TSUMURA & CO.
Second Quarter Business Resultsfor Fiscal 2017
(From April 1, 2017 to September 30, 2017)

November 9, 2017
President, Representative Director

Terukazu KatoRoadmap to Realizing Long-Term Vision
STEP

HOP

Vision
For
2021

JUMP

Creating New Value
Through Innovations in Kampo

Strengthening the
growth base to achieve
greater value creation
First Medium-Term
Management Plan

２０１２

Second Medium-Term
Management Plan

２０１５ ２０１６

２０１８ ２０１９

Third Medium-Term
Management Plan

２０２１ ( FY )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
FY2017 2Q

Interim for Vision for 2021
Long-Term Business Vision “Vision for 2021”
Aim to be a value-creation company that contributes to people’s health through its Kampo business

The “Kampo” Company

The “People” Company

The “Global Niche” Company

Contributing to creating a healthcare
environment where all patients canreceive treatment that includes“Kampo” medicine where appropriate
in any healthcare institution or
medical specialty in Japan.

“Kampo” medicine is a pioneering
field with no previous examples tobuild on worldwide. Therefore, weshall evolve into a corporate group
comprised of “people” with professional
skills that can independently
pave the way forward for our Kampo
business and is trusted by all.

Leveraging the technology and know-how
of the Tsumura Group to their full extent, we
will take on the challenge of developing andlaunching TU-100 (Daikenchuto) in the U.S.
pharmaceutical market as well as creating
new businesses in China.

Expand the Kampo Market
Cost Structure Reform

Development of Human Resources
Instill philosophy

Expand the Kampo Market“People” creating Tsumura

・Establish evidence
・Establish Japan Kampo Medicine
Education Foundation
・Initiatives for Drug price revision

Cost structure reform

・Improve labor productivity
・Stable procurement structure for
crude drugs
FY2017 2Q

・Training at subsidiaries in China(continually implemented for five years)

・Reinforce various training

Instill philosophy

・Executive off-site meetings
・Events to celebrate 125th
anniversary of founding

Development in the U.S.
Development of Chinese Market
Development in the U.S.

・TU-100 PhaseⅡ（early stage ）（FY2018：Finalized development policy）

Development of Chinese Market
・Entering into traditional Chinese
medicine business☆The Capital and Business Alliancewith Ping An Insurance3Summary of the Capital and Business Alliance with Ping An Insurance(Group) Company of China
TSUMURA & CO.
Number of newshares issued

5,986,700 shares

Number of sharesdisposed of

1,689,200 shares

Amount of capitalraisedJPY 27,322,366,050

Ping An Insurance (Group) Company
of China, Ltd.
Ping An Life Insurance Company
of China, Ltd.
（ Allottee ）BANK OF CHINA (HK) LIMITED –CUSTODY ACCOUNT
Number of shares acquired:7,675,900 shares（ 10% of the total number of issued shares ）（Number of treasury shares held after disposal：300,182 shares）【Terms of agreement】
During the period which the capital and business alliance agreement is valid, Ping An Insurance will not increase its
shareholding in Tsumura or dispatch a director to Tsumura without the prior consent of Tsumura.

【Outline of the Capital of Business Alliance】
Tsumura and Ping An Insurance decided to form a business alliance, believing that this will allow them to promote the further
development of the traditional Chinese medicine business in China, contribute to the health care and health of the Chinese
people, and build a business model that covers everything from quality standards for traditional Chinese medicines and thecultivation of crude drugs to final products, and that this will also ensure Tsumura’s stable procurement of crude drugs and raw
materials while helping improve the quality of crude drugs in China and protect crude drug resources.
This is an investment for the growth of businesses at the Tsumura Group and will contribute to an improvement in corporate
value.
FY2017 2Q

4

Summary of Ping An Insurance’s Healthcare Strategy
Patient

ProviderHealthcare
Management Platform

HospitalPing An Good
DoctorOnlineReferralPharmacies

Health Service Chain

Data
Accumulation

Provideservices

Medical expense
control, Higher
service efficiency,
Smart mobile
services

Physicians

Customer
ReferralPing An Wanjia
ClinicClinics

Payment
Social Health
Insurance Platform

Ping An Social
Health Insurance
Customerflow

Stronger productCompetitivenessPrivate insurance

Ping An HealthPing An Life
Ping Annuity

Checkup centers
OfflineReferral

Other Medical
Institutions
Data
Accumulation

ClinicalSupportInformation platform: Ping An Health Cloud

CustomerreferralData
Accumulation

Predict diseases

Services provided by Ping An Insurance GroupFY2017 2Q

Product innovation
riskmanagement

ProvideservicesSummary of Ping An Insurance’s Healthcare Strategy
Patient

ProviderHealthcare
Management Platform

HospitalPing An Good
DoctorOnlineReferralPharmacies

Health Service Chain

Data
Accumulation

Provideservices

Medical expense
control, Higher
service efficiency,
Smart mobile
services

Physicians

Customer
ReferralPing An Wanjia
ClinicClinics

Payment
Social Health
Insurance Platform

Ping An Social
Health Insurance
Customerflow

Stronger productCompetitivenessPrivate insurance

Ping An HealthPing An Life
Ping Annuity

Checkup centers
OfflineReferral

Other Medical
Institutions
Data
Accumulation

ClinicalSupportInformation platform: Ping An Health Cloud

CustomerreferralData
Accumulation

Predict diseases

Services provided by Ping An Insurance GroupFY2017 2Q

Product innovation
riskmanagement

ProvideservicesEstablishment of Joint venture with Ping An Insurance (Plan)
Tsumura and Ping An Insurance plan to establish a joint venture, and to
conduct the following business through the joint venture.

Details of main businesses of joint venturei.

Business related to strengthening thecrude drug procurement structureii. Business related to analysis andresearch focusing on traditional
Chinese medicines

The procurement of land for cultivation, thedevelopment of cultivation techniques, theconstruction and development of crude drug
processing plants, and the development ofprocessing technologies, etc.
Establish an analysis and research center focusing
on traditional Chinese medicines, and thedevelopment of analysis and research techniques
and the provision of analysis and testing services,
etc.

iii. Business related to traditional Chinese Use Tsumura’s Kampo medicine manufacturing
medicines, health food and healthcare- knowhow to conduct the business of manufacturing
and selling traditional Chinese medicines.
related daily necessities and otheroperations and markets
FY2017 2Q

7Summary of Future China Business
Investment Ratio 10%

Ping An Insurance (Group)
Company of China, Ltd.

Ping An Life Insurance Company
of China, Ltd.

Joint Venture

51%

49%
※

SHANGHAI TSUMURA

Investment
Ratio

Investment
Ratio

34%

63%
※

Investment
Ratio

Shanghai Pharmaceuticals
Holding Co.,Ltd.
Shanghai Traditional
Chinese Medicine Co.,Ltd.

100％

TSUMURA China

TSUMURA

Investment
Ratio

※

Investment
Ratio

SPH TSUMURA
PHARMACEUTICALS＊＊＊＊SHENZHEN TSUMURA

Investment
Ratio

・Business related tostrengthening the crude
drug procurement structure
・Business related toanalysis and research
focusing on traditional
Chinese medicines, etc.

Business for traditional
Chinese medicine
compound granules
Manufacturing and Salesof Kampo extract powder
for Tsumura
Procurement, selection andprocessing, and storage of raw
material crude drug for Tsumura
The crude drug pieces business

100%

Comprehensive
Business Alliance

China Medico Corporation*We plan to shift our investments in each company to investments from Tsumura China.
FY2017 2Q

Procurement, selection andprocessing, and storage of raw
material crude drug for Tsumura
The crude drug pieces business8

Product of the China Business
The Crude drug pieces
Cutting, etc.

Raw material
crude drugs

Crude drug pieces～～

Traditional Chinese medicine compound granules
Raw material
crude drugs

After cutting, etc.,
become crude drug pieces

Extraction/Separation/Concentration

GranulesOmit
Manufacturing
process～～（Image photo）（Image photo）

Extract product based on traditional Chinese medicine (traditional Chinese medicine and traditional Chinese medicinal product)
Raw material
crude drugs

Same as above, become
crude drug pieces

Weighting/Mixing

Extraction/Separation/Concentration

Granule products, etc.

Omit
Manufacturing
process（Image photo）
FY2017 2Q（Image photo）（Image）（Image photo）（Image photo）

9

Second Quarter Business Resultsfor Fiscal 2017

FY2017 2Q

2Q Consolidated Performance for Fiscal 2017（¥ million）

Vs. FY 2016 2Q

FY 2017
2Q Plan

FY 2017
2Q

Net sales

58,60058,282

99.5%

56,359

1,923

3.4%

Operating profit

8,200(14.0%)

8,985(15.4%)

109.6%

7,868(14.0%)

1,116

14.2%

Ordinary profit

8,400

9,248

110.1%

7,366

1,882

25.6%

Profit attributable toowners of parent

6,100

6,614

108.4%

5,311

1,302

24.5%

(Operating profit margin)

FY 2017
2Q PlanDividends
per share¥32

FY 2017
2Q¥32

Achievement

FY 2016
2Q

FY 2016
2Q

AmountSales by product
Other prescription
pharmaceutical
Products

0.4%

¥32

OTC medicines
Prescription
Kampo
Products

95.7%

FY2017 2Q

Change

2.1%
Other

1.8%

Key points in Performance Underperformed sales goal but sales and profits grew year-on-year
Consolidated net sales¥58,282 million

Vs. planned

99.5％

YoY

3.4％

 Sales of 129 prescription Kampo products increased 3.4% year on year, and sales of 77 formulations increasedin amount basis.
 Sales of OTC drugs, mainly Kampo products sold at pharmacies, rose 6.3%.

Operating profit¥ 8,985 million

Operating profit margin

15.4％

Vs. planned 109.6％

YoY

14.2％

YoY +1.4pts

 The Cost of Sales ratio fell 1.1 percentage points year on year to 41.9%, reflecting in part to an improvement inprocessing costs owing to an increase in production volume.
However, this was 0.3 percentage points higher than we planned due to the cost of crude drugs and atemporary gap in production capacity owing to the launch of a new manufacturing line.
 The SG&A ratio fell 0.3 percentage points year on year to 42.7%, reflecting the cost controls that accompanied
improvements in operational efficiency. Cost containment and difference in time for payment of researchexpenses caused a decrease of 1.1 billion yen, 1.7 percentage points, for the plan.

Ordinary profit¥9,248 million

Vs. planned 110.1％

YoY

25.6％

Profit attributable toowners of parent¥6,614 million

Vs. planned 108.4％

YoY

24.5％

FY2017 2Q

Sales perfomance of prescription Kampo products（¥ million）
Product No. / nameMain effectively treatable disorders

FY 2016
2Q

FY 2017
2Q

Y o Y Change

1 ☆ 100 Daikenchuto

Abdominal pain / abdominal flatulence

5,212

5,351

138

2.7%

2 ☆

54 Yokukansan

Neurosis / insomnia, etc.

3,712

3,864

151

4.1%

3

G

41 Hochuekkito

Reinforcement of physical strength after illness / anorexia,
etc.

3,630

3,699

68

1.9%

4 ☆

43 Rikkunshito

Gastritis / maldigestion / anorexia, etc.

3,431

3,577

146

4.3%

5

G

68 Shakuyakukanzoto Pain accompanying sudden muscle spasms, etc.

2,506

2,660

153

6.1%

6

G

24 KamishoyosanOversensitivity to cold / menstrual irregularity / climacteric
disturbance, etc.

2,258

2,342

84

3.7%

7

G

29 Bakumondoto

Coughing / bronchitis / bronchial asthma

1,986

2,002

16

0.8%

8

G

17 Goreisan

Edema/ diarrhea / headache / heaststroke, etc.

1,715

1,921

206 12.0%

Leg pain /low back pain / numbness / dysuria, etc.

1,901

1,889

-12 -0.6%

1,771

1,812

40

2.3%

642

692

49

7.8%

Total sales of the five Drug-fostering formulations

14,90015,375474

3.2%

Total sales of the five Growing formulations

12,097

12,627529

4.4%

Total of 129 prescription Kampo products

53,97455,784

1,810

3.4%

9 ☆ 107 Goshajinkigan
10

114 Saireito

Acute gastroenteritis / swelling (edema), etc.

21 ☆

14 Hangeshashinto

Fermentative diarrhea / neurotic gastritis / stomatitis, etc.

☆：Drug-fostering formulations, G：Growing formulations
FY2017 2Q

Analysis of Sales Catalysts
Three Important Domains
Geriatric field

Cancer domain(supportive care)

Gynecology field

Concentration and Emphasis

Field of Gastroenterology（Rikkunshito, Daikenchuto, Hangeshashinto, etc.）◆Field of concentration: MR capabilities（”Drug-fostering” program formulations）
New evidence of Rikkunshito and Daikenchuto, etc.
FY2017 2Q

14Analysis of Sales Catalysts（Rikkunshito ）（¥ million）

FY2021 Sales Goal：Over 10 billon yen

Net sales

FY 2016 2Q FY 2017 2Q

Vs. FY 2016 2Q

3,577

146 4.3%

3,431

Targeting：Improvement of gastrointestinal motility
1. Pharmacology

2. New evidence

Actions on gastric adaptive relaxation (guinea pig, human, etc.)
Stimulation of ghrelin secretion (stimulation of appetite)(rat, human)
Improve gastric emptying (human)
Enhancement of digestive motility (rat, human)
Improve stress-induced gastrointestinal function disorders (mouse,
human)
Improve gastric mucosal blood flow (guinea pig, human)
Suppress gastric acid hypersensitivity (rat)
Improve esophageal clearance (human)

1st Half

2 nd Half
FY2017 2Q

DREAM Study: Clinical trial on FD (Functional
Dyspepsia) [Announcement at DDW2017]

Targeting strategy

Education about products

Facilities-specific approach

Regional Branch Manager・Sales Office Manager

Use of realworld data

Doctor-specific approach

Manager15

Rikkunshito Pharmacology
Enhancement of digestive
motility (rat, human)
Actions on gastric adaptive relaxation(guinea pig, human, etc.)

Improve gastric
emptying (human)

Stimulation of ghrelin secretion(stimulation of appetite)(rat, human)

FY2017 2Q

Improve esophageal
clearance (human)
Suppress gastric acid
hypersensitivity (rat)

Improve gastric mucosal bloodflow (guinea pig, human)

Improve stress-induced
gastrointestinal function disorders(mouse, human)

16

Analysis of Sales Catalysts（Rikkunshito ）（¥ million）

FY2021 Sales Goal：Over 10 billon yen

Net sales

FY 2016 2Q FY 2017 2Q

Vs. FY 2016 2Q

3,577

146 4.3%

3,431

Targeting：Improvement of gastrointestinal motility
1. Pharmacology

2. New evidence

Actions on gastric adaptive relaxation (guinea pig, human, etc.)
Stimulation of ghrelin secretion (stimulation of appetite)(rat, human)
Improve gastric emptying (human)
Enhancement of digestive motility (rat, human)
Improve stress-induced gastrointestinal function disorders (mouse,
human)
Improve gastric mucosal blood flow (guinea pig, human)
Suppress gastric acid hypersensitivity (rat)
Improve esophageal clearance (human)

DREAM Study: Clinical trial on FD (Functional
Dyspepsia) [Announcement at DDW2017]

1st Half

2 nd Half
FY2017 2Q

Targeting strategy

Education about products

Facilities-specific approach

Regional Branch Manager・Sales Office Manager

Use of realworld data

Doctor-specific approach

Manager

15

Analysis of Sales Catalysts （Daikenchuto・Hangeshashinto）（¥ million）

Product No. / name100 Daikenchuto
14 Hangeshashinto

FY2016 2Q

FY 2017 2Q

5,212

5,351

138

2.7%

642

692

49

7.8%

Vs. FY 2016 2Q

Daikenchuto• Strengthen approach to specialists in gastrointestinal surgery by
disseminating evidence by top authorities at academic conferences. Sales
rose year-on-year but were lower than we planned.
• The chronic constipation treatment guidelines were released in October so
we plan to strengthen sales activities in the second half.

Hangeshashinto• Owing to activities to communicate the revision to the warning label in theprevious fiscal year, there was an increase in cases of usage for stomatitis,which is a side-effect of cancer treatment.
• We will continue gathering evidence to listing in the guidelines.
FY2017 2Q

17

Measures for Developing New DomainsNew collaborations with academic conferences
・Participate in training programs at nutrition-related academic
conferences
・Seven times from September to December
・Development mainly for supplements*, including Hochuekkito*Supplements: Prescribed for use to restore weakened energy

Product No.

41

FY2017 2Q

nameHochuekkito

INDICATIONS
Conditions of patients having delicate constitution, reduced
digestive functions, and severe fatigability of limbs:
Summer emaciation, reinforcement of physical strength after
illness, tuberculosis, anorexia, gastroptosis, cold, hemorrhoid,anal prolapse, uterine prolapse, impotence, hemiplegia, andhyperhidrosis
18Factors in Increase / Decrease of Operating Profit (YoY)(¥ million)(¥ million）
Factors of Sales increase+1,923-147

Prescription Kampo 129 products

-658
8,985

Cost of sales margin

Sales
increase

Sales cost
increase

SG&A
expenses
increase

Increase in crude drug cost

+0.1pts

Improvement of processing cost

-0.5pts

Fluctuation of exchange rate

-0.4pts

Other-0.3pts

Factors of SG&A expenses

43.0%→41.9%-1.1pts

FY2017 2Q+113

Factors of Cost of sales margin

7,868

FY 2016
2Q
OperatingprofitOther+1,810FY 2017
2Q
OperatingprofitSales promotion expenses+187

R&D expenses+155

Advertising expenses-40

Personnel expenses

+184

Other

+172

19

Financial Condition / Cash Flow Position
Balance Sheet(¥ million）

As of March2017

Total assets

222,008

As of
September（¥ billion）
Effect ofexchange
Financingrate
Activities Changes

Change2017258,464

36,456

134,679

166,825

32,146

Non-current assets

87,32991,6394,309

Total liabilities

64,61196,014

31,402Current liabilities

31,88348,20016,316

Non-current liabilities

32,727

47,81315,086

Total net assets

157,397

162,450

5,053

Current assets

Cash Flow

Operating Investing
Activities Activities

+11.4

+25.3

-0.1

47.4

-19.0

29.9

Issuance of Bonds

Equity Ratio

69.7%

61.8%

¥30 billion-7.9pts(¥ million）
Balance Sheet

Inventories（Merchandise andfinishedgoods）（Work in process）（Raw materials
and stores ）FY2017 2Q

As of March
2017

52,138
8,122
14,547
29,467

As of
September
2017

48,887
8,009
12,89527,982

Change-3,251-113-1,652-1,485

Cash and cash
equivalents at
beginning of
periodCash and cash
equivalents at endof period

20

Topics for ESG Activities

FY2017 2Q

Asagiri Medical Plants LLC
Completion of Medicinal Plant Processing Plant (July) Constructed on the former site of Fukada junior high school in
Asagiri-cho Total floor space of 962.5㎡
 One-story steel structure Full-fledged operations scheduled to start up in November
 Construction cost for processing plant: Shouldered by
Kumamoto Prefecture, Asagiri-cho, and the townships in
the Hitoyoshi and Kuma districts
 Processing facilities: Cost to be shouldered by Asagiri
Medical Plants LLC and Tsumura

Medicinal Plant Processing Plant

FY2017 2Q

Awarded as an Outstanding Business Office for Employing People with Disabilities by
the Minister of Health, Labour and Welfare
In September 2017, Selected and awarded as an Outstanding Business Office for
Employing People with Disabilities by the Minister of Health, Labour and Welfare.

Awarded to businesses that actively higher a number of people withdisabilities or to people with disabilities that are model workers⇒As of the end of September 2017, the percentage of employees withdisabilities at Tsumura was 3.02%.

Selection process
In the past, we had won the Director’s award from the Japan Organization for
Employment of the Elderly, Persons with Disabilities and Job Seekers (JEED). This
time around JEED recommended us and the MHLW selected us for the award.
Previous awards
2011: JEED Director’s award for best effort
2014: JEED Director’s award
FY2017 2Q

23

FY2017 Performance Forecasts

FY2017 2Q

FY2017 Performance Forecasts
 No changes have been made from the results forecast announced on May 11, 2017.
（¥ million）

FY 2016

YoY

FY2017
AmountChangeNet sales

114,954

120,700

5,745

5.0%

Operating profit

15,983（13.9%）

17,600（14.6%）

1,616

10.1%

Ordinary profit

16,39918,100

1,700

10.4%

Profit attributable toowners of parent

12,48812,700211

1.7%(Operating profit margin)

¥64

¥64

Impact from the
Capital andBusiness Alliance

ＥＰＳ

¥179

¥184

¥175

ＲＯＥ

8.1％

8.0％

7.4％

FY 2016
Dividends per share

FY2017 2Q

FY201725

Return of Profits to Shareholders

FY2017 2Q

Return of Profits to Shareholders
Policy To improve corporate value through capital investments in order to realize thecontinuous development and growth of “Kampo”
 To consider medium- to long-term profit levels and cash flows as well as carry out astable dividend
 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.

0円

Dividend history

0円

30.3% 31.6% 31.5%

0円

17.8%

0円

0円

45.0%

9.1%

0円

10
7

13
10

0円

2006

2007

28.4%

22.3%

32.1%

35.9% 35.7%

40.0%
36.4%
35.0%

25.0%

30.0%

30

30

32

32

32

32

32

32

17

23

28

30

30

32

32

32

32

32

2008

2009

2010

17

23

2011

2012

2013

2014

2015

2016

4Q(¥)
期末配当
20.0% 中間配当
2Q(¥)
15.0%
Dividend
配当性向
25.0%

10.0%
5.0%

0.0%
forecast
2017予想payoutRatio(%)

The year-end dividend and dividend payout ratio for FY2017 are based on the assumption that the dividend item will be approved at the 82nd annual shareholders’ meeting
FY2017 2Q

FY2017 2Q