TSUMURA & CO.
Business Results for Fiscal 2016
（From April 1, 2016 to March 31, 2017）

May 12, 2017
President, Representative DirectorTerukazu KatoRoadmap to Realizing Long-Term Vision
Visionfor2021

Second Medium-Term Management Plan

2016

New Medium-Term Management Plan
Strategic Challenges
１．Expansion and stable growth in the Kampo market
２．Continued reinforcement of profitability and maximization of cash flow
３．Taking on the challenge of new businesses in China

Tsumura Group’s ESG Initiatives
Tsumura Group contributes to building sustainable society through its mainstay “Kampo andcrude drugs” business
E (Environment)
Protection of resources for
crude drugs and the naturalenvironment, research on
the cultivation of wild crude
drugs, contribution to therealization of a recycling
society, maintenance ofzero emissions

S (Society)Contribution to therevitalization of primaryindustries through thecultivation of crude drugs,
creation of opportunities for
employment of the elderly
and persons with disabilities

G (Governance)
Establishment and operationof a highly effective
corporate governancesystem, dialogues withshareholders and investors

・Research on the cultivation of wild crude drugs in China(protection of resources for crude drugs and the natural environment)-Joint research with China Academy of Chinese Medical Sciences, etc.
: Glycyrrhiza, Rhubarb, Atractylodes Lancea Rhizome, etc.
・Research on the cultivation of crude drugs in Japan
Hachinohe City, Ishikari City
-Hachinohe City: research on indoor cultivation: Ginseng, Coptis Rhizome,Angelica Root, Perilla Herb, Bupleurum Root, Angelica Dahurica Root-Ishikari City: research on indoor cultivation with mushroom beds: Poria Sclerotium・Expansion of the cultivation of crude drugs in Japan, Kumamoto Prefecture(Bupleurum Root: change crops from leaf tobacco, etc.)-Execution of the agreement on the location upon the construction of a factory forprocessing medicinal herbs (on the former grounds of Fukada Junior High School)
together with Medicinal Herb Godo Kabushiki Kaisha of Asagiri-cho
・TEMIRU FARM (HARUNIRE NO SATO, persons with disabilities), etc.
-Open culture: Perilla Herb, large-scale indoor cultivation: Poria Sclerotium

Improvement of the corporate governance system toward sustainable growth andenhancement of corporate value in the medium- to long-term: scheduled changes to acompany with an audit and supervisory committee (independent outside directors
constitute a majority) (after approval at the shareholders’ meeting in June of this year)- Further strengthening of supervision over business executions by the Board ofDirectors- More efficiency and transparency in management- Clarification of the responsibilities to be executed and more prompt decision-making
through delegation of authority

3

Business Results for Fiscal 2016

Consolidated Performance for Fiscal 2016（¥ million）

FY 2016
PlanFY 2016

Achievement

FY 2015

Vs. FY 2015
Amount Change

Net sales

115,400

114,954

99.6%112,625

2,328

Operating profit

14,500(12.6%)

15,983(13.9%)

110.2%

19,826(17.6%)-3,842 -19.4%

Ordinary income

15,00016,399109.3%

19,494-3,094 -15.9%

10,70012,488116.7%

12,557(Operating profitmargin)

Net income

attributable to owners ofparent-68

Sales by product

FY 2016Plan

FY 2016

FY 2015

EPS

¥152

¥179

¥178

ROE

6.9%

8.1％

8.3%

Prescription
Kampo
Products
95.4%

2.1%

-0.5%

Other prescription
pharmaceuticalproducts
0.5%
OTC medicines
2.3%
Other
1.8%

5Key points in Performance Sales increased due to steady sales of prescription Kampo products Income declined, mainly reflecting the influence of the NHI drug price revisionand the increase in crude drug costs. However, the profit target has beenachieved
Consolidated net sales¥114,954 million

Vs. planned

99.6%

2.1%

YoY

 Sales increased 2.32 billion yen (up 2.1%) year on year, due to steady sales of prescription Kampo products
although this reflects the impact of NHI drug price revision (down 3%)

Operating profit
Operating profit margin¥15,983 million

Vs. planned 110.2％

13.9 ％

YoY -19.4％
YoY -3.7pts

 The cost of sales ratio was 43.0%. It rose 3.0 percentage points year on year, mainly reflecting influence of NHI
drug price revision and the increase in crude drug costs. It decreased by 0.9 percentage points for the plan mainly
due to improvement of processing costs through increase in productivity
 SG&A ratio rose 0.7 percentage points year on year to 43.1%, reflecting the increase in advertising costs andpersonnel expenses. It fell 0.4 percentage points for the plan due to the cost control, etc.

Ordinary income¥16,399 million

Vs. planned

109.3％

YoY-15.9％

Net income¥12,488 million

Vs. planned

116.7％

YoY-0.5％

attributable to owners of parent

6

Factors in Increase / Decrease of Operating Profit (YoY)（¥ million）

19,826

Other-1,772

15,983

Cost of sales margin
40.0%→43.0%+3.0pts

FY 2015
OperatingProfit

Factors of Sales increase
Prescription Kampo 129
products+2,328 -4,398

Salesincrease（¥ million）+2,048+280

Factors ofCost of sales margin
NHI drug price revision+1.3Pts

Increase in crude drug cost

+2.5Pts

Improvement of processing
cost-0.4Pts

Other-0.4Pts

Factors in decrease of
SG&A expenses

Sales cost
SG&A
FY 2016
increase expenses
Operatingincrease

profitSales promotion expenses+253

R&D expenses+118

Advertising expenses+171

Personnel expenses+579

Other+649
7

Financial Condition/ Cash Flow Position
Balance Sheet
As of March2016（¥ million）
As of March
2017

222,468

222,008-459

Current
assets133,668

134,679

1,010

Noncurrent
assets

88,79987,329

-1,46966,76564,611-2,153Currentliabilities

43,702

31,883-11,818

Noncurrent
liabilities

23,06332,727

9,664

155,702

157,397

1,694

Total
net assets

Equity Ratio

68.8%

69.7%

+0.9pts（¥ billion）

InvestingActivities

changeTotal assets

Total
liabilities

Cash Flow

OperatingActivities

+210

251

Cash and cash
equivalents at
beginning ofperiod-64 Financing

Activities-95 Effect ofexchange
rateChanges-3299

Cash and cash
equivalents at endof period

8

FY2017 Performance Forecasts

FY2017 Performance Forecasts（¥ million）

FY2016FY2017

YoYAmount

ChangeNet sales

114,954

120,700

5,745

5.0%

Operating profit(Operating profitmargin)

15,983(13.9%)

17,600(14.6%)

1,616

10.1%

Ordinary income

16,39918,100

1,700

10.4%

12,48812,700211

1.7%

Net income

attributable to owners ofparent

FY2016FY2017

Dividends per share

¥64

¥64

ＥＰＳ

¥179

¥184

ＲＯＥ

8.1%

8.0%
10

Return of Profits to Shareholders

Return of Profits to Shareholders
Policy To improve corporate value through capital investments in order to realize the continuous
development and growth of “Kampo”
 To consider medium- to long-term profit levels and cash flows as well as carry out a stabledividend To acquire treasury stock in a flexible manner after making efforts in shareholder returns
based on examinations and revisions for an optimal capital structure as well as giving
comprehensive consideration to market trends, etc.
110
Dividend
history

45.0%

90

30.3%

70

22.3%
17.8%

50

30

10-10

9.1%

17107

13
10172006

2007

2008

23

31.6% 31.5%

30

30

32.1%

35.9%

40.0%

35.7%

35.0%

28.4% 25.0%
32

32

30.0%

32

32

32

25.0% 期末配当
4Q(¥)
20.0%
15.0%

23282009

2010303032323232

10.0%
5.0%

20112012

2013

2014

2015

2016

中間配当2Q(¥)
Dividend
配当性向payoutratio(%)

0.0%

The year-end dividend and dividend payout ratio for FY2016 are based on the assumption that the dividend item will be approved at the 81st annual
shareholders’ meeting12Progress of Strategic Challenges

Strengthening of Functions by Reorganization (on April 1)

Sales & Marketing Division

Strengthening of area marketing
Sales & Marketing Division

sales

sales

strategy

Functions of planning marketing strategy

Sales support

Kampo Scientific
Strategies DivisionKampo ScientificStrategies Division
strategy
R&D

strategy

Basic/clinical research by field
Kampo Research &Development Division
R&D14

1 Expansion and Stable Growth in the Kampo MarketMarketing strategy◆Field of concentration: MR capabilities（”Drug fostering program” formulations）◆New field to expand: Scheme（Growing formulations）
Environmental changes/movements of the administration“Kenko Nippon 21” ”New Orange Plan” “Comprehensive Regional Care System”“Plan to Accelerate Countermeasures for Cancer” “Enactment of the Act of Promotion ofWomen’s Participation and Advancement in the Workplace”◆ Expansion of fields with high needs for medical treatments, but low satisfaction rates
with treatments as well as low contributions of medicines where Kampo products are
specifically effective◆ Actualization of potential needs and proposals for new solutions with Kampo products

References in medical treatment guidelines

15

1 Expansion and Stable Growth in the Kampo Market
Three Important Domains
Geriatric field“Kenko Nippon 21” (The extension of healthy life expectancy )”New Orange Plan” (Promotion of measures to care for dementia)“Comprehensive Regional Care System”(Promotion of home health care)

・BPSD(Behavioral and Psychological Symptoms of Dementia ): TJ-54(Yokukansan), etc.
・Geriatric clinical syndrome：TJ-41(Hochuekkito),TJ-43(Rikkunshito),
TJ-107(Goshajinkigan), etc.

Cancerdomain(supportivecare)

Gynecology
field“Plan to Accelerate Countermeasures for Cancer”-Cancer supportive care
（Reduction in side effects caused by anticancer and other drugs)-

・Postoperative digestive tract dysfunction：TJ-100(Daikenchuto)
・Anorexia, Nausea：TJ-43(Rikkunshito)
・Stomatitis：TJ-14(Hangeshashinto)
・Delirium after operation (neurosis)：TJ-54(Yokukansan)“The Act of Promotion of Women’s Participation and Advancementin the Workplace”-Care depending on the stage in women’s life・Puberty：TJ-23(Tokishakuyakusan)
・Sexual maturation：TJ-25(Keishibukuryogan), TJ-23(Tokishakuyakusan)
・Menopause：TJ-24(Kamishoyosan)

16

1 Expansion and Stable Growth in the Kampo Market“Plan to AccelerateCountermeasures for Cancer”（Ministry of Health, Labour andWelfare：December 2015）(1)Prevention - To prevent cancer that can be avoided (2)Treatment/research- To decrease amount of deaths due to cancer (3)Life with cancer - To live with cancer --Development/spread of supportive therapy<Specific proposals for implementation>“Especially in terms of reducing complications and side
effects after operations, to advance research ontrophotherapy, rehabilitation therapy and supportive
therapy using Kampo products”
Anorexia, Nausea ：TJ-43 (Rikkunshito)
Stomatitis：TJ-14(Hangeshashinto)
Delirium after operation (neurosis)：TJ-54(Yokukansan)

In cooperation with the base facilities for cancer treatment, toaccumulate evidence of the reduction of side effects of anticancer drugs
172 Continued Reinforcement of Profitability and Maximization of Cash Flow
Amount of Capital Investment[FY2016～FY2018（3 years)]Announced in May 2016
Approximately 30 billion yen

As of May 2017
Approximately 33 billion yen（¥ million）

FY2016
Amount6,455

FY2017% of Sales
5.6%

Amount15,100Change% of Sales
12.5%

Details of capital investment are
new manufacturing buildings ofIbaraki Plant, etc.

Amount8,644%
133.9%

18

2 Continued Reinforcement of Profitability and Maximization of Cash Flow
Crude Drug Prices
Overall procurement price of crude
drugs produced in China
Representation of weighted average of actual
prices from production region to affiliatedcompany when 2006 price is set as 100

100117156110241234190

230

217（Initial expectation）
201

1881102006年 2007年 2008年 2009年 2010年 2011年 2012年 2013年 2014年 2015年 2016年
Expected purchase prices in 2016
Calculated on a used amount basis,
instead of a procured amount basis

Price increase of ginseng, etc.
Decline in the unit price of ginseng was greater than expected(1) Purchases for speculative purposes are settling down
(2) Supply to the market is increasing(1) Local demand in China increased(2) Unfavorable weather(3) Speculative investment cornering market19

2 Continued Reinforcement of Profitability and Maximization of Cash Flow
Expansion of Cultivated Land under Own management area
・Procurement of crude drugs to ensure stable prices and increased quality assurance
・Expansion of Cultivated Land under Own management at an appropriate ratio

43%
36%

36%

2015

2016

Result38%

2017

2018

Plan・Reinforce and streamline purchasing structure based on the principle of competition
・Pursue crude drug quality and further enhancement of systems to ensure safety
Volume ratio includes negotiated cultivation in China and contract cultivation in Japan.
Cultivated Land under Own management is “Farm with certain scale of cultivation area for which Tsumura
directly provides cultivation guidance and has an understanding of cultivation costs and can set procurement
prices.”20

3. Taking on the Challenge of New Business in China
Tsumura China Inc. was established in December, 2016
Control and management of supply chain, human resources, and capital in China spanningfrom existing businesses to new businesses, such as production of traditional Chinese
medicine compound granules and export of crude drugs and extracts to Japan.

SPH TSUMURA PHARMACEUTICALS CO., LTD. was established in July, 2016

The business for traditional Chinese medicine compound granules
Trial production is ongoing for manufacturing approval
In preparation for acquiring a factory site (in shanghai area)
SHENZEN TSUMURA MEDECINE CO., LTD.
The crude drugs pieces business in China
Working on the expansion of sales channels
Contributing to China,
where the Company
procure crude drugs, andthe health of Chinese
peopleTaking on thechallenge of entering
the Chinese market
21

Sales Strategy- Toward the Expansion and Stable
Growth of the Kampo Market -Managing Executive Officer
Head of Sales & Marketing Division

Ryuji Takasaki

Current status of evidence building of priority preparations
Clinical EBM, action mechanism, monitoring of frequency of side effects, ADME, medical economics data
Preparation name/ Product No.

Metaanal
ysis

RCT

actionmechanism

Monitoring ofside effects
frequency
surveys

ADME

Healtheconomicdata

Publish guidelines

Drug fosteringformulations
Growing
formulations

Daikenchuto

TJ-100Paper
submitted25◎◎◎◎

Pediatric chronic functional constipation disease, systemicsclerosis

Yokukansan

TJ-54214◎◎◎△

Dementing illnesses, Use of psychotropic drugs for BPSD
for primary care physicians

Rikkunshito

TJ-43

―

18◎

On going◎―

Functional gastrointestinal diseases, the diagnosis andtreatment of psychosomatic diseases, GERD, systemicsclerosis

Goshajinkigan

TJ-107

―

14△

―

○―

Benign prostatic hyperplasia, overactive bladder syndrome,
the pharmacologic management of nuropathic pain

Hangeshashinto

TJ-14

―

5○―

―

―

―

Hochuekkito

TJ-41
TJ-68

Bakumondoto

TJ-29

995○△
―

―
○―

―
◎―

―
―
―

Female lower urinary tract symptoms

Shakuyakukanzoto―――

Kamishoyosan

TJ-24

―

4―

―

―

―

Diseases in obstetrics and gynecology, the treatment anddiagnosis of psychosomatic disorders

Goreisan

TJ-17

―

2―

―

―

◎

Chronic headache

Amyotrophic lateral sclerosis
Cough, EBM practice guidelines for asthma(Note) The marks above, ◎, ○, and △,indicate the results of thethree stage evaluation based on the number of articles,achievements, and other factors (on our company basis)

Result in KPI in FY2016
TargetResultNumber of articles
Impact factors

5010051120

Number of references in diseases andtreatment guidelines (with recommendations)25

23

Item23

Results of the Three Important Domains
 Sales growth rate of 5 Drug-fostering formulations:1.2% (up 0.34 billion yen)
 Sales growth rate of 5 Growing formulations :1.9% (up 0.44 billion yen)
Drug fostering formulations
Preparation
name

ProductNo.

NetsalesGrowing formulations

YoY
ChangeFY 3/16
Amount% ofsales

Preparation
name

ProductNo.

Netsales（¥ million）
YoY
ChangeFY 3/16
Amount% ofsales

Daikenchuto TJ-100

10,328

55

0.5%

3.6%

Hochuekkito

TJ-41

6,947-21-0.3%

2.8%

Yokukansan

TJ-54

7,330

115

1.6%

4.9%

Shakuyakukanzoto TJ-68

4,853

165

3.5%

6.3%

Rikkunshito

TJ-43

6,863

259

3.9%

7.4%

Bakumondoto

TJ-29

4,511

160.4%

3.5%

Goshajinkigan

TJ-107

3,733

-105

-2.7%

0.4%

Kamishoyosan

TJ-24

4,465

00.0%

3.3%

Hangeshashinto

TJ-14

1,276

25

2.0%

4.8%

Goreisan

TJ-17

3,363

280

9.1% 12.6%

Total sales of the
Drug fosteringformulations

29,532

349

1.2%

4.0%

Total sales of theGrowing formulations

24,141

442

1.9%

5.6%

Total of 129 prescription
Kampo products

109,647

2,048

1.9%

5.0％

24

New Organizational System
Regional Branch

Old System

12 Regional
BranchAdministration
Dept.

HospitalSpecialized Dept.

Sales Dept.

Sales office
Sales office
Sales office

New System

21 Regional
BranchRegional Branch

Regional Branch

Sales office

Sales office

Sales office

Sales office

Sales office

Sales office25Marketing Kampo Formulations in the Field of Gastroenterology
Concentration and Emphasis

Field of Gastroenterology (e.g. cancer)

Targeting strategy(interview, briefing, area lecture, etc.)[Quality & Safety
Management Division]

Activities for gathering information
on safety
Side effect frequency survey
Academic society events
Sponsorship by an academic society

MR[Distributors]
Joint struggle promotions

Research seminars by field
Sponsored by Tsumura[Kampo Scientific Strategies Division]・Education about products
・Academic events ・Promotion materials[Kampo Research & Development Division]
New evidence in TJ-43(Rikkunshito)&TJ-100(Daikenchuto), etc.
26

Reference Material

Current sales performance of priority products（¥ million）
Product nameProduct No.

Main effectively treatable disorders

FY 2015

FY 2016

Y o Y Change

1 Daikenchuto☆

TJ-100Abdominal pain / abdominal flatulence.

10,273

10,32855

0.5%

2 Yokukansan

☆

TJ-54

Neurosis / insomnia, etc.

7,215

7,330

115

1.6%

3 Hochuekkito○TJ-41

Reinforcement of physical strength after illness/ anorexia, etc.

6,968

6,947

-21-0.3%

4 Rikkunshito

☆

TJ-43

Gastritis / maldigestion / anorexia, etc.

6,604

6,863

259

3.9%

5 Shakuyakukanzoto○TJ-68Pain accompanying sudden muscle spasms, etc.

4,688

4,853

165

3.5%

6 Bakumondoto○TJ-29

Coughing / bronchitis / bronchial asthma

4,494

4,511

160.4%

7 Kamishoyosan○TJ-24

4,465

4,465

00.0%

8 Goshajinkigan☆

TJ-107

Oversensitivity to cold / menstrual irregularity /climacteric disturbance, etc.
Leg pain /low back pain / numbness / dysuria,
etc.

3,838

3,733

-105

-2.7%

TJ-114

Acute gastroenteritis / swelling (edema), etc.

3,351

3,399

47

1.4%

○TJ-17

Edema / diarrhea / headache /heatstroke, etc.

3,082

3,363

280

9.1%

20 Hangeshashinto ☆

TJ-14

Fermentative diarrhea / neurotic gastritis /stomatitis, etc.

1,250

1,276

25

2.0%

107,599 109,647

2,048

1.9%

9 Saireito
10 Goreisan

Total sales of 129 prescription Kampo products☆： Drug fostering formulations○： Growing formulations

28

Medical Education Model Core Curriculum(Ministry of Education, Culture, Sports, Science and Technology)

Announcement in March 2001, introduction in fiscal 2002
Wakan-yaku can be outlined

Revision in March 2011
Characteristics of Wakan-yaku (Kampo medicine) and its
current state can be outlined
Revision in March 2017
Characteristics of Kampo medicine and the uses and medicinal
actions of the major Wakan-yaku (Kampo product) can beoutlined29

TSUMURA & CO.
Investor Relations Group
Corporation Communications Dept.

Cautionary items regarding forecasts• The materials and information provided in this presentation contain so-called
forward-looking statements. Readers should be aware that realization of thesestatements can be affected by a variety of risks and uncertainties and that actual
results could differ significantly.
• Changes in the healthcare insurance systems or regulations set by medical
treatment authorities on drug prices or other aspects of healthcare or in interestand foreign exchange rates could impact negatively on the Company’sperformance or financial position.
• In the unlikely event that sales of the Company’s core products were halted ordeclined substantially due to a defect, unforeseen side effect or some otherfactor, it would have a major impact on the Company’s performance or financial
position.