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Nagasawa: It is now the scheduled time. We will now begin the earnings presentation for Q1 of the fiscal year ending March 2026 for FUJIFILM Holdings Corporation. Thank you very much for taking time out of your busy schedules to join us today. Let me begin by introducing today’s participants. First, we have Teiichi Goto, President, Representative Director and CEO of FUJIFILM Holdings Corporation.
Teiichi Goto: Thank you for having me.
Nagasawa: Next is Masayuki Higuchi, Director and Corporate Vice President, CFO of FUJIFILM Holdings Corporation.
Masayuki Higuchi: This is Higuchi. Pleased to be here.
Nagasawa: We also have Naoki Hama, Director of FUJIFILM Holdings Corporation and President, Representative Director and CEO of FUJIFILM Business Innovation Corp.
Naoki Hama: Hama here. Thank you for having me.
Nagasawa: Next is Chisato Yoshizawa, Director and Senior Vice President, General Manager of Corporate Communications Division and General Manager of ESG Division at FUJIFILM Holdings Corporation.
Chisato Yoshizawa: Corporate VP, GM of Corp Communications and ESG Division-Global Audit Dep, Brand Mgmt & Director I’m Yoshizawa. Thank you very much.
Nagasawa: Tetsuya Iwasaki, Director, Senior Vice President and General Manager of the Electronic Materials Business Division at FUJIFILM Corporation.
Tetsuya Iwasaki: I’m Iwasaki. Thank you.
Nagasawa: Lastly, Toshihisa Iida, Director and Corporate Vice President, General Manager of Life Sciences Strategy Headquarters and General Manager of Bio CDMO Division at FUJIFILM Corporation.
Toshihisa Iida: I’m Iida. It’s a pleasure to be here.
Nagasawa: I am Nagasawa from the Corporate Communications Division, and I will serve as today’s moderator. Thank you for your attention. Let me now outline the structure of today’s presentation. We will begin with Mr. Goto, who will present highlights and key topics from the financial results. He will be followed by Mr. Higuchi, who will provide an overview of the consolidated results and business performance for Q1 of FY2026, along with the full-year forecast. After that, we will proceed to the Q&A session. With that, I will turn it over to Mr. Goto.
Teiichi Goto: I would like to begin by presenting an overview of FUJIFILM Holdings’ consolidated results for Q1 of the fiscal year ending March 2026. Revenue for Q1 was JPY749.5 billion, operating income was JPY75.3 billion, and net income attributed to FUJIFILM Holdings was JPY53.8 billion. Both revenue and operating income marked record highs for a Q1. Net income, however, declined due to the impact of foreign exchange losses and other factors. Revenue remained flat YoY, as strong sales in the Bio CDMO business, semiconductor materials, and imaging offset the negative impact of foreign exchange. Operating income increased across all segments, led by strong performance in imaging, and the impact of US tariff policy was limited to a minimal level. For the full-year forecast for FY2026, we have incorporated the expected impact of US tariff policies into our projections, while maintaining the previous forecast figures. In practical terms, this constitutes an upward revision, and we are targeting new record highs in revenue, operating income, and net income attributed to FUJIFILM Holdings. As previously announced, the annual dividend for FY2026 is expected to be JPY70, marking the 16th consecutive year of dividend increases. Next, I would like to speak about the key topics from Q1, beginning with the Bio CDMO business. At our large-scale manufacturing facilities equipped with 20,000-liter tanks, discussions with clients are progressing smoothly at both our Denmark and US North Carolina sites. For the four tanks that are part of our second-phase investment at the US site, scheduled to begin operations in FY2028, we have reached basic agreements for long-term contracts totaling approximately USD2 billion with multiple major pharmaceutical companies. At our Denmark site as well, for the second-phase investment facilities scheduled to begin operations in FY2026, we are steadily securing projects in line with the initial plans laid out at the time of our mid-term business plan formulation. By capturing robust demand, we are increasingly confident in our ability to achieve our revenue targets for FY2030. Next, I will turn to our sustainability initiatives. Our company is committed to contributing to a sustainable society by providing advanced products and services that address key environmental challenges. Today, I will introduce three such initiatives. First is our PFAS-free negative-tone ArF immersion photoresist. Leveraging proprietary technologies cultivated through our work in silver halide photography and semiconductor materials, we have developed a negative-tone ArF immersion photoresist capable of forming fine circuit patterns without the use of PFAS. Together with imec, an international research institute focused on advanced semiconductors, we have demonstrated that the resist can reliably form fine metal wiring at the 28-nanometer node, widely used in applications such as automotive and industrial semiconductors, with high yield. We are currently undergoing evaluation by customers and are aiming for an early market launch. Second is the establishment of a new manufacturing site for refurbished multifunction devices. Following the development of resource recycling sites in Japan, China, and Europe, we have opened a new facility in the Philippines that guarantees refurbished machines to be of equivalent quality to new ones. This is part of our broader effort to promote adoption of refurbished devices and establish a stable supply structure across the Asia-Pacific region. Toward our goal of reducing the input of virgin resources to below 60% by FY2030, we will continue to advance our resource recycling initiatives. Lastly, regarding our response to climate change. At our factory in the Netherlands, we have introduced an electric boiler system, our group’s first such installation. As a result, we expect to reduce CO# emissions from this site by approximately 26% YoY in FY2025. Through continued business activity, we will strive to address social challenges and contribute to the realization of a sustainable society. That concludes my presentation.
Nagasawa: We will now move on to a presentation from Mr. Higuchi.
Masayuki Higuchi: I, Higuchi, will now explain the consolidated results and business overview. As Mr. Goto mentioned earlier, both revenue and operating income for Q1 of FY2026 reached record highs for a first quarter. Revenue amounted to JPY749.5 billion, representing a 4.5% increase YoY on a currency-neutral basis, as strong sales in Bio CDMO, semiconductor materials, and imaging offset the negative impact of foreign exchange. Operating income rose to JPY75.3 billion, a 35.1% YoY increase on a currency-neutral basis. The effect of US tariff policy was limited, partly due to the release of inventory brought in before reciprocal tariffs were applied. Profit growth was seen across all segments. I will explain the impact of US tariff policy from Q2 onward later in the presentation. Net income attributed to FUJIFILM Holdings reached JPY53.8 billion, up 10.6% YoY on a currency-neutral basis. While there were negative factors such as foreign exchange losses due to yen appreciation and a decrease in corporate tax expenses in the prior year associated with group company capital restructuring, we still achieved YoY growth on a currency-neutral basis. Segment-specific figures for revenue and operating income are shown as presented. Let me begin with an overview of the healthcare segment. Revenue rose 1.6% YoY on a currency-neutral basis to JPY228.5 billion. As indicated in the upper right portion of the slide, this increase was driven by Bio CDMO, which benefited from the contribution of new facilities in Denmark, as well as steady sales of culture media and reagents in LS Solutions. On the other hand, revenue in medical systems declined, despite solid performance in medical IT, IVD, and endoscopy, due to decreased demand for medical materials bound for China. Operating income rose significantly, up 83.2% YoY on a currency-neutral basis, to JPY4.3 billion. As illustrated in the lower section of the slide, despite negative effects from foreign exchange and raw material prices, the reduction in one-time costs in Bio CDMO from the previous year resulted in a YoY increase of JPY700 million in overall healthcare operating income. Next is electronics. Revenue rose 3.7% YoY on a currency-neutral basis to JPY102.1 billion. Sales in semiconductor materials increased due to strong demand for advanced chips used in applications such as generative AI, with products such as CMP slurry performing particularly well. However, in advanced functional (AF) materials, revenue declined due to the absence of a large-scale transaction with an IT client in the prior year for data tapes. Operating income increased by 25.2% YoY on a currency-neutral basis to JPY22.5 billion. Despite negative currency impacts, the operating profit boost from higher sales in semiconductor materials led to a positive contribution, resulting in a JPY2.6 billion increase in overall electronics operating income. Moving on to business innovation. Revenue increased 0.9% YoY on a currency-neutral basis to JPY273.6 billion. Business solutions, which includes DX-related solutions and services for municipalities, saw revenue growth. On the other hand, office solutions, where we are intentionally limiting the sale of low-margin products to China, and graphic communication both saw revenue decline. Operating income grew 16.1% YoY on a currency-neutral basis to JPY15.6 billion. Negative currency impacts were offset by operational improvements, mainly from profit growth resulting from sales growth in business solutions. Furthermore, a reduction in one-time costs contributed to an overall increase of JPY1.1 billion in operating income for business innovation. Lastly, we turn to imaging. Revenue increased 17.9% YoY on a currency-neutral basis, reaching JPY145.3 billion. Both consumer imaging, which saw strong sales of instant photo systems including new products, and professional imaging, which recorded solid digital camera sales, posted revenue gains. Operating income rose 37.4% YoY on a currency-neutral basis to JPY41.8 billion. Although foreign exchange effects were negative, the increase in revenue across both businesses significantly boosted operating performance, resulting in a substantial JPY9.2 billion increase in overall imaging operating income. Now, I will explain our cash flow. Cash inflows rose by JPY7.3 billion YoY to JPY104.7 billion, due in part to an increase in unpaid corporate taxes. Cash outflows declined by JPY11.3 billion to JPY131.6 billion, mainly due to a reduction in capital expenditures. As a result, adjusted free cash flow, excluding business acquisitions, was a net outflow of JPY25.7 billion. That concludes the explanation of results for Q1 of FY2026. Next, I will discuss our forecast for the fiscal year ending March 2026. As stated at the beginning of the presentation, we have now factored in the projected impact of US tariff policy into our full-year consolidated earnings forecast but have chosen to keep the previous forecast figures unchanged. We continue to aim for record-high figures across the board, with revenue of JPY3.28 trillion, operating income of JPY331 billion, and net income attributed to FUJIFILM Holdings of JPY262 billion. We have incorporated the anticipated effects of US tariffs into our assumptions, and the performance forecasts by segment also remain unchanged from the previous announcement. Please refer to page 24 of the presentation materials for a detailed breakdown of segment-specific revenue projections. Lastly, I will explain the projected impact of US tariff policy. Back on May 8, we announced an external assumption for the earnings forecast of an estimated impact of USD140 million, plus or minus USD100 million. This time, based on information available as of August 1, we have factored into our current fiscal year earnings forecast a negative impact of JPY6 billion on operating income. This amount reflects the minimized effect of reciprocal tariffs, achieved through timely implementation of appropriate measures such as reviewing our supply chain and further reducing expenses. Breaking this down: the healthcare segment is expected to incur a negative impact of JPY4 billion, while electronics and business innovation are each expected to be affected by JPY1 billion. As for imaging, although instax and digital cameras will also be impacted, we anticipate no effect on our earnings forecast due to countermeasures already in place. We will continue to monitor developments closely and implement necessary actions swiftly. That concludes my presentation.
Operator: We will now begin the Q&A session. Mr. Shibano from Citigroup Global Markets, please go ahead.
Masahiro Shibano: This is Shibano from Citigroup Global Markets. My first question is on Q1 results, for the April to June period, it’s the usual question I ask. With operating income at JPY75.3 billion, it seems like a very strong result. If there was any gap between this and your internal plan from the start of the fiscal year, could you walk us through that, both on a consolidated basis and by business segment? Also, regarding the full-year forecast: at the beginning of the year, the CEO expressed a strong intention to aim for profit growth, and I believe that intention still holds, even now. But looking at the numbers, the current forecast implies just 0.3% growth in profit, which is cutting it very close. Do you still see potential for further upside from here? If possible, I’d also like to hear the CEO’s current view on the full-year outlook.
Masayuki Higuchi: I’ll respond first regarding how we performed versus our internal plans for the April to June quarter. At the company-wide level, both revenue and profit exceeded plan. For revenue, in particular, the impact of foreign exchange during this period was very minor, virtually negligible, so you can almost think of it as not being a factor. Looking at revenue by business, imaging exceeded plan by a fairly wide margin. Healthcare did see some softness in medical systems, where demand for film in China and the rest of Asia was a bit lower than expected due to inventory adjustments, so there was a slight shortfall there. But electronics and business innovation were more or less [inaudible]. As for operating income, we saw the same film-related impact in healthcare for China and Asia, so healthcare was the only area that came in slightly below plan. But the rest were above target, and business innovation and imaging in particular beat plan by a wide margin. So overall, we exceeded internal projections across the Company. That’s the general picture.
Teiichi Goto: Let me add a few comments on the full-year outlook. Back on May 8, we could only present a very wide estimate for the impact of tariffs: USD140 million, plus or minus USD100 million. That was the best we could do at the time. But in the end, it came in much closer to the lower end of the range. The JPY6 billion figure we landed on equates to about USD40 million, so we were able to bring it down quite close to that lower end. And what’s more, we’ve incorporated that JPY6 billion tariff impact into our full-year forecast without changing our initial plan. In other words, we effectively raised the forecast. Speaking personally, to be honest, the outlook from here is still very unclear. But if foreign exchange rates stay relatively stable, if geopolitical conflicts don’t worsen, and if inflation in the US remains within a manageable range, then I believe it’s possible for us to exceed the current forecast of JPY331 billion in operating income. One of the strategies we’re working on, in case inflation in the US pushes prices too high and demand for our products starts to drop, is identifying alternative markets, where else we can drive sales, especially for our imaging and medical businesses. Right now, we’re actively targeting India, the Middle East, Central Asia, and Africa. These regions are becoming valuable entry points for us, helping us open up new markets and expand the overall pie. That’s how we’re thinking about offsetting any slowdown that might come from a US economic downturn.
Masahiro Shibano: Just one follow-up for Mr. Higuchi, how much of an upside did you see in operating income for the April to June quarter?
Masayuki Higuchi: About JPY7 billion to JPY8 billion.
Masahiro Shibano: Thank you. My second question is for Mr. Hama, regarding the office equipment side of the business. We’ve now seen earnings announcements from most of the copier manufacturers, and I get the impression that the impact of price increases on [inaudible] has been smaller than expected. From your perspective, whether looking at the US or other regions, how are you viewing market conditions for H2 of the fiscal year?
Naoki Hama: This is Hama. Let me answer that. As you pointed out, during Q1, we still had inventory and a bit of a time lag, so I think it’s fair to say the impact of tariffs hasn’t really shown up yet. That said, looking ahead, Japan has been imposed a 15% tariff, and while the rate varies slightly by country, there are several in effect globally. Figuring out how to handle those will be one of the key challenges. Of course, one option is to raise prices, and there are various approaches we can consider. Ideally, the market would be in a state where that kind of increase could be absorbed, but if the broader economy weakens, then we may start to see some negative effects. At this point, though, and I believe Mr. Goto mentioned this earlier as well, I’m not feeling particularly pessimistic. Given the current environment, I think we’ll be able to manage reasonably well, and I remain cautiously optimistic.
Nagasawa: Thank you. Next, we’ll hear from Mr. Tokumoto of SMBC Nikko Securities.
Shinnosuke Tokumoto: This is Tokumoto from SMBC Nikko Securities. I have a question about the electronics segment, which caught my attention this time. You posted an operating margin of 22%, which is quite high compared to past levels. I imagine some of that is due to changes in the product mix, and I assume the profitability of the semiconductor materials business itself has improved as well. Could you elaborate on the key factors behind this 22% margin? Also, if this trend continues, I wonder whether there’s potential upside to the full-year plan. I’d appreciate your thoughts on that as well.
Masayuki Higuchi: This is Higuchi. Let me address that. As mentioned in response to Mr. Shibano’s earlier question, for electronics, we basically landed in line with our internal plan for Q1. We had projected a 22% operating margin, and we ended right at 22%. That’s for the combined total of the semiconductor materials business and advanced functional materials, so we were more or less right on plan, nothing particularly unusual with the operating margin. That said, the semiconductor materials business has seen a strong recovery in sales, and with that, we’re getting better absorption of fixed costs. So compared to last year or the year before, the operating margin is improving. In addition, within advanced functional materials, we had a more favorable mix, with some higher-margin products contributing. But overall, we landed right in line with our internal plan. So yes, there is a general trend of improvement, but it’s not as if something in Q1 gave us a decisive boost or caused a big jump, there was no single breakthrough.
Shinnosuke Tokumoto: As for the full year, I don’t know if it’s appropriate to simply multiply the Q1 results by four, but if you did that, it seems like you’d come out ahead of the annual forecast. Are you factoring in any downside risks from Q2 onward that we should be aware of?
Masayuki Higuchi: That’s right. If you just do the math, it looks like we’d exceed the full-year target. But in advanced functional materials, display- related materials are quite seasonal and fluctuate a lot, and we’ve taken that into account. So no, we don’t expect it to scale up evenly if you just multiply Q1 by four.
Shinnosuke Tokumoto: My second question is about the PFAS-free negative-tone ArF resist that was mentioned earlier. I think demand could really take off; last month’s announcement was very interesting to us. There was mention that yields are good, how high are we talking? Also, when this starts getting adopted by customers, I imagine there will be some time needed for operational readiness and other ramp-up processes. How soon do you think this will begin contributing? And if you could also share your thoughts on the business potential and the shape of the ramp-up, that would be helpful.
Tetsuya Iwasaki: This is Iwasaki, and I’m responsible for the semiconductor materials business. As you mentioned, the response has been extremely strong, we’ve received inquiries from a large number of customers already, and we’re currently undergoing evaluations by leading semiconductor logic companies. In the world of advanced resists for semiconductors, there’s a strong tilt toward EUV, but there’s also a parallel movement to explore what can still be done with ArF. Within that context, we’ve been working closely with imec to thoroughly evaluate the quality of the material and to secure endorsements. From a materials supplier’s perspective, I’d say the product is now essentially complete, at nearly 100% readiness. We’re currently being evaluated by three companies. If this leads to adoption, then of course it could replace our existing negative-tone ArF products, but it also has the potential to replace offerings from other companies or even cover some applications currently using EUV. So, while it was a highly technical announcement, from a business and marketing perspective, I believe it carries significant impact.
Nagasawa: Thank you. Next, Mr. Wakao from JPMorgan Securities, please go ahead.
Seiji Wakao: This is Wakao from JPMorgan. My first question is on the latest update regarding CDMO contracts. I’d like to ask about both the US and Denmark sites. For the four tanks in the US scheduled to come online in FY2028, which were part of the update this time, what’s behind the customer commitments you’ve secured there? I assume tariffs played a role, but I’d like to hear more about how you were able to lock in contracts despite the facilities not being operational yet. Also, are there any differences in contract terms compared to the first phase, such as unit price improvements? As for Denmark, although the update this time was only for one tank, should we understand that you’re steadily building up orders there as well? If there’s still room for more updates in Denmark from Q2 onward, I’d appreciate it if you could speak to that as well.
Toshihisa Iida: Iida here, allow me to respond. First, regarding the four tanks in the US that were part of this recent update: these contracts span multiple companies and multiple programs, with terms of around five years. And yes, I believe the US tariffs were certainly a factor in the background. But more fundamentally, I think our latest facilities and our proven track record in Denmark were highly valued by our clients. Additionally, looking to the future, what we call our KojoX platform, essentially a clone-type setup, means that both our Denmark and US sites operate with the same equipment and systems. So, if needed down the line, clients can transfer tech from the US site to Denmark, and I believe that flexibility was also a key selling point. As for the differences from the first-phase contracts: those were long-term agreements signed individually with Johnson & Johnson and Regeneron for Tanks 1 and 2, respectively. This time, we’ve signed batch-based agreements with multiple clients, so the structure is different. Also, in terms of pricing, we can say with certainty that the unit prices are higher than what we initially projected. With all that considered, we’re looking at a total contract value of about USD2 billion. Given that these facilities won’t be operational until FY2028, still more than two years out, I believe securing these contracts at this timing is quite early, and a very positive development. Now, regarding the second-phase investments in Denmark: we’re also engaged in large-scale negotiations there. I expect we’ll be able to share updated information sometime in H2 of this fiscal year. Naturally, because of the tariffs, the US side has moved ahead more quickly, but we’re also seeing a growing trend among pharmaceutical companies toward “local production for local consumption”, that is, making in the US for the US market, and in Europe for the European market. This dual-sourcing mindset is becoming more pronounced, and we’re hearing more explicit requests from pharmaceutical companies in that direction. So, in the case of Denmark, we’re also hearing that customers want to produce the Europe-bound volume in Denmark. We plan to respond accordingly and continue updating our progress there. Additionally, the current and first-phase facilities in Denmark are already fully booked. If customer programs expand further, we may no longer be able to handle production at the existing lines. In that case, production could be transferred to the second-phase facilities within Denmark. That kind of shift is now a real possibility. Taking all of this into account, we expect utilization of the second-phase tanks in Denmark to steadily increase.
Seiji Wakao: Just to follow up, regarding the four tanks in this second phase, since the contracts are with multiple clients, should we assume there won’t be press releases from pharmaceutical companies, like we saw with Johnson & Johnson or Regeneron?
Toshihisa Iida: That’s correct. At this time, we do not expect any client names to be publicly disclosed by the customers themselves.
Seiji Wakao: My second question is about the medical systems business. The slowdown in demand for medical materials in China has been going on since last year, so I don’t think this is necessarily new. Should we interpret this as a case of your internal forecast being slightly on the optimistic side? Also, from what I can tell, products like X-ray equipment are still performing well, so is it safe to say that business outside of medical materials is holding up?
Teiichi Goto: Goto here. Let me take that. We weren’t being overly optimistic, per se. The shift toward filmless systems has been ongoing for roughly 20 years now, and the market has been in gradual decline over that time. Even so, we’ve been able to maintain production levels by continuing to gain market share. That said, the sharp drop in demand this time was somewhat beyond our expectations. One of the main reasons is that the Chinese government, under pressure from fiscal deficits and other challenges, had to choose where to make cuts, and one of those areas, within the broader healthcare domain, was film. Given how far digital X-ray has come, they essentially said, “Film will no longer be covered by insurance; patients will have to pay out of pocket.” That was a major factor, and it’s a change we always knew would come at some point. For example, in Japan and the US, we’re already fully filmless. In that sense, it’s impressive that China held on as long as it did. The drop looks steep when you view it over a short timeframe, but from here, I believe the decline will continue more gradually, in a slow downward curve. As for our response, we still see sizable demand in markets like India and other countries, so we’re looking to capture more share in those regions. Regarding the broader medical situation in China, including the medical device space, things haven’t changed much. Between domestic production policies and anti-corruption efforts, there are various factors at play. Because of the anti-corruption measures, the number of [inaudible] has clearly declined, and that remains the case. Also, the push for domestic production of medical devices is something China has been talking about for years. It’s a pattern we’ve seen in many emerging countries: at first, they allow 100% foreign capital; then they require a 51/49 split in favor of local capital; and eventually they move toward 100% local ownership. This progression has played out in country after country, and China seems to be entering that stage now, especially as domestic technology has advanced. In that environment, we’ve started producing endoscopes at our Suzhou factory in China as of August 2023. That’s made a difference. The quality gap between our products and local offerings is still quite large, and looking at the latest Q1 data, our endoscope sales are up around 5% YoY. And then, while I do think the government will continue allocating budgets in various areas, what’s unclear at this point is where healthcare will rank in terms of budget priority within China. In many countries, when political conditions become unstable, healthcare tends to be a highly visible area that attracts public attention, so governments often allocate funding there. But how high healthcare will be prioritized going forward, that, I believe, will have a significant bearing on the future outlook of the Chinese market.
Nagasawa: Thank you. Next, Mr. Nakanomyo from Jefferies, please go ahead.
Masahiro Nakanomyo: This is Nakanomyo from Jefferies. I have two detailed questions I’d like to ask. First, referring to slide 25, this JPY6 billion in additional tariff impact is expected to be offset through operations, and for healthcare specifically, you’ve indicated JPY4.5 billion in recovery. But based on your earlier comments, Q1 for healthcare seemed rather tough. So where exactly do you expect to generate that JPY4.5 billion? Could you elaborate on the sources?
Teiichi Goto: As mentioned earlier, endoscopy remains very strong. Also, IT solutions are performing very well across various countries. Film did drop a bit in Q1 due to inventory adjustments, so that was slightly below our expectations, but from Q2 through Q4, we believe the strength in IT and endoscopy will carry us forward, so that’s part of it. In addition, when it comes to mitigating tariff impacts in the US, we still have further cost reductions and other levers that we haven’t fully factored in yet. Those are being handled separately, so to speak, as part of our operational measures. We’re looking at those opportunities as well, and that’s why we’ve incorporated JPY4.5 billion in upside here.
Masahiro Nakanomyo: So, this is primarily coming from the medical systems side?
Teiichi Goto: Yes, that’s correct.
Masahiro Nakanomyo: And regarding CDMO, should we take it that nothing has changed from your initial forecast?
Teiichi Goto: That’s right, no changes at this point.
Masahiro Nakanomyo: My second question is related to something Mr. Iida mentioned earlier, specifically, that pricing in the second-phase CDMO contracts has clearly improved compared to the first phase. How does this translate in terms of margins? Because, obviously, costs are also rising and given that these projects are for FY2028 and beyond, further cost increases seem likely. How are such future cost hikes being accounted for in your contracts?
Toshihisa Iida: Iida here, let me respond. Yes, inflation-related costs are rising, but for the current round of contracts, we’ve agreed on pricing that exceeds those increases, so margins are expected to improve as well. As for your second question regarding future inflation between now and 2028, our contracts are structured with batch pricing agreed upon based on current conditions. And for anything beyond that, we’ve included inflation clauses. So essentially, any inflation that occurs between now and 2028, or beyond, is covered under the terms of those inflation adjustment provisions.
Nagasawa: Thank you. Mr. Okazaki from Nomura Securities, please go ahead.
Yu Okazaki: This is Okazaki from Nomura Securities. You mentioned that the impact of tariffs ended up near the lower end of the range you initially forecast at the beginning of the year. I understand that you implemented measures such as price increases, supply chain adjustments, and cost reductions. Could you walk us through the specific actions that allowed you to reduce the impact?
Teiichi Goto: Sure. To give you a concrete example from the supply chain side, imaging was the segment most affected by US tariffs. We used to produce in China, but we also have manufacturing facilities in the Philippines and in Japan, plus we use some contract manufacturers in Southeast Asia. So, we reallocated production across those locations, basically shifted manufacturing away from China, and that was one of the key responses. In addition, we launched new products in both digital cameras and instax, and we’ve been carefully adjusting the pricing structure when shipping those products. We also took steps to reduce advertising and promotional expenses as much as possible while still getting the message out. That applied in Q1, and for imaging products, we’re well-positioned to continue absorbing most of the tariff impact from Q2 through Q4 as well. So, at this point, the area that remains most challenging in terms of tariffs is medical equipment, which we touched on earlier. For our company, medical equipment manufactured in China is mostly sold within China. A small portion goes to Southeast Asia, but none of it is exported to the US As for the rest of our equipment, it’s primarily made in Japan, and that’s where the 15% tariff applies. In that case, we’re trying to offset the impact through cost reductions, but since these are contracted products, any pricing changes would require negotiation, which naturally takes time. That said, our handheld ultrasound devices are made in the US by FUJIFILM Sonosite, so they’re unaffected. If you compare us to our competitors, what we call the big three in the US: GE, Philips, and Siemens, they also manufacture a fair number of products in China. So, in that sense, the fact that we don’t export from China to the US might actually give us a slight advantage. GE, for example, does a lot of manufacturing in the US, they make all of their MRI machines there and even some of their ultrasound devices. So, if you take all that into account, everyone is subject to tariffs, but it’s not as though one company gains a major advantage over the others. That means the key will be how well we manage cost reductions, expense control, and the rollout of new products with adjusted pricing structures.
Yu Okazaki: Just to follow up, so rather than offsetting the tariff impact purely through price hikes on existing products, it sounds like you’ve relied more on supply chain restructuring, cost reductions, and the pricing of new products. Is that a fair characterization?
Teiichi Goto: Broadly speaking, yes, price increases are part of the equation. But whether a price increase is feasible depends on the market conditions and the business model in question, so we can’t apply a one- size-fits-all approach. It varies across our product lines. The products where we can revise pricing most quickly are our imaging products, because of their fast product cycle. We can introduce new products with greater added value and adjust pricing that way. So, while price increases are always a fundamental consideration, the way we’ve managed to get to this JPY6 billion level in tariff impact has involved more than just price, it’s been through a combination of strategies.
Nagasawa: Thank you. Next, Ms. Yamazaki from Morgan Stanley MUFG Securities.
Mie Yamazaki: This is Yamazaki from Morgan Stanley MUFG Securities. I have one question each on imaging and the CDMO business. First, regarding imaging, my understanding is that operations in Q1 were very strong. Looking ahead to Q2 and beyond, are there any risks you’re keeping an eye on that you could share with us?
Teiichi Goto: Goto here. Let me respond. Yes, Q1 was indeed a very strong quarter for us. The reasons include solid performance from the instax line, WIDE 400, WIDE Evo, and also Link 3, which we launched in the previous fiscal year, all performed well. In April, we launched the mini 41, which has a classic design, and that product also generated solid numbers. As for digital cameras, the X100 series [inaudible] and the half-frame X half model are both doing very well, with a significant backlog of orders building up. Demand continues to be strong. We still have several new products in the pipeline, and we expect the upward trend to continue. Even if inflation in the US leads to weaker demand or consumer hesitation, we believe there are still plenty of other markets globally where we can absorb that impact. We can shift focus to those areas, and if we do that well, we expect the strong performance to continue through the rest of the year.
Mie Yamazaki: My second question is about the Bio CDMO business and the revenue growth in Q1. If we exclude the effects of foreign exchange, it looks like revenue grew by close to JPY10 billion. Considering the full-year target is around JPY40 billion in growth, this seems like a very strong start. Was this performance in line with your initial expectations, or was it stronger than expected?
Toshihisa Iida: Iida here, let me take that. We’re tracking more or less in line with the assumptions we had at the start of the fiscal year. If you look at page 10, you’ll see both upside and downside factors. In last year’s Q1, our Texas site had reduced operations due to enhancements in quality control systems. But this year, it’s running at full capacity. That alone contributed a high single-digit billion- yen upside. Also, the new facility in Denmark, which began operations in November last year, delivered another high single-digit billion-yen upside. Denmark also had a scheduled maintenance shutdown, something that occurs once every five years, which had an impact of around JPY10 billion or slightly more. When you factor in both the upsides and this planned downtime, we’re still operating within the expected range. From Q2 through Q4, Texas had already started ramping back up last year from Q2 onward, so the YoY upside from Texas is mostly a Q1 effect, it won’t carry forward as strongly. However, Denmark’s existing lines resumed operations in July, and along with the continued contribution from the new facility, we expect to progress in line with our initial full-year plan.
Nagasawa: That concludes the Q&A session. With that, we will now close the FUJIFILM Holdings earnings presentation. Thank you very much for your participation today. [END]