I, Kitabatake, will now give an overview of the financial results of the first half ofthe fiscal year ending March 2017.

1

This page is the financial results overview. As is written at the top, we achieved ourhighest‐ever operating income despite significant foreign exchange impact. Even with FX
impact, operating income increased 1% year‐on‐year to reach 39.4 billion yen. Last fiscal
year’s figure had been the highest‐ever operating income to date, and this exceededthat.
With FX impact, the sales amount was ‐5% year‐on‐year; however, when excluding FX
impact sales increased 5%, remaining the same as the first quarter. Also, without FX
impact, sales grew positively in all regions of the world, including Japan, and theinterventional systems business saw double‐digit global growth.
As I mentioned, operating income was our highest‐ever, led by growth of high‐margin
products such as interventional systems and by reduced quality system improvement
costs. Our first‐half forecast was for 35.5 billion yen, and we achieved an 11% year‐on‐year increase.
Ordinary income was negatively impacted 6.66 6 billion yen by FX and dropped 14% year‐
on‐year; I will explain in detail on the next slide.
Net income was not only negatively affected by FX, but also decreased more year‐on‐year due to being inflated last fiscal year by the 4.4‐billion‐yen sale of land in Hatagaya,
Tokyo. These factors brought net income down 24% year‐on‐year; however, when
p and the difference occurringg due to last fiscal yyear’s sale of property,
p p y,excludingg FX impact
net income remained overall the same year‐on‐year.

2I will now briefly discuss the non‐operating aspects of foreign exchange
fluctuation. After Q1’s 5.5 billion yen FX loss, we have taken and previously
announced our measures to lessen FX impact. The chief measure has been tominimize the amount of dollar‐denominated receivables. When we look at Q1
and Q2, we see that there was 5.5 billion yen in impact in Q1, and then 1.1 billion
yen of impact in Q2.
The minus 0.9 billion yen of USD impact that you see in Q2 on the chart includes
a 0.7‐billion‐yen loss due to rate fluctuation between the time of contract andthe time of payment for the Sequent Medical acquisition that we completed inJuly.
Sometimes this kind of fluctuation results in positive impact for us, but in thiscase, with uncertainty about markets following the election of Mr. Trump, weconsider it a positive thing to reduce our FX fluctuation risk, and going forward
we think this kind of risk will be manageable.

3

This slide shows the operating income variance analysis. The largest factor was increased gross profit due to higher
sales, similarly to the first quarter. One item that bears explanation is the increased gross profit achieved through cost
reduction. The gross profit margin when excluding FX was the same 55%, unchanged through both quarters. There
were three factors in Q1 cost reduction: First, lower costs at TCVS quality system improvement, and second, thesuspension of US medical device tax. The third was reduced cost of manufacturing Ultimaster.
The cost reductions seen in the second quarter were equal to, but of a different nature than, those in the first quarter.
There were actually some negative factors in Q2: One was that Q2 of the previous year included a large‐scale
production run of Ultimaster in preparation for launch, leading to high efficiency. This did not happen in Q2 ofFY2016, resulting in a negative year‐on‐year result. Another factor is that we are currently increasing the number ofengineers at the Ashitaka and Yamaguchi Factories. This has an impact in the hundreds of millions of yen. We are also
responding to a warning letter in the United States, which carries impact of four‐ to five‐hundred million yen.
Another factor is the business mix improvement. This was a positive 800‐million‐yen impact in Q1, and 2.4 billion yen
positive impact in Q2. In the first quarter, we allocated some of the improvement to gross profit by cost reduction but
we decided to allocate them differently in the second quarter into business mix improvement. That is why gross profit
improvement by cost reduction appears 400 million yen lower and in business mix improvement that same amounthigher in Q2. In the upcoming third quarter, we also expect that due to last fiscal year’s cost reduction that occurredwith the launch of Ultimaster, we won’t see a comparable level of reduction this year. The main two factors in
improving operating income onward will be gross profit increases by sales increase and business mix improvement.
One other item, on the minus impact side of the analysis: We saw a 4.5‐billion‐yen increase in SG&A have a negative
impact, and as written here this was partially due to TIS and neurovascular sales force expansion. To explain in moredetail, the TIS and neurovascular sales force expansion accounted for about 3.5 billion yen in increased SG&A, which
also included expansion in the United States of not only sales force but also increased numbers of field clinicians who
explain products to physicians—about 50 personnel in total. The remaining 1‐billion‐yen in new SG&A consisted ofhigher pension costs and increased business tax burden, contributing to the above total of 4.5 billion yen.

4

The next slide shows operating income variance analysis by company.
Cardiac and Vascular Company remained the main factor in income
improvement,
it similarly
i il l tot theth firstfi t quarter.
t With theth GeneralGl Hospital
H it l Company,C
we had a 100‐million‐yen negative impact from gross profit in the first quarter,
while in the second quarter, sales in Japan of high‐margin products such as
pumps and infusion lines, and price increases in Asia and Latin America,
contributed to a 300‐million‐yen positive gross profit impact.
In Blood Management Company, gross profit had negative 2.4‐billion‐yen impact
in the first quarter, and then minus 400 million yen in second quarter, whichshows improvement in the trend for gross profit. The 800 million yen in SG&Aincrease is primarily R&D cost, as opposed to sales‐related expenses. The contentof this cost was primarily payment of outside development costs which will pay
off in the future. Over the span of a year it has not changed much, but did havean impact in the second quarter.

5

Next is net sales by region.
As I mentioned, when excluding FX impact, each region achieved year‐on‐year
sales improvement. I will go into a few details on this.
In Europe, we improved 5% in sales, and here it attributes that to the downsizingof low‐profit businesses in the General Hospital Company. There are actually twofactors within General Hospital Company, though: One is the 38% drop in general
hospital products due to the aforementioned downsizing of low‐profit business,and second is the 25% increase in the global Drug & Device businessbusiness, which is
B2B and one of the ways we plan to strengthen the General Hospital Company.
These together total minus 11% in growth, and it is important to note that thedecrease is not simply a drop in sales, but actually a sign of our business portfolio
improvement activities, in which we sharply reduce areas of low profit andincrease those with high margins. Those are some of the negative factors behindthe 5% ggrowth in Europe,p , where interventional systems
yproducts
pcontinue toexpand well.
In the Americas we saw a somewhat small sales growth of 5% when excluding FX
impact. Negative growth for the Blood Management Company was the biggest
factor. Interventional Systems business had double‐digit growth.

6Looking at net sales by business segment, Cardiac and Vascular saw 10% growthwhen excluding FX impact. General Hospital and Blood Management wereapproximately zero.
The Blood Management Company has bottomed out, with the fourth quarter oflast fiscal year and first quarter of this fiscal year being the most difficult. Now weare seeing planned improvements having effect: Quarter‐to‐quarter sales growthfrom Q1 to Q2 was 7%, and I will address business profit later.

7

Cardiac and Vascular was most affected by FX rates, with negative sales growthwhen including FX, but positive sales growth of 10% when excluding FX. Inbusiness profit there was little change in trend what has driven, but this year
gpg recall and cost of our acquisitionq
included negativeimpacts
from the MisagoofSequent Medical.

8

In General Hospital, sales were approximately the same as the previous year
when excluding FX impact. Negative impacts there included downsizing of low‐
profit businesses in the EU and Latin America. The Japan reimbursement priceg
cut had effect, and the endingg of distribution for contrast agentsin Q3 of last
fiscal year also took full year‐on‐year effect up to the second quarter of this fiscalyear, but will not have the same impact in Q3 and onward. In business profit, theGeneral Hospital Company saw a slight improvement from Q1 to Q2 that signals
the start of an improvement trend.

9In Blood Management, I already mentioned that sales improved from Q1 to Q2,
and in business profit as well, the company saw an increase from 12% to 17%
quarter‐to‐quarter. One reason for this increase was the increase in sales, andy R&D spending
pg was somewhat higherg
additionally,in the first qquarter but thenreturned to normal in the second, thereby improving business profit.

10

There are several major topics listed here, but due to time constraints I will skip
over them.

11

The new product pipeline is progressing well.

12I will now show two additional slides. The first is regarding our revision of ourFY16 guidance. We revised the FX rates for the second half, changing from 110
yen to 105 yen to the US dollar, and from 125 yen to 115 yen to the EUR. We
g Sales and operating
pg incomerevised our outlook to reflect that rate change.
remain the same, but we revised ordinary income and net income downward.
This was due to the first‐half FX loss, as well as the costs of the Sequent Medicalacquisition, which affects the entire year.
Items to watch in the second half include the continued momentum ofInterventional Systems product sales outside of Japan. Sales are affected
somewhat negatively by yen appreciation, but we may see the positive impact ofsales from our closure device acquisition in the fourth quarter. The effect on
operating income from the closure device acquisition will remain somewhat
unclear until we will learn more through due diligence activities, so we have notincluded that ppotential impact
p here. We will make further revision of thesefigures if due diligence indicates such a need. Ordinary income and net income
may also end up different at the end of the fiscal year depending on the FX
fluctuations that occur between now and then.
Also, while we have made this revision, we have not revised the scheduled
dividend amount.

13

Finally, regarding accounting standards, we officially decided today that we willadopt IFRS as our accounting standard in the next fiscal year, or the year ending
March 31, 2018. Our reasons for doing so include wanting to move to a global
pstandard, and to make our financials, which are currentlyy JapaneseGAAP‐based,easier for investors to compare internationally with those of our competitors inEurope and the United States.
Another reason is to improve understanding within the Terumo Group. Terumo
BCT already uses IFRS, and our American subsidiary TAH uses US GAAP, forexample, so understanding of financials within the group can be improved. We
therefore decided to eliminate confusion by bringing the entire Terumo group
into one consistent accounting standard, IFRS.
The major impact of adopting IFRS will be that we will no longer amortize thegoodwill of acquired companies, as is automatically done annually in our current
JGAAP. In the case of last fiscal year’s results, we had 11 billion yen in goodwill
amortization. Without this amortization, operating income increases by theamount that would have been amortized.
Thi concludes
Thisl d my remarks.
k Th
Thankk you ffor your attention.
tt ti14

15

16

17

18

19

20

21

22