Medium-term Plan

Our previous medium-term plan, "Transform! 2020," which concluded at the end of fiscal 2019, fell considerably short of its numerical targets due to several factors. Among these were the failure to reach the customer acquisition targets set for the Clinical Laboratory Testing (CLT) and In Vitro Diagnostic (IVD) businesses, and other factors affecting the CLT business, including a delay in achieving fixed-cost reduction, a change in the sales mix, and the unexpectedly large impact of price falls.

On the other hand, we made steady progress with laying the foundations for significant and sustainable growth starting from fiscal 2020. This progress was seen, for instance, in the integration of personnel systems and IT functions as part of our Group integration policy, the expansion of market share in the CLT business, and investments for future growth, notably R&D enhancement and the construction of the New Central Lab. We now see it as an ongoing task to build profitability on this foundation.

In the business environment where the H.U. Group operates, demographic aging and the introduction of advanced medical treatments are among the factors driving a projected increase in medical care costs. On the other hand, the worsening financial position of medical institutions and declining specimen testing fees together with pressure to limit medical care costs, are expected to lead to continued difficult conditions for the Japanese CLT market. Nevertheless, new opportunities for growth have also arisen despite the policy of restricting medical costs. Reorganization resulting in a reduction in the number of hospitals and hospital beds has led to growing demand for in-home healthcare services and preventive medicine, while medical and IT technologies continue to advance.

Given these trends, the business environment is in a state of constant evolution. We are also faced with fast-developing short-term changes—including the altered patterns of consumer behavior and the reduction in outpatient consultations due to the COVID-19 pandemic—to which we need to find an appropriate response. The overseas CLT market is experiencing growth, mainly in emerging countries, but in developed countries the effort to limit social security costs continues to result in stagnant growth. Moreover, regulatory changes in individual countries have led to increased registration costs, contributing to a continuing challenging environment for business.

In response to these conditions, we will consolidate the growth foundations we laid under the previous medium-term plan and the associated organizational and operational reforms, thereby proceeding with concerted Group initiatives to promote the following three key themes set in the new medium-term plan:

With its LTS and IVD business operations, the H.U. Group is a unique enterprise even in world terms. In addition to the two business, consisting of these two plus the sterilization related business, we are working to develop across a broad front by expanding and strengthening the home-visiting, welfare business in healthcare related business domain. We believe that continuously generating high added value and new value through these business activities will increase the corporate value of the H.U. Group.

We are achieving steady growth, notably by offering total solutions as a Group to hospitals and other medical institutions. Among measures to target further growth, we will work to expand advanced tests and develop next-generation platforms.

Meanwhile, in addition to progressing with the digitalization of test results, we will introduce and deploy ICT-based service tools, including personal health records (PHRs), which will enable us to utilize the wide range of data obtained through business activities and build a medical/health information platform to support business expansion into the Healthcare × ICT field.

In response to the demand for further enhancement of community-based medical care and preventive medicine, the H.U. Group is reinforcing its home-visit nursing and long-term care business and self-medication and services through corporate health insurance associations, and will develop new services by integrating these services with ICT.

Additionally, we will promote packages offering operating support for clinics through software as a service (SaaS) combined with PHRs for consumers. In this way, the H.U. Group will support enhanced utilization of test results in the clinical setting and provide increased added value in LTS business services to general practitioners.

The new medium-term plan divides into two phases: the first to respond to COVID-19 and carry out structural reform ahead of the opening of the New Central Lab; and the second to recover investment following the laboratory’s operational start and to expand profits.

Within these frameworks, the medium-term plan identifies the following key initiatives for concerted Group action:
1. Cost-of-sales reduction through stable operations and automation at the New Central Lab
2. Fixed-cost reduction and enhanced profitability in the LTS business
3. Progress with the Group integration strategy
4. Expansion of the OEM business within the IVD business

For the H.U. Group, the most important of the key initiatives in the medium-term plan is cost-of-sales reduction through stable operations and automation at the New Central Lab, due to start operation in January 2022.

The construction of the New Central Lab is designed to ensure the continued delivery of high-quality testing services even in the changed business environment of the future. In general testing, it will boost operational efficiency through full automation and maximize processing capacity through 24-hour operation, while in esoteric testing it will be equipped to handle the most advanced test items. By deploying AI, robotics and related technologies, the new facility will promote drastic improvement in operational efficiency and quality.

Through test automation and other improvements, we envisage cost-of-sales reductions of 15% in general testing and 7% in esoteric testing in fiscal 2024, compared to fiscal 2019 (figures for the New Central Lab only).

While preparing for the opening of the New Central Lab, we are undertaking a nationwide reorganization of our laboratories. Specifically, to join the New Central Lab, we will open our New Fukuoka Lab in fiscal 2020 and the New Kansai Lab in fiscal 2023, thus establishing a tri-axis lab network to consolidate test operations. In parallel, to put in place a lab system that meets customer needs by reflecting regional medical demand, we will set up a short turn-around time (STAT) laboratory in each region, thus steadily responding to emergency testing needs.

Meanwhile, we will optimize logistics costs by establishing joint logistics operations in alliance with external operators, consolidating internal Group collection operations and amalgamating facilities.

These measures will help us to provide not only high-quality testing but also improved cost-competitiveness and faster reporting of test results, enhancing our customer appeal as a testing company and further boosting our market share.

In September 2020, H.U. Frontier, Inc. was established through the integration of the domestic sales departments and marketing departments of SRL, Inc., Fujirebio inc., and NIHON STERY Co., Ltd., and began operation on October 1, 2020.

The establishment of the company was aimed at further accelerating the intensification of Group synergies that the H.U. Group had already been promoting. Against the background of rapid changes in the medical environment, H.U. Frontier will provide a wide range of services and total solutions in response to customer needs across the full range of the Group’s operations: from lab testing and its related services to manufacture and sale of IVD reagent products, and sterilization related services for medical devices and equipment.

Moreover, through integrated access to the customer base of each company, H.U. Frontier will achieve expanded cross-selling among different segments and enhanced sales to existing customers, while leveraging the technological strength of each company to develop optimal new services and products. In this way, we will seek to maximize the value provided to the customer by the Group as a whole.

We will continue to promote the expansion of inter-segment sales of LUMIPULSE products to our test laboratories and FMS/Branch customers We will also work to develop test reagents with a high cost of sales ratio or high volume of use, and strive to shift to in-house manufacturing. In this way, we will reduce costs in the LTS business and improve overall Group cash flow.

As well as integrating R&D functions within the Group to promote sharing of knowledge resources, we will implement an optimal Group-wide R&D strategy, thus promoting flexible introduction of technology and accelerating development.

The overseas strategy of the IVD business has hitherto been focused on expanding sales of LUMIPULSE products, but it has proven extremely difficult as a late market entrant to expand profit in the face of competition from major global enterprises. Moreover, registration costs are rising mainly due to regulatory changes in individual countries. We will respond to these conditions with a policy of selection and concentration regarding the product items and regions targeted in our overseas LUMIPULSE strategy. Meanwhile, we will work to enhance and expand the OEM business by leveraging the reliability and reputational advantage based on our successful track record for LUMIPULSE products in the Japanese LTS sector, and by utilizing our high-quality material and reagent development abilities in the immunoassay field, which is a strength of the IVD business.

The OEM business will be driven by the tripolar system of Fujirebio Diagnostics, Inc. (FDI) in the United States, Fujirebio Europe N.V. (FRE), and Fujirebio Diagnostics Japan, Inc. (FDJ).

The new medium-term plan, which emphasizes not only steady net sales growth and profit margin but also the need to improve capital efficiency and generate stable cash flow, sets the following numerical targets:

In the LTS business, we recognize enhancement of profitability as the top priority. As stated in Item 4) above (key initiatives under the new medium-term plan), we will radically improve profit structure through measures, including cost-of-sales reduction through stable operations and automation at the New Central Lab; nationwide reorganization of laboratories; rationalization of logistics functions; and provision of Group-wide total solutions through integration of sales forces.

The LTS business environment is constantly evolving in response to a range of influences, from advances in medical technologies to the rollout of community-based integrated care systems and the increasing importance of ICT tools in medical treatment. To enable the business to achieve significant growth by adapting to its changing environment, we have also identified the following key measures: product enhancement and introduction of ICT tools for medical institutions and consumers.

As a clinical laboratory testing company with strength in esoteric testing, we will continue with the introduction of new test items in cutting-edge fields with high medical treatment demand, such as cancer genomics, blood diseases, infectious diseases and rare diseases. We will also work to enter the fields of regenerative medicine and cell-based therapies, where expansion of demand is expected in the future.

To improve profitability, we will seek to enhance cost-competitiveness by expanding the use of LUMIPULSE and the range of test items it can be used for, switching to in-house operation of currently outsourced test items, and finding alternatives for unprofitable product items.

We will offer ICT tools that meet the needs of both general practitioners and consumers. To general practitioners, we will provide operating support systems in addition to the test result systems we have delivered so far, while for consumers we will offer PHRs to enable integrated management of personal healthcare data, establishing links between the different ICT tools provided by the H.U. Group and creating new interfaces between general practitioners and consumers.
Through these and related measures, we will create new value that contributes to improving medical consultation efficiency and patient services.

Five-year CAGR during FY2019–FY2024

The medium-term plan identifies generation of stable cash flow and maintenance of financial discipline as key themes and sets out the following financial strategies:

1. Maximization of operating cash flow especially through improvement of the cash conversion cycle
2. Finance lease and real estate financing
3. Sale of real estate