explain the details of sales and operating profit by segment later. The trends were generally similar to those in the first quarter. While there were variations across businesses, overall progress was strong.

Financial expenses included JPY 2.7 billion in interest paid and JPY 6.8 billion in foreign exchange valuation losses, resulting in a pretax profit of JPY 0.9 billion. This loss was primarily due to the yen weakening against the euro, falling from JPY 161 to JPY 174. Please refer to Page 28 for details.

Due to the foreign exchange loss, profit attributable to owners of the parent was JPY 600 million negative. EBITDA remained the same as last year. The JPY 1.2 billion difference from the increase in operating profit was decrease in depreciation and amortization. Adjusted EBITDA increased by JPY 1.0 billion. The difference from the increase in EBITDA was due to onetime income of JPY 600 million recorded last year. For the second quarter to date, the exchange rates applied were JPY 168 to the euro and JPY 146 to the dollar. Compared to last year, euro weakened but dollar strengthened, which had a negative impact on revenue.

Page 11 shows the quarterly trend in sales and operating profit. Due to the nature of our business, sales tend to increase in the second half of the fiscal year. In the second quarter, sales increased in all segments compared to the first quarter.

Operating profit decreased by 9.1% year-on-year due to reduced high-margin electronic prescriptions business and unfavorable market conditions affecting Diagnostics & Life Sciences segment. However, compared to the first quarter, driven by stronger sales in high-margin businesses, such as BGM and Healthcare IT Solutions, profit margin improved, resulting in a 70% increase in profit.

Page 12 explains sales by segment and business. Diabetes Management grew by 0.9% year-on-year despite the impact of yen appreciation against the dollar. This represents 2.0% increase when currency effects are excluded. Following the first year, BGM sales was strong in Europe and the United States, while CGM also grew year-on-year. Although market contraction in developed countries is having an impact, securing revenue growth despite this remains positive progress towards stabilizing BGM, which is a key focus of our midterm plan.

Healthcare Solutions saw an increase of 1.9% in revenue. Although sales related to electronic prescriptions decreased, driven by strong performance in electronic medical records and medical-receipt systems, Healthcare IT Solutions grew 6.1% year-on-year. This offset the decline in revenue from CRO business.

Diagnostics & Life Sciences revenue decreased by 5.5%. Excluding currency effects, the Pathology business saw an increase in revenue. However, Biomedical was impacted by stagnant market conditions in the U.S. and IVD by onetime revenue effect. Both saw decrease in revenue.

Page 13 shows the analysis of revenue and operating profit growth. Top half is revenue. As yen strengthened against dollar, there was JPY 1.7 billion negative FX impact. Excluding that, the growth was 0.7%. The revenue of Diabetes Management, LSIM, Healthcare IT Solutions and also the other segment, there was a higher-than-expected revenue from production for third party, and the others revenue increased.

Lower half is operating profit. The significantly higher profit of Diabetes Management, driven by high-margin BGM pushed up the profit. Year-on-year growth was 11.3% even excluding ForEx impact. As explained in the previous earnings call following the review of our corporate functions, some headquarter's roles were transferred to each business. As a result, some HQ and others expenses decreased and expenses of each business increased. Showing this graph is the positive JPY 700 million for HQ and others, and negative JPY 600 million for Diagnostic & Life Sciences. The details are shown on Page 27.

Now let me explain each segment, starting with Diabetes Management. Despite no major changes in the market environment, such as market contraction in developed countries and shift toward the low-price channels, the -- Europe maintained steady sales. The revenue against the strong yen and including the foreign exchanges increased by 0.9%, and operating profit significantly grew by 46.6% margin, improved by 6 points year-on-year to 19.2%. Europe maintained steady sales and U.S. revenue increased due to the growth initiatives such as price, pricing initiatives along with some front-loaded demand. These developed countries performed exceptionally well.

The 365-day CGM product sales contributed to year-on-year revenue increase. With the effect of profitability improvement measures in U.S. and brisk sales in developed countries, overall profitability went up significantly. Also with the effect of the ongoing structural reforms and lower depreciation and amortization expenses, operating profit substantially grew.

Next is Healthcare Solutions. Revenue grew by 1.9% year-on-year. Operating profit was down by JPY 600 million. The margin has improved from Q1 but stayed at 4.7%.

In LSIM, the general examination demand was stable, and the impact of the precision control charge issue on the revenue was smaller than expected. With higher revenue from genetic testing, which is 1 of our growth areas that we focus, LSIM revenue was up by 2%.

Healthcare IT Solutions in the previous fiscal year in Q2, the e-prescription demand grew, but this time, it went down. EMR and medical-receipt systems core business were strong, and the revenue went up by JPY 1.5 billion, offsetting the lower revenue of CRO.

Now CRO last year, LSI Medience ISO certification was revoked. Clinical trials, mainly the orders have been coming down. But as we reported previously, LSI Medience have applied for ISO recertification, which is under review. Higher revenue of LSIM, EMR and medical-receipt systems could not offset the lower revenue of high-margin e-prescription and higher procurement costs. Operating profit decreased by JPY 700 million.

Finally, Diagnostics & Life Sciences. Sales decreased by 5.5%, including impact of stronger yen against the dollar. The Pathology business performed steadily in Europe with large orders for digital pathology products in Q1 as well as robust demand for slide glasses and consumables. Asia also performed well with expanded local production in Asia, offsetting stagnant instrument demand in the U.S. Excluding the effects of currency, sales were on par with the previous year.

Biomedical saw a recovery in Europe and Japan, but stagnant instrument demand persisted in the U.S. due to policy impacts. IVD revenue declined due to the absence of onetime gains in the previous year, reduced reagent sales to China and Russia, and lower demand for digital injectors compared to the strong previous year.

Operating profit decreased by JPY 2.2 billion, which includes JPY 1.9 billion in special factors, JPY 800 million from tariffs, JPY 630 million from onetime gains in the previous year and JPY 550 million from reviews of the headquarter's functions. Conversely, there was JPY 500 million in other income due to changes in the classification of affiliated companies.

The Pathology business saw improved profitability due to price revisions and cost reductions. However, this was not enough to offset the impact of revenue decline from Biomedical and IVD businesses, partly due to the impact of tariffs.

Page 17 shows sales by region. Japan experienced a modest rise with growth in LSIM and Healthcare IT Solutions, offsetting declines in CRO and IVD businesses. Europe achieved a 4.7% increase in sales driven by strong performance in BGM and Pathology as well as the recovery trend in Biomedical. North America experienced decrease in revenue due to the continued impact of exchange rates and stagnant equipment demand in Diagnostics & Life Sciences despite growth in BGM. Other regions experienced a slight increase in revenue, driven by growth in Indonesia despite declines in BGM and Diagnostics & Life Sciences.

Page 18 provides details of the adjustments made to operating profit for calculated adjusted EBITDA. These adjustments include depreciation, amortization as well as onetime income expenses. Depreciation and amortization decreased by JPY 1.0 billion due to completion of amortization for certain intangible assets and impact of yen appreciation. Adjustments from EBITDA to adjusted EBITDA include restructuring costs of JPY 300 million in the previous year and JPY 500 million in the current year. Additionally, the previous year included JPY 600 million of onetime income.

Next is consolidated balance sheet. Below is a brief explanation of the main assets and liabilities. Goodwill balance was JPY 212.1 billion, an increase of JPY 5.6 billion. This was due to the weakening yen against the euro. There was no change on a local currency basis. Interest-bearing debt decreased by JPY 7.6 billion to reach JPY 247.7 billion, despite repaying JPY 11.9 billion due to foreign exchange effects. Furthermore, existing borrowings maturing in June 2026 were reclassified as current liabilities. However, these are structured with refinancing as a prerequisite. Discussions with financial institutions will continue during this fiscal year.

ROE calculated based on profits over the most recent 12 months was 4.2% for the quarter due to year-on-year decrease in profit attributable to owners of the parent. Cash and cash equivalents decreased by JPY 6.3 billion during the second quarter. Operating cash flow was JPY 12.1 billion, while capital expenditure was JPY 4.4 billion. Financial cash flow, including repayments of borrowings and lease liabilities, dividend payments and others resulted in an outflow of JPY 17.6 billion.

This concludes the explanation of the results. Next, I will explain the revised full year forecasts.

The total revenue forecast is unchanged. Operating profit forecast is revised upward by JPY 2.6 billion. I would explain each segment changes on the following pages. As an assumption, the foreign exchange rate based on the recent trend is JPY 171 to the euro and JPY 146 to the dollar. In September, we announced the transfer of CGM business, and currently, we are in the final stage of the agreement and negotiation. As planned, we plan to close this in January 2026. So in this forecast, we included the impact amount reasonably expected at this time.

In September, we communicated the signs of the possible impairment and potential need for the impairment. But this time, we have implemented the impairment test, and currently, we do not believe it is necessary to book the impairment loss. And this has already been audited by the auditor.

Operating profit forecast is revised upwards by JPY 2.6 billion and JPY 6.8 billion. FX losses recorded through Q2 was factored in. And profit before tax, JPY 8 billion, is down JPY 4.2 billion. After adjusting the tax impact, the profit attributable to owners of parent is revised to JPY 4.4 billion, down JPY 3 billion. FX losses are unrealized and the valuation loss, so it does not impact the cash. So we maintain the annual dividend forecast.

Page 23 shows the comparison to previous forecasts by segment. In Diabetes Management, for CGM, we factored in its planned transfer and the consolidation in Q4 and onwards. For BGM, the strong results through Q2 and favorable foreign exchanges are included. Overall segment revenue revised upwards. Revenue of the Healthcare Solution is revised downward based on the CRO business results and the recent orders. Revenue of Diagnostics & Life Sciences is reviewed -- revised downward based on the assumption that the sluggish equipment demand affected by the market stagnation due to the tariff and reduced government subsidy mainly in U.S. will persist. In others, upward revision is made as negative risk on the revenue. We expect it was eliminated. With higher BGM revenue and planned deconsolidation of the CGM, Diabetes Management operating profit is expected to increase by JPY 4.2 billion.

For Healthcare Solutions, our assumption is to offset the lower revenue with cost reduction and others. Diagnostics & Life Sciences lower revenue will lead to lower utilization. Operating profit is revised down by JPY 2.6 billion. Revenue impact and onetime cost review included, the overall operating profit forecast is revised upward by JPY 2.6 billion to JPY 20 billion.

Page 24 shows newly revised forecast compared to the previous forecast as of August and November.

Finally, updates on U.S. tariff impact. P&L impact year-to-date including additional tariff impact was about JPY 800 million. Progress of countermeasures to optimize supply chain, including review of the production is on track. Based on the effects of the already implemented price increases in Q3 onwards and cost reduction, full year forecast of JPY 1 billion to JPY 1.5 billion impact remains unchanged at this point.

That concludes my presentation.

We will now move on to Q&A session. Joining us as responder is Senior Executive Vice President and COO, CSO, Koichiro Sato. [Operator Instructions] I will call you in the order of your raising hands. Our first, Yamaguchi-sama. Please unmute and ask questions.

Do you hear me?

Yes, we can hear you.

This is Citi, Yamaguchi. The first question is about Biomedical. You revised the forecast, but Q1, Q2, there was no big impact. But including the situation in the United States, the business situation is green. These impacts will appear stronger in the second half or already appearing in the first half or from 2026 fiscal year and beyond?

Biomedical, just as you mentioned, is being impacted by the U.S. situation, where the companies are restrained in making capital investments. And that effect is already with us in the first half, and that will also be so in the second half. Probably in FY 2025, probably in the stagnant equipment sales will continue. The market condition will continue to be not favorable, which is reflected in the forecast. That is why we are currently focusing on launching new recurring consumable businesses. And also at the same time, we are trying to implement measures to mitigate the tariffs just as Yamaguchi mentioned. We are transferring the production sites and making efficiency in production so that we can ensure margins. And these are the measures that we are doing in FY '25.

What about FY 2026 ones? We will continue to monitor the market situation. But in Europe, some pharmaceutical companies are shifting their production sites in the United States and making capital investment in the United States. So probably within 2026, the North American market will recover.

I would like to comment, first of all, the market impact is already with us. What about in the second half? We do not think that the situation will be worse. According to our plans, compared to Q1, Q2, in the second half, because of the seasonality, sales will be up. So we have our plans and against the plan, probably there will be wider gap from the reality to our plan. And that is why we have revised downwards the forecast.

What about FY 2026 and beyond? This year, the market situation will not improve. But in 2026 and beyond, we will make the plans. But all in all, as Deguchi mentioned, major pharmaceutical companies are investing in the United States, and they have already made the announcement. Of course, we'll have to see whether these investments will be materialized. But from the second half this year to next year, if these things happen, then probably we will see the comeback of the U.S. market.

Another question regarding BGM and some CGM. Your profit margin is good for BGM, just as you mentioned, in the second quarter, but you said that, that situation will continue throughout the year. But I believe that the BGM market per se is not favorable. So do you think that this higher profit margin for BGM will continue through FY 2026 and on?

Thank you for the question. Just as I explained in Q1, we are seeing the recovery in the profit margin. There are 4 factors behind that. The first is the cost improvement and SG&A improvement and then amortization, depreciation favorable. And also excluding CGM is the fourth factor. COGS improvement, that is gross profit improvement. We succeeded in hiking prices in the United States, and that is offsetting the decrease in the volume.

And also, with regard to COGS, we have been improving the operations. Particularly regarding inbound logistics, we are consolidating the procurement. And also there were meter restraint that I explained in Q1, but in Q2, we are making investments into meters, particularly in the U.S. market.

On the other hand, in China, there are not profitable channels and also some markets in the Middle East. In these low-margin areas, we are restraining our investment into meters. And so we are investing in areas where there are profit gross margins, but otherwise, we will not. So we are putting priorities. And with regard to SG&A, we have been making efficiencies there, and we are reducing the professional fees and reducing the staff and also amortization, depreciation are as I have already explained. GP improvement, 25%; S&GA improvement, 35%; amortization, depreciation, 40%, these are some of the percentages contributing to the improvement.

What about FY 2026 and beyond? This situation will continue. With regard to the market. The BGM market will be down by 10%, but we are the #1 position in the market, so we are gaining the market share from our competitors. So into the next fiscal year on, we'll continue these initiatives. That is why our forecast will not change markedly. This has been the answer.

Let me augment. In VCP or midyear plan, we said that BGM sales will be stabilized. And probably, CAGR will be minus 2.4%. That's in our VCP. The major factor is to stabilize the situation in the United States. The measures that I have explained are successful, and these are contributing to the sales profits. And CGM is also increasing the penetration, so probably, the CGM downsize is a little bit smaller. So I believe that our priority is getting the market share of BGM in major markets. So we are making sure that we will be in tandem with what we mentioned in VCP.

Thank you. Next, Ryotaro Hayashi.

Yes. Hayashi from Morgan Stanley Securities. I hope you can hear me. Two questions. First of all, about the CGM, the transfer, originally, 26 March, the CGM revenue and operating loss were factored in. I think that the numbers were not disclosed. So this time, now the effect of the deconsolidation is included in your guidance. So at this timing, the Q4 CGM revenue and also the deficit, what were the size of them that you assume? Maybe this time, you will be able to tell us. So I would like to know that.

The reason I'm asking this is that next fiscal year CGM revenue, that would be gone. So to what extent should we deduct that from the guidance? So that's the reason I'm asking this question.

Yes. Thank you. The forecast and what we factored in, the contract negotiation has not yet -- over. So it has to do with the negotiations. I cannot really talk about the numbers. But the way I was thinking is that, at the time of the MOU, I think we explained that, as of last year, JPY 9 billion operating loss is what we have. And for this fiscal year, this will be less that was included in our original plan and Q4 only, so that means 1/4 of that number.

In addition to that, the transactions incurred onetime cost, so we need to deduct that. And so we reflected that in the revised forecast. From that sense, this plan itself, we believe, is rational, reasonable, and the CGM impact itself is not increasing so much.

I see. My second question is in September, CGM business transfer was explained, and at that time, Q2, the BGM -- mainly BGM, the Diabetes Management, the impairment -- potential impairment of the goodwill might happen. That's what you said. But you said, this time, you did test the impairment, but you think that it's not necessary. So in Q4, when you close fourth quarter, making the judgment again, is there any remaining risks? And if the probability of having the impairment loss, is it the same? Or is it lower? If you can explain the nuance there.

Yes. Thank you. In that sense, IFRS -- based on the IFRS, we have -- we do the impairment test at least once a year. And as of the 1st of January, when we closed the full year numbers, we would have another test. So in this case, by announcing the CGM transfer, there were signs and possibilities. So at the time of the quarter end, we implemented this impairment test. So when we close the full year, we would, of course, conduct another test. And if there are any signs of the impairment, we would also do the test. So that will be the rule or process.

As for the risks, this time, impairment test was done, and currently looking at the BGM performance and the progress, we made the judgment. So from now on, for example, let's say that the interest rate going up significantly or the BGM performance comes down significantly, without those, the conclusion is not likely to change in 6-month time period. But if you ask me whether it's possible or not, I have to say yes, but the risk in comparison to the September time frame is lower, I believe.

Thank you. Next Tokai Tokyo, Mr. Yoshida, please.

This is Tokai Tokyo, Yoshida. Do you hear me?

Yes, we can hear you.

This is the first time for me to ask questions. There are 3 questions. The first is on BGM. External environment has not changed. That's what you said, but you're increasing your share. For instance, you had initiatives and you said that these initiatives were successful. Could you please elaborate on that? And also are your competitors withdrawing from the BGM market or not?

Thank you for the question. First of all, with regard to external environment, as we mentioned at the outset, BGM market per se is minus 4%, minus 5% down. Every year, the trend will continue in the future. The reasons are as follows, because we have CGM that is an alternative product, which is penetrating into a certain segment of the market. Just as Yamaguchi mentioned, the CGM segment is there and some percentage of the patients are Type 1 patients or serious Type 2 diabetic patients requiring insurance. So these are the targets for CGM.

In the past few years, the market accelerated. That is why the BGM market is down. Considering the current trend, we believe that the CGM penetration reached a certain level of plateau for the time being. So from this point on, the penetration will be gradual, and that's the basis of minus 4%, minus 5% for BGM.

Another reason is that we have a high share in the BGM market, and there was a mentioning of competitors. Competitors particularly in the United States, because of economic reasons, they filed Chapter 11 bankruptcy filing. So we are taking the advantage of that, capturing their market in the United States. And also in Europe, we are strong already, and the competitors, some are withdrawing. Some are continuing. But we are focusing on strong markets to further grow our market share. That is why although the BGM market is down, we are increasing our shares in the markets where we are strong. That is how we are doing the offset, and that is the plan in our VCP, although this is the first year of midterm plan. But so far, these initiatives are successful.

So this is FY '25? Well, you said Chapter 11, that Chapter 11 bankruptcy filing in the United States, did it happen last year?

No, it happened this year.

Some of your competitors file for bankruptcy protection. The second question is about biomedical. You said European companies, pharmaceutical companies are investing in the United States. What about the competitive situation there? For instance, ultra-low temperature freezer, you have a certain share in the United States, and you have a share of 10% in Europe. European companies making inroads into the United States. So you have 10% share in Europe, which is not high compared to your market share in the United States. So these European companies are going to the United States and then what about your performance in these markets? So you have 20% market share in the U.S. market? Or will this be adversely impacted? What about the competitive situation and your forecast?

Thank you. In the United States, we believe that we have the existing market share maintained. We have major pharmaceutical companies in Europe, biotech companies in Europe with production sites. They are investing several tens of billions of dollars to shift the production basis in the United States, and that is to avoid the tariff measures in the United States.

At that point in time, we have the strong dealer sales network and direct sales channels. We have both. So we believe that these systems will have the strong base there. We have also the research base academia, which we will be able to utilize through our existing and new channels to further expand the market share in the United States.

Let me comment. The market share is a market share for the total North American market. But we are -- we have dealings with global pharmaceutical companies, and of course, in the United States, our competitor has a larger share. But our product is of high quality, and we are targeting large pharmaceutical companies. So considering these, the relations with large pharmaceutical companies, we will be able to beat the competitors in the U.S. market.

The last question from my side. Last year, you announced VCP, and you will withdraw from CGM. I believe that, that will impact the revenue. But what about profits? Will there be any change from transferring the CGM business?

Thank you. This time in VCP, with regard to the figures in profit, we use profit margins and also in terms of the revenue growth rate. So we are not disclosing the absolute figures but the percentage of growth. That is our target, and we would like to make sure that we can realize the contents of VCPs. And we believe that we are on track with the progress.

If that is a case, 4% to 5% is the revenue growth. So will this figure be impacted by CGM sales or there will be no change?

Just as you said, in CGM, we said that -- in VCP, we said that CGM will be a priority. That is why it is all to have the impact, but we would like to make sure that this can be offset by businesses in other areas.

If that is the case, the sales will be down. But the negative impact on the profit will be gone, so the profit margin will be improved. Probably do not disclose the absolute values, but probably in the absolute profit level or the margin level will not be changed.

Yes, we are making sure that we strengthen our portfolio management. Our goal is achieving the percentage targets, and that is what we mentioned in VCP. At this point in time, it is exactly as you mentioned.

This is rolling or this will not be changed?

We are not thinking of changing the content.

Thank you very much. We are -- we have some time left. So are there any questions? If you have any questions, please raise your hand. Kei Takeuchi, go ahead.

Takeuchi from BofA Securities. One minor point about the tariffs prospect I'd like to clarify. In Q1, JPY 200 billion and -- JPY 200 million and JPY 600 million. So that means that probably it will be higher than your expectations from [ 10 to 1.5 ]. So are there anything that included in the second half initiatives specifically?

Yes, in that sense, now JPY 800 million at the end of the first half and for the full year, it's JPY 1 billion to JPY 1.5 billion. So it's at the higher level and as you pointed out correctly. And the reason for that is that we calculate it based on the 10%, but there were additional tariffs. So that one of the reasons.

And as for our initiatives, already, the prices were increased as of the 1st of April, and the effect of this or the timing of it in Q2, it was not 100%. So in Q3, Q4, it would become more obvious or it would be realized. So JPY 1 billion to JPY 1.5 billion and at the high level, we are trending at that level, so we'd like to make sure that we can harvest. But the tariff impact increasing further is not something that we expect. So we'd like to control well so that we can achieve those targets.

Additional comment about the tariff's impact is the biggest in the life science. As Yamaguchi mentioned, the price increase is done starting from Q2. And the effect of that will be fully realized in the second half, and there will be an additional price increase.

And the securing margin is in the first year of the VCP is the most important thing. So SG&A cost reduction, especially we have multiple plants in life science, so transferring the products among those plants so that we can provide or ship products to the United States with lower tariffs and increasing the production capacity in the United States. So that's what we are trying to do, and we accelerated in the second half. So there could be higher impact from the tariff in the second half, but we will be taking more mitigation plans to offset that.

So price increase and supply chain, the initiatives will continue, I see.

Are there any other questions? Thank you very much, everyone, who asked questions. This concludes the briefing session. Thank you very much for taking time out of your busy schedule.

[Statements in English on this transcript were spoken by an interpreter present on the live call.]