[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

Financial Results for the Fiscal Year Ended March 31, 2017: Reference
Analysis of Business Performance and Financial Position
Analysis of Business Performance
1. Overview of Financial Results for the Fiscal Year Ended March 31, 2017
(1) Overview of Consolidated Business Results
In the fiscal year ended March 31, 2017, the global healthcare market was highlighted by the following
trends. The healthcare industry overseas, primarily in the United States, underwent reorganization, including
the acquisition and sale of businesses by major medical device companies. Meanwhile, in Japan, NHI
reimbursement prices were revised in April 2016. There is a growing need for medical cost efficiency,
including the trial introduction of cost-benefit analysis to achieve a more focused and efficient allocation of
fiscal resources.
Amid this environment, in December 2016 the Terumo Group developed a Mid- to Long-term Growth
Strategy with a five-year horizon. Furthermore, the company announced new management members that arescheduled to take the reins from April 1, 2017, to ensure the vigorous implementation of the Mid- to Longterm Growth Strategy. Under the guidance of a newly appointed Chairman of the Board, and President andCEO, Terumo Group aims to achieve sustainable and profitable growth as a global corporation with uniqueexcellence.
The following are highlights of performance at each company during the fiscal year ended March 31, 2017.


In the Cardiac and Vascular Company, access device sales were brisk in the Terumo Interventional
Systems (TIS) business. In the fiscal year under review, Terumo added on sales regions for the“Ultimaster”, a drug-eluting stent, launching sales in France, Brazil, and South Korea. In Japan, Terumo
poured energies into increasing sales by expanding its product lineup. In July 2016, Terumo acquired
Sequent Medical, Inc., a company in the United States that developed a newly-configured medical
device for aneurysm embolization. In addition, in January 2017, Terumo acquired the vascular closure
device business from St. Jude Medical, Inc. and Abbott Laboratories, both of the United States. In
March 2017, the company acquired Bolton Medical, Inc., a company in the United States that conducts
the development and manufacturing of stent-graft systems for thoracic aorta treatments.

In the General Hospital Company, sales in Japan trended briskly for infusion line products, including
the needleless infusion system. Meanwhile, in overseas markets, sales momentum in Asia was strong
for IV catheters and business-to-business for pharmaceutical companies was brisk in Europe.

In the Blood Management Company, sales were down year on year reflecting price revisions for
products for US blood centers implemented in the second half of the fiscal year ended March 31, 2016,
and also due to negative impact from foreign exchange.

Financial results for the fiscal year ended March 31, 2017 are as follows:

Net sales
Net sales totaled 514.2 billion yen, a decrease of 2.1% compared with the previous fiscal year.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference(million yen)

Net sales
Gross profit

Growth excluding
impact of forex
translations (%)

Fiscal year ended

Fiscal year ended

March 31, 2016

March 31, 2017

525,026

514,164

(2.1)

5.6

282,856

278,000

(1.7)

8.2

81,70376,578(6.3)

7.1

73,09068,552(6.2)-

50,67654,225

7.0-

Operating income
Ordinary income

Growth (%)

Profit attributable toowners of parent(million yen)
Regional sales

Growth excluding
impact of forex
translations (%)

Fiscal year ended

Fiscal year ended

March 31, 2016

March 31, 2017

187,210

187,000

(0.1)

(0.1)

101,802

95,013(6.7)

5.4

143,462

139,698

(2.6)

8.5

92,55092,451

(0.1)

12.6

337,815

327,163

(3.2)

8.7

525,026

514,164

(2.1)

5.6

Japan
EuropeAmericasAsia, outside Japan
Overseas total
Total

Growth (%)

In Japan, sales dropped marginally year on year due to impact from the NHI reimbursement price revisions, thewind down of sales contribution from the Ultimaster, which was launched in October 2015, and impact from thetransfer of contrast agent sales to Fuji Pharma Co., Ltd. in the same month. On a more positive note, sales werebrisk in the neurovascular intervention business, for access devices in the TIS business, and for infusion line
products in the general hospital products business. Overseas sales were down. Although sales trended briskly in
the TIS business and neurovascular intervention business, and there was contribution from sales in the recently
acquired vascular closure device business as well, performance was hindered by the yen’s appreciation in value
against major currencies companywide.
Gross profit
Gross profit totaled 278.0 billion yen, a decrease of 1.7% year on year. However, the decline in sales due to the[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

yen’s appreciation in value was only partially offset by an increase in sales of high-margin products, including
access devices, a decline in costs for improving the quality management in Terumo Cardiovascular Systems
Corporation in the United States, and an improvement in production costs.
Operating income
Operating income totaled 76.6 billion yen, a decrease of 6.3% year on year. SG&A expenses increased slightly on
top of a decline in gross profit.
Ordinary income
Ordinary income was 68.6 billion yen, a decline of 6.2% versus a year earlier, owing to a decrease in operating
income, despite a decrease in non-operating expense, in part reflecting a decline in foreign exchange ratetranslation loss.
Profit attributable to owners of parent
Profit attributable to owners of parent came to 54.2 billion yen, an increase of 7.0% year on year. Terumo posted
extraordinary income of 15.7 billion yen owing to the sale of shares in Olympus Corporation. Meanwhile, thecompany also recorded an extraordinary loss of 7.0 billion yen in tandem with the termination of a contract for thejoint development of a bioresorbable scaffold with Arterial Remodeling Technologies (ART) of France in Q3.
Net sales results by company are as follows:(million yen)Segment

Fiscal year

Fiscal year

ended March

ended March

31, 2016

31, 2017

Growth (%)

Growthexcluding impactof forextranslations (%)

Net sales

258,600

261,5291.1

11.0(Japan)51,55450,975

(1.1)

(1.1)

(Overseas)

207,046

210,5541.7

14.0

Net sales

161,382

157,946

(2.1)

0.3

(Japan)124,178

123,797

(0.3)

(0.3)

(Overseas)

37,20334,149

(8.2)

2.4

Blood

Net sales

105,042

94,483(10.1)

0.0

Management(Japan)11,477

12,0234.8

4.8

Company(Overseas)

93,56582,460(11.9)(0.6)

Cardiac and
Vascular Company

General HospitalCompany[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

Cardiac and Vascular Company
In Japan, access device sales trended briskly in the TIS business and performance was strong in the neurovascularintervention business. However, sales in Japan declined due to a wind down in contribution from Ultimaster sales,
which were launched in October 2015, and negative impact from revisions to NHI reimbursement prices.
Meanwhile, overseas sales increased. Sales trended solidly for access devices and the Ultimaster in the TIS
business, and the company posted double-digit sales growth (forex neutral) in the neurovascular intervention
business. Furthermore, there was also sales contribution from the recently acquired vascular closure device
business. These positive factors muted the negative impact from a rise in the yen’s value against major currencies.
Consequently, net sales in the Cardiac and Vascular Company totaled 261.5 billion yen, an increase of 1.1% year
on year.
General Hospital Company
In Japan, sales declined in comparison with a year earlier. Although sales were strong for infusion line products,
including needleless infusion systems, and for products used in pain management and peritoneal dialysis, sales inJapan were marginally lower reflecting negative impact from revisions to NHI drug reimbursement prices and thetransfer of contrast agent sales to Fuji Pharma Co., Ltd. in October 2015. Overseas, sales also fell. Although sales
momentum was strong for IV catheters in Asia and business-to-business for pharmaceutical companies was brisk
in Europe, performance in the general hospital products business was hindered by downsizing low-profit
businesses mainly in Europe and Latin America and negative impact from foreign exchange.
In light of this, net sales in the General Hospital Company came to 157.9 billion yen, a drop of 2.1% year on year.
Blood Management Company
In Japan, sales increased in comparison with the previous year. Sales momentum was strong for automated blood
component collection systems shipped to blood centers. Overseas sales fell. This was due to negative impact fromrevisions to selling prices on products shipped to blood centers in the United States implemented in the second
half of the previous fiscal year, and also reflecting negative impact from foreign exchange.
Accordingly, net sales in the Blood Management Company were 94.5 billion yen, a decrease of 10.1% year onyear.
(2) Research and Development
In the Cardiac and Vascular Company, Terumo moved forward with the expansion of its lineup for the drugeluting stent Ultimaster, launching sales of a 4mm stent in August 2016 and a 2.25mm stent in February 2017. The
company also began full-fledged sales in Japan of VISICUBE, an intravascular ultrasound system, and AltaView,
an intravascular ultrasound catheter, February 2017. In addition to advances in high-resolution imaging andspeedier image acquisition and processing, this console is lighter weight and has improved operability. This has
shortened the time for prepping for screening and performing a diagnostic procedure.
In the General Hospital Company, Terumo acquired regulatory approval in June 2016 for “Adspray”, the first time
spray type adhesion barrier in Japan. In addition, in February 2017, the company launched sales of Japan’s first
intravenous injectable acetaminophen antipyretic analgesic.
In the Blood Management Company, the company developed and initially introduced TACSI, an automated blood

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Referencecomponent processing system, the first for blood centers in Japan. In the United States, the Department of Healthand Human Services has decided to provide a subsidy, going through the Biomedical Advanced Research andDevelopment Authority (BARDA), for a trial on pathogen reduction technologies Mirasol for platelets
preparations.
(3) Capital Expenditure
In Japan, Terumo invested primarily to expand production capacity at the Ashitaka factory and Terumo Yamaguchi
Corporation to increase production of intervention products, as interventional systems sales continue to rise
globally.
Overseas the company built a new building for MicroVention, Inc., which is located in Southern California, in the
United States. The goal is to strengthen product development capabilities in the neurovascular intervention and
TIS businesses.
Elsewhere, we also invested to make enhancements at factories in Japan and overseas. This included outlays forboosting quality, production efficiency, and competitiveness of our products.
Accordingly, capital expenditure in the fiscal year under review totaled 39.1 billion yen.
2. Overview of Consolidated Balance Sheets
As of March 31, 2017, total assets stood at 1,021.4 billion yen, an increase of 119.7 billion yen compared with
March 31, 2016. This is primarily attributable to corporate acquisitions and business transfers, which pushed up
goodwill by 73.6 billion yen and developed technology by 77.6 billion yen.
Total liabilities stood at 531.9 billion yen, an increase of 141.7 billion yen, owing mainly to an increase in shortterm loans payable of 119.9 billion yen.
Net assets totaled 489.6 billion yen, a decrease of 22.0 billion yen. This chiefly reflects an increase in treasury
stock of 44.2 billion yen.
3. Cash flow trends in the fiscal year ended March 31, 2017
(million yen)
Fiscal year

Fiscal year

ended March 31,

ended March 31,

2016

2017

ChangeCash flows from operating activities

80,30380,862

558

Cash flows from investing activities(23,495)(181,433)(157,938)

Cash flows from financing activities(79,936)

60,937140,873

Cash and cash equivalents as of the end of the146,927

105,046(41,880)

fiscal year under review

Cash flows from operating activities
Net cash provided by operating activities was 80.9 billion yen. During the fiscal year under review, income before
income taxes was 75.0 billion yen, depreciation was 34.2 billion yen, and goodwill amortization was 11.2 billion
yen. In addition, corporate and other taxes paid were 24.8 billion yen.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

Cash flows from investing activities
Net cash used in investment activities was 181.4 billion yen. This primarily reflects the 119.2 billion yen used toacquire a business, an expenditure of 49.4 billion yen to acquire shares in a subsidiary to change the scope of
consolidation, and 29.8 billion yen to acquire property, plant and equipment.
Cash flows from financing activities
Net cash provided by financing activities was 60.9 billion yen. This mainly reflects 44.2 billion yen to buy backTerumo shares and 14.5 billion yen for dividends payment. Other major factors include outflow of 120.0 billion
yen for short-term loans, 29.9 billion yen for a bond issuance, and 29.6 billion yen for long-term loans.
(Reference) Cash flow indicators
Fiscal year

Fiscal year

Fiscal year

ended March 31,

ended March 31,

ended March 31,

2015

2016

2017

Equity ratio (%)

57.8

56.7

47.9

Market cap-based equity ratio (%)

121.0

162.4

133.2

Interest-bearing debt to cash flow ratio (annual)

1.7

1.5

3.0

Interest coverage ratio (x)

57.0

55.5

67.9

Note: Equity ratio = Shareholders’ equity/Total assets
Market cap-based equity ratio = Total market capitalization/Total assets
Interest-bearing debt to cash flow ratio = interest-bearing debt/cash flow
Interest coverage ratio = cash flow/total interest payments※All of the above is calculated on a consolidated basis※Market capitalization = fiscal year-end share price X the total number of shares outstanding excluding treasury
stock※The cash flow above is the cash flow provided by operating activities as stated in the consolidated statements ofcash flows. The interest-bearing debt includes all debt posted in the consolidated balance sheet on which thecompany pays interest. Also the figure for interest expense in the consolidated statements of cash flows was
employed as the amount for interest payments.
4. Mid- to Long-term Outlook
In accordance with the Mid- to Long-term Growth Strategy with a five-year horizon, we aim to achieve earnings
targets for the fiscal year ending March 31, 2018 as well as attain sustainable and profitable growth by grasping
growth opportunities at each Company and carrying out the following plans.
In the Cardiac and Vascular Company, as the vision for the Mid- to Long-term Growth Strategy, we aim to berecognized as a top brand by medical professionals worldwide in the Cardiac & Vascular Business domains. To
achieve this goal, we plan to rank in the top three in each of these domains, enhance our overall quality, including
products and services, and thereby provide value required by medical professional worldwide. In the TIS business,
we aim for further sales growth for access devices as a whole, by steadily expanding sales of the recently acquired[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

vascular closure devices. In therapeutic devices, we plan to pour energies into expanding sales in Japan andabroad of the Ultimaster, a drug-eluting stent. We also will continue to push forward with expansion of thisproduct lineup. In Europe, we are scheduled to launch sales of drug-coated balloon catheter for peripheral arteries
and radioactive microspheres which are fed to liver tumors using transcatheter arterial embolization. In theneurovascular intervention business, we are slated to launch sales of a new product, a coil for the embolization ofaneurysms. We also plan to expand our sales to domain to products other than coils. This includes the roll out of
the WEB, newly-configured medical device for cerebral aneurysm embolization. In the CV business, we will pourenergies into rekindling sales of heart lung machine. In the vascular business, we look for the smooth integration
with Bolton Medical, Inc., which was acquired at the end of March 2017. We also plan investments to boost
production and for research and development, to strengthen the development system, and other measures to move
forward with establishing an infrastructure that will support the acceleration of growth for the Cardiac and
Vascular Company overall.
In the General Hospital Company, our goal is to shift to a stage of sustainable growth by steering in the directionof sales growth by providing unique technologies and services, by enhancing the quality and efficiency ofhealthcare, and by contributing to drug-delivery innovations. In our business directed at hospitals, we plan toleverage Terumo’s comprehensive capabilities to expand business operations, mainly in Japan. We look to build ahealthcare platform that will provide a broad product lineup that will include infusion and syringe pumps ,needleless infusion system, and anti-cancer drug delivery system and contribute to the improvement of safety inhealthcare and enhancement of operational efficiency. We will also pour energies into the development and salesof products that contribute to early release from hospital and better QOL for patients, including pain management
products, spray-type adhesion barriers, and the development of an insulin pump that helps control blood sugar for
diabetics. In our business aimed at pharmaceutical companies, we plan to undertake development of a prefilled
syringe suited for use with biopharmaceuticals, the expansion of a contract manufacturing business that leverages
advanced sterilized manufacturing technologies, and the development of high value-added devices that suit theneeds of pharmaceutical companies.
In the Blood Management Company, we look to get back on to our growth trajectory. We aim to do so by further
enhancing the competitiveness of products that have a high share in their respective markets, and by contributing
to improving safety of blood transfusions and by offering diverse treatment methods. In blood centers business,
we plan to strengthen our position further by pouring energies into expanding sales of blood component collection
systems that have a share of over 50% of the global market, using a next-generation platform . In addition, weplan to globally promote, through the trials in the United States, the use of pathogen reduction technology that
improves the safety of blood transfusions. In the field of blood therapies, we aim to pour energies into expanding
the applications for therapeutic apheresis systems to strengthen our No. 1 global position further. In the field ofcell processing business, owing to the expansion of regenerative medicine, we are looking to increase the use ofcell processing, including at research institutes, by strengthening our recommendation of cell expansion systems
that efficiently expand cells. In the production front, at our factory in Vietnam, we plan to improve profit margins,by expanding production of disposable products, including blood bags and promoting a cut to production costs.
Forecast of Consolidated Financial Results

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference(million yen)
Results for

Forecast for

the fiscal year ended

the fiscal year ending

March 31, 2017

March 31, 2018

514,164

575,000

60,835

11.8

76,57882,000

5,421

7.1

14.9%

14.3%

68,55279,50010,94716.0

54,22553,000(1,225)(2.3)

Net sales
Operating income
Operating margin
Ordinary income
Profit attributable toChangeChange (%)

owners of parent
Actual exchange rate for the fiscal year ended March 31, 2017: ¥108/USD, ¥119/EUR
Exchange rate assumption for the fiscal year ending March 31, 2018: ¥110/USD, ¥120/EUR
5. Basic policy for profit distribution, dividend payouts in the fiscal year ended March 31, 2017 and payout
plan for the fiscal year ending March 31, 2018
As a measure to secure high profit margins and sustainable growth, the Terumo Group adequately and actively
reinvests profits to constantly enhance its corporate value. This is consistent with the group’s pledge to distributeprofits to shareholders and maximize the value of its investments.
Terumo aims to steadily increase its dividend payouts to shareholders and has set a medium/long-term dividend
payout ratio target of 30%. In the fiscal year ended March 31, 2017, the company plans to pay cash dividends per
share of 42 yen. Consequently, the fiscal year-end dividend is 22 yen per share, and the interim dividend, which
has already been paid, was 20 yen per share.
In the fiscal year ending March 31, 2018, Terumo plans annual cash dividends per share of 44 yen (interim
dividend of 22 yen).
6. Business and other risks
The following are potential risks to the business performance and financial position of the Terumo Group.
・Revisions to healthcare administration policies
In the industry in which Terumo operates, healthcare system reform aimed at reducing medical fees and improving
the quality of healthcare services is an ongoing trend. A sudden change in the business environment due to an
unexpected major turnaround in healthcare administration policies could potentially impact the businessperformance and financial position of the Terumo Group.
・Fluctuation in selling prices

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

In the industry in which we operate, as a part of government policy to reduce medical costs, the Japanese
government enacts reimbursement price revisions once every two years for medical services, drug prices, andspecial treatment materials. In addition, there is a possibility of a substantial decline in selling prices in Japan andabroad due to intensified competition with industry peers and advances in technologies. A change in selling prices
is likely to have an impact on the business performance and financial position of the Terumo Group.
・Change in raw material prices
Many of Terumo’s products are made from plastic and other materials that use crude oil as a raw material.
Consequently, a sharp rise in resource prices globally would push up the company’s purchasing cost for raw
materials. This could potentially impact the business performance and financial position of the Terumo Group.
・Shift in foreign exchange rates
Given that Terumo’s headquarters are in Japan and the company therefore conducts operations from Japan,
financial statements that are prepared by overseas units and stated in local currencies are translated into yen to
create consolidated financial statements. The foreign exchange rates the company applies change in tandem withfluctuations in foreign exchange rates, and impact profit after translation from local currencies.
The company aims to cope with this structurally, such as by transferring production to overseas plants andprocuring raw materials from overseas. At the same time, Terumo uses forward contracts to flexibly hedge against
the risk to the company’s credit. However, an unexpected fluctuation in exchange rates could possibly impact thebusiness performance and financial position of the Terumo Group.
・Risks related to overseas activities
Terumo supplies products in more than 160 countries and regions. Consequently, in the markets where Terumo isconducting its business activities, potential risks to business performance and financial position include an
economic downturn, an accompanying decline in demand, unexpected changes in the political situation, andchanges in laws and regulations.
・Quality issues
Terumo manufactures products in line with strict quality management carried out in accordance with GMP
standards for pharmaceuticals and medical devices and ISO standards for quality management. However, thequality of Terumo’s products could come into question should an accident occur, including medical errors. Even if
it is clear that the company’s product is not directly responsible for the medical error or accident, there is a risk
this will have an impact on the future of the company’s products. Consequently, in certain cases the company
takes preventive measures. These measures could trigger a decline in sales or an increase in costs which could
possibly impact the business performance and financial position of the Terumo Group.
・Significant lawsuits
There are risks that could possibly trigger a lawsuit, disputes, or other legal action related to the company’sbusinesses in Japan and abroad. The legal and compliance department, the intellectual property department, andother overseeing departments conduct surveys and internal checks of these legal risks. The management system

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

facilitates reporting to the Board of Directors and Audit/Supervisory Committee when necessary. However, asignificant lawsuit including damage claims and injunctions to prevent use of a product or material, could possibly
impact the business performance and financial position of the Terumo Group.
・Mergers and acquisitions
Terumo positions mergers, acquisitions, and capital and business affiliations as a key strategy for strengthening its
business infrastructure. Going forward, the success or failure of a merger, acquisition, and capital and businessaffiliation could potential have an impact on business performance and financial position of the Terumo Group.
・OtherOther potential risks to the business performance and financial position of the Terumo Group include changes inbusiness practices, disasters such as terrorist attacks and war, and the global spread of communicable diseases andnew strains of influenza.
Cautionary note:
Forward-looking statements, including earnings forecasts, contained in Terumo’s disclosure materials are based on
currently available information and assumptions believed to be reasonable by management. This is not a promise
or guarantee by Terumo that it will achieve these goals. Please note that the actual results or outcomes could differ
due to a number of factors. Key elements that are likely to have an impact on actual earnings performance include
economic conditions surrounding the company’s business environment, volatility in foreign exchange rates, andcompetition.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2017: Reference

Basic stance on the selection of accounting standards
We plan to voluntarily adopt International Financial Reporting Standards (IFRS) from the fiscal year-end financial
announcement for the fiscal year ending March 31, 2018, with the goal of strengthening our corporate governanceand improving the precision of our management by enhancing the feasibility to compare financial datainternationally and by standardizing our rules globally.