PHC GROUP Integrated Report

PHC Group Overview and VisionOverview of Mid-Term Plan

On November 16, 2022, PHC Group announced our Mid-Term plan, Value Creation Plan (FY2022-2025). We aim to achieve further growth by contributing to Value-Based Healthcare in the three Growth Areas listed below.

Value Creation Plan FY2022-FY2025 image

Definition of Foundation Areas and Growth Areas

  • In clarifying our growth strategy, PHC Group has classified our businesses into Foundation Areas and Growth Areas. The definitions of each are as follows.
    • Foundation AreasBusinesses with core technologies and assets that generate revenue while the markets grow at a solid pace
    • Growth AreasBusinesses that expand products, services, and customer bases around Foundation Areas and capture high market growth while expanding technologies and assets
  • To expand Growth Areas, it is essential to fully utilize the strengths of each business in PHC Group. We currently have three business domains, and each has a related Growth Area. However, the boundaries between each Growth Area are not as clear as the boundaries between the Foundation Areas, and we will expand the Growth Areas while pursuing synergies among our businesses. The Foundation and Growth Areas of the current domains are as shown in the table below.
Business Domains Foundation Areas Growth Areas
Diabetes Management
  • Blood glucose monitoring (BGM) systems
  • Continuous glucose monitoring (CGM) systems
  • Point-of-care testing (POCT) devices
Healthcare Solutions
  • Healthcare business support solutions (medical-receipt computers, electronic medical record and electronic medication history systems, etc.)
  • Clinical testing
  • Health management, big data analysis, etc. Digital health solutions
  • Drug development support solutions for clinical trials, etc.
Diagnostics & Life Sciences
  • Life sciences equipment such as ultra-low temperature freezers and pharmaceutical refrigerators
  • Anatomical pathology equipment, reagents, glass slides, etc.
  • Products related to cell/gene therapy
  • Digital pathology/immunohistochemistry (IHC) staining, etc.

Strategies for Foundation Areas and Growth Areas

  • In our Foundation Areas, we develop strategies to align closely with the market trends in each product and country/region. For Growth Areas, we leverage synergies between our businesses to provide unconventional solutions through new technologies and services. Details are described on the pages for each business.
  • Since the announcement of our Mid-Term Plan, the following initiatives have been progressing, especially in the Growth Areas.
    • Health Management BusinessIn PHC Group, LSI Medience previously offered a health checkup support business for companies and organizations, and Wemex had a system called WellsPort to support corporate employees in improving their daily health awareness and providing health guidance. In recent years, investing in the health of employees has become widely recognized as a way to enhance vitality and productivity. Therefore, we integrated these two businesses on April 1, 2023, and now offer a new solution from the perspective of corporate health management.
    • Diagnostic Reagents BusinessPHC Group had an IVD business at PHC Corporation with strengths in equipment manufacturing, and a diagnostic reagents and instruments business at LSI Medience, which excelled in reagents. By integrating these two businesses on November 1, 2023, we aim to achieve even higher quality and lower cost of products, develop products that combine equipment and optimal reagents, and further expand sales outside Japan, which is an excellent opportunity for both companies.

Growth Areas will drive future growth of PHC Group

  • By expanding our business in both Foundation and Growth Areas, we aim to achieve revenue of 420 billion yen, operating profit of 56 billion yen, and cash based profit of 49 billion yen by fiscal year 2025.
  • The breakdown of revenue growth is as follows, and we intend to expand our Growth Areas to a scale that will drive the future of PHC Group.
    • Foundation AreasIncrease revenue by 27 billion yen with annual growth of 2% (FY2021-2025)
    • Growth AreasIncrease revenue by 52.5 billion yen with annual growth of 27% (FY2021-2025)
  • We are also forecasting operating cash flow to range between 200 to 250 billion yen from fiscal year 2022 to 2025.
    • Equipment/digital investment40 to 50 billion yen
    • Loan repayment50 to 60 billion yen
    • Shareholder return50 to 60 billion yen
    • Search for M&A opportunities60 to 80 billion yen
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*Dividend payout ratio is to the cash-based net income.

Priority Measure: Strengthening ESG Management

  • Previously, each PHC Group company had been working on sustainability on their own. However, we have now announced our aim to achieve our management philosophy and advance Value-Based Healthcare by formulating and implementing group-wide ESG policies.
  • After announcing our Mid-Term Plan, we immediately set up a group-wide project team, identified materiality topics for PHC Group, and set KPIs and target values. We announced the resulting pillars of our ESG strategy in August 2023. Going forward, we will promote group-wide efforts to address our materiality topics, including certification under the Science Based Targets (SBT) initiative, and will continue our efforts to contribute to the SDGs and realize Value-Based Healthcare through our business.
Priority measure: Strengthening ESG management

Financial Strategies

Frederick Reidenbach

Frederick Reidenbach

PHC Holdings Corporation
Executive Corporate Officer
Chief Financial Officer (CFO)

In our Mid-Term Plan, or Value Creation Plan, we have set three main indicators: sales revenue, operating profit, and cash based profit attributable to owners of the parent company. By fiscal 2025, we are aiming for 420 billion yen in sales revenue, 56 billion yen in operating profit, and 49 billion yen in cash based profit attributable to owners of the parent company. From fiscal 2021, we are pursuing 5% annual growth in revenue and 20% annual growth in operating profit (after deducting impairment losses for fiscal 2021). This will be driven by Growth Areas. When examining Growth Areas alone, we are aiming for average annual growth of 27%. Furthermore, we expect Growth Areas to account for 52.5 billion yen of the approximately 80 billion yen in overall sales increase.

The growth rate in our Growth Areas far exceeds the market growth rate, and we are strongly promoting our Growth Areas with the target of increasing them to more than 20% of our overall sales. In terms of improving operating profit, although the external environment continues to be challenging, we are optimizing manufacturing operations across our companies, and are reducing costs by reviewing indirect costs, reducing procurement costs, and optimizing our head office location and personnel. By using these savings as a resource for focused investment in R&D and Growth Areas, we are working to improve operating profit margin by 5%, from approximately 8% (excluding impairment losses in fiscal 2021) to approximately 13% in fiscal 2025.

Next, regarding our capital allocation policy, we forecast operating cash flow of 200 to 250 billion yen for the period from fiscal 2022 to fiscal 2025. Of this amount, we plan to allocate 40 to 50 billion yen to investments in equipment and digital technology. We are also aiming for a net leverage ratio of 2.5 or less, and plan to repay 50 to 60 billion yen in debt. Furthermore, we plan to return 50 to 60 billion yen to shareholders, and to allocate 60 to 80 billion yen to M&A and other investments, which will accelerate growth.

Human Resources and DX Strategy

Ryuichi Hirashima

Ryuichi Hirashima

PHC Holdings Corporation
Senior Executive Corporate Officer
Chief Administrative Officer (CAO)
Chief Human Resources Officer (CHRO)
Chief Transformation Officer (CTO)

“Society” is a concept that is central to both our mission and our ESG materiality topics. Human resources are involved in all aspects of the background when setting our materiality topics related to society. As society changes and grows, the role of human resources is becoming increasingly important. PHC Group is also committed to developing a vibrant organizational culture. Specifically, we are working to enhance employee education and skill development, with a focus on promoting diversity across areas like gender, nationality, and racial or ethnic backgrounds, and driving employee inclusion and engagement. We value diversity and collaboration within our organization, and we are committed to building a fair and vibrant workplace culture. Through these initiatives, we will achieve sustainable growth and contribute to society and continue our efforts to drive well-being.

We also recognize the importance of digital transformation (DX). As one initiative related to DX, we are introducing a Global HR Platform. Specifically, starting in 2021, we began operation of a unified HR platform at our main companies in Europe, North America, and Japan. We are positioning this platform as the foundation of our group’s human capital management. We will use this platform to disclose non-financial information and information on human capital , as well as to build a database of employee skills for more optimal collaboration and recruitment. Through these initiatives, we are striving to increase employee engagement and, in turn, actively contribute to increasing our corporate value through human capital.