Moving in a New Direction
ANNUAL REPORT 2017

Corporate Philosophy
The Best of Nature and Science

Corporate Mission
To contribute to the unparalleled medical therapeutic powerof the combination of Kampo medicine and Western medicine

Tsumura’s Business
Tsumura’s core business is the manufacture and sale ofprescription Kampo products. As a leading company in the fieldof Kampo medicine, Tsumura aims to achieve sustainable growthand build its corporate value through the provision of a stablesupply of high-quality Kampo products.

Glossary
Kampo Medicine
Kampo medicine is the medicine
traditionally practiced in Japan, basedon ancient Chinese medicine.

Western Medicine
Originating with the practice of medicine in
Greece, Western medicine is used as thecounterpart to Eastern medicine.

Kampo Medicines
Kampo medicines are used in
the practice of Kampo medicine, including
Kampo products.

Crude Drugs
Crude drugs are the main raw materials
for Kampo products and primarily indicate
the portion of plants and minerals used for
medicinal purposes.

Kampo Business
A business model including not only the
production and sale of Kampo products,
but also encompassing the cultivation,
processing, and storage of crude drugs.

“Drug Fostering” Program
The “drug fostering” program isa program that aims to build a bodyof scientific evidence on the efficacyof Kampo products.

Forward-Looking Statements
In this annual report, all statements that contain the words “believe,” “anticipate,” estimate,” “expect,” or other similar words, and all numbers related to future performance, are consideredforward-looking statements that are not historical facts but rather reflect management’s best judgment and the most up-to-date information available at the time this annual report was
prepared. The actual results that Tsumura will achieve in the future may differ greatly from these estimates and forecasts due to various uncertain factors in the business environment andvarious risks that are discussed later in this annual report. The forward-looking statements contained herein were deemed reasonable by management at the time that we prepared thisannual report, but it is important to exercise ample caution when making investment decisions based on these statements.

TSUMURA & CO.

Financial Summary
Net Sales

Operating Profit /Operating Profit Margin¥ billion¥ billion / %140

Earnings per Share

30

30

114.9

70

15.9

15

15

13.9%

0

13

14

15

16

0

17

13

14

15

16

179.46¥0

17

 perating profit
OOperating profit margin (right scale)Profit Attributableto Owners of the Parent / ROEFree Cash Flow

¥ billion / %Total Shareholder Return¥ billion

20

30

15.0

15

0

0

–15.0

14.6

75.9%

12.4
10

8.1%
0

13

14

15

16

17

13

14

15

16

17

 rofit attributable to owners of the parent
PROE (right scale)Contents
02

Tsumura at a Glance30Corporate Governance04

 even Reasons Why Kampo Is
S
Still Relevant Today38

Eleven-Year Selected ESG Data

06

To Our Stakeholders

40

Eleven-Year Selected
Financial Data (Unaudited)10

 he Kampo Value Chain
Tand Tsumura’s Business Model

42

12Strategies for Pursuing
Ongoing Growth50

Consolidated Balance Sheets

14

Our Progress

52

27

Consolidated Statements of Income /Consolidated Statements ofComprehensive Income

Frequently Asked Questions

29

Risk Factors

Management’s Discussion
and Analysis

53

Consolidated Statements of
Changes in Equity

55

Consolidated Statements ofCash Flows

56

Notes to the Consolidated
Financial Statements

76

Independent Auditor’s Report

78

Corporate Data /Investor Information

Annual Report 20171

Tsumura at a Glance

Raw
Materials
The raw materials for Kampo medicines are crude
drugs derived mainly from plants. Crude drugs containmultiple active ingredients, which are extracted for use in
Kampo medicines.
Rather than extracting a single active ingredient from one
type of crude drug, Kampo medicines are made by combining at least two and sometimes up to 10 crude drugs. As such,
Kampo medicines can contain multiple active ingredients.

Products

the compositions of several Kampo medicines can be foundin ancient Chinese medical documents. For this reason,
many of the raw material crude drugs for making Kampo

Kampo products are therapeutic formulations createdformulations used in Japan are imported from China evenbased on the principles of Kampo medicine, a traditional

today. As the ingredients contained in crude drugs can vary

form of Japanese medicine. The Kampo medical tradition

based on their type or where they are grown, crude drugs

was codified through accounts of treatments conductedthat have not been grown in specific locations may not be

over the course of its long history, with some Kampo formu-

suited to the production of Kampo products.

lations being established as long as 1,800 years ago.

Currently, Tsumura procures approximately 80% of the raw

While certain Kampo medicines entail boiling and drink-material crude drugs it uses from China, 15% from Japan,

ing crude drugs, most of the prescription Kampo products

and 5% from Laos, among other countries. Regardless ofused in Japan today are powdered extracts, the active

the producing region, we record and store data on every

ingredients of which have been extracted from crude drugs

stage of the production of crude drugs, from the cultivationand processed into powders.

of raw material crude drugs to processing, logistics, stor-

The fundamental treatment method of Western medicine

age, and other processes. Based on Tsumura’s rigorous

is to directly address and remove the cause of the illness.

standards, we work to maintain management systems that

Conversely, Kampo medicine entails examining the patient

track raw material crude drugs throughout all processes

as a whole, as opposed to just focusing on the illness, tobeginning with cultivation and to secure a stable supply.

provide a means of stimulating their natural healing power
and resistance and bringing their entire body into balance.
In addition, Western drugs almost always contain only one
ingredient made from chemical compounds. A single drug
is thus administered for a single symptom or disorder. In
contrast, Kampo medicines are often composed of crude
drugs containing a mixture of ingredients. For this reason,
one formulation can demonstrate positive results for
multiple symptoms.

2

The roots of Kampo medicine can be traced to China, and

TSUMURA & CO.

MarketThe overall domestic prescription product market has displayed a compound annual growth rate of 2.8%* over the
past decade in the midst of the rise in medical careexpenses in Japan driven by the rapid aging of society. Overthe same period, the compound annual growth rate for theprescription Kampo product market has been 4.3%,*

Customers

exceeding the growth rate for the overall market.

Pharmaceutical manufacturers sell their products directly todomains of geriatric health, cancer (supportive care), andpharmaceutical wholesalers. However, sales activities are

women’s health, a trend accompanying the recent rise intargeted at the medical institutions that use these products,

demand for pharmaceuticals. Other contributors include

and this is a fact that is true for both Kampo formulations

the progress in our efforts to establish scientific evidence

and Western drugs. The reason for this situation is that,regarding Kampo formulations and the acceleration of ouralthough the Japanese medical field is primarily based

promotional activities.

around Western medicine, there is no differentiation

The strong growth of the prescription Kampo productmarket can be attributed in part to the increased number of
Kampo prescriptions in the Company’s three important

Tsumura is the only listed company in Japan that is a

between Western medicine and Kampo medicine in the

dedicated manufacturer of prescription Kampo products,

licensing system for physicians. Accordingly, there are

and we boast a share of approximately 80%* of sales in thethose physicians who prescribe both Western drugs anddomestic Kampo product market. We are therefore a leader

Kampo medicines.

in providing prescription Kampo products, which supply

Roughly 70% of Tsumura’s sales come from the generalmodern medicine with a form of value that is completely

practitioner and clinic market, which consists of relatively

different from that offered by Western drugs. By meeting thesmall, community-rooted medical institutions. Sales activi-

needs of the medical field and of patients, we will create newties targeting these institutions are primarily tailored toward

treatment domains for Kampo products and thereby further

increasing the number of Kampo formulations that they uti-

the growth and development of the market.

lize in their practice.
The remaining 30% or so of sales are made to university* Copyright ©2017 QuintilesIMS. All rights reserved. Estimated based on “JPM Mar. 2008
MAT–Mar. 2017 MAT.” Reprinted with permission.

hospitals and designated hospitals for clinical training. The
level of interest in Kampo medicine and the proficiency atutilizing Kampo formulations can vary among the physicians and physicians-in-training at such institutions. To
address this disparity, we hold Kampo training sessions forphysicians-in-training working at university hospitals anddesignated hospitals for clinical training to provide themwith the latest scientific evidence on Kampo products.

Annual Report 2017

3

Seven Reasons Why Kampo Medicine Is Still Relevant Today01

Establishment of Scientific Evidence
In recent years, the effectiveness of Kampo medicines has been documented in numerous
clinical trials and prominent medical journals.
Tsumura began working to establish scientific evidence for its products in 2005. In particular,
we have identified a total of 10 formulations for which we aim to form a body of evidence.
These include the five “drug fostering” program formulations, which have been demonstrating
special efficacy for certain diseases in fields where medical treatment needs are high andthat are difficult to treat with Western drugs. The other formulations are the five “growing” formulations that we aim to have listed in medical treatment guidelines by establishing scientificevidence in fields where treatment satisfaction and contributions from medicine are low.

02

Prescriptions of Kampo Products by Domestic Physicians
According to a 2011 survey by the Japan Kampo Medicines Manufacturers Association,
89% of Japan’s physicians had prescribed Kampo products to their patients. Reasons forprescribing Kampo products include their efficacy in treating ailments for which Western
drugs are not effective, requests by patients, and academic reports on scientific evidence
related to these products. In fact, the ability for a physician to combine Western medicine
and Kampo medicine in order to treat patients by calling upon the strengths of both could
be said to be a characteristic of Japanese medicine.

03

Coverage under the Japanese National Health Insurance Plan
Currently, 148 prescription Kampo products are covered under the Japanese National
Health Insurance (NHI) plan, and these products are becoming an indispensable part of
medical services in Japan in a similar manner to Western drugs. All of the 129 Kampo formulations made by Tsumura are covered under the NHI plan and are thus subject to theestablishment of set official prices and consequently the price revisions that are instituted
once every two years, in principle.

04

Spread of Kampo Medicine Education at Educational Institutions
Of the 80 medical colleges and university medical departments located throughout Japan,
only 24 offered courses on Kampo medicine in 1997. However, the Ministry of Education,
Culture, Sports, Science and Technology included Kampo medicine in the model core curriculum for medical education in 2001, causing education on this subject to spread, and all
medical education institutions in Japan had Kampo medicine courses in 2004 as a result.
Today, almost all medical universities require students to take eight Kampo medicine
courses in order to graduate. In addition, Kampo outpatient clinics have been set up at 79
universities, giving students the opportunity to study Kampo medicine in a clinical setting.

4

TSUMURA & CO.

05

Prescriptions for Geriatric Health Purposes
The symptoms felt by senior citizens can vary greatly on an individual basis due to thedecline of their body functions or the effects of their having numerous ailments. Kampo
medicine entails issuing prescriptions based on the constitution and condition of individual
patients, and a single Kampo formulation can have several benefits. For this reason, Kampo
products have been recognized as ideal for the geriatric health field, and it can thus beexpected that the market will grow given the recent rapid aging of Japanese society.

06

Contributions to Women’s HealthKampo medicine has long been used to treat illnesses and other ailments that are unique towomen, and Kampo products are widely known for their effectiveness in recovering hormonal and autonomic nerve balances. In addition, a characteristic of Kampo medicine is
how it can be used to treat ailments that cause patients to feel very real symptoms, despite
Western medicine being unable to identify the cause. General malaise is one such ailment.
As women become increasingly involved in the workforce, the number of women sufferingfrom various stress-related ailments is rising. It is therefore likely that there will be a greater
range of cases in which Kampo medicine can exhibit its effectiveness going forward.

07

Rise in Prescriptions for Supportive Care for Cancer
There has recently been an increased emphasis on the quality of life of cancer patients andon their connections with society. The fundamental approach of Kampo medicine is to takea comprehensive perspective that goes beyond simply alleviating body pains to improve theoverall physical and mental balance of patients and enhance their vitality. As such, medical
practitioners and patients alike have high expectations for the ability of Kampo medicine tosupport the physical and mental condition of cancer patients.
Recently, we have seen a rising trend toward Kampo products being used in conjunction
with Western medicine-based cancer treatments to alleviate the side effects of anticancer
drugs and provide supportive care.

Annual Report 20175

To Our Stakeholders

Terukazu Kato
President andRepresentative Director

Tsumura will pursue long-term improvements incorporate value through innovation in the form of
new initiatives for ensuring the continuity andgrowth of its Kampo and crude drug businesses.

6

TSUMURA & CO.

One year has passed since we kicked off the current

Quest to Overcome Three External Factors

medium-term management plan. Although net sales were up

There are three major external factors impeding our efforts

year on year in fiscal 2017, the figure achieved still fell slightly

to get Tsumura on the path toward growth. These areshort of our target, and I cannot deny the regrettable nature of

National Health Insurance, or NHI, price revisions; rising

this fact. Operating profit exceeded our target by more thanprices for crude drugs; and yen depreciation. As Tsumura

10%, but was still down year on year. As such, Tsumura is

is not engaged in drug discovery, performance is heavily

still in the process of getting on the path toward growth.

impacted by the reductions to selling prices that generally

Conversely, by having all divisions of the Company takefollow the revisions to official NHI prices that are conductedpart in the formulation of the medium-term management plan,around once every two years. In fiscal 2017, the Company

we stimulated steady changes in the mind-set of employees

produced 9,789 tons of extract granules for pharmaceutical

toward the accomplishment of the plan’s targets. In addition,

applications and used 12,495 tons of raw material crude

by advancing ongoing corporate governance reforms anddrugs. Roughly 80% of these articles are imported, mean-creating social and environmental value through raw material

ing that rising crude drug prices and yen depreciation cancrude drug cultivation and procurement, we are enhancing

significantly increase the cost of sales.

our management capital, which is indispensable to the

Looking to overcome the impacts of these three external

improvement of corporate value. Out of consideration forfactors, we have been advancing cost management measuresthese positive developments, and having defined “creating

since the period of the previous medium-term management

new value through innovations in Kampo” as the theme of theplan. Specific measures have included expanding the area

medium-term management plan, I am exercising speed inof Cultivated Land under Own Management*1 and boostingleading the Company to move us forward toward the accom-

production efficiency through capital investment. However,plishment of our long-term business vision, Vision for 2021.

these measures require topline sales growth in order to be

In fiscal 2017, we conducted the acquisition of treasury

truly effective. Newly introduced manufacturing equipment,

shares as a way of expressing our confidence in the future

for example, contributes to improved efficiency throughgrowth of our business. Our basic policy of improving

increased production volumes. Accordingly, performance

corporate value through business growth remains unchanged.

benefits can only be realized when we achieve growth

However, we felt that Tsumura’s underlying corporate value

alongside profitability improvements.

was not properly reflected in the Company’s stock price, which
formed the basis for our decision to acquire treasury sharesat this time. In cases such as this, we will adopt a flexible*1 Farms for which Tsumura directly provides cultivation guidance and has an understanding of cultivation costs based on which it can set procurement prices. Not only
limited to farms directly operated by the Tsumura Group, these farms also include
those operated by contracted farmers and agricultural associations.

stance toward treasury share acquisitions based on consideration of the capital structure that we have deemed ideal.

Fiscal 2017 Business Results
Vs. Planned¥ million / %

YoY

Plan

FY2017

AmountDifference

AmountChangeNet sales

115,400

114,954

–445

–0.4%

2,328

2.1%

Operating profit

14,50015,983

1,483

10.2%

–3,842–19.4%

Profit attributable to ownersof the parent

10,70012,488

1,788

16.7%

–68

–0.5%

Operating profit margin

12.6%

13.9%

+1.3 pts–3.7 pts

Annual Report 20177

To Our Stakeholders

Departure from Comfort Zone
to Achieve Further Growthincrease the total number of sales areas throughout Japan

Tsumura has a share of more than 80% of the prescription

measures to branch managers. The aim of this move was toKampo product market. Accordingly, achieving topline growthallow for the deployment of activities by medical represen-

will require us to grow the market itself. The domestic Kampo

tatives that prioritize more flexible, area-based marketingproduct market continues to grow steadily, but I am convinced

approaches. These approaches will utilize the knowledge andthat there is still substantial room for growth in this market.

information held by medical representatives and branches

In fact, the growth measures we have been advancing

in relation to the medical practitioners in their specific area.

under the medium-term management are aimed at departing

At the same time, at the head office, we consolidated mar-from the comfort zone represented by our traditional initia-

keting strategy-related functions into a single organization

tives in order to unlock the latent potential of the market.

and began stepping up coordination with sales divisions as

from the prior 12 to 21 and then transferred authority for sales

One of these growth measures is to expand the range ofwell as with the R&D responsible for establishing evidence;

formulations for which we will seek to establish scientificpreviously, coordination of this nature was hard to carry out.

evidence. Accordingly, we have identified five “growing” for-We have therefore created a framework that ensures highly

mulations.*2 We will work to establish scientific evidence forviable information can be rapidly supplied to sales offices.

these formulations alongside the five “drug fostering” program*2 Program for establishing a body of scientific evidence for five formulations targeting
diseases in fields where medical treatment needs are high that are difficult to treat with
Western drugs and for which Kampo products have demonstrated special efficacy*3 New strategic formulations defined to stand alongside the five “drug fostering” program formulations as growth drivers that we aim to have listed in medical treatment
guidelines by establishing scientific evidence in fields where treatment satisfaction
and contribution from medicine are low

formulations*3 that display benefits with regard to the threeimportant domains of the medium-term management plan—
namely, those of geriatric health; cancer, supportive care inparticular; and women’s health. In these three domains,
Tsumura is benefiting from various government-spearheaded
We therefore feel it is incredibly likely that Kampo products

Business Model Encompassing
the Kampo Value Chain

will be included in medical treatment guidelines so long as

As the Tsumura Group’s growth is directly linked to the growth

medical measures for promoting the use of Kampo medicine.

200

70

we are able to establish the necessary evidence. The inclu-

of the Kampo
68.8%product market, the Company’s corporatesion of Kampo products in these guidelines will help cement

value is similarly linked to the development and spread ofthese products as a viable treatment option, which, in turn,Kampo medicine. There can be no doubt that the Kampo

10035
product market willgrow when the government, medical

will drive the growth of the Kampo product market.

66.7

Another growth measure is to enhance sales flexibility. On

practitioners, patients, and society as a whole come to recog-

April 1, 2017, we split up the sales areas of branch offices tonize Kampo medicine as an indispensable part of medicine in0

97 98 99 00 01

02 03 04 05 06 07 08 09

10

11

12

13

14

15

0

16

Net Sales / Operating Profit Margin¥ billion / %
180

24

136.1
114.9
13.9%
90

12

0

0

97 98 99 00 01

8

TSUMURA & CO.

02 03 04 05 06 07 08 09

10

11

12

13

14

15

16

17

 harmaceutical products
PHousehold products
Operating profit margin (right scale)Japan and when prescription Kampo products become

At the same time, we will prioritize strengthening our network ofwidely acknowledged as a viable treatment option. Tsumura’s

people involved in the crude drug field, a network that is foundedbusiness model is not limited to the narrow definition of

on mutual trust. Through these efforts, we look to create value

business activities, which in the case of the Company would

on a long-term timeline that is suited to our business.

include manufacturing Kampo formulations and conducting
sales activities targeting medical practitioners. Rather, our*4 Powdered extracts that are used in the preparation of traditional Chinese medicinesand made by extracting a single crude drug from crude drug pieces for decoction

business model encompasses the management of farms formulations, the development of cultivation technology, theCorporate Value Created throughContinuation and Innovation

creation of plant technologies to boost the efficiency of Kampo

As I mentioned a little earlier, we are implementing ongoing

formulation production, the holding of Kampo medicine

corporate governance reforms. After receiving approval atseminars for medical field representatives, and a myriad of

the General Meeting of Shareholders held in June 2017,

other activities. We refer to these activities for improving thewe transitioned to the Company with Audit and Supervisory

overall value of Kampo medicine as the “Kampo value chain,”Committee system described in the Companies Act of Japan.

and we have adopted this business model out of consider-

Under this new system, the position of Audit & Supervisory

ation for the link between the growth of the Kampo product

Board member will be replaced by a new type of director thatmarket and Tsumura’s growth and increased corporate value.

participates in decision-making at meetings of the Board ofThis business model was established in response to a

Directors. In conjunction with this change in system, authority

cultivating raw material crude drugs for making Kampo for-management crisis that the Company faced roughly twofor business execution will delegated to the Executive

decades ago. In light of this crisis, we chose to return

Committee, which is membered by executive officers. We

to the point of origin for our management, by which I mean

expect that these measures will allow for swifter businessproviding Kampo formulations into the future. The recon-

execution while also enabling the Board of Directors to devote

structed business model has the continuation of Kampo

even more time to discussing management directives frommedicine and its 1,400-year history as its foundation and thea long-term perspective.

pursuit of innovation, specifically by establishing scientific

The new growth measures set forth by the medium-term

evidence on the efficacy of Kampo formulations, as its driving

management plan embody our commitment to creating value

force for creating corporate value.

by relentlessly pursuing innovation and never becoming
complacent. It is our mission to ensure that Kampo products

Development of Operations in China
from a Long-Term Perspective

continue to be prescribed going forward and to raise theTsumura China Inc. was established in December 2016 toinnovation to achieve this goal. Fulfilling this mission is also

oversee operations in China. Our efforts to make a business

how we will live up to the expectations of our shareholders

consisting of the manufacture and sale of traditional Chinese

and investors. I hope we can look forward to your support

medicine compound granules* and Chinese crude drug

as we tackle the challenges to come.

4

value of prescription Kampo products through ongoingpieces through this company can be seen as one form of theinnovation sought by the medium-term management plan.

August 2017

However, we do not anticipate that our operations in China
will begin generating earnings during the period of the plan.
Instead, our first step in these operations will be to contributeto the health of the people of China as a display of ourappreciation toward the country producing the crude drugs

Terukazu Kato

that are crucial to our Kampo and crude drug businesses.

President and Representative Director

Annual Report 20179

Kampo Value Chain

The Kampo Value Chain and Tsumura’s Business Model

CULTIVATION AND
PROCUREMENTQUALITY
INSPECTIONSTORAGE

Cultivates and procures crude

Conducts inspections to ensure

Stores raw material crude drugs

drugs for Kampo products in

raw material crude drugs meetat 15°C or lower and 60% or

China, Japan, and Laos, among

Tsumura’s standards for ingredi-

lower humidity

other countries

ent concentration and for residual agricultural chemicals,
heavy metals, microorganisms,

Tsumura’s Way of Creating Valueand other contaminants•	Realize stable procurement through contracts with crude drug
farmers and crude drug production associations•	Expand range of large-scale storage
and production facilities that are•	Create employment opportunities and invigorate communitiesin crude drug producing areas

compatible with the production ofvarious crude drug varieties and•	Procure crude drugs with consistently high levels of quality by applying
internal standards and reinforcing the crude drug traceability system•	Control crude drug procurement costs by expanding Cultivated Land

stockpile raw material crude drugs•	Guarantee stable supply of
Kampo products

under Own Management•	Reduce cultivation costs by utilizing selective breeding and developing
and introducing artificial cultivation and large-scale cultivation techniques•	Preservation of environments and biodiversity in crude drug
producing areas

Note: Green text represents items related to social or environmental concerns.

10

The Kampo value chain encompasses all processes

the efficacy and safety of Kampo formulations is established.

necessary for delivering Kampo products to patients. This

Tsumura’s business model is characterized by its being

chain begins with the cultivation and procurement of thegrounded on the Kampo value chain. Through this model,

crude drugs that serve as the raw materials for making

we focus on creating value via consolidation and integrated

Kampo formulations and then moves on to include quality

management of business activities in different areas ranging

management, manufacturing, distribution, and informationfrom the cultivation of raw materials, primarily botanicalcollection and provision. Also included in the chain are thecrude drugs, to pharmaceutical product manufacturing,R&D activities through which scientific evidence related toresearch, and education.

TSUMURA & CO.

POWDERED EXTRACT
MANUFACTURING

MANUFACTURINGSALESEDUCATION AND
POPULARIZATIONWHAT ISKAMPO?

Extracts and concen-

Mixes the powdered

Makes sales to pharmaceuti-

Disseminates information totrates active ingredients

extract with lactose,

cal wholesalers using a

medical institutions, holds

from raw material crude

granulates it, fills it into

similar method to that forseminars for the generaldrugs and dries thepackets, and packages it

Western drugs in Japan

public, and sponsors portal

concentrate into a pow-

websites to popularize

dered extract

Kampo products and educate people about them•	Accumulate manufacturing technologies and expertise•	Establish scientific evidence and develop comprehensive

in relation to stable production of high-quality Kampo

evidence sets to prove efficacy and safety of Kampo

formulations

formulations within framework of Western medicine•	Automate production facilities to enable production•	Utilize scientific evidence in marketing activities

of various crude drug varieties and reduce labor•	Expand treatment options and improve patient

requirements•	Contribute to reductions in CO2 emissions andestablishment of recycling-oriented society throughenergy and water conservation and waste recycling

treatment satisfaction and quality of life by merging
Kampo medicine with Western medicine•	Collaborate with research and educational institutions toentrench understanding of Kampo medicine•	Provide learning opportunities for developinga deeper understanding of Kampo medicine
and Kampo formulations

The innovation that determines the continuity of ourWe also recognize that the social and environmental value

business model is also linked to the Kampo value chain,created along the Kampo value chain is intrinsically linked

specifically arising from the enhancement of this chain. Our

to improvements in non-financial capital, namely, humanefforts to expand Cultivated Land under Own Management

capital, social and relationship capital, and natural capital.

and establish scientific evidence related to Kampo formula-

Such improvements will be crucial to Tsumura’s ongoingtions, both of which are driving the creation of value, aregrowth, meaning that this social and environmental value

examples of innovation born out of our attempts to address

contributes to the continuity of the Company’s business model.

rising crude drug prices or the need to improve R&D efficiency.

Annual Report 201711

Strategies for Pursuing Ongoing Growth

The six-year medium-term management plan that began in fiscal 2017 identifies three strategic challenges:
expansion and stable growth in the Kampo medicines market, continued reinforcement of profitability
and maximization of cash flow, and challenge of new businesses in China. Going forward, Tsumura willseek to take advantage of the opportunities brought about by market changes while increasing its ability
to address the weaknesses and threats these changes create in order to further augment its strengths.
SWOT Analysis of Tsumura

STRENGTHS
1. Business model based on establishment
and enhancement of Kampo value chain xpertise in manufacturing Kampo formulations
2. E
with consistently high qualityS
O

WEAKNESSES
4. Restrictions on crude drug procurement
5. No development of new drugs

 cientific evidence and network enabling the establishment
3. S
and utilization of evidence

OPPORTUNITIES

6. G
 rowing demand for Kampo products in recognition of economic
benefits of treatments merging Kampo medicine with Western medicine
amid rapid population aging in Japan, Kampo use for supportive care forcancer, and spread of acknowledgement of sex differences in medicine
7. Increase in physicians with interest in andunderstanding of Kampo medicine

Strategic Challenge

THREATS
8. Rising crude drug prices
9. 	Foreign exchange rate fluctuations(yen depreciation, in particular)
10. NHI drug price revisions

W
T

1

Expansion and Stable Growth in the Kampo Medicines Market
We are now witnessing a prime opportunity to expand the

supportive care and care for alleviating symptoms, and for

Kampo product market in Japan. Tsumura is committed tocatering to sex differences in medicine No. 6 .

exploiting this opportunity to achieve stable business growth.
Factors with the potential to contribute to the expansion ofphysicians perceive Kampo medicine. As scientific evidence

the Kampo product market include changes in the structure

has been accumulated on the efficacy, treatment mechanisms,of disease and in treatment needs. The rapid aging of theand safety of Kampo formulations, even those physicians

Japanese population* is resulting in an increasingly quick

who have been skeptical about Kampo medicine are now

rise in the number of individuals suffering from dementia,

taking an interest in and expressing their hopes regarding

cancer, and other illnesses for which risk rates rise with age.

Kampo medicine and formulations No. 7 .

This situation is becoming an ever more pressing social

Aiming to tackle strategic challenge 1—expansion

issue. There is also growing demand for treatment of ill-and stable growth in the Kampo medicines market—we

nesses that are unique to women, specifically those result-

have defined priority areas in which our efforts can linking from hormonal and autonomic nerve imbalances.

these changes to the expansion of the Kampo productKampo medicine has traditionally been based on the con-market. We are accelerating the establishment of scientificcept of personalized medicine. This characteristic of Kampo

evidence and implementing precisely targeted marketing

medicine makes it ideal for providing care for senior citizens,activities accordingly.

for contributing to the treatment of cancer through12

At the same time, there have been changes in how

TSUMURA & CO.

* According to the digest version of the fiscal 2016 edition of Annual Report on the Aging
Society released by the Cabinet Office, 26.7% of Japan’s population was over the ageof 65 in October 2015, the highest level in the world.

Strategic Challenge

2

Continued Reinforcement of Profitability and Maximization of Cash Flow
In order for Tsumura to get back on the track toward achieving

gradually increase procurement volumes of crude drugs in

medium-term revenue growth, it must tackle the challenge

conjunction with projected growth in Kampo formulationof cutting costs and improving profitability to an extent thatdemand, it takes time to cultivate crude drugs, which are growncounteracts or exceeds the impacts of rising costs and fall-agriculturally or in the wild. In fact, in growing certain crude

ing selling prices.

drugs, we must consider a time frame of around a decade.

Tsumura procures roughly 80% of its raw material crude

Furthermore, Tsumura does not conduct new drug devel-

drugs from China. In this country, there is robust demand

opment No. 5 , and all of its existing 129 pharmaceutical

for traditional Chinese medicines, which are made from the

Kampo products are covered under the National Healthsame type of crude drugs used in Kampo formulations, andInsurance (NHI) plan. The selling prices of these products

we therefore do not expect crude drug prices to decrease to

are thus subject to an ongoing decrease, albeit a relatively

any significant degree over the medium-to-long term No. 8 .

small decrease, as a result of NHI drug price revisions No.10 .

In addition, procurement costs of imported crude drugs are

To overcome strategic challenge 2—continued reinforce-heavily influenced by fluctuations in foreign exchange rates

ment of profitability and maximization of cash flow—Tsumura

No. 9 . Nevertheless, difficulty would be faced in terms ofwill continue efforts to secure a wide range of reliable crudequality, ingredient composition, production costs, and otherdrug supply sources while also introducing new production

factors if the Company were to attempt to procure the majority

technologies at factories and taking steps to optimize itsof its crude drugs from within Japan or from overseas coun-supply chain.

tries other than China No. 4 . Although there is a need toStrategic Challenge

3

Challenge of New Businesses in China
We are not just tackling the challenge of developing new

our efforts to date is evidenced by stakeholder requests forbusinesses in China to create short-term earnings opportu-

us to supply high-quality products based on Tsumura’s

nities. Rather, this undertaking is aimed at co-creating value

guidelines within China.

together with our stakeholders.

The Group has started up a new business in China out of

Tsumura has maintained a policy of conducting direct

its desire to contribute to the health of people in this country,

crude drug procurement transactions with producers after

which has provided it with crude drugs for more than 40 years.

both parties have committed to procurement volumes and

The goal of this business, however, is not purely social

prices via contracts. Adopting this approach, we have taken

contribution. We aim to co-create value together with stake-part in improving the quality of the crude drugs produced

holders through this business and to thereby strengthen andfrom the cultivation phase, building trusting relationships

expand the crude drug procurement network that supports

with these stakeholders through this process. At the same

our Kampo value chain, with our ultimate goal being thetime, SHENZHEN TSUMURA MEDICINE CO., LTD., a sub-establishment of foundations for long-term growth. Tsumura

sidiary responsible for procurement activities in China, haswill continue to explore new markets in search of new earnings

built an organization to which management can be entrusted

opportunities over the long term.

by training and promoting local hires. The effectiveness ofAnnual Report 201713

Our Progress

Crude Drug Procurement andQuality Inspections
Tsumura grows through the steady expansion of the Kampo product market. As such, the ability
to continuously procure high-quality crude drugs is a management task of extreme importance inensuring that we can respond to future growth in demand. We are also faced with the urgent issue ofdeveloping an ability to control procurement prices in the wake of the recent rise in crude drug prices,which is having a material impact on profits. To overcome these issues, Tsumura is deploying measurescentered on the expansion of Cultivated Land under Own Management.*

Value Cultivated by Tsumura• Continuous procurement of high-quality crude drugs•C reation of employment opportunities and invigoration of communities in crude drug producing areas•P rotection of environments in which crude drugs are grown, whether agriculturally or in the wild
Measures for Addressing Strategic Challenges Described in the Medium-Term Management Plan•E
 xpansion of Cultivated Land under Own Management*•O ngoing safety measures and quality inspections•T horough adherence to the TSUMURA Good Agricultural and Collection Practice (GACP) for crude drugs
and reinforcement of crude drug traceability system•F orging of stronger relationships with crude drug suppliers* Cultivated Land under Own Management refers to farms with a cultivation area above a defined amount for which Tsumura directly provides cultivation guidance and has an understanding of cultivation costs based on which it can set crude drug procurement prices. Not only limited to farms directly operated by the Tsumura Group, these farms also include
collaborative cultivation in China and contracted cultivation in Japan.

Reliable Crude Drug Procurement
Based on Contracts
Tsumura does not procure crude drugs by purchasing

Amount of Crude Drugs Used andKampo Extract Granules Produced
Tons
14,00012,495them from the market. Rather, we adopt an approach ofconcluding contracts with crude drug farmers and crude

9,789

drug production associations, which has enabled us to forma procurement network stretching throughout China and Japan.

7,000

In addition to having both parties commit to procurement
volumes and prices, these contracts enable us to assure
quality by requiring crude drug production processes toadhere to production standards documents that stipulate thepermissible cultivation methods and agricultural chemicals,
among other factors, based on the TSUMURA Good
Agricultural and Collection Practice (GACP) for crude drugs.

14

TSUMURA & CO.

0

12

Crude drugs

13

14

Kampo extract granules

15

16

17

Expansion of Cultivated Land under

Cultivated Land under Own Management

Own Management%

The expansion of Cultivated Land under Own Management50

43

is a measure of crucial importance in ensuring reliable
crude drug procurement and controlling procurement
costs. In fiscal 2017, crude drugs procured from Cultivated25

Land under Own Management accounted for 36% of thetotal amount of raw material crude drugs procured duringthat year. We aim to increase this figure to 38% in fiscal
2018 and then to 50% in fiscal 2022.

0

16

17

Result18

Result

19

Plan

Plan

 atio of crude drugs produced in Cultivated Land under Own ManagementR
to total commission volume of crude drugs

Crude Drug Prices
The overall price of all crude drugs purchased in China withlocal currency in fiscal 2017 was slightly lower than initiallyanticipated. This outcome can be attributed largely to ginseng, a relatively expensive and frequently used crude

Overall Procurement Price of Crude Drugs
Produced in China
Representation of weighted average of actual prices from producing region
to ­affiliated company when 2006 price is set at 100
300

drug, as its price dipped to roughly 50% of its peak level.
Falling purchase prices combined with yen appreciation will241

long term, necessitating that we continue working to secure

217

200

help limit costs in the short term. However, there can be no
doubt that crude drug demand in China will grow over the234 230

190

156

100

100

117

110

110

07

08

09

188

reliable supplies of crude drugs.
0

06

10

11

12

13

14

15

16

(Calender year)

TSUMURA Good Agricultural and Collection
Practice (GACP) for Crude Drugs
The Tsumura Crude Drug Production Management Standards

this traceability system allows for information on all processes,(TSUMURA Good Agricultural and Collection Practice (GACP)

from those in the producing regions to those at medical

for crude drugs) have been implemented to further solidify theinstitutions, to be tracked and viewed.

Company’s crude drug safety and quality assurance system.

Tsumura will continue to implement its good agricultural

TSUMURA Good Agricultural and Collection Practice (GACP)and collection practice for crude drugs in order to reinforce

for crude drugs include adhering to guidelines for these prac-

its crude drug safety and quality assurance system andtices, utilizing documents pertaining to crude drug production

guarantee the safety and reliability of its crude drugs.

standards, maintaining a traceability system for crude drugs,
conducting training and audits, and bestowing certifications.
Tsumura’s traceability system for crude drugs records andstores data on every stage crude drugs go through in the
producing regions and at crude drug processing facilities,
including cultivation, processing, logistics, storage, and otherprocesses. We also track information on the manufacturing
and distribution of finished Kampo formulations. Accordingly,

Crude drug cultivation in Hokkaido, Japan

Annual Report 201715

Our Progress

We have forged trust-based relationships
with producers in China over the course of 40 years,
which will aid us in securing stable supplies of crude drugs
and in expanding procurement volumes in the future.
Tsumura’s medium-term management plan puts forth the

Ginseng is among the more price-volatile crude drugs.

goal of raising the portion of total raw material crude drugs

We are currently developing agricultural cultivation tech-procured from Cultivated Land under Own Managementniques for use with this crude drug. Ginseng can taketo 50% by fiscal 2022. We are expanding Cultivated Land

around five years to cultivate, making it difficult to increase

under Own Management in both China, Japan, and Laos

procurement volumes. On top of this, ginseng is often

accordingly. The contracts we conclude with operators ofcultivated at the sites of forests that have been thinned orsuch land are beneficial to the Company as well as to farm-

cleared, adding an environmental preservation component

ers and production organizations as they allow them toto this quandary. The Company is therefore advancing joint

accurately project future sales volumes and prices. Even if

research with the Institute of Chinese Materia Medica of thethe market prices of crude drugs should take a dip, these

China Academy of Chinese Medical Sciences regarding

producers can still sell their products to the Company based

ginseng cultivation and the ongoing use of ginseng cultiva-

on the conditions of their contract, providing stability in theirtion sites with the aim of developing techniques for cultivat-

earnings while also making it easier for them to plan invest-

ing ginseng. Already, considerable success has been had

ments in facilities and equipment. By maintaining suchwith regard to the development of cultivation techniques.

mutually beneficial business relationships over the course

We expect these techniques to come to be able to cultivateof many years, we have forged trust-based relationships

volumes of ginseng that are worthwhile given the costs they

with farmers and production organizations, which haveentail within the next several years.

supported us in securing stable supplies of crude drugs.

Koin Toda
Executive Officer
Head of Botanical Raw Materials Division

16

TSUMURA & CO.

Shin Nakamura
President
LAO TSUMURA CO., LTD.

Cultivation of Cinnamon in Laos

“LAO TSUMURA strives to be an organization
specializing in the production of cinnamon
as well as a model company in Laos.”
We began cultivating cinnamon, one of the raw material crude drugs used by Tsumura, in Laos in2006. In the past, it has been difficult to track production and processing histories for cinnamon
when procuring this crude drug in Southeast Asia. However, the start of full-fledged production in
Laos contributed to the reinforcement of our traceability system in this region. Another large step forward came with the establishment of LAO TSUMURA CO., LTD., in 2010. Although our operations inthis country began with only 150 hectares of Cultivated Land under Own Management, we now haveapproximately 700 hectares, enabling us to produce dozens of tons of cinnamon each year.
Tsumura has been developing its operations in Laos based on a long-term timetable. Today, ourcinnamon trees have to be as tall as eight meters after being cultivated from seedlings over thecourse of a decade. As of December 31, 2016, we were fostering a total of 51 locally hired employees, who represented more than 60% of all managers at LAO TSUMURA. Moreover, this company
helped construct a building for a junior high school and has made donations based on local
requests. These contributions have helped develop infrastructure in the area, leading to an increasein the local population. By creating employment and contributing to the community, LAO TSUMURA
has developed a strong reputation among its peers.

Crude drug cultivation in Laos

Annual Report 201717

Our Progress

Manufacturing
Dedicated to the manufacture of prescription Kampo products, Tsumura’s business model knows no peers.
We have thus been able to develop highly unique production equipment by accumulating technologies
and insight related to manufacturing and quality management within the Company. The six-year mediumterm management plan launched in fiscal 2017 calls for investments totaling approximately ¥55.0 billion
to be conducted in increasing our production capacity and efficiency over the plan’s period.

Value Cultivated by Tsumura•R eliably high-quality Kampo formulations•A ccumulated technological expertise enabling production of multiple varieties of products•H ighly unique storage facilities, production lines, and equipment optimized for Kampo products
Measures for Addressing Strategic Challenges Described in the Medium-Term Management Plan
• Introduction of new labor-saving technologies

Capital Investment

Capital Investment

Under the medium-term management plan, Tsumura will

¥ billion

seek to establish a production system capable of respond-15

ing to projected growth in demand. As one facet of these
efforts, we commenced operations of the new granulation

10

and packaging facilities at the Shizuoka Plant in September
2016. Constructed through an investment of approximately

6.4
5¥13.0 billion, these facilities use state-of-the-art robots forconveyance within the plant and for production lines. Goingforward, we will systematically increase the number of production lines at these facilities with the aim of doubling production levels from fiscal 2016 by fiscal 2019.

18

TSUMURA & CO.

0

13

14

15

16

17

Typical Production Flow for Kampo Products

Storing Crude Drugs

Spray-Drying

Cutting

Boxed
crude
drugs

Extracting

Powdered
extract Lactose
Hopper

Weighingand Mixing

MixingCompacting
and Crushing

Choppedcrude drugs

Powdered
extract

Mixed
crude drugs

Classification
To automatedwarehouse

Screening,
Processing,and Storing
Crude Drugs

Cutting

Weighing and
MixingExtraction,
Separation, andConcentration

DryingExtract
GranulesGranulation

To automatedwarehouse

Filling andPackaging

Crushing

Powdered extract

Tablets

Use of automatedconveyance system

GranulesCapital Investment Plan
Phased capital investment in accordance with sales
First-Stage Medium-Term Management Plan

Capital investment project

Shizuoka Plant

FY2013

FY2015FY2016

New granulation and packaging facilities, etc.

New Plan

FY2017FY2018 and after

September

New crude drug warehouse
Production related

FY2014May

SD line related
Ibaraki Plant

New granulation facility

February

February

New standard-based facilities, etc.
STP (Shanghai)

SD facility

September

Crude drug related

Production, other Development / maintenance / renewal
Ishioka

Ishioka Center reconstruction

STM (Shenzhen) Warehouse
YubariYUBARI TSUMURA buildings

January
March
September

Crude drugs, etc.

Scheduled start-up of operations

Annual Report 201719

Our Progress

Scientific Evidence and Marketing
Tsumura provides medical practitioners with the latest scientific evidence and other information on its
Kampo formulations through its marketing activities. In addition to supplying evidence to physicians,
Tsumura’s medical representatives (MRs) plan and hold Kampo medicine seminars for physicians andsupport education on Kampo medicine at medical schools and universities. Through these efforts,
MRs work to cultivate understanding with regard to the concept of Kampo medicine itself.

Value Cultivated by Tsumura•S cientific evidence on the efficacy and safety of Kampo formulations•P rovision of opportunities for medical practitioners to learn about Kampo medicine• Increased treatment options for physicians and patients
Measures for Addressing Strategic Challenges Described in the Medium-Term Management Plan•E
 xpansion of scientific evidence collections for the five “drug fostering” program formulations•E stablishment of scientific evidence on the five “growing” formulations• Increased coordination between scientific evidence and MR activities•D evelopment of TU-100 in the United States

Establishment of Scientific Evidence

R&D Expenses / R&D Expenses Margin

Since 2004, Tsumura has been advancing its research¥ billion / %activities based on a policy of concentrating on the estab-

8

5.3

lishment of scientific evidence for its Kampo formulations.

66.0This policy was deployed as a result of our recognition of
the fact that, if Kampo formulations are to become a trusted

3

4

treatment option in the Japan of today, it will be necessary
for these formulations to be understood through the framework of Western medicine. As a product of these efforts,
theses on such scientific evidence published in domestic
and overseas academic journals have been contributing toa noted change in the perception of medical practitioners
with regard to Kampo formulations and Kampo medicine
as a whole.

20

TSUMURA & CO.

0

13

14

R&D expenses
R&D expenses margin (right scale)

15

16

17

0

By aligning management policies with the ambitions of
those on the front lines of operations, we will accelerate marketingand sales activities and boost the efficiency of MR activities.
In April 2017, Tsumura underwent a change to its organiza-

The second goal of the reform is to strengthen marketingtional structure that was aimed at enabling it to more easily

strategy planning functions by consolidating Companywide

tackle the strategic challenge of achieving expansion andmarketing strategy proposal functions within the Kampo

stable growth in the Kampo medicines market defined in

Scientific Strategies Division. Previously, the marketingthe medium-term management plan.

strategies developed by sales divisions were not always

This organizational reform has three specific goals. The

compatible with those formulated by product research divi-

first is allowing for area-based marketing activities tailoredsions. This goal was chosen out of recognition of this fact.

to the characteristics of specific regions. To this end, weWith these new consolidated functions, the Kampo

increased the number of branches from 12 to 21, thereby

Scientific Strategies Division will be able to provide compre-

breaking up sales areas, and then transferred authority forhensive sales support for everything from forming sales

sales measures to branch managers. The sales measurespolicies based on the Companywide policies put forth inand formulations that should be focused on, for example, inthe medium-term management plan to providing productTokyo, which is characterized by a high concentration of

information and training to frontline MRs.

university hospitals and other large-scale hospitals, differ

The third goal is to accelerate basic and clinicalfrom rural regions, where medical care is primarily provided

research, which is why we established the Kampo Researchby community-rooted private-practice physicians.

and Development Division. This new division integrates

Accordingly, I believe that more flexible sales activities canpreviously separate basic research and clinical research

be conducted by enabling branch managers, who are theorganizations. Its duties will thus entail a focus on establishing

most versed on the characteristics of their area, to draft andscientific evidence related to the five “drug fostering” program

implement sales measures and decide management

formulations and the five “growing” formulations while

resource allocations at their own discretion.

collaborating with external research institutions.

Susumu Adachi
Executive Officer
Head of Corporate Planning Department

Annual Report 201721

Our Progress

Overview of the Five “Drug Fostering” Program Formulations and the Five “Growing” Formulations“Drug fostering”
programformulations“Growing”
formulations

Product name

Expected efficacy

Significance to program

TJ-100 (Daikenchuto)This formulation improves abdominal bloating from illness, such as postoperative ileus(intestinal paralysis). Because it has been proven to stimulate or regulate enterokinesis and toincrease intestinal blood flow, it is expected to also have application in treating patients withdisorders thought to be caused by reduced intestinal blood flow.

Establishing scientific evidence ofefficacy of prescription Kampo
products in the surgical field

TJ-43 (Rikkunshito)This formulation alleviates upper abdominal indefinite complaints arising from functional
dyspepsia (FD), gastro-esophageal reflux disease (GERD), and others. Besides helping gastric
emptying, it has been reported that TJ-43 (Rikkunshito) improves stomach content retention andhelps stimulate the appetite. It is drawing considerable attention for its multiple mechanisms ofaction (MOA) in sharp contrast to Western drugs.

Elucidating special characteristics ofmultiple ingredient–based Kampo
medicines and correlation to MOA

TJ-54 (Yokukansan)

This formulation improves behavioral and psychological symptoms of dementia,
such as delusions, hallucinations, anxiety, insomnia, and other disorders.

Researching the medical andeconomic contribution of Kampo
medicines to medicine and medical
treatment in an aged society

TJ-107 (Goshajinkigan)This formulation alleviates neurotoxicity (numbness) adverse reactionsof anticancer drugs and other treatments used in chemotherapy.

Establishing a body of scientificevidence on the efficacy of Kampo
medicines in oncology and otheradvanced medical treatment fields

TJ-14 (Hangeshashinto)

This formulation mitigates mucosal damage (diarrhea and oral
inflammation) resulting from anticancer drugs and other causes.

Establishing a body of scientificevidence on the efficacy of Kampo
medicines in oncology and otheradvanced medical treatment fields

TJ-41 (Hochuekkito)

This formulation can help reverse declines in immune functions to increase post-illness stamina.

TJ-68 (Shakuyakukanzoto) This formulation alleviates pain caused by muscle convulsions through an antiallodynic effect.
TJ-29 (Bakumondoto)

This formulation alleviates respiratory issues with no discernable cause through antitussive,
expectoration, and bronchodilation effects.

TJ-24 (Kamishoyosan)This formulation alleviates menopausal disorders and related symptoms.

TJ-17 (Goreisan)This formulation treats swelling with irrigation effects.

Marketing Activities Utilizing Scientific Evidence

been working to re-accelerate growth based on a new

Tsumura has defined three important domains—geriatricmarketing strategy introduced in 2016. Under this strategy,

health, cancer, and women’s health—where medical

we have been concentrating our resources on marketing

treatment needs are high and diseases are difficult to treat

activities utilizing new evidence, primarily in fields such aswith Western drugs, but Kampo products have demon-

the digestive system and cancer.

strated special efficacy for treating these diseases. We aim
to develop scientific evidence on the efficacy and safety of
Kampo formulations targeting diseases in these fields.
The Company’s marketing activities are prefaced on theSales of “Drug Fostering” Program Formulations¥ million / ¥ billion
12,000

120

6,000

60

provision of this evidence to physicians. We have a particularfocus on physicians at university hospitals, designatedhospitals for clinical training, and other large-scale medical
institutions. By providing such physicians with the latest
evidence, we are cultivating understanding and interest withregard to Kampo formulations.
Sales of the five “drug fostering” program formulations
have slowed slightly in recent years. However, we have

22

TSUMURA & CO.

0

08

09

10

11

12

13

14

15

16

TJ-100 (Daikenchuto)
TJ-43 (Rikkunshito)
TJ-54 (Yokukansan)
TJ-107 (Goshajinkigan)
TJ-14 (Hangeshashinto)
Total of 129 Kampo products (right scale)

170Our expansion of the range of formulations for whichscientific evidence will be established is meant to provide
physicians hoping to prescribe Kampo formulations with more
opportunities to make the decision to do so.
It is crucial for us to create evidence that will allow us tocontain information based on some sort of evidence. To

converse with medical practitioners in the “common lan-physicians, this evidence itself functions as a guide on how

guage” of Western medicine if we hope to make society

to treat a particular disease. Of course, we would prefer forrecognize Kampo formulations as a potential treatment

Kampo formulations to be prescribed based on diagnoses

option. We are currently making progress in developing col-using Kampo medicine principles. However, it is clear that

lections of evidence with regard to the five “drug fostering”

we must first make it known to both physicians and patients

program formulations and in establishing scientific evi-that Kampo formulations boast efficacy backed by evidence.

dence for the five “growing” formulations.

Sales Contribution of the Five “Drug Fostering” Program
Formulations and the Five “Growing” Formulations

However, the creation of evidence has not necessarily
had a direct impact on sales growth. For example,
Rikkunshito, which is anticipated to display efficacy with¥ million / %60

120,00049%

regard to gastrointestinal disorders, ailments with low treatment satisfaction, is only being prescribed to a small por-

80,00040

55,973tion of patients. This situation is proof that, in addition toestablishing evidence, we need to develop frameworks that

24,141 20

40,000link the accumulated evidence to increased prescriptions.
It is for this reason that we aim to have our Kampo formulations listed in treatment guidelines. The guidelines for
major diseases or those diseases that are difficult to treat

29,532
0

13

14

15

16

17

0

Five “drug fostering” program formulations
Five “growing” formulations
 ll other 119 formulations
ARatio of five “drug fostering” program formulations and five “growing”
formulations (right scale)Akihito Konda
General Manager
Kampo Scientific Strategies Division

Annual Report 201723

Our Progress

Establishment of Scientific Evidence

Product name“Growing”
formulations

Listing in medical treatment
guidelines

Product name

TJ-100(Daikenchuto)

Papersubmitted

25

Pediatric chronic functional
constipation disease, systemicsclerosis

TJ-54(Yokukansan)

2

14Dementing illnesses, use ofpsychotropic drugs for BPSD
for primary care physicians

18—

Functional gastrointestinal
disease, the diagnosis andtreatment of psychosomatic
diseases, GERD, others—

Benign prostatic hyperplasia,
overactive bladder syndrome,
the pharmacologic managementof neuropathic pain

—

RCT

ADME

Ongoing

TJ-107(Goshajinkigan)

—

14

—

TJ-14
(Hangeshashinto)

—

5

—

—

—

—

TJ-41
(Hochuekkito)

—

9

—

—

—

Female lower urinary tract
symptoms

TJ-68(Shakuyakukanzoto)

—

9

TJ-29
(Bakumondoto)

—

5

TJ-24
(Kamishoyosan)

TJ-17(Goreisan)

24

Data ofmedicaleconomics

Metaanalysis“Drug fostering” TJ-43
program(Rikkunshito)
formulations

Actionmechanisms

Adversedrug
reactionfrequency
surveys—

Amyotrophic lateral sclerosis

—

—

—

4

—

—

—

2

—

—

—

—

Cough, EBM practice guidelines
for asthma—

Diseases in obstetrics andgynecology, the treatment anddiagnosis of psychosomatic
disorders

Chronic headache“Drug Fostering” Program Formulations and

we are enhancing the information contained in the package“Growing” Formulations

inserts that are constructed in accordance with the Act on

Tsumura is in the process of creating complete evidence

Securing Quality, Efficacy and Safety of Pharmaceuticals,

collections for the five “drug fostering” program formula-

Medical Devices, Regenerative and Cellular Therapy

tions for which it has been developing evidence since 2004.

Products, Gene Therapy Products, and Cosmetics. For the

These collections encompass clinical evidence-based

five “growing” formulations, we are focused on establishingmedicine; action mechanisms; adverse drug reaction fre-scientific evidence for use in deploying product strategies

quency surveys; absorption, distribution, metabolism, andaimed at achieving the listing of these formulations in medi-

excretion; and medical economics data. At the same time,

cal treatment guidelines.

TSUMURA & CO.

Operations in China
The medium-term management plan launched in 2016 defined tackling the challenge of new businesses
in China as one of its strategic challenges. To facilitate efforts on this front, Tsumura China Inc. wasestablished in December 2016 to function as our China headquarters overseeing the entirety of ourexisting operations in China, which include crude drug procurement and production of the powdered
extracts that serve as the raw materials for making Kampo formulations.

Value Cultivated by Tsumura•C ontributions to the health of the Chinese people through research and development and production of high-quality,
safe, and competitive traditional Chinese medicine compound granules and production and sales of crude drug pieces
for decoction
Measures for Addressing Strategic Challenges Described in the Medium-Term Management Plan•M
 anufacturing and sales of traditional Chinese medicine compound granules at
SPH TSUMURA PHARMACEUTICALS CO., LTD.
•P
 rocurement, processing, and sales of raw material crude drugs and sales of crude drug pieces
for decoction operations through collaboration with China Medico Co., Ltd.
•O
 ngoing augmentation of crude drug procurement and processing networks

Traditional Chinese Medicine Compound

400 varieties of such granules. As of June, 2017, SPH

Granule Operations

TSUMURA PHARMACEUTICALS had been making progress

In July 2016, the Company took a stride forward in its efforts

in researching standards for granule production processes,

to enter into the traditional Chinese medicine compound

quality, and safety and had also begun preparing to con-granule business in China with the establishment of SPH

struct a factory.

TSUMURA PHARMACEUTICALS, a joint venture with
Shanghai Traditional Chinese Medicine Co., Ltd., asubsidiary of traditional Chinese medicine giant Shanghai
Pharmaceuticals Holding Co., Ltd. Traditional Chinese
medicine compound granules are powdered extracts thatare used in the preparation of Chinese medicines andmade by extracting a single crude drug from crude drug
pieces for decoction. Even limiting the scope to thosecommonly found in circulation, there exist more thanAnnual Report 201725

Our Progress

Chen Junli
Chairman
SPH TSUMURA
PHARMACEUTICALS CO., LTD.

Anticipation for Tsumura andIts Traditional Chinese Medicine Compound Granule BusinessWe want to cultivate a unique corporate culture
at SPH TSUMURA PHARMACEUTICALS
by merging the strengths of its Japanese andChinese parent companies.
Traditional Chinese medicines are generally administered by boiling and then consuming crude drug
pieces for decoction. However, traditional Chinese medicine compound granules are increasingly
being used due to their ease of transport, use, and storage. The scale of the market for crude drug
pieces for decoction is currently around 180.0 billion yuan (approximately US$26.5 billion), while thescale of the market for traditional Chinese medicine compound granules is less than one-tenth thissize. Although this market is niche, we feel it has great potential to grow.
SPH TSUMURA PHARMACEUTICALS aims to establish a unique market position as a traditional
Chinese medicine company known for its product quality and brand image. The superior manufacturing technologies and quality management expertise of Tsumura and the unrivaled brand image
and sales channels held by Shanghai Traditional Chinese Medicine in the Chinese market will be
powerful tools for bringing us closer to this goal. Tsumura has more than 30 years of experience inmanaging the quality of raw material crude drugs in China, based on which it operates a crude drug
production system that complies with the TSUMURA Good Agricultural and Collection Practice(GACP) guidelines. It is thus capable of stringently managing quality throughout the various
processes spanning from crude drug procurement to the completion of finished products. Shanghai
Pharmaceuticals Holding Co., Ltd., meanwhile, boasts annual sales of around 120.0 billion yuan
(approximately US$17.7 billion) as well as a sales network covering 20,000 medical institutions in 20
provinces and strong ties with medical institutions and academic organizations in specialized fields
across China.
Leveraging the strengths of both of its parent companies, SPH TSUMURA PHARMACEUTICALS
will seek to contribute to the health of the Chinese people by supplying competitive traditional
Chinese medicine compound granules while differentiating its brand based on safety and quality.

26

TSUMURA & CO.

Frequently Asked Questions

Tsumura places a high priority on communicating with shareholders and other investors and strives tocarry out information disclosure that will dispel as much as possible their concerns about the Company
and its operations. This FAQ section provides answers to the most commonly asked questions from shareholders and other investors received through our investor relations (IR) activities.

Q.

How does the Company prioritize
the allocation of cash flows?

A.

The Company prioritizes the allocation of cash
flows to business investments for facilitating
ongoing growth and improving corporate value.
Our basic policy on shareholder returns is to issue
stable dividend payments, and we will also flexibly
consider the possibility of acquiring treasury
shares when a beneficial opportunity arises.

The treasury share acquisition conducted during fiscal 2017
was decided based on the beneficial conditions that were
present at the time. Specifically, the stock price of the Company
remained consistently at a low level in comparison with its
corporate value and free cash flow reached a record high forthe past five years. In addition, we viewed the acquisition as
an opportunity to send a message from senior managementwith regard to the progress of the new medium-term
management plan that kicked off in April 2016. It is Tsumura’s
policy to adopt a flexible stance with regard to treasury
share acquisitions, which may be conducted should theCompany’s vision for the ideal capital structure change or
be found to have not been met. Such acquisitions will beconsidered while pursuing improved corporate value

Tsumura views returning profits to shareholders as an

through investments in the ongoing development ofimportant management task. It therefore adopts a policy

Tsumura’s Kampo and crude drug businesses.

of issuing stable dividends based on considerations of
medium-to-long-term income projections and cash flows
while also pursuing improved corporate value through theongoing development of its Kampo and crude drug businesses. We conducted capital investments totaling ¥39,056
million over the four-year period of the previous mediumterm management plan. Through these investments, we
completed the construction of a new manufacturing facility
at the Shizuoka Plant and otherwise introduced new manufacturing systems, thereby establishing the foundations
needed for improving productivity. Emphasizing the importance of stable dividends, we also issued dividend payments
amounting to ¥17,774 million over the plan’s period.
Capital investments of this nature must be conducted in

Q.

How is the development of TU-100 progressingin the United States and what is the Company’s
outlook for this project?

A.

All early-stage Phase II clinical trials are slated
for completion in fiscal 2018. Future development
policies and schedules will be decided in fiscal 2019.
Tsumura is pushing ahead with the development of TU-100(Daikenchuto) with the aim of launching this product in the

conjunction with rises in the demand for Kampo products.

United States going forward. Currently, one endpointAt the same time, however, there is a need to invest in the

search clinical trial (early-stage Phase II clinical trial) is

ongoing development and growth of Tsumura’s businesses

underway. This trial is due to conclude in fiscal 2018. Future

in order to keep in step with research and development

development policies and schedules will be decided inrequirements and combat the adverse impacts of higher

fiscal 2019, one of which will be the decision regarding

crude drug prices and unfavorable foreign exchange rates.

whether or not to continue with clinical trials.

Annual Report 201727

Frequently Asked Questions

Development of TU-100 (Daikenchuto) in the United States
Previous medium-term management plan
FY2013

FY2017FY2018FY2019 and after• Agree on quality control systems• Establish database for crude drug quality

Endpoint search clinical trials (IBS patients)
Fiscal 2014–Fiscal 2017

PII (early stage)

Endpoint search clinical trials (patients with laparoscopic colectomy)

POI

Safety, etc.

New medium-term management plan
FY2016

using biological assessments and HPLC-FP

IBS

Crohn’sdiseaseFY2015

Through meetings with FDA, agree on quality evaluation methods

Quality control

Efficacy and safety

FY2014

Scheduled to be completed in fiscal 2018
Responder trials (patients with Crohn’s disease)
Fiscal 2012–Fiscal 2015
Adverse drug
reactions*1

PII (early stage)

Plan to decide on direction
and schedule for late stageof PII and after in fiscal 2019
upon finishing and analyzing allof the early stages of PII for
IBS, POI, andCrohn’s disease

PII (early stage)

ADME*2*1 Submit results of surveys on the frequency of adverse drug reaction manifestations to the FDA*2 Submit clinical pharmacokinetic results on healthy U.S. citizens to the FDAIBS: Irritable bowel syndrome, POI: Postoperative ileus

However, it cannot be denied that resolving the issues

started in 2001. This company was established to advance

faced in developing a botanical medicine for the U.S. market

Tsumura’s businesses in China. Through its efforts in China,

is requiring more time than had initially been anticipated.

Tsumura is sharing its sense of value with regard to the

Nevertheless, we have succeeded in formulating a method forstable procurement of high-quality crude drugs and conse-

evaluating the quality of TU-100 from a scientific perspective,

quently the provision of high-quality Kampo formulations,and the development of TU-100 is thus contributing to theand is also forming relationships with business partners

establishment of scientific evidence in Japan.

boasting strong positions in the Chinese market. We view
these accomplishments as effective risk management pro-Q.

visions in our Chinese businesses. The acquisition of a site

From the perspective of businesses in China,

compound granules in the area surrounding Shanghai iswhat are Tsumura’s thoughts on business risks andcurrently being examined. However, the Company does notrisk management?

anticipate any investments of a scale that will impact perfor-

A.

mance to be conducted leading up to fiscal 2022, the final

while also presenting an opportunity to mitigate

related to the fact that approximately 80% of the crude

risks related to the stable procurement of crude

drugs used as raw materials for producing Kampo formula-drugs, which are among the most pressing risks

tions are imported from China and the fact that, as crude

faced by the Company.

drugs are either grown agriculturally or in the wild, the ability

Our businesses in China represent a new undertaking

for a factory for producing traditional Chinese medicine

year of the current medium-term management plan.
The greatest risks currently faced by the Company are

to procure this resource is easily influenced by such factors

28

SPH TSUMURA PHARMACEUTICALS CO., LTD., is a joint

as weather and natural disasters. By developing businesses

venture with Shanghai Traditional Chinese Medicine Co.,in China, we aim to strengthen our partnerships with theLtd., a crude drug supplier with which the Company has

suppliers that are integral to our procurement of crude

forged bonds of trust for more than 15 years since relations

drugs, which will help mitigate such procurement risks.

TSUMURA & CO.

Risk Factors

The following are major risks related to the Group’s business that may exert a significant influence on
investors’ judgments. The information below contains forward-looking statements, which are based on
the judgment of the Company as of June 29, 2017.
(1) Medical systems

defect or safety problem, including undetected pesticide residue

In the pharmaceutical industry, changes to medical care systems

on a crude drug used in a Kampo product. In addition, should

exert a major influence on the pharmaceutical market. Depending

consumers experience unexpected adverse reactions from a phar-on the direction of change, a negative effect on the industry as amaceutical product marketed by the Tsumura Group, the existing

whole and on the performance of the Tsumura Group could result.

methods of use may be restricted, and a loss of confidence in theGroup and its pharmaceutical products may result in a drop in the(2) Competition
In Japan, we have long maintained a dominant position in the field

dispensation of our medicines or in patients’ refusal to take them.
The Tsumura Group’s performance may suffer if a situation suchof prescription Kampo products, which is the mainstay source ofas those described above results in a decline in sales volume,

earnings for the Group. However, if a major domestic or foreign

demand for large amounts of damage compensation, or a large-

pharmaceutical company entered the Kampo medicines market,

scale recall, among other possibilities.

competition would intensify further, and the Group’s performance
could suffer as a result.

(5) Research and Development
In the interest of future growth and better corporate performance,(3) Product supply

the Tsumura Group conducts R&D activities related to new products

Approximately 80% of the crude drugs that constitute the mainand new technologies both in Japan and abroad. However, we

ingredients of Tsumura’s Kampo formulations are imported fromcannot guarantee that all of these activities will be successful. The

China, and some processes in the production of Kampo productsGroup’s performance could suffer if for some reason R&D activities

are commissioned to joint venture companies situated in China.

were canceled or delayed or if costs increased significantly.

Because most of the crude drugs grow in the wild, we are researching
the cultivation of major crude drugs to prepare for the future.

(6) International business

However, in the event of unforeseeable changes in legal regulations

The Tsumura Group engages in manufacturing and sales activities

or political or economic conditions, it could become difficult toin China, South Korea, and other foreign countries and regions.

secure or import sufficient quantities. In addition, bad weather,

Because of this involvement in international business, it is possible

natural disasters, or destabilizations of social conditions resulting

for the Group to be negatively affected by unforeseeable changes

from wars or other causes could create instability in demand, supply,in legal regulations or in political, economic, or other conditions.

or other distribution-related circumstances for raw materials procured
domestically and internationally for the manufacture of products.

(7) Financial condition

Such occurrences could result in hikes in the market prices of raw

The Group’s performance and financial condition could bematerials or scarcity of their supply, which would have a negative

negatively affected by such developments as a sharp decline in its

impact on the supply of products. Likewise, while we have incorpo-

stock price or an increase in retirement liabilities arising from a

rated earthquake-resistant features in construction and conductdrop in the discount rate.

regular inspections of production equipment and facilities within
Japan, we cannot completely guarantee that the functioning of our(8) Intellectual property

facilities will not be hampered or lost in the event of a massive

We cannot guarantee the full protection of the intellectual property

earthquake, fire, power outage, or other disaster.

owned by the Group in relation to Kampo products. The Group’s

The Group’s social standing or performance could be negatively
affected should the supply of products be interrupted or delayed

performance may be negatively affected if there were leakage ofsuch information that led to a decline in competitiveness.

due to any of the circumstances described above.
(9) Exchange rate fluctuations(4) Product safety and adverse reactions

The Group imports from China most of the crude drugs used in the

In the manufacturing of the Group’s products, we strictly adhere to

Kampo products that it markets. Therefore, sharp movements inthe quality control standards of the countries and regions in which

exchange rates could impact negatively on the Group’s business

we operate as well as to our own original standards for crude drugs.

results and financial position.

However, we cannot completely guarantee that there will not be a

Annual Report 201729

Corporate Governance

Basic Policy

Companies Act of Japan to the Company with Audit and Supervisory

It is Tsumura’s basic policy to implement continuous improvements

Committee system. This move will contribute to the reinforcement

to corporate governance in order to realize ongoing growth andof the oversight and monitoring functions of the Board of Directors

medium-to-long-term increases in corporate value based on theand to improved management soundness and transparency. In

Company’s corporate philosophy of “The Best of Nature and Science.”

addition, the new system will establish a greater separation of theAfter receiving approval at the Ordinary General Meeting ofBoard of Directors from the operational execution function andShareholders held in June 2017, Tsumura transitioned from thethereby help expedite operational decision making.

Company with Company Auditor(s) system described in the
Corporate Governance Structure
General Meeting of Shareholders
elect / dismiss

elect / dismiss

elect /
dismiss

Board of Directors

instruct

Board of Directors’ Officeassistcooperate

Directors Serving as Audit andSupervisory Committee Members
3 (including 2 outside directors)

Audit and Supervisory
Committee

instructOutside Directors’ Meeting

reportExecutive Committee

Disclosure Committee

reportdiscuss

instructreportcooperate

Audit and Supervisory
Committee Officecooperateaccounting audit
internal control audit

instruct

President and Representative Director
President and Executive Officer

Compliance Committee

instructpresent policy

assistdelegate authority
regarding officer election
and dismissal, oversight,
and important operational
execution matterssubmitresolution /reportaccounting audit
internal control audit

Independent Auditors

assistreportaudit
supervise

submitDirectors Not Serving as Audit andSupervisory Committee Members
6 (including 3 outside directors)

Risk Management Committee

report (express opinions)inquireNomination / Remuneration
Advisory Committee

provide information
supportoperatepropose / reportreportInternal Auditing Department

instructinternal audit
internal control evaluation

Executive Officers (Officers’ Meeting)execute businessBusiness Units and Group Companies

Overview of Corporate Governance System

within the Company, as is needed to utilize its internal control systems.

Board of Directors

Directors who serve as members of the Audit and Supervisory

As management’s top decision-making body, the Board ofCommittee attend meetings of the Executive Committee and other

Directors, which is composed of a majority of outside directors,

important meetings in order to provide appropriate oversight formakes decisions required by law and the articles of incorporation

management. The Audit and Supervisory Committee is also tasked

and about other important matters regarding Tsumura’s businesswith investigating the state of operations and assets, monitoring thewhile overseeing the execution of duties by directors.

establishment and implementation of internal control systems, andNumber of directors: 9 (including 5 outside directors)

verifying these systems to ensure that the execution of duties bydirectors is both adequate and legally compliant.

Audit and Supervisory Committee(director, full-time member), Kiyomi Haneishi (outside director), anddirectors, two of whom are outside directors and one of whom is a

Mitsutoshi Matsushita (outside director)

full-time member. This individual is well versed in circumstances

30

Audit and Supervisory Committee members: Kimikazu Okouchi

The Audit and Supervisory Committee is membered by three

TSUMURA & CO.

Nomination/Remuneration Advisory Committee

Outside Directors’ Meeting

The Nomination/Remuneration Advisory Committee is a voluntarily

The Outside Directors’ Meeting is a forum for the provision

established advisory body to the Board of Directors. The committee

of information necessary for functional management and theis composed of a majority of outside directors who have also been

sharing of information on recognized issues and other matters bydesignated as independent directors as stipulated by the Tokyo

outside directors.

Stock Exchange. These outside directors provide advice on matters

Number of members of Outside Directors’ Meeting: 5

related to the nomination and compensation of directors and executive officers based on inquiries by the Board of Directors and also

Executive Committee

submit reports on these subjects. Suggestions are made to the

The Executive Committee, comprising directors (excluding outside

Board of Directors as necessary.

directors), executive officers at the level of managing executive
officer or above, and the executive officers responsible for the
Accounting Department and the Personnel department, is responsible for deliberating and deciding important items related tooperational execution with regard to general management.
Number of members of the Executive Committee: 5

Corporate Governance Activities in Fiscal 2017
Item

Details

Corporate structure

Company with Audit & Supervisory Board Members under Japanese law*

Annual number of Board of Directors’ meetings

19 times

Board of Directors’ meetings attended by outside directors

Mr. Shigeru Sugimoto 18 times / Mr. Kenichi Matsui 18 times / Ms. Yayoi Masuda 18 times

Annual number of Audit & Supervisory Board meetings

23 times

Audit & Supervisory Board meetings attended by outside
Audit & Supervisory Board members

Ms. Kuniko Ouchi
Ms. Kiyomi Haneishi

23 times
23 times

Board of Directors’ meetings attended by outside Audit &Supervisory Board members

Ms. Kuniko Ouchi
Ms. Kiyomi Haneishi

19 times
19 times

Standards for determination of independence of outside
directors and outside Audit & Supervisory Board members

Contained in the Notice of the 81st Ordinary General Meeting of Shareholders
held on June 29, 2017, available through the following link
http://www.tsumura.co.jp/english/ir/meeting/general/pdf/internet_081.pdf

Audit corporation

PricewaterhouseCoopers Aarata LLC

Audit corporation compensation¥45 million* Upon receiving approval at the 81st Ordinary General Meeting of Shareholders held on June 29, 2017, TSUMURA transitioned from the Company with Company Auditor(s) system to theCompany with Audit and Supervisory Committee system.

Director and Audit & Supervisory Board Member Compensation in Fiscal 2017
Category

Total compensation(¥ in millions)

Breakdown of total compensation
Basic

Stock options

Number of officers
compensatedDirectors (excluding outside directors)

184

165

19

3

Outside directors

27

27

—

3

Total

211

192

19

6

Audit & Supervisory Board members(excluding outside Audit & Supervisory Board members)

46

46

—

2

Outside Audit & Supervisory Board members

14

14

—

2

Total

61

61

—

4

Notes:
1. The figures above are based on the compensation systems approved at the 80th Ordinary General Meeting of Shareholders held on June 29, 2016.
This system differs from the current system, which is described in subsequent pages.
2. Figures for compensation of directors do not include employee salaries paid to directors who also serve as employees of the Company.
3. Based on a resolution of the 70th Ordinary General Meeting of Shareholders held on June 29, 2006, the upper limit for compensation for directors (basic compensation) is ¥50 million permonth (not including employee salaries).
4. Figures for stock compensation represent the amount of related expenses recorded in fiscal 2017.
5. Based on a resolution of the 69th Ordinary General Meeting of Shareholders held on June 29, 2005, the upper limit for compensation for Audit & Supervisory Board members (basic
compensation) is ¥6 million per month.

Annual Report 201731

Corporate GovernanceDirectors(Standing, from left) Kimikazu Okochi, Kiyomi Haneishi, Mitsutoshi Matsushita, Terukazu Kato, Yasunori Fuji, Shigeru Sugimoto, Kenichi Matsui,(Seated, from left) Toru Sugita, Yayoi Masuda

32

TSUMURA & CO.

Name
Position
Year appointed
Number of Company shares owned(As reported in Fiscal 2017 Financial Report)

Terukazu Kato

Toru Sugita

Yasunori Fuji

President and Representative Director
President and Executive Officer

Director
Senior Managing Executive Officer

Director
Senior Executive Officer

2011
14,700 shares

2007
17,800 shares

2011
20,600 shares

Appointed president and representative director andAppointed director and senior managing executive

Appointed director and senior executive officer of thepresident and executive officer of the Company inofficer of the Company in June 2015. Following

Company and head of the Compliance Control

June 2015. Served as director of the Company andappointment as director of the Company and head

Department in June 2015. Following appointment ashead of the Corporate Communications Departmentof the Production Division in June 2007, appointed

advisor in 2008, appointed director of the Company

from June 2011 through June 2012 and as president

managing director and senior managing director ofand head of the CSR Advancement Department inand representative director of the Company fromthe Company in June 2010 and June 2014, respec-

June 2011 and head of the Internal Control

June 2012 through June 2015. Joined the Company

tively. Joined the Company in 1980.

Department in April 2013. Joined The Mitsubishi

in 1986.

Bank, Ltd. (now The Bank of Tokyo-Mitsubishi UFJ,Ltd.), in 1979.

Shigeru Sugimoto

Kenichi Matsui

Yayoi Masuda

Director (Outside Director)

Director (Outside Director)

Director (Outside Director)

2012
3,200 shares2015
1,300 shares

2015
600 shares

Has served as outside director of the Company since

Appointed outside director of the Company in June

Appointed outside director of the Company in June

June 2012 and supervisory officer of Hulic Reit, Inc.,

2015. Has served as outside director of The Mie

2015. Has served as president and representative

since November 2013. In addition, has served as

Bank, Ltd., since June 2014. After joining Idemitsu

director of Yayoi Japan Co., Ltd., since February 2012.

representative of Sakura Horwath & Co. since July

Kosan Co., Ltd., in 1972, appointed managing direc-

After joining Ricoh Co., Ltd., in 1979, has served in1988 and as representative of Sakura Horwath LLC

tor of that company in June 2005 and served as

various leadership roles specializing in the field of(now Sakura Horwath Audit Corporation) since

executive vice president, representative director

human resources. Such roles include general man-

December 1995. Registered as certified publicfrom June 2010.

ager of the OD & HRD at Levi Strauss Japan KK,

accountant in 1989.

director of the Global Leadership Planning andDevelopment at Levi Strauss & Co., (the UnitedStates), talent director of Asia Pacific Division at Levi
Strauss & Co., director at the Human Resources
Division at Levi Strauss Japan KK, and head of Human
Resources at the Asia Pacific Region at Nike, Inc.

Kimikazu Okochi

Kiyomi Haneishi

Mitsutoshi Matsushita

Director
Audit and Supervisory Committee Member(Full-Time)

Director (Outside Director)
Audit and Supervisory Committee Member

Director (Outside Director)
Audit and Supervisory Committee Member

2017
600 shares

2017
0 shares2017
0 sharesAppointed outside director of the Company in June

Appointed outside director of the Company in June

Appointed director of the Company in June 2017.

2017. Has served as president of the Kiyomi Haneishi

2017. Has served as outside Audit & Supervisory

Following appointment as head of the Accounting

Certified Public Accountancy (currently Kiyomi

Board member of Pacific Systems Corporation since

Department in April 2010 and later director of theHaneishi Certified Public Accountant and Tax AccountJune 2016. After registering as lawyer in April 1997,

Company and head of the Accounting Department,Firm) since September 2013 and as outside director

joined Kajitani Law Offices.

appointed general manager of the Audit &of MAXVALU CHUBU CO., LTD., since May 2016.

Supervisory Board Office in April 2017. Joined theAfter joining Ohta Showa Ernst and Young (now Ernst

Company in 1981.

& Young Tax Co.) in 1993, moved to Sakura Horwath& Co. in 1997. After registering as certified public
accountant in 2000, joined Asahi Auditing Co., Ltd.
(now KPMG AZSA LLC), that same year. Served at
KPMG AZSA LLC from 2009 through 2012. Served
as outside Audit & Supervisory Board member of theCompany from June 2015 to June 2017.

Annual Report 201733

Corporate Governance

Message from an Outside Director
advancing reforms. The latter three years were designatedas a time for transforming the results of such reforms into
earnings to drive growth. In fiscal 2017, performance was
generally in line with the targets for numerical indicators anddepartment-specific key performance indicators. However,looking forward to the milestones that will need to bepassed to complete the scheduled reforms in fiscal 2019,
there still remain several important management tasks to
be addressed in fiscal 2018. Accordingly, I currently see aneed to step up the pace of management activities during
this fiscal year.

Corporate Governance Reforms
In June 2017, Tsumura reformed its corporate governance
Kenichi Matsui

system by transitioning from the prior Company with

Director (Outside Director)

Company Auditor(s) system to the Company with Audit
and Supervisory Committee system, both of which aredescribed by the Companies Act of Japan. This moveeffectively reinforced the oversight and monitoring functionsof the Board of Directors. In practical terms, the change will

Management Tasks for Tsumura and Progressof the Medium-Term Management Plan

allow the Board of Directors to delegate authority to executive

I was appointed as a director of Tsumura in June 2015,that were previously required to be conducted by the Board

which was right when the Company was engaged in dis-

under the Companies Act, a change that will contribute tocussions regarding the medium-term management planincreased management efficiency and speed. At the samethat would be started in April 2016. In this plan, operatingtime, this change will allow the Board of Directors to devote

profit was projected to decline each year leading up to

more time to discussing medium-to-long-term managementfiscal 2019, a fact that initially gave me some concern withtasks and business strategies.

regard to the Company’s responsibilities toward investors.

The transition to this new system was not merely a for-However, through ongoing discussions among members

mulaic affair. Quite the contrary, this was the latest in a lineof the Board of Directors and executive officers, I grew toof governance reforms that included the revision of theunderstand the type of time frames that were appropriatecomposition of the Board of Directors in June 2015 and thefor viewing Tsumura’s management and the Kampo busi-

introduction of a performance-linked stock compensation

ness. I thereby came to realize that a period of around threeplan in June 2016. We evaluated these reforms and identi-

years was appropriate for the implementation of the plan-

fied their results, which led to the decision that the

do-check-act cycle.

Company with Audit and Supervisory Committee system

In the draft of the medium-term management plan
decided upon by the Board of Directors, the first three yearsof the plan’s six-year period were designated as a period for

34

officers with regard to certain deliberations and decisions

TSUMURA & CO.

would provide the ideal framework for creating even higher
corporate value in the future.

Evaluations of Board of Directors’ EffectivenessContributing to Governance Reforms

Contributions Based on Corporate
Management Experience

The evaluations of the Board of Directors’ effectivenessI was a director at Idemitsu Kosan Co., Ltd., an oil company,

conducted in 2015 and 2016 proved to be valuable tools infor nine years, and I took part in helping this company

advancing discussions on corporate governance reforms.

become listed on the stock exchange. Accordingly, I have

The evaluations were conducted through written ques-insight into corporate management and how to communicate

tionnaires compiled by the Board of Directors’ Office, awith capital markets. When I joined Tsumura as a director,

support organization for the Board of Directors. Each direc-

however, I was unfamiliar with the field of pharmaceuticals,

tor and Audit & Supervisory Board member filled out aeven more so with regard to Kampo formulations.

questionnaire, and the results were aggregated by theRegardless, if asked if this was an issue, I would say that it

Board of Directors’ Office and then discussed at meetings

was not. At first, oil and Kampo formulations may seem likeof the Board of Directors. Questionnaires contained a total

completely different businesses, but similarities do exist,of roughly 40 questions formulated based on the astutespecifically in how both businesses entail managing the value

observations of the staff of the Board of Directors’ Office.

chain from a big-picture perspective and creating value

The first questionnaire, conducted in 2015, asked respon-through this value chain. I have experience identifying risk

dents to choose from four levels of responses, whereas thefactors across the value chain. As such, this experience andsecond questionnaire, in 2016, only provided two levels of

my position could prove viable as an outside perspective in

responses, primarily to identify in what areas measuresenabling me to provide a viewpoint that runs contrary to thewere sufficient and in what areas improvements wereinternal perspective, which may be inclined to ignore factors

needed. This format made it exceptionally clear what issues

that it does not want to see.

currently need to be addressed with regard to the Board ofAnother similarity between Kampo companies and oil

Directors. One example of an issue identified would be how

companies is that they are both charged with an importantthe large number of reports received at each meeting

responsibility to provide, at a fair price, a product that ismeant that a substantial amount of time was consumed byindispensable to society. Fulfilling this responsibility requires

listening to explanations. This situation warranted improve-sustainable growth, and sustainable growth requires aments by reducing the number of agenda items and simpli-

compatible management philosophy and for this philosophy

fying explanations. In addition, questions on the range ofto be exercised. It is my belief that exercising a management

duties delegated to executive officers and frameworks forphilosophy means cultivating highly ambitious employees.

ensuring adequate supervisory and monitoring functions

This view is identical to the idea of “management that iswere also posed, with an eye to the aforementioned gover-rooted in basic principles” preached by Tsumura. It was thenance system reform. We spent a great deal of time dis-realization of the shared vision that made Tsumura resonate

cussing such matters.

with me as a company and that caused me to feel a strong

For the 2017 evaluation, given the transition to the Company

desire to contribute to its growth.

with Audit and Supervisory Committee system, I suspect thatquestions will focus on the proceedings and other mattersrelated to the operation of the new Board of Directors.
Looking forward, I plan to raise discussions on such issues
as succession plans as well as the necessity of third-party
evaluations and how such evaluations should be implemented.

Annual Report 201735

Corporate Governance

Methods of Determining Compensation for
Directors and Executive Officers
Directors (Excluding Directors Serving as Audit andSupervisory Committee Members)
The Company’s basic policy is to pay an amount of compensation
to directors (excluding directors serving as Audit and Supervisory
Committee members) that will contribute to their motivation to
pursue the sustained growth of the Company through the improvement of performance and increased corporate value. Compensation
standards and the types of compensation paid were selected to(3) Common shares of the Company’s stock will be allocated to applicable
individuals through the issuance of stocks by the Company or disposalof treasury shares. The individuals applicable for such allocations andthe number of shares to be allocated will be determined by the Boardof Directors after the period of the plan. The applicable individuals willthen receive monetary compensation claims, which are to be used
to acquire common shares of the Company’s stock at the time of
the Company’s issuance of shares or disposal of treasury shares.
The upper limit for the total amount of monetary compensation
claims granted to applicable individuals based on the plan will be
set at ¥300 million for the period of the plan.*2

ensure an appropriate level of compensation given the roles, duties,
and rank of each director. We strive to increase objectivity in establish-

Calculation Formulas

ing compensation standards by utilizing survey data from third-

Reference deliverable sharesparty specialists and considering the compensation levels of industry=A mount determined according to compensation criteria based onpeers as well as the salary levels of Tsumura employees. In addition,

roles, duties, and rank of individual directors / Reference share price*

the Nomination/Remuneration Advisory Committee was established× 3 (fiscal years)on June 29, 2017, to improve the transparency and impartiality ofdecisions related to compensation by involving outside directors
who have been designated as independent directors, as stipulatedby the Tokyo Stock Exchange, and incorporating their input.
The types of director (excluding directors serving as Audit andSupervisory Committee members) compensation paid are as follows.
1. M onetary basic compensation is paid as an annual sum of no morethan ¥600 million,*1 and the amount paid to each director is decided* Reference share price = Closing price for ordinary transactions of common shares ofCompany stock on March 31, 2016

Number of shares to be issued to individual directors=R eference deliverable shares × (Sum of (Achievement ratios fornumerical targets* × Applicable numerical target allocation ratio))* “Achievement ratios for fiscal 2019 numerical targets” is determined depending on theachieved degree, within the range of 0% to 120%, with the level corresponding to thenumerical target set at 100%. The applicable targets for fiscal 2019 are consolidated net
sales of ¥120.0 billion, operating profit of ¥14.0 billion, and return on equity of 6%.

on an individual basis. For the representative and other directors with
operational execution authority, basic compensation is determined

For details on the performance-linked stock compensation plan,

based on standards that account for roles, duties, and rank, andplease refer to the related news release and the Notice of the 81st

a portion of this compensation is adjusted to reflect the Company’s

Ordinary General Meeting of Shareholders held on June 29, 2017,business results and the degree of accomplishment of performance

available through the following links:

goals set for each director in the respective fiscal year. Outside direc-

http://www.tsumura.co.jp/english/newsrelease/2016/pdf/20160603.pdf

tors and other directors without operational execution authority

http://www.tsumura.co.jp/english/ir/meeting/general/pdf/internet_081.pdf

receive a fixed amount of basic compensation based on their roles insupervising operational execution.
2. The Company has introduced a performance-linked stock compensation plan with the aim of enhancing awareness among directors toward
contributing to the sustained growth of the Company through the improvement of its medium-to-long-term performance in accordance with themedium-term management plan and to increased corporate value.
The stock compensation plan covers the three-year period ending
fiscal 2019. At the end of this period, the Company will issue a numberof common shares of Company stock to individual directors that is calculated using the following formulas based on the extent to which theCompany’s fiscal 2019 targets for consolidated net sales, operating
profit, and return on equity are met.
(1) T his plan is available to directors, excluding directors serving as
Audit and Supervisory Committee members and non-operating
directors, as well as to executive officers with whom the Company
has concluded delegation agreements.
(2) T he upper limit for the number of stocks issued will be 60,000
shares*2 for this period.

36

TSUMURA & CO.

Directors Serving as Audit and Supervisory
Committee Members
Based on the roles and duties of directors serving as Audit andSupervisory Committee members, only fixed basic compensation
is paid to these directors. This compensation is paid as an annual
sum of no more than ¥72 million, and is decided for each individual
director serving as an Audit and Supervisory Committee member
through deliberation among these directors.
1 Based on a resolution of the 81st Ordinary General Meeting of Shareholders held on
June 29, 2017; includes outside directors but excludes employee salaries paid to
directors who also serve as employees of the Company
2 Based on a resolution of the 81st Ordinary General Meeting of Shareholders held on
June 29, 2017

Other Management Systems
Item

Details

Compliance•T he Company has established a compliance promotion system through which it advances ongoing educational and otheractivities based on the Tsumura Compliance Program, which consists of the Tsumura Code of Conduct, the Compliance
Committee, the Company’s compliance promotion system, and the Tsumura Group Hotline.
•T he Tsumura Group Hotline has been established as an internal whistle-blowing system for employees in Japan that canbe used to make consultations or reports on compliance issues. Individual whistle-blowing systems have been establishedat each overseas Group company.
•T he Company has formulated the Tsumura Code of Practice (the “Tsumura Code”) to ensure that its corporate activities
are always conducted in a highly ethical and transparent manner and to earn the trust of society. The Tsumura CodeCommittee, which was established based on the Tsumura Code, is responsible for managing, administering, and thoroughly instilling the code.

Internal•T he Internal Auditing Department, an internal audit organization under the direct jurisdiction of the president, is responsible

Controls

for conducting internal audits of all Tsumura Group companies in order to maintain an understanding of how they are managed and implement improvements.
•T he Company has established basic policies and plans and implemented internal controls that it uses to ensure the appropriateness of financial reports.
•T he Company adheres to relevant laws and to the Basic Rule of Information Management with regard to the managementof documents related to the execution of duties by directors and other information by recording and storing such documents and information in physical or electronic mediums. The General Affairs Department has been positioned as themain division of information management and is responsible for maintaining an understanding of the status of internal systems and training programs and issuing regular reports to the Board of Directors.

RiskManagement•T he Risk Management Committee has been established as an organization for promoting comprehensive internal risk
management. In addition, the Company has developed the necessary risk management system as well as the Risk
Management Rules and other internal regulations and manuals. If an emergency situation occurs that threatens to have aserious impact on business operations, an emergency crisis management office will be set up to implement measures toresolve the crisis.
•T he Company has established the Information Security Management Regulations and the Regulations for HandlingSpecified Personal Information based on its Basic Information Management Regulations. In accordance with these regulations, the Company practices strict management of confidential information and seeks to ensure that personal information
is properly protected. Training and other educational activities are held to promote and entrench awareness regarding theimportance of proper information management and how such information should be handled.

Others•T he Affiliate Management Rules contain provisions for decisions regarding important management matters as well asreports to the Company aimed at ensuring appropriate operations at Group companies, which exercise these provisions in
an appropriate and timely manner. The Company also holds Affiliate Business Reporting Forums that provide opportunities
for officers from Group companies to issue business reports to officers from the Company.
•T he Company requires that all directors (excluding directors serving as Audit and Supervisory Committee members) andemployees of the Company as well as all directors, auditors, and employees of Group companies or individuals who havereceived reports from any of these parties promptly report any applicable matters to the Audit and Supervisory Committee.
Applicable matters include those legally required to be reported, matters with the potential to seriously impact the entire
Company, matters related to internal audits, reports and details of reports through the internal whistle-blowing system(the Tsumura Group Hotline), and matters on which reports have been requested by the Audit and Supervisory Committee.

Annual Report 201737

Eleven-Year Selected ESG Data
TSUMURA & CO. and subsidiaries

Unit

2007

2008

2009

Environment*1(Years ended March 31)
Energy consumption

TJ

936

1,176

Energy consumption per unit of production

GJ/t

185.3

212.9

182.6

Greenhouse gas emissions

t-CO 2

46,60062,90063,400

Greenhouse gas emissions per unit of production

t-CO 2 /t

9.2

11.4

10.0

Water consumption

Thousands of tons

978

1,595

1,601

Volume of discharged water

Thousands of tons

894

1,466

1,455

Water consumption per unit of production

t/t

194

289

252

1,160

Social(Years ended March 31)
Number of Kampo medicine seminars for physicians

Times

329

317

286

Number of participants of Kampo medicine seminars for physicians

People

5,354

5,454

5,683

Number of employees

People

2,750

2,773

2,631

Number of managers*2

People–––Number of female managers*2

People–––Internal directors (Men)People988Outside directors designated as independent directors (Men)People000Outside directors designated as independent directors (Women)

People000Internal director (Audit & Supervisory Committee members)*3

People222People111

Independent outside director (Audit & Supervisory Committee members) (Women)*3 People

1

1

1

(As of end of March, each year)

Governance(As of end of June, each year)

Independent outside director (Audit & Supervisory Committee members) (Men)*

3(Years ended March 31)
Outside directors’ rate of attendance at Board of Directors’ meetings

%

78.9

–

–

Outside Audit & Supervisory Board members’ rate of attendance at Audit &Supervisory Board meetings*3

%

91.7

100.0

100.0

Outside Audit & Supervisory Board members’ rate of attendanceat Board of Directors’ meetings*3

%

97.4

100.0

100.0

*1 Figures for items under the “Environment” category from 2007 are for TSUMURA & CO. (non-consolidated). Figures from 2008 and onward include data from Group companies(LOGITEM TSUMURA CO., LTD.; SHANGHAI TSUMURA PHARMACEUTICALS CO., LTD.; SHENZHEN TSUMURA MEDICINE CO., LTD.; LAO TSUMURA CO., LTD. (from 2014);
and YUBARI TSUMURA CO., LTD. (from 2012)).
*2 Figures represent the total of figures from TSUMURA & CO.; SHENZHEN TSUMURA MEDICINE CO., LTD.; and SHANGHAI TSUMURA PHARMACEUTICALS CO., LTD. Figuresfrom TSUMURA & CO. include senior managers. Figures from SHENZHEN TSUMURA MEDICINE CO., LTD., and SHANGHAI TSUMURA PHARMACEUTICALS CO., LTD., are asof December 31 of the preceding year.

Greenhouse Gas Emissions / Greenhouse
Gas Emissions per Unit of Production

Water Consumption / Water
Consumption per Unit of Production

Kampo Medicine Seminars
for Physicians

t-CO 2 / t-CO 2 /t

Thousands of tons / t/t

People / Times

120,000

10

240

1,800

8.9

12,00011,089

1,547

400

330

87,502
158
60,000

0

13

14

15

16

17

5

900

0

0


Greenhousegas emissions
G reenhouse gas emissions per unit of production(right scale)

38

TSUMURA & CO.

120

13

14

15

16

17

Water consumptionWater consumption per unit of production(right scale)

0

6,000

0

200

13

14

15

16

Number of participants
Number of seminars (right scale)

17

0

2010

2011

2012

2013

2014

2015

2017

2016

1,257

1,269

1,357

1,343

1,473

1,395

1,428

183.8

179.5

166.2

158.5

162.2

154.1

153.9

161.4

65,90065,88569,70773,82080,41480,40478,94887,502

1,580

9.6

9.3

8.5

8.7

8.9

8.9

8.5

8.9

1,728

1,379

1,565

1,528

1,622

1,466

1,492

1,547

1,483

1,132

1,274

1,228

1,353

1,312

1,304

1,339

253

195

192

180

179

162

161

158

269

249

265

311

356

317

339

330

5,261

5,099

5,473

7,257

8,758

9,115

10,411

11,089

2,702

2,717

2,784

2,831

2,898

3,335

3,242

3,331

–

–

–

834

873

843

828

825

–

–

–

40

46

51

57

58

8

9

9

9

7

3

3

3

0

0

1

1

1

2

2

2

0

0

0

0

0

1

1

1

2

2

2

2

2

2

2

1

1

1

1

1

1

0

0

1

1

1

1

1

1

2

2

1

–

–

–

100.0

100.0

100.0

98.2

94.7

100.0

98.1

98.2

100.0

100.0

96.0

100.0

100.0

97.5

97.2

100.0

100.0

100.0

93.0

100.0

100.0

*3 T
 he position of Audit & Supervisory Board member was replaced with the position of Audit and Supervisory Committee member after receiving approval at the 81st Ordinary
General Meeting of Shareholders held in June 2017.

Number of Female Managers*2

Composition of the Boardof Directors

PeoplePeople

%

12

100

58

60

Outside Directors’ Rate of Attendanceat Board of Directors’ Meetings

94.7

2
30

6

3

50

4
0

13

14

15

16

17

0

13

14

15

16

17

0

13

14

15

16

17


Internal
directors (Men)Outside directors designated as independent directors (Men)Outside directors designated as independent directors (Women)

Annual Report 2017

39

FINANCIAL SECTION

Eleven-Year Selected Financial Data (Unaudited)
TSUMURA & CO. and subsidiaries
Years ended March 31¥ in millions

2007

2008

2009

For the year
Net sales¥ 91,227¥ 94,799¥ 90,016

Cost of sales*

29,43831,60929,028Gross profit

61,78863,19060,987

Selling, general and administrative expenses

46,28247,36944,504

Operating profit

15,505

15,820

16,483

Profit before income taxes

21,261

14,605

17,940

Profit attributable to owners of parent

13,152

9,139

10,777¥ 17,073¥ 19,651¥ 19,810

Property, plant and equipment, net

41,28940,25138,754Long-term liabilities

21,40014,4408,970

Total liabilities

73,76062,73452,855

Total net assets

69,61872,41173,968

Total assets

143,378

135,146

126,824¥  3,906¥  3,124¥  5,479

R&D expenses

4,829

4,368

3,958

Depreciation

2,777

3,396

3,298

Free cash flow

23,521

1,309

7,293

Cash flows from operating activities

12,687

5,358

10,634

Cash flows from investing activities

10,834(4,049)(3,341)

Cash flows from financing activities(13,071)(7,419)(6,354)

Cash and cash equivalents, end of year

19,812

13,718

14,596¥ 186.43¥ 129.57¥ 152.80

At year-end
Inventories

Other selected data
Capital expenditures for property, plant and equipment

Per share data (yen)Profit attributable to owners of the parent
Dividends

17.00

23.00

34.00

Net assets

970.501,015.46

1,037.76

Gross profit

67.7%

66.7%

67.8%

Selling, general and administrative expenses

50.7

50.0

49.4

Operating profit

17.0

16.7

18.3

Profit before income taxes

23.3

15.4

19.9

Profit attributable to owners of the parent

14.4

9.6

12.0

21.3

13.0

14.9

Financial ratios (%)
As a percentage of net sales:

ROE
ROA

11.1

11.4

12.6

Current ratio

133.7

142.3

157.2

* Including credit (debit) for allowance for sales returns

40

TSUMURA & CO.

2013

2014

2015

2016

2017

¥ 95,450¥ 105,638¥ 110,057¥ 110,438¥ 112,625¥ 114,954

29,94435,92738,78741,85945,05549,45465,34265,50569,711

71,26968,57867,56965,49943,47543,78944,271

46,58648,80849,08747,74349,516

18,93821,553

21,23323,124

22,461

19,491

19,826

15,98318,71021,05822,44824,062

28,11820,07818,89817,184

10,704

12,945

13,431

15,37318,05014,075

12,557

12,488¥ 22,335¥ 22,057¥ 30,570¥  35,565¥ 43,424¥ 50,716¥ 52,348¥  52,138

40,85742,15444,86950,657

57,14860,62462,82264,686

8,773

8,587

8,093

9,448

9,126

23,33923,06332,72750,94450,394

49,63351,92954,30564,706

66,76564,611

83,752

91,154102,240

118,537

133,318

150,947

155,702

157,397

134,697

141,549

151,874

170,466

187,623

215,654

222,468

222,008¥  5,237¥  5,264¥  6,425¥   9,328

8,991¥   8,428¥   9,638

¥    
6,438

3,770

4,123

4,565

4,904

5,949

6,252

5,968

6,087

3,225

3,453

3,850

4,049

4,871

5,387

5,059

5,629

2010

2011

2012

¥ 90,933¥ 94,778

28,51829,43562,414

¥

5,864

5,232

1,972

3,988

4,214

(5,691)

10,10914,61412,01912,047

7,314

12,011

5,908

4,992

17,57021,065(6,155)(6,815)(5,342)(8,022)(1,694)(10,683)(7,461)(6,451)(5,085)(3,355)(5,272)(4,275)(4,575)

10,408(4,608)(9,572)

15,31817,19813,906

13,762

14,41819,34325,12829,901¥ 151.77¥ 183.55¥ 190.45¥  217.98¥ 255.94¥ 199.58¥ 178.06¥  179.46

46.00

58.00

60.00

62.00

64.00

64.00

64.00

64.00

1,175.04

1,274.06

1,430.94

1,658.88

1,860.14

2,103.04

2,169.13

2,250.34

68.6%

68.9%

68.6%

66.0%

64.8%

62.1%

60.0%

57.0%

47.8

46.2

46.4

44.1

44.3

44.4

42.4

43.1

20.8

22.7

22.2

21.9

20.4

17.6

17.6

13.9

20.6

22.2

23.5

22.8

25.5

18.2

16.8

14.9

11.8

13.7

14.1

14.6

16.4

12.7

11.1

10.9

13.7

15.0

14.1

14.1

14.5

10.1

8.3

8.1

14.5

15.6

14.5

14.3

12.5

9.7

9.1

7.2

173.8

189.1

207.8

222.5

240.6

310.6

305.9

422.4

Annual Report 201741

FINANCIAL SECTIONManagement’s Discussion and Analysis
TSUMURA & CO. and subsidiaries
Years ended March 31

Review of Operations for Fiscal 2017
OPERATING ENVIRONMENT FOR
KAMPO PRODUCTS

Drug Prices

Growth of Prescription Kampo Product Market*1

cals covered by the Japanese National Health Insurance

In fiscal 2017, the scale of the domestic prescription product(NHI) plan are revised once every two years, in principle, tomarket was ¥10,430.8 billion on a monetary basis, and thereflect market prices. The most recent revision took place inscale of the prescription Kampo product segment of thisApril 2016. All 129 prescription Kampo products provided

market was ¥148.1 billion. Looking at the 10-year period

by Tsumura are covered under the NHI plan, and the April

from March 31, 2008, to March 31, 2017, the compound2016 price revision resulted in a 3.0% decrease in theannual growth rate for the prescription Kampo productofficial prices of these products on average.

In Japan, the official prices of all prescription pharmaceuti-

market was 4.3%, representing strong growth that

*1 Copyright ©2017 QuintilesIMS. All rights reserved. Estimated based on “JPM Mar.
2008 MAT–Mar. 2017 MAT.” Reprinted with permission.

exceeded the rate of 2.8% seen for the overall domesticprescription product market during the same period.

Cumulative Total of Medical Students Passing the National
Examination for Medical Practitioners*

Japanese Market Size for Prescription Kampo Products*

People¥ billion / %120,000

200

100

102,095

84.0%
148.1

60,000050

100

05 06 07 08 09 10

11

12

13

14

15

16

0

17

* In 2004, Kampo medicine education was implemented at all medical colleges anduniversities in Japan. The numbers are the cumulative total since 2005.

13

Overall market* NHI listed price

14

15

16

17

0

Tsumura’s share (right scale)

Copyright ©2017 QuintilesIMS. All rights reserved. Estimated based on “IMS JPM Mar. 2013
MAT– Mar. 2017 MAT.” Reprinted with permission.

Price Revisions of the NHI Drug Price List
% change
1998

2000

2002

2004

2006

Tsumura Kampo medicines–8.6

All pharmaceuticals

–9.7

–3.4

–3.6

–2.8

–4.2

–3.3

–4.5

–3.8

–3

–3

–7.0

–6.3

–4.2

–6.7

–5.2

–5.75

–6.00

–5.64

–5.57

Note: The price revision figures for 2014 do not include the effect of the consumption tax hike.

42

TSUMURA & CO.

2008

2010

2012

2014

2016

Use of Prescription Kampo Products by Physicians

information and training opportunities for newly graduatedKampo products are widely used in the healthcare work-and practicing physicians.

place in Japan today. As of February 2017, more than

*2 Survey of Physicians, Dentists and Pharmacists 2014, the Ministry of Health, Labourand Welfare, 2014

100,000 medical students have passed the Japanesenational examination for medical practitioners since 2005,

INCOME STATEMENT

the year following the implementation of Kampo medicine

Overview of Results

education at all of the 80 medical colleges and university

2016

2017

Net sales
Gross profit¥112,625
67,569¥114,954
65,499Gross profit margin
Operating profit
Operating profit margin
Ordinary profit

60.0%¥ 19,826
17.6%¥ 19,494

57.0%¥ 15,983
13.9%¥ 16,399

Profit attributable toowners of the parent¥ 12,557¥ 12,488¥ in millions, except ratios

medical departments nationwide. According to a recent
survey by the Ministry of Health, Labour and Welfare,*2 asof December 2014, the number of registered medical practitioners was 311,205, and it is estimated that one in three ofthese practitioners has received Kampo medicine education. In addition to providing support for Kampo education
at medical education institutions, we are encouraging
increased use of prescription Kampo products by providing

Net Sales

Sales of Prescription Kampo Products

Sales and Quantity of Tsumura
Prescription Kampo Products*¥ billion¥ billion¥ billion / Millions of units

140

140

150

20

100

15

〜
〜

〜
〜

114.9

70

109.6

70

0

13

14

15

16

17

0

13

14

15

16

17

0

13

14

15

16

17

0

Sales
Quantity (right scale)* Sales and quantity from pharmaceutical wholesalers to medical institutions

Top 10 Kampo Products by Sales Amount¥ million
Main effectively treatable disorders

FY2016FY2017

Difference

YoY change

1 TJ-100 (Daikenchuto)

Product name

Abdominal pain, abdominal flatulence

10,273

10,32855

0.5%

2 TJ-54 (Yokukansan)

Neurosis, insomnia, etc.

7,215

7,330

115

1.6%

3 TJ-41 (Hochuekkito)

Reinforcement of physical strength after illness, anorexia, etc.

6,968

6,947

–21

–0.3%

4 TJ-43 (Rikkunshito)

Gastritis, maldigestion, anorexia, etc.

6,604

6,863

259

3.9%

5 TJ-68 (Shakuyakukanzoto)

Pain accompanying sudden muscle spasms, etc.

4,688

4,853

165

3.5%

6 TJ-29 (Bakumondoto)

Coughing, bronchitis, bronchial asthma

4,494

4,511

16

0.4%

7 TJ-24 (Kamishoyosan)

Oversensitivity to cold, menstrual irregularity, climacteric disturbance

4,465

4,465

0

0.0%

8 TJ-107 (Goshajinkigan)

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

3,838

3,733

–105

–2.7%

9 TJ-114 (Saireito)

Swelling (edema), acute gastroenteritis, etc.

3,351

3,399

47

1.4%

10 TJ-17 (Goreisan)

Edema, diarrhea, headache, heat stroke, etc.

3,082

3,363

280

9.1%

— TJ-14 (Hangeshashinto)

Stomatitis, fermentative diarrhea, neurotic gastritis, etc.

1,250

1,276

25

2.0%

107,599

109,647

2,048

1.9%

Total sales of 129 prescription Kampo products

Annual Report 201743

FINANCIAL SECTIONManagement’s Discussion and Analysis

Net Sales

On March 31, 2017, the total scale of the prescription

In fiscal 2017, consolidated net sales increased 2.1% year on

Kampo product market on a monetary basis was ¥148.1

year, to ¥114,954 million. Although sales were impacted bybillion, and the Company’s share of this market was 84.0%.*4

the April 2016 NHI price revision, a 4.5% year-on-year increase*3 Figures refer to sales of prescription Kampo products by pharmaceuticalwholesalers to medical institutions. Net sales are calculated based on shipmentsfrom Tsumura to pharmaceutical wholesalers.
*4 C opyright ©2017 QuintilesIMS. All rights reserved. Estimated based on “JPM Mar.
2008 MAT–Mar. 2017 MAT.” Reprinted with permission.

was seen in sales volumes,* which grew smoothly to more
3

than 20 million units and thus contributed to higher net sales.
The number of Kampo formulations for which sales
showed year-on-year increases rose to 95. As a result, total

Cost of Sales

sales of Tsumura’s 129 prescription Kampo products

Cost of sales rose 9.8% year on year, to ¥49,457 million.

edged up 1.9% year on year, to ¥109,647 million. Of this,

Although we were successful in lowering processing costs

sales of the five “drug fostering” program formulations

through increased productivity, we could not offset theincreased 1.2%, to ¥29,532 million, and sales of the fiveimpacts of the NHI drug price revisions and the increase in“growing” formulations increased 1.9%, to ¥24,141 million.

raw material crude drug costs, which was primarily a result of
foreign exchange rate movements. As a result, the cost of
sales ratio rose 3.0 percentage points year on year, to 43.0%.

Cost of Sales /Cost of Sales Ratio

SG&A Expenses /SG&A Expenses Margin¥ billion / %

49.4

50

R&D Expenses /R&D Expenses Margin¥ billion / %
50

43.0%

25

0

13

14

Cost of sales

15

16

17

50

8

6

5.3%

43.1%

25

25

0

0

Cost of sales ratio (right scale)¥ billion / %

49.5

50

13

14

15

16

17

SG&A expenses
SG&A expenses margin (right scale)

6.0

25

4

0

0

3

13

14

15

16

0

17

R&D expenses
R&D expenses margin (right scale)

Factors in Increase /Decrease of Operating Profit

Profit Attributable to Owners of the
Parent / ROE¥ billion¥ billion / %30

20FY2016
Operating Profit
19.8
15

Sales Increase
2.3

Sales Cost
Increase
4.4

SG&A Expenses
Increase
1.730

FY2017
Operating Profit
15.9

12.4
10

15

8.1%

0

0

13

14

15

16

17

 rofit attributable to owners of the parent
PROE (right scale)

44

TSUMURA & CO.

0Selling, General andMajor Expenses

Administrative (SG&A) Expenses¥ in millions

Personnel expenses
Sales promotion expenses
Advertising costs
R&D expenses

Selling, general and administrative (SG&A) expenses
increased 3.7% year on year, to ¥49,516 million, and the
SG&A expenses margin rose 0.7 percentage point, to43.1%. Among major expenses, personnel expenses were

2016

2017

¥28,845
3,823
539
5,968

¥29,535
3,920
710
6,087

Operating Profit

up 2.4%, to ¥29,535 million; sales promotion expenses

Operating profit decreased 19.4% year on year, to ¥15,983

climbed 2.5%, to ¥3,920 million; sales rebates rose 1.7%, tomillion, while the operating profit margin declined 3.7 per-¥9,519 million; and advertising costs grew 31.8%, to ¥710

centage points, to 13.9%.

million. In addition, R&D expenses increased 2.0%, to¥6,087 million, representing 5.3% of net sales, the same

Ordinary Profit

level as in the previous fiscal year.

Ordinary profit was down 15.9%, to ¥16,399 million, while
foreign exchange loss decreased to ¥381 million from ¥975
million in the previous fiscal year.

Cash Flows¥billion
30.0

21.0
15.0

0

–6.4
–9.5
–15.0

13

Cash flows from operating activities

14
Cash flows from investing activities

15

16

17

Cash flows from financing activities

Factors in Increase / Decrease of Cash
¥ billion

0

FY2016 Cash and cash equivalents at end of year
Cash flows fromoperating activities+¥21.0 billion

25

50

25.1

Profit before income taxes
Depreciation
Decrease in notes and accounts receivable–trade
Increase in inventories
Increase in notes and accounts payable–trade
Others, net

Cash flows frominvesting activities–¥6.4 billion
Cash flows fromfinancing activities–¥9.5 billion

Purchase of property, plant and equipment
Proceeds from sales and redemption of investment securities
Others, net
Purchase of treasury shares
Cash dividends paid
Others, net
Others, net
FY2017 Cash and cash equivalents at end of year

29.9

Annual Report 201745

FINANCIAL SECTIONManagement’s Discussion and Analysis

Profit Attributable to Owners of the Parentof short-term and long-term investment securities, which

Profit attributable to owners of the parent declined 0.5%

compensated for the decline in proceeds from sales ofyear on year, to ¥12,488 million. This decline was less thanproperty, plant and equipment.
Net cash used in financing activities amounted to ¥9,572

the decrease in operating profit as gain on sales of investment securities of ¥873 million was recorded under

million, up ¥4,963 million year on year. Major cash outflows

extraordinary income while the impacts of impairment

included purchase of treasury shares.

losses recorded in the previous fiscal year disappeared.

As a result, the balance of cash and cash equivalents at

In addition, profit attributable to owners of the parent per

the end of the fiscal year under review was ¥29,901 million,

share increased slightly to ¥179.46, compared with ¥178.06

an increase that comprised a ¥4,453 million net increase in

per share in the previous fiscal year, as a result of treasury

cash and cash equivalents as well as a ¥290 million increase

share acquisitions conducted in fiscal 2017.

in cash and cash equivalents from newly consolidated subsidiary and a ¥28 million increase in cash and cash equivalents
resulting from merger with unconsolidated subsidiaries.

LIQUIDITY AND CAPITAL RESOURCES
Cash Flows

Balance Sheet

Cash Flow Data

Balance Sheet Data

¥ in millions

2016

2017

Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities¥17,570(7,461)(4,608)¥21,065(6,451)(9,572)¥ in millions

Net cash provided by operating activities amounted toTotal assets
Total liabilities
Interest-bearing debt
Total net assets¥21,065 million, up ¥3,495 million year on year. This increase

Note: Interest-bearing debt includes lease obligations.

2016

2017

¥222,468
66,76537,048
155,702¥222,008
64,61137,088157,397

was a result of a decrease in receivables and a decrease ininventories, which outweighed the impacts of lower profit

Assetsbefore income taxes and higher income taxes paid.

On March 31, 2017, current assets stood at ¥134,679 million,up ¥1,010 million from a year earlier. The increases in cash

Net cash used in investing activities amounted to ¥6,451
million, down ¥1,010 million year on year. This decrease in net

and deposits and work in process counteracted theoutflow was a result of proceeds from sales and redemption

decreases in raw materials and supplies and notes andTotal Assets / ROAInterest-Bearing Debt / Equity Ratio¥ billion / %¥ billion / %20300

Net Assets / Equity Ratio¥ billion / %

40

37.0

80

80

200

69.7%

69.7%
222.0

157.3

10

150

20

40

100

0

0

40

7.2%

0

13

Total assets

46

14

15

16

ROA (right scale)

TSUMURA & CO.

17

0

0

13

14

Interest-bearing debt

15

16

17

Equity ratio (right scale)13

Net assets

14

15

16

Equity ratio (right scale)170accounts receivable–trade. Meanwhile, non-current assets

NON-FINANCIAL CAPITAL

decreased ¥1,469 million, coming to ¥87,329 million on March

Human Capital

31, 2017. Property, plant and equipment increased in con-

Tsumura views human capital as one of the most importantjunction with capital investments while investments and otherforms of non-financial capital. Based on this belief, we haveassets declined following the sale of investment securities.

defined three elements of our Vision for 2021 long-term

As a result of the above, total assets amounted tobusiness vision: (1) The “Kampo” Company, (2) The¥222,008 million, a decrease of ¥459 million from the previ-“People” Company, and (3) The “Global Niche” Company.

ous fiscal year-end.

On March 31, 2017, the Company had 3,331 employees
on a consolidated basis, 804 of whom were employees of

Liabilities

overseas Group companies. To achieve our vision of mak-Current liabilities declined ¥11,818 million compared withing Tsumura “The ‘People’ Company,” we provide various

the previous fiscal year-end, to ¥31,883 million, reflecting a

training programs to employees working at domestic bases

decrease in short-term loans payable. Meanwhile, non-while giving employees at overseas bases the opportunity

current liabilities increased ¥9,664 million, to ¥32,727 million,

to undergo training in Japan. Furthermore, we believe that

due to a rise in long-term loans payable, less current portion.

the diversity of human resources energizes the organiza-

Interest-bearing debt increased ¥40 million, to ¥37,088 million.

tion and thus serves as a driving force behind growth.

Consequently, total liabilities at the end of the fiscal year

Accordingly, we seek to foster diversity by promoting

under review decreased ¥2,153 million from the previous

female employees to management roles and selecting offi-

fiscal year-end, to ¥64,611 million.

cers and managers at overseas Group companies fromamong locally hired staff.

Net Assets
Total net assets amounted to ¥157,397 million at the fiscal

Social and Relationship Capital

year-end, climbing ¥1,694 million from a year earlier.

It goes without saying that Tsumura’s business is prefaced

Retained earnings were higher while treasury share acqui-on the trust of the medical practitioners and patients who

sitions were conducted.

use its Kampo products. Moreover, the Company’s

Number of Employees

Number of Foreign Executive Officersof the Group

PeoplePeople

4,000

10

3,331

5

3,000

0

8

08

09

10

11

12

13

14

15

16

17

0

13

14

15

16

17

Annual Report 201747

FINANCIAL SECTIONManagement’s Discussion and Analysis

business model only works because of our relationships

FINANCIAL AND DIVIDEND POLICY

with various stakeholders on each link of the Kampo value

Key Financial Indicators

chain. For example, the production and procurement of%

crude drugs are supported by trust-based business
relationships with production companies and crude drug
production associations in China and Japan as well as withthe producers who are members of these associations.
Similarly, given that scientific evidence is crucial to increasing Kampo prescriptions, our partners in advancing
fundamental and clinical research—research and educational institutions and our network of medical

2016

ROE
ROA
Equity ratio
Debt-to-equity ratio (times)
Dividend payout ratio
Total payout ratio

8.3%
9.1
68.8
0.24
35.9
35.9

2017

8.1%
7.2
69.7
0.24
35.7
75.9

Financial Indicators
Emphasizing shareholder value, Tsumura’s management has
positioned return on equity (ROE) as a key performance

practitioners—are indispensable.

indicator. In fiscal 2017, profit attributable to owners of theparent decreased and—following the increase in retained

Natural Capital
The raw materials for Kampo medicines are crude drugs
derived mainly from plants. In fiscal 2017, the total amountof raw material crude drugs used was 12,495 tons, rising
876 tons from the previous fiscal year in reflection of higher
Kampo product sales volumes. Seeking to ensure a sustainable supply of crude drugs in light of projected growthin Kampo product demand, Tsumura strives to preserve thebiodiversity of crude drug production regions while also
protecting and nurturing crude drugs that are grown in thewild and advancing research on their cultivation.

earnings—shareholders’ equity rose. As a result, ROE
declined 0.2 percentage point year on year, to 8.1%. Returnon assets (ROA) decreased 1.9 percentage points, to 7.2%.
The equity ratio rose 0.9 percentage point year on year, to69.7%, while the debt-to-equity ratio was unchanged year
on year at 0.24 times.
Shareholder Returns
Tsumura’s basic policy on shareholder returns is to pursue
increased corporate value through business investments andgrowth strategies for furthering the ongoing developmentof Kampo medicine. At the same time, Tsumura places
importance on returning profits to shareholders. For thatreason, the Company’s policy is to issue stable dividend

Dividends per Share /Dividend Payout Ratio

Stock Price

¥/%

¥

80

50

4,000

64.0
35.7%
40

0

13

14

15

16

Dividends per share
Dividend payout ratio (right scale)48

TSUMURA & CO.

17

25

2,000

0

0

APR.13

TSUMURA

APR.14
TOPIX

APR.15APR.16

payments after taking into consideration medium-to-long-which may be conducted based on a comprehensive evalu-

term earnings levels and cash flow trends. Based on thisation of factors, including the market trend outlook and thepolicy, Tsumura paid a total annual dividend of ¥64.0 per

capital structure that has been deemed ideal.
It was in fiscal 2005 that Tsumura began promoting

share in fiscal 2017, the same as in fiscal 2016, and the“drug fostering” program formulations, a measure that

consolidated dividend payout ratio was 35.7%.
In addition, the Company conducted the acquisition ofremains a core pillar of growth strategies today. Setting

treasury shares during fiscal 2017. Accordingly, the total

fiscal 2005 as the base year, the total shareholder return

payout ratio (total dividend payments and treasury share(share price appreciation plus dividends) for the period fromacquisition amounts divided by profit attributable to owners

March 31, 2005, to March 31, 2017, was 145.6%* and theof the parent) was 75.9%. It is Tsumura’s policy to adopt a

compound annual growth rate for the same period was 7.8%.*

flexible stance with regard to treasury share acquisitions,

¥

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Stock price(As of end of March each year)

1,653

3,100

2,775

2,485

2,550

2,715

2,610

2,391

3,475

2,480

2,971

2,702

3,490

Total annual dividend(Years ended March 31)

14.0

14.0

17.0

23.0

34.0

46.0

58.0

60.0

62.0

64.0

64.0

64.0

64.0

* The total annual dividend in fiscal 2005 was not included in the calculation of the total shareholder return and the compound annual growth rate above.

Performance Forecasts for Fiscal 2018
In fiscal 2018, net sales are forecast to increase 5.0% year

Performance Forecasts

on year, to ¥120,700 million, as a result of ongoing growth¥ in millions, except ratios

in prescription Kampo product sales. In addition, operating
profit is projected to rise 10.1%, to ¥17,600 million; ordinary
profit is slated to increase 10.4%, to ¥18,100 million; andprofit attributable to owners of the parent is set to grow
1.7%, to ¥12,700 million. The amount of capital investment

Net sales
Operating profit

2018

YoY(%)¥120,700
17,6005
10.1

Operating profit margin
Ordinary profit

14.6%
18,1000.7 pt.
10.4

Profit attributable toowners of the parent

12,7001.7

in fiscal 2018 is expected to be ¥15,100 million, roughly 2.3
times higher than in fiscal 2017, primarily due to the construction of a new manufacturing facility at the Ibaraki Plant.

Annual Report 2017

49

FINANCIAL SECTION

Consolidated Balance Sheets
TSUMURA & CO. and consolidated subsidiaries
March 31, 2017 and 2016

AssetsCurrent assets
		 Cash and deposits¥ in millions

US$ in thousands(Note 2)

2016

2017

2017

¥ 25,150¥ 29,931$  266,788

		 Notes and accounts receivable–trade41,87540,347359,630

		 Merchandise and finished goods

8,438

8,122

72,395

		 Work in process

12,428

14,547

129,663

		 Raw materials and supplies

31,482

29,467

262,652

		 Deferred tax assets

1,271

1,325

11,810		Other

13,026

10,941

97,522

(4)

(4)

(35)

133,668

134,679

1,200,454

			 Buildings and structures (Note 3 (d))

56,22664,429574,284

			 Machinery, equipment and vehicles (Note 3 (d))

42,421

47,920427,132

			 Tools, furniture and fixtures (Note 3 (d))

9,652

10,13990,373

			 Land (Note 3 (a))

9,009

9,052

80,684

			Construction in progress

12,815

3,880

34,584

239

308

2,745

			Accumulated depreciation(67,542)(71,044)(633,247)

			 Total property, plant and equipment

62,82264,686

576,575

226

266

2,370

20,11917,530156,252

			 Net defined benefit asset

122

1,058

9,430

			Deferred tax assets

32

43

383

			 Other (Note 3 (b))

		 Allowance for doubtful accounts
		 Total current assets

Non-current assets
		 Property, plant and equipment

			Other		Intangible assets
		 Investments and other assets
			 Investment securities (Note 3 (b))

5,478

3,743

33,363

			 Allowance for doubtful accounts

(2)

(0)

(0)

			 Total investment and other assets

25,75022,376

199,447

		 Total non-current assets
Total assets

50

TSUMURA & CO.

88,79987,329778,402¥222,468¥222,008$1,978,857

Liabilities
Current liabilities
		 Notes and accounts payable–trade¥ in millions

US$ in thousands(Note 2)

2016

2017

2017

¥  5,652¥  6,696$   59,684

		 Short-term loans payable

21,957

12,581

112,140

		Accounts payable–other

4,927

6,020

53,658

		 Income taxes payable

2,838

1,901

16,944

16

13

115

		 Provision for sales returns
		Other

8,310

4,670

41,625

		 Total current liabilities

43,702

31,883

284,187

		 Long-term loans payable

15,00024,376217,274

		 Deferred tax liabilities

1,202

1,733

15,447

		 Deferred tax liabilities for land revaluation (Note 3 (a))

1,339

1,179

10,508

66

84

748

		Other

5,454

5,353

47,713

		 Total non-current liabilities

23,06332,727291,710

66,76564,611575,906

19,487

19,487

173,696

Non-current liabilities

		 Net defined benefit liability

Total liabilities

Net assets
Shareholders’ equity
		Capital stock		Capital surplus

1,940

1,940

17,292

		Retained earnings

122,047

129,937

1,158,187(392)(5,393)(48,070)

143,084

145,972

1,301,114

3,835

3,845

34,272

479

925

8,244

		 Revaluation reserve for land (Note 3 (a))

2,513

2,673

23,825

		 Foreign currency translation adjustment

3,549

1,470

13,102

		 Remeasurements of defined benefit plans

(485)

(102)

(909)

		 Total accumulated other comprehensive income

9,891

8,811

78,536

2,726

2,613

23,290155,702

157,397

1,402,950¥222,468¥222,008$1,978,857

		Treasury shares
		 Total shareholders’ equity
Accumulated other comprehensive income
		 Valuation difference on available-for-sale securities
		 Deferred gains or losses on hedges

Non-controlling interests
Total net assets
Total liabilities and net assets
See notes to consolidated financial statements.

Annual Report 2017

51

FINANCIAL SECTION

Consolidated Statements of Income
TSUMURA & CO. and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

¥ in millions

Net sales
Cost of sales (Note 4 (a))
Gross profit before provision for sales returns
Provision for sales returns
Reversal of provision for sales returns
Gross profit
Selling, general and administrative expenses (Notes 4 (b) and (c))
Operating profit
Non-operating income
Interest income
Dividend income
Share of profit of entities accounted for using equity method
Other
Total non-operating income
Non-operating expenses
Interest expenses
Foreign exchange losses
Other
Total non-operating expenses
Ordinary profit
Extraordinary income
Gain on sales of non-current assets (Note 4 (d))
Gain on sales of investment securities
Total extraordinary income
Extraordinary losses
Loss on sales of non-current assets (Note 4 (e))
Loss on retirement of non-current assets (Note 4 (f))
Impairment loss (Note 4 (g))
Loss on disaster (Note 4 (h))
Total extraordinary losses
Profit before income taxes
Income taxes–current
Income taxes–deferred
Total income taxes
ProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

US$ in thousands(Note 2)

2016

2017

2017

¥112,625
45,04867,577
7–
67,56947,743
19,826¥114,954
49,45765,496–
3
65,49949,516
15,983$1,024,636
440,832
583,795–
26
583,822441,358
142,463

97
363
8
396
866

64
385
31
481
962

570
3,431
276
4,287
8,574

182
975
41
1,198
19,494

144
381
20
546
16,399

1,283
3,396
178
4,866
146,171

0
0
0

3
873
876

26
7,781
7,808

0
31
563
–
595
18,898
5,949
123
6,072
12,825268¥ 12,557

43
40
–
7
92
17,184
4,342
103
4,446
12,738249¥ 12,488

383
356
–
62
820
153,168
38,702918
39,629113,5392,219$  111,311

See notes to consolidated financial statements.

Consolidated Statements of Comprehensive Income
TSUMURA & CO. and consolidated subsidiaries
For the years ended March 31, 2017 and 2016
¥ in millions

ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Revaluation reserve for land
Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax
Share of other comprehensive income (loss) of entities accounted for using equity method
Total other comprehensive income (loss) (Note 5)
Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests
See notes to consolidated financial statements.

52

TSUMURA & CO.

US$ in thousands(Note 2)

2016

2017

2017

¥12,825¥12,738$113,539

1,402(3,079)382(753)(1,119)(29)(3,196)¥ 9,6299445
159(2,342)383(49)(1,393)¥11,344

80
3,966
1,417
(20,875)
3,413
(436)
(12,416)$101,114¥ 9,485
144¥11,408(64)$101,684(570)

Consolidated Statements of Changes in Equity
TSUMURA & CO. and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

¥ in millions
Shareholders’ equity

Balance at April 1, 2016
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Change of scope of consolidation
Increase by merger
Purchase of treasury shares
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at March 31, 2017

Capital stock

Capital surplus

Retainedearnings

Treasury shares

Total
shareholders’equity¥19,487¥1,940¥122,047¥ (392)¥143,084(4,476)
12,488(150)
27(5,001)–¥19,487–¥1,9407,889¥129,937(5,001)¥(5,393)(4,476)
12,488(150)
27(5,001)–
2,888¥145,972¥ in millions

Accumulated other comprehensive income
Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedges

Revaluation
reservefor landForeigncurrencytranslation
adjustment

Remeasurements of defined
benefit plans

Total
accumulated
othercomprehensive
incomeNon-controllinginterests

Total
net assets¥3,835¥479¥2,513¥3,549¥(485)¥ 9,891¥2,726¥155,702

Balance at April 1, 2016
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Change of scope of consolidation
Increase by merger
Purchase of treasury sharesNet changes of items other thanshareholders’ equity
Total changes of items during period
Balance at March 31, 2017

(4,476)
12,488(150)
27(5,001)99¥3,845

445
445
¥925

159
159
¥2,673(2,078)(2,078)¥1,470383
383¥(102)(1,080)(1,080)¥ 8,811

(113)
(113)
¥2,613(1,193)
1,694¥157,397

US$ in thousands (Note 2)
Shareholders’ equity

Balance at April 1, 2016
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Change of scope of consolidation
Increase by merger
Purchase of treasury shares
Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at March 31, 2017

Capital stock

Capital surplus

Retainedearnings$173,696$17,292$1,087,859

Treasury shares

Total
shareholders’equity$ (3,494)$1,275,372(39,896)111,311(1,337)240(44,576)–$173,696–$17,292

70,318$1,158,187(44,576)$(48,070)(39,896)111,311(1,337)240(44,576)–
25,742$1,301,114

US$ in thousands (Note 2)
Accumulated other comprehensive income
Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedges

Revaluation
reservefor landForeigncurrencytranslation
adjustment

Remeasurements of defined
benefit plans

Total
accumulated
othercomprehensive
incomeNon-controllinginterests

Total
net assets$34,183$4,269$22,399$ 31,633$(4,323)$88,162$24,298$1,387,842

Balance at April 1, 2016
Changes of items during period
Dividends of surplus
Profit attributable to owners of parent
Change of scope of consolidation
Increase by merger
Purchase of treasury sharesNet changes of items other thanshareholders’ equity
Total changes of items during period
Balance at March 31, 2017(39,896)111,311(1,337)240(44,576)80
80$34,272

3,966
3,966
$8,244

1,417
1,417$23,825(18,522)(18,522)$ 13,102

3,413
3,413
$ (909)(9,626)(9,626)$78,536(1,007)(1,007)$23,290(10,633)
15,099$1,402,950

See notes to consolidated financial statements.

Annual Report 2017

53

FINANCIAL SECTION¥ in millions
Shareholders’ equity

Balance at April 1, 2015

Capital stock

Capital surplus

Retainedearnings

Treasury shares

Total
shareholders’equity¥19,487¥1,940¥114,313¥(389)¥135,351

Changes of items during period
Dividends of surplus(4,513)(4,513)

Profit attributable to owners of parent

12,557

12,557

Reversal of revaluation reserve for land

(309)

Purchase of treasury shares

(309)
(2)

(2)

Net changes of items other than shareholders’ equity
Total changes of items during period
Balance at March 31, 2016

–

–

7,734

(2)

7,732

¥19,487¥1,940¥122,047¥(392)¥143,084¥ in millions

Accumulated other comprehensive income
Valuationdifference on
available-forsale securities

Deferred
gains orlosses onhedges

Revaluation
reservefor landForeigncurrencytranslation
adjustment

Remeasurements of defined
benefit plans

Total
accumulated
othercomprehensive
incomeNon-controllinginterests

Total
net assets¥2,432¥ 3,559¥2,130¥4,207¥  633¥12,964¥2,631¥150,947

Balance at April 1, 2015
Changes of items during period
Dividends of surplus(4,513)

Profit attributable to owners of parent

12,557Reversal of revaluation reserve
for land(309)

Purchase of treasury shares(2)Net changes of items other thanshareholders’ equity

1,402(3,079)

382

(658)

(1,119)(3,072)

94

Total changes of items during period

1,402(3,079)

382

(658)

(1,119)(3,072)

94

4,754

Balance at March 31, 2016

¥3,835¥  479¥2,513¥3,549¥  (485)¥ 9,891¥2,726¥155,702

See notes to consolidated financial statements.

54

TSUMURA & CO.

(2,977)

Consolidated Statements of Cash FlowsTSUMURA & CO. and consolidated subsidiaries
For the years ended March 31, 2017 and 2016

¥ in millions

US$ in thousands(Note 2)

2016

2017

2017

¥18,898
5,059
563
0
(461)
182
(8)
25
215
(2,440)
390
(0)
(510)
(100)
(693)
21,120486(182)(3,854)
17,570¥17,184
5,629
–
(2)
(449)
144
(31)
82
1,465
(1,123)
1,255
(873)
(281)
(89)
3,272
26,182470(142)(5,444)21,065$153,168
50,173–(17)(4,002)
1,283
(276)
730
13,058(10,009)
11,186(7,781)(2,504)(793)
29,164
233,371
4,189(1,265)(48,524)
187,761(7,675)
1,200
(60)
(10)

(8,211)
29
(88)
(18)

(73,188)
258
(784)
(160)

8
–
(934)
5
(34)
48
(10)
(7,461)

1,874
(238)
(3)
4
(34)
36
197
(6,451)

16,703(2,121)
(26)
35
(303)
320
1,755
(57,500)(2)(4,515)(54)(36)(4,608)285
5,784
19,343–(5,001)(4,478)(49)(43)(9,572)(588)
4,453
25,128290(44,576)(39,914)
(436)
(383)
(85,319)(5,241)
39,691
223,977
2,584–¥25,128

28¥29,901

249$266,521

Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment loss
Increase (decrease) in allowance for doubtful accounts
Interest and dividend income
Interest expenses
Share of (profit) loss of entities accounted for using equity method
Loss (gain) on sales and retirement of property, plant and equipment
Decrease (increase) in notes and accounts receivable–trade
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable–trade
Loss (gain) on sales of short-term and long-term investment securities
Decrease (increase) in net defined benefit asset
Increase (decrease) in net defined benefit liability
Other
SubtotalInterest and dividend income received
Interest expenses paid
Income taxes paid
Cash flows from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of short-term and long-term investment securitiesProceeds from sales and redemption of short-term and long-term
investment securities
Payments for investments in capital of subsidiaries and affiliates
Payments of loans receivableCollection of loans receivable
Payments into time deposits
Proceeds from withdrawal of time deposits
Other
Cash flows from investing activities
Cash flows from financing activities
Purchase of treasury shares
Cash dividends paid
Dividends paid to non-controlling interests
Other
Cash flows from financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Increase in cash and cash equivalents from newly consolidated subsidiaryIncrease in cash and cash equivalents resulting from merger withunconsolidated subsidiaries
Cash and cash equivalents at end of period (Note 7)
See notes to consolidated financial statements.

Annual Report 2017

55

FINANCIAL SECTION

Notes to the Consolidated Financial Statements
TSUMURA & CO. and consolidated subsidiaries
March 31, 2017 and 2016

1 Summary of Significant Accounting Policies(a) Basis of presentation
The accompanying consolidated financial statements of TSUMURA & CO. (the “Company”) and its consolidated subsidiaries(collectively, the “Group”) are prepared on the basis of accounting
principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards, and are compiled
from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Act
of Japan (the “FIEA”).
As permitted by the FIEA, amounts of less than one million
yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and in
U.S. dollars) do not necessarily agree with the sums of the individual amounts.
Certain amounts in the prior year’s financial statements havebeen reclassified to conform to the current year’s presentation.
(b) Consolidation(1) Scope of consolidation1). Number of consolidated subsidiaries:
Five (of which, three companies are located overseas) for theyear ended March 31, 2017.
Names of consolidated subsidiaries:• LOGITEM TSUMURA CO., LTD.
• TSUMURA USA, INC.
• SHENZHEN TSUMURA MEDICINE CO., LTD.
• SHANGHAI TSUMURA PHARMACEUTICALS CO., LTD.
• YUBARI TSUMURA CO., LTD.
Effective from the year ended March 31, 2017, the Company
included YUBARI TSUMURA CO., LTD., which was previously anon-consolidated subsidiary, in the scope of consolidation since
it is no longer insignificant to the Company’s consolidated
financial statements.
2). Name of major non-consolidated subsidiaries:• LAO TSUMURA CO., LTD., and two other companies
3). Reason for excluding non-consolidated subsidiaries from thescope of consolidation
The Company excluded these three non-consolidated subsidiaries
from the scope of consolidation since each of them is small in size
and its assets, sales, and profit (for the holding interest) andretained earnings (for the holding interest) are insignificant to theCompany’s consolidated financial statements.

(2) Equity method1). Number of affiliates accounted for using the equity method: one•	SICHUAN CHUANCUN TRADITIONAL CHINESE MEDICINES
CO., LTD.

56

TSUMURA & CO.

2). Name of major non-consolidated companies and affiliates notaccounted for using the equity method• LAO TSUMURA CO., LTD. and three other companies
3). Reason for excluding non-consolidated subsidiaries andaffiliates from the scope of equity method accounting
The Company excluded the four non-consolidated subsidiaries
and affiliates from the scope of equity method accounting sinceeach of them is small in size and its assets, sales, and profit (forthe holding interest) and retained earnings (for the holding interest)
are insignificant to the Company’s consolidated financial statements,
and the impact is insignificant as a whole.
4). Special notes to application of equity method accounting
When the fiscal year-end of a company accounted for using theequity method is not consistent to that of the Company, the financial
statements of the company as of its own balance sheet date is used.
(c) Fiscal year-end of consolidated subsidiaries
Of consolidated subsidiaries, SHENZHEN TSUMURA MEDICINE
CO., LTD., SHANGHAI TSUMURA PHARMACEUTICALS CO., LTD.
and TSUMURA USA, INC., have fiscal years ending on December
31. Their financial statements as of December 31 are used for consolidation. The Company makes necessary adjustments on
consolidation if there are any significant transactions during the intervening period.
(d) Accounting policies(1) Basis and method to measure significant assets
1). Securities
Available-for-sale securities
With readily determinable market value		Stated at fair value based on market quotes as of the balance sheet date.
		Any changes in unrealized holding gain or loss are included
in net assets. The cost of securities sold is principally computed based on the moving average method.
Without readily determinable market value
		 Stated at cost determined by the moving-average method.
2). Inventories
Stated at the lower of cost determined principally by the averagecost method or net selling value.
3). Derivatives
Stated at fair value.
(2) Depreciation methods of significant depreciable assets1). Property, plant and equipment, excluding leased assets
Straight-line method

The estimated useful lives of the major depreciable assets are
as follows:		 Buildings and structures
3 to 65 years
		 Machinery, equipment and vehicles
3 to 8 years2). Intangible assets, excluding leased assets
Straight-line method
Cost of software purchased for internal use is amortized by thestraight-line method over the internal useful life of five years.
3). Leased assets
Leased assets under finance lease transactions that do not transfer ownership to the lessee are depreciated under the straight-line
method over the lease term with no residual value.
(3) Basis of significant provisions
1). Allowance for doubtful accounts
The Group provides allowances for uncollectable notes and accounts
receivable–trade at the amounts calculated based on past experience and the amounts estimated specifically on each doubtfulreceivable from a customer with financial difficulty.
2). Provision for sales returns
Provision for sales returns is provided for estimated losses onsales returns subsequent to the balance sheet date.
(4) Accounting treatment of retirement benefits1). Method of attributing expected benefits
The benefit formula method is used as the method of attributing
expected benefits to the current period in calculating retirement
benefit obligations.
2). Treatment of actuarial gain or loss and prior service costs
Actuarial gain or loss is amortized and expensed using thestraight-line method over 10 years, which is within the estimatedaverage of remaining service years of employees, from the following year in which the gain or loss is recognized.
Prior service costs are amortized and expensed using thestraight-line method over 10 years, which is within the estimatedaverage of remaining service years of employees.
3). Application of simplified method for small-sized enterprises
The Company’s consolidated subsidiaries use the simplified method in calculating net defined benefit liability and retirement benefit
expenses. Under this method, the payment amount to be requiredat the year-end for voluntary termination is deemed as retirement
benefit obligations.
(5) Translation of foreign currencies
Monetary assets and liabilities denominated in foreign currencies
are translated into yen at the rates in effect at the consolidatedbalance sheet date, and the resulting exchange gains and losses
are recognized in profit or loss.
Assets, liabilities, profit, and loss of overseas consolidated subsidiaries and affiliates are translated into yen at the spot rates as of
the balance sheet date. Foreign exchange gains and losses arisingfrom the translation are credited or charged to foreign currencytranslation adjustment and non-controlling interests under net assets.
(6) Significant hedge accounting1). Hedge accounting method
The Company primarily applies deferral hedge accounting.
As for forward exchange contracts, the Company applies the­allocation method if requirements are met.
2). Hedging instruments and hedged items
Hedging instruments – forward exchange contracts
Hedged items – forecast transactions denominated in foreign
currencies
3). Hedge policy
As a policy, the Company hedges the foreign currency fluctuation
risk in accordance with the internal policies and procedures.
4). Method of evaluating hedge effectiveness
The Company omits the evaluation of hedge effectiveness since
the allocation method is applied for all hedging transactions.
(7) Cash and cash equivalents in the consolidated statements ofcash flows
Cash and cash equivalents in the consolidated statements of cash
flows consist of cash on hand, demand deposits, and short-term
investments with a maturity of three months or less from acquisition date that are readily convertible and with minimum risk ofprice fluctuations.
(8) Other significant matters for the preparation of the consolidatedfi­ nancial statements1). Accounting for consumption taxes
Transactions subject to consumption taxes are recorded at
amounts exclusive of consumption taxes. Consumption taxes paidby the Group on the purchases of goods and services that are notdeductible under the consumption tax law are expensed as incurred.
2). Consolidated taxation system
The Company has applied the consolidated taxation system.
(e) Changes in presentation
The amount of electronically recorded obligations, which was previously included in “Other” under “Current liabilities,” has been included
in “Notes and accounts payable–trade” as of March 31, 2017. The reclassification was made to the consolidated financial statements as ofMarch 31, 2016, to conform to the current presentation.

Annual Report 2017

57

FINANCIAL SECTION

As a result, “Notes and accounts payable – trade” of ¥3,157 million and “Other” of ¥10,804 million under “Current liabilities” as ofMarch 31, 2016, have changed to ¥5,652 million in “Notes and otheraccounts payable” and ¥8,310 million in “Other,” respectively.

2 Basis of Translation

The consolidated financial statements presented herein are expressed in yen and, solely for the convenience of the reader, havebeen translated into U.S. dollars at ¥112.19=US$1.00, the approximate exchange rate prevailing on the Tokyo Foreign Exchange(f) Implementation guidance on recoverability of deferred tax assets
Effective from the year ended March 31, 2017, the Company
has applied the “Implementation Guidance on Recoverability ofDeferred Tax Assets” (ASBJ Guidance No. 26, March 28, 2016).

Market on March 31, 2017. This translation should not be construed as a representation that the amounts shown could havebeen, or could in the future be, converted into U.S. dollars at thator any other rate.

3 Notes to the Consolidated Balance Sheets(a) Land revaluation
The Group revalued land used for business activities in accordance with the Act on Revaluation of Land (Act No. 34, dated March 31, 1998)
and the Act on Partial Revision of the Act on Revaluation of Land” (Act No. 19 dated March 31, 2001). Revaluation reserve for land, net of related deferred taxes, has been presented as a component of net assets.
• Method of revaluation
The Company applies the method to make reasonable adjustments to the value determined by the property tax value as prescribed in
Paragraph 2, item 3 of the Order for Enforcement of the Act on Revaluation of Land (Act No. 119, dated March 31, 1998, hereinafter,“Ordinance No.119”) and the professional appraisal value as prescribed in Paragraph 2, item 5 of Ordinance No. 119.
• Date of revaluation–March 31, 2002.
¥ in millions

US$ in thousands

2016

2017

2017

¥(2,572)¥(2,537)$(22,613)

As of March 31,

Difference between fair value of land at the year end and carrying value after
the revaluation(b) Investments in non-consolidated subsidiaries and affiliates are as follows:¥ in millions

US$ in thousands

2016

2017

2017

¥1,6191,025¥   101,217$    89
10,847¥ in millions

US$ in thousands

As of March 31,

Investments and other assets:
Investment securities (stocks)
Investments in capital(c) Guarantee obligations
The Company guarantees bank loans made by companies other than consolidated subsidiaries.
As of March 31,

Tianjin China Medico Technology Co., Ltd.
China Medico Corporation
Total(d) Reduction entry
Reduction entry is an accounting treatment to defer taxation, which
has an effect to reduce tax burden for the year when a company
acquires property, plant and equipment with proceeds such as
subsidies by recording loss to lower the acquisition cost. Amongproperty, plant and equipment acquired in previous years, amount58

TSUMURA & CO.

2016

2017

2017

¥–
–
¥–

¥1,9201,080¥3,000$17,113
9,626$26,740of reduction entry due to national subsidies was ¥225 million,
which is deducted from acquisition costs of relevant assets andexcluded from the amount on the balance sheet. The breakdown
is buildings and structures of ¥134 million, machinery, equipment
and vehicles of ¥89 million, and tools, furniture and fixtures of¥1 million.

4 Notes to the Consolidated Statements of Income(a) Inventories at the balance sheet date are stated at the lower of cost or net selling value. Loss on valuation of inventories included in cost of sales for the years ended March 31, 2017, and 2016 are as follows:¥ in millions

US$ in thousands

2016

2017

2017

¥796

¥127

$1,132(b) Major expenses included in selling, general and administrative expenses are as follows:¥ in millions
For the years ended March 31,

Sales promotion expenses
Sales rebates
Salaries and allowances
Research and development expenses
Retirement benefit expenses
Provision of allowance for doubtful accounts

US$ in thousands

2016

2017

2017

¥ 3,823
9,363
16,974
5,968
972
0¥ 3,920
9,519
17,280
6,087
1,246
0

$ 34,940
84,847
154,024
54,256
11,1060(c) Research and development expenses included in selling, general and administrative expenses and cost of sales for the years
ended March 31, 2017, and 2016 are as follows:¥ in millions

US$ in thousands

2016

2017

2017

¥5,968¥6,087$54,256(d) The breakdown of gain on sales of non-current assets is as follows:
For the years ended March 31,

Machinery, equipment and vehicles
Tools, furniture and fixtures¥ in millions

US$ in thousands

2016

2017

2017

¥0
0

¥3
0

$26
0

¥ in millions

US$ in thousands(e) The breakdown of loss on sales of non-current assets is as follows:
For the years ended March 31,

Buildings and structures
Machinery, equipment and vehicles
Land

2016

2017

2017

¥0
0
–

¥ –
25
18

$  –
222
160

¥ in millions

US$ in thousands(f) The breakdown of loss on retirement of non-current assets is as follows:
For the years ended March 31,

2016

2017

2017

Buildings and structures
Machinery, equipment and vehicles
Tools, furniture and fixtures

¥16
12
2

¥16
19
4

$142
169
35

Annual Report 2017

59

FINANCIAL SECTION(g) Impairment losses

The Group recognizes impairment losses on the following asset groups.
Assets used for business are grouped on the basis of business segments, considering the characteristics of the products andsimilarity of markets. Idle assets and assets to be disposed of are grouped individually.
For the year ended March 31, 2017
Not applicable.
For the year ended March 31, 2016
Location

Use

Description

Inashiki-gun, Ibaraki, Japan

Accommodation facilities for employees

Buildings and land, etc.

The Company concluded that it was necessary to close down
accommodation facilities for employees after comprehensively
considering employees’ needs and maintenance costs, etc., andtheir carrying values have been reduced to their recoverable
amounts and the difference recognized in extraordinary losses as
impairment loss.
For the year ended March 31, 2016, the Company recognizedimpairment loss of ¥563 million, which consisted of ¥72 million forland and ¥491 million for buildings and structures.
The recoverable amount of the buildings and land, etc., wasmeasured at the net selling price and its value in use. The net selling price is based on an appraisal value estimated by a real estate

60

TSUMURA & CO.

appraiser. Discount rates are not taken into account since theremaining usage period of the assets is short and the impact
is immaterial.
(h) Loss on disasterFor the year ended March 31, 2017
Loss on disaster consisted of a ¥5 million ($44 thousand) loss on
product damage incurred from the Kumamoto Earthquake and a ¥2
million ($17 thousand) loss from typhoon damage in Hokkaido.
For the year ended March 31, 2016
Not applicable.

5 Notes to the Statements of Comprehensive Income

Reclassifications and adjustments and income tax effects attributable to other comprehensive income (loss) for the years ended March 31,
2017, and 2016, are as follows:
For the years ended March 31,

Valuation difference on available-for-sale securities:
Amount arising during the year
Reclassifications and adjustments
		 Before income tax effects
		 Income tax effects
		 Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Amount arising during the year
		 Income tax effects
		 Deferred gains or losses on hedges
Revaluation reserve for land:
Amount arising during the year
		 Income tax effects
		 Revaluation reserve for land
Foreign currency translation adjustment:
Amount arising during the year
		 Foreign currency translation adjustment
Remeasurements of defined benefit plans, net of tax:
Amount arising during the year
Reclassifications and adjustments
		 Before income tax effects
		 Income tax effects
		 Remeasurements of defined benefit plans, net of tax
Share of other comprehensive income (loss) of entities accounted for using
equity method
Amount arising during the year		 Share of other comprehensive income (loss) of entities accounted for using
equity method
Total other comprehensive income (loss)¥ in millions

US$ in thousands

2016

2017

2017

¥ 1,960
(9)
1,950
(547)
¥ 1,402¥  877(873)
45¥    9$  7,817(7,781)35
44$80¥(4,599)
1,520¥(3,079)¥  641(196)¥  445$  5,713(1,747)$  3,966¥  30973¥  382¥    –
159¥  159$       
–1,417
$  1,417¥  (753)¥  (753)¥(2,342)¥(2,342)$(20,875)$(20,875)¥(1,610)(2)(1,613)494¥(1,119)¥  256
295
552
(169)
¥  383$  2,281
2,629
4,920
(1,506)$  3,413¥   (29)¥   (49)$   (436)(29)¥(3,196)(49)¥(1,393)(436)$(12,416)

Annual Report 2017

61

FINANCIAL SECTION

6 Notes to Consolidated Statements of Changes in Equity
For the year ended March 31, 2017(a) Type and number of issued shares

Thousands of shares
Type

Beginning of
the year

Increase

Decrease

End of the year

70,771––

70,771

Common stock(b) Type and number of treasury shares

Thousands of shares
Type

Beginning of
the year

Increase

Decrease

End of the year

247

1,741

–

1,989

Common stock
Reason for changes in number of shares:

The major breakdown of increase is as follows:		 Increase due to acquisition of treasury shares by resolution of the Board of Directors’ meeting
		 Increase due to purchase of shares less than one unit

1,741 thousand shares
0 thousand shares(c) Subscription rights to shares
Not applicable.
(d) Dividends(1) Dividends paid
Resolution

Ordinary general meeting of shareholders heldon June 29, 2016
Board of Directors’ meeting
held on November 9, 2016

Type of share

Commonstock
Commonstock

Total amountof dividends(¥ in millions)

Dividends per
share (¥)

Total amount ofdividends (US$in thousands)

Dividends per
share (US$)¥2,256¥32.00$20,108

$0.28

2,219

32.00

19,7780.28

Record date

Effective date

March 31,2016
September
30, 2016

June 30,
2016
December 5,
2016(2) Dividends whose effective date is subsequent to March 31, 201762

Resolution

Type of share

Source ofdividends

Ordinary general meeting of shareholders heldon June 29, 2017

Commonstock

Retainedearnings

TSUMURA & CO.

Total amountof dividends(¥ in millions)

Dividends per
share (¥)

Total amount ofdividends (US$in thousands)

Dividends per
share (US$)

Record date

Effective
date¥2,201¥32.00$19,618$0.28

March 31,2017

June 30,2017For the year ended March 31, 2016(a) Type and number of issued shares
Thousands of shares
Type

Common stock

Beginning of
the year

Increase

Decrease

End of the year

70,771––

70,771(b) Type and number of treasury shares
Thousands of shares
Type

Common stock

Beginning of
the year

Increase

Decrease

End of the year

246

0

–

247

Reason for changes in number of shares:
The major breakdown of increase is as follows:		 Increase due to purchase of shares less than one unit

0 thousand shares(c) Subscription rights to shares
Not applicable.
(d) Dividends(1) Dividends paid
Resolution

Type of share

Ordinary general meeting of shareholders heldon June 26, 2015
Board of Directors’ meeting held
on November 5, 2015

Total amountof dividends(¥ in millions)

Dividends per
share (¥)

Common stock¥2,256¥32.00Common stock

2,256

32.00

Total amountof dividends(¥ in millions)

Dividends per
share (¥)

¥2,256¥32.00Record date

March 31,2015
September 30,
2015

Effective dateJune 29,2015
December 4,
2015(2) Dividends whose effective date is subsequent to March 31, 2016
Resolution

Ordinary general meeting of shareholders heldon June 29, 2016

Type of share

Common stock

Source of dividends

Retainedearnings

Record date

March 31,2016

Effective dateJune 30,
2016

7 Notes to Consolidated Statements of Cash FlowsThe reconciliation of cash and cash equivalents in the consolidated statements of cash flows at March 31, 2017, and 2016 to the accounts
and amounts on the accompanying balance sheets is summarized as follows:¥ in millions

As of March 31,

Cash and deposits
Less: Time deposits with a maturity in excess of three months
Cash and cash equivalents

US$ in thousands

2016

2017

2017

¥25,150(22)¥25,128¥29,931(30)¥29,901$266,788(267)$266,521

Annual Report 2017

63

FINANCIAL SECTION

8 Leases

LESSEE(a) Finance leases
Finance lease transactions that do not transfer ownership1). Details of leased assets
Leased assets consist of forklifts in factories.
2). Depreciation method of leased assets
Depreciation method is stated in Note 1. “Summary of Significant Accounting Policies, (d) Accounting policies, (2) Depreciation method ofsignificant depreciable assets, 3) Leased assets.”(b) Operating leases
Future minimum lease payments for non-cancellable operating leases¥ in millions

2016

2017

2017

Within one year
Over one year
Total

¥54
16
¥70

¥ 57
47
¥105

$508
418
$935

9 Financial Instruments(a) Status of financial instruments(1) Policy on financial instruments
The Group finances necessary funds through bank loans, considering capital investments for the pharmaceutical production andselling business. Temporary excess funds are invested in highly
secure financial assets.
Derivative transactions are only utilized to hedge the following
risks, and it is the Group’s policy not to enter into derivative transactions for speculative purposes.
(2) Overview and risks of financial instruments and the Group’s
risk management policy
Operating receivables such as notes and accounts receivable trade are exposed to credit risk. The Group monitors the due dateand balance by each customer in accordance with internal rules
and ask for deposits to secure receivables depending on the customer’s credit conditions.
Investment securities mainly consist of stocks of companies
with business relationships and are exposed to market fluctuation
risk. The market value of the investment securities is regularly­reported to the officer responsible for accounting and finance.
Operating payables such as notes and accounts payable–trade
are due within one year. Some of the operating payables relating toimports of raw materials are denominated in foreign currencies andare therefore exposed to foreign currency fluctuation risk. The Grouputilizes forward exchange contracts to hedge the risk.
Short-term loans payable is used to finance operating capitaland are exposed to interest rate fluctuation risk.
Long-term loans payable is mainly used to finance capital investment, and interest rate fluctuation risk is mitigated by using
fixed interest rate borrowings in large part.

64

US$ in thousands

As of March 31,

TSUMURA & CO.

Accounts payable–other and income taxes payable are eachdue within one year.
The Group utilizes derivative financial instruments such as forward exchange contracts and non-deliverable forward (NDF) tohedge the foreign currency fluctuation risk of forecasted transactions denominated in foreign currencies. Please refer to Note 1.
“Summary of Significant Accounting Policies, (6) Significant hedge
accounting” for hedging instruments, hedged items, hedge policy,
and method of evaluating hedge effectiveness.
Derivative transactions are executed and monitored based oninternal rules where the authorization policy is prescribed. The
Group only enters into derivative transactions with highly rated­financial institutions to mitigate credit risk.
Operating payables and loans are exposed to liquidity risk.
The Group manages the risk by preparing the cash management
plans monthly.
(3) Supplemental explanation regarding fair value offinancial instruments
The contract amounts and other information regarding derivativetransactions described in Note 10. “Derivatives” do not indicate
market risk related to derivative transactions.
(b) Fair value of financial instruments
The following table summarizes carrying value reported on the­consolidated balance sheets, fair value, and their differences. The
financial instruments whose fair value is extremely difficult to determine are not included in the table. Please see “2. The carrying
value of financial instruments whose fair value is extremely difficult
to determine” on page 66.

As of March 31, 2017
¥ in millions(1) Cash and deposits(2) N otes and accounts
receivable–trade(3) Investment securities
Available-for-sale securities
Total assets(1) N otes and accounts
payable–trade(2) Short-term loans payable(3) Accounts payable–other(4) Income taxes payable(5) Long-term loans payable
Total liabilities
Derivative transactions *1

US$ in thousands

Carrying value

Fair value

Difference

Carrying value

Fair value

Difference¥29,931¥29,931¥     –

$266,788$266,788$      –

40,34740,347–359,630

359,630–

17,423¥87,701

17,423¥87,701–¥     –

155,299$781,718

155,299$781,718–$      –

¥ 6,696
12,5816,020
1,901
24,376¥51,575¥ 1,335¥ 6,696
12,5816,020
1,901
24,326¥51,526¥ 1,335¥     –
–
–
–
(49)
¥(49)
¥     –

$ 59,684
112,140
53,658
16,944217,274$459,711$ 11,899$ 59,684
112,140
53,658
16,944
216,828$459,274$ 11,899$      –
–
–
–
(436)
$(436)$      –

*1 A receivable or payable arisen from derivative transactions is shown in net. Net payable is shown in parentheses.

As of March 31, 2016
¥ in millions(1) Cash and deposits(2) Notes and accounts
receivable–trade(3) Investment securities
Available-for-salesecurities
Total assets(1) N otes and accounts
payable–trade(2) Short-term loans payable(3) Accounts payable–other(4) Income taxes payable(5) Long-term loans payable
Total liabilities
Derivative transactions *1

Carrying value

Fair value

Difference¥25,150¥25,150¥ –41,87541,875–

18,409¥85,435

18,409¥85,435–¥ –¥ 5,652
21,957
4,927
2,838
15,000¥50,375¥   693¥ 5,652
21,957
4,927
2,838
15,031¥50,405¥   693

¥ –
–
–
–
31
31
¥ –

*1 A receivable or payable arisen from derivative transactions is shown in net. Net payable is shown in parentheses.
Notes:
1. Fair value measurement of financial instruments and matters regarding securities and derivatives
Assets		 (1) Cash and deposits and (2) Notes and accounts receivable–trade		 The carrying value is deemed as the fair value since these items are scheduled to be settled in a short period of time.
		 (3) Investment securities		The fair value of stocks is based on the quoted market prices. The fair value of bonds is based on the price provided by the counterparty financial institutions. Please refer to Note
10. “Investment Securities” for information regarding securities by holding purposes.
Liabilities
		 (1) Notes and accounts payable–trade, (2) Short-term loans payable, (3) Accounts payable–other and (4) Income taxes payable		 The carrying value is deemed as the fair value since these items are scheduled to be settled in a short period of time.
		 (5) Long-term loans payable		 The fair value of long-term loans payable is calculated by discounting the total of principal and interest using an assumed interest rate applicable to a similar type of new borrowings.
Derivative transactions
Please refer to Note 11. “Derivatives.”

Annual Report 2017

65

FINANCIAL SECTION

2. The carrying value of financial instruments whose fair value is extremely difficult to determine¥ in millions

US$ in thousands

As of March 31,

2016

2017

2017

Unlisted stocks¥1,709¥107$953

It is extremely difficult to determine the fair value of the above unlisted stocks since no market quote is available. Thus, these amounts are not included in “(3) Investment securities” above.
3. The redemption schedule of monetary assets and securities with maturity dates
As of March 31, 2017
¥ in millions
Within one year

Over one year
within five years

Over five years
within 10 years

Over 10 years

Cash and deposits¥29,910

¥–

¥–

¥–

Notes and accounts receivable–trade40,347

–

–

–

Total

¥70,258

¥–

¥–

¥–

Over five years
within 10 years

Over 10 years$–

US$ in thousands
Within one year

Over one year
within five years

Cash and deposits$266,601$–$–

Notes and accounts receivable–trade359,630

–

–

–

Total

$626,241

$–

$–

$–

Within one year

Over one year
within five years

Over five years
within 10 years

Over 10 years

Cash and deposits¥25,132

¥–

¥–

¥–

Notes and accounts receivable–trade41,875

–

–

–

Total

¥67,007

¥–

¥–

¥–

As of March 31, 2016
¥ in millions

4. The aggregate annual maturities of lease obligations and other interest-bearing debt subsequent to the fiscal year-end
As of March 31, 2017
¥ in millions
Within one year

Over one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Over five years

Short-term loans payable¥12,581¥     –

¥     –

¥     –

¥    –¥     –

Long-term loans payable–

15,000

–

–

9,376

–

Lease obligations

34

25

23

19

13

14

¥12,615¥15,025¥23¥19¥9,389¥14

Within one year

Over one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Over five years

Short-term loans payable$112,140$      –

$  –

$  –

$     –$  –

Long-term loans payable–

133,701––

83,572

–

303

222

205

169

115

124

$112,443$133,924

$205

$169

$83,688$124

Within one year

Over one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Over five years

Short-term loans payable¥21,957¥ –¥     –

¥ –

¥–

¥–

Long-term loans payable––

15,000–––

Lease obligations

31

21

14

12

8

2

¥21,988¥21¥15,014

¥12

¥8

¥2

Total

US$ in thousands

Lease obligations
Total

As of March 31, 2016
¥ in millions

Total

66

TSUMURA & CO.

10 Investment Securities(a) Available-for-sale securities
As of March 31, 2017

¥ in millions

Securities with book value
exceeding theiracquisition cost
Stocks		Subtotal
Securities with book value
not exceeding theiracquisition cost
Stocks		Subtotal
Total

US$ in thousands

Carrying value

Acquisition cost

Difference

Carrying value

Acquisition cost

Difference¥17,264¥17,264¥11,817¥11,817¥5,446¥5,446$153,881$153,881$105,330$105,330$48,542$48,542¥   158¥   158¥17,423¥   169¥   169¥11,987¥     (11)¥     (11)¥5,435$  1,408$  1,408$155,299$  1,506$  1,506$106,845$        (98)$        (98)
$48,444(Note) Unlisted stock with carrying value of ¥97 million (US$864 thousand) is not included in the table above since it is extremely difficult to determine the fair value due to no market quotes.

As of March 31, 2016
¥ in millions

Securities with book value
exceeding theiracquisition cost
Stocks		Subtotal
Securities with book value
not exceeding theiracquisition cost
Stocks		Subtotal
Total

Carrying value

Acquisition cost

Difference¥17,901¥17,901¥12,325¥12,325¥5,575¥5,575¥   507¥   507¥18,409¥   652¥   652¥12,978¥      (144)¥      (144)¥5,431(Note) Unlisted stock with carrying value of ¥90 million is not included in the table above since it is extremely difficult to determine the fair value due to no market quotes.

(b) Available-for-sale securities sold during the year
For the year ended March 31, 2017
¥ in millions

StocksTotal

US$ in thousands

Proceeds
from sales

Gain on sale

Loss on sale

Proceeds
from sales

Gain on sale

Loss on sale

¥1,874¥1,874

¥873
¥873

¥–
¥–

$16,703$16,703$7,781$7,781$–$–

Proceeds
from sales

Gain on sale

Loss on sale

¥18
¥18

¥9
¥9

¥–
¥–

For the year ended March 31, 2016
¥ in millions

Stocks
Total

Annual Report 2017

67

FINANCIAL SECTION

11 Derivatives(a) Derivatives transactions for which hedge accounting has not been applied
Not applicable.
(b) Derivatives transactions for which hedge accounting has been applied
Currency-related
As of March 31, 2017
¥ in millions
Hedge
accounting
methodAllocation
methodTransaction

Hedged items

Forward exchange
contracts
Buy-USD
Buy-CNY
Non-deliverable
forward contracts(NDF)
Buy-CNY

Forecast transactions
denominated in foreign
currencies

Total

Contract
amount over
one year

Fair value¥17,270
12,219¥5,104
4,843

4,917¥34,407–¥9,947

Contract
amountUS$ in thousands
Contract
amountContract
amount over
one year

Fair value¥1,402(12)$153,935
108,913$45,494
43,167$12,496(106)(54)¥1,33543,827$306,685–$88,662(481)$11,899

Fair value is based on quotes obtained from counterparty financial institutions.
As of March 31, 2016
¥ in millions
Hedge
accounting
methodAllocation
methodTransaction

Hedged items

Forward exchange
contracts
Buy-USD
Buy-CNY

Forecast transactions
denominated in foreign
currencies

Total

Contract
amountContract
amount over
one year

Fair value¥18,058
11,436¥29,495¥2,7093,894¥6,603

¥663
30
¥693

Fair value is based on quotes obtained from counterparty financial institutions.

12 Employees’ Retirement Benefits(a) Outline of the retirement benefit plans adopted by
the Company
The Company adopts a combination plan of a funded and unfunded defined benefit plan, defined contribution plan, and employees’
pension fund plan (multi-employer pension plan).
The Company maintains a cash-balance plan, which is a contract-type corporate pension plan, as a defined benefit corporate
pension plan (funded). Under this plan, a hypothetical individual
account balance corresponding to each participant’s fundedamount and the basis of the pension amount is established. An
earned interest credit based on market interest rate trends and apoint allocation, which is determined by the number of service
years and employee rank multiplied by a unit value of point, areaccumulated in this hypothetical individual account balance.
Under the lump-sum payment plan (unfunded), employees who
terminate their employment are entitled to lump-sum benefits
based on their length of service and level of compensation at thetime of the termination.

68

TSUMURA & CO.

The Company’s consolidated subsidiaries maintain a defined
benefit corporate pension plan, defined contribution corporate
pension plan, and employees’ pension fund plan (multi-employer
pension plan). For the defined benefit corporate pension plan, theCompany’s consolidated subsidiaries use the simplified method
for the calculation of net defined benefit liability and retirement
benefit expenses.
In addition, the Group may pay meritorious service awards toemployees in excess of the prescribed formula.
The employees’ pension fund, in which the Group participates,
is a multi-employer type. Since it is difficult to reasonably calculatecompanies’ portion of the plan assets corresponding to its contributions, the contributions to the plan assets are recorded as
retirement benefit expenses.

(b) Defined benefit plan
(1) The changes in retirement benefit obligations for the years ended March 31, 2017, and 2016 are as follows:¥ in millions
For the year ended March 31,

Balance beginning of year
Service cost
Interest cost
Actuarial gain or loss
Benefit paid
Other
Balance at end of year

US$ in thousands

2016

2017

2017

¥14,369
780
212
1,400
(1,113)
4¥15,653¥15,653
873
61
(70)
(586)
10
¥15,942$139,522
7,781
543
(623)
(5,223)89$142,098¥ in millions

US$ in thousands(2) The changes in plan assets for the years ended March 31, 2017, and 2016 are as follows:
For the year ended March 31,

Balance at beginning of year
Expected return on plan assets
Actuarial gain or loss
Employer’s contribution
Benefit paid
Other
Balance at end of year

2016

2017

2017

¥15,428
534
(209)
1,053
(1,103)
6¥15,709¥15,709
543
186
1,056
(583)
4
¥16,917$140,021
4,840
1,657
9,412
(5,196)35$150,788(3) The reconciliation between the year-end balances of retirement benefit obligations and plan assets and the amounts of asset and liability
related to retirement benefits on the consolidated balance sheets as of March 31, 2017, and 2016 are as follows:¥ in millions
For the year ended March 31,

Funded retirement benefit obligations
Plan assets
Unfunded retirement benefit obligations
Net liability (asset) on the consolidated balance sheet
Net defined benefit liability
Net defined benefit asset
Net liability (asset) on the consolidated balance sheet

US$ in thousands

2016

2017

2017

¥ 15,620(15,709)
(89)
33
(55)
66
(122)
¥    (55)¥ 15,892(16,917)(1,024)50(974)
84(1,058)¥   (974)$ 141,652(150,788)(9,127)445(8,681)748(9,430)$      (8,681)(4) The components of retirement benefit expenses for the years ended March 31, 2017, and 2016 are as follows:¥ in millions

US$ in thousands

For the year ended March 31,

2016

2017

2017

Service cost
Interest cost on benefit obligation
Expected return on plan assets
Amortization of actuarial gain or loss
Amortization of prior service cost
Other
Retirement benefit expenses

¥780
212
(534)
(5)
2
17
¥473

¥ 873
61
(543)
289
6
22
¥ 708

$ 7,781543(4,840)
2,575
53
196
$ 6,310Annual Report 2017

69

FINANCIAL SECTION(5) The components of remeasurements of defined benefit plans (before income tax effect) in other comprehensive income for the years
ended March 31, 2017, and 2016 are as follows:¥ in millions
For the years ended March 31,

Prior service cost
Actuarial gain or loss
Total

US$ in thousands

2016

2017

2017

¥    2(1,616)¥(1,613)

¥  6
546
¥552

$   53
4,866$4,920(6) The components of remeasurements of defined benefit plans (before income tax effect) in accumulated other comprehensive income asof March 31, 2017 and 2016, are as follows:¥ in millions

US$ in thousands

For the years ended March 31,

2016

2017

2017

Unrecognized prior service cost
Unrecognized actuarial gain or loss
Total

¥ 12
665
¥677

¥  6
118
¥125

$   53
1,051$1,114(7) The components of plan assets as of March 31, 2017 and 2016, are as follows:1). The components of plan assets
For the years ended March 31,

2016

2017

Bonds
StocksGeneral accounts
Other
Total

36%
29%
35%
0%
100%

29%
33%
35%
3%
100%

2). Determination of expected long-term rate of return on plan assets
The expected long-term rate of return on plan assets is determined considering the allocation of assets and the long-term rates of return,which are expected currently and in the future, from the various components of the plan assets.
(8) The assumptions used for the years ended March 31, 2017, and 2016 are as follows:
For the years ended March 31,

2016

2017

Discount rate
Expected long-term rate of return on plan assets

0.4%
3.5%

0.4%
3.5%

(Note) E xpected future salary increase rates are not presented since retirement benefit obligations are calculated without taking into account the estimated future accumulated points
according to the benefit formula method.

(9) Simplified method
The plan for which the simplified method is applied are not separately disclosed but included in the above tables due to their immateriality.
(c) Defined contribution plan
The required contributions to the defined contribution plan (including the multi-employer pension plan accounted for in the same way as thedefined contribution plan) are ¥932 million (US$8,307 thousand) and ¥967 million for the years ended March 31, 2017, and 2016 respectively.
The following summarizes the multi-employer pension plan for which the required contributions are recorded as retirement benefit expenses:(1) The overall funding status as of March 31, 2017, and 2016 is as follows:¥ in millions
As of March 31,

Plan assets
Total of actuarial obligation and minimum actuarial reserve
Difference

US$ in thousands

2016

2017

2017

¥571,380
561,736¥  9,644¥531,916
538,160¥  (6,243)$4,741,206
4,796,862$      (55,646)(Note) The amounts in the above table are provided based on the most recently available information (as of March 31, 2016, and 2015, for fiscal 2017 and 2016, respectively).

70

TSUMURA & CO.

(2) The contribution ratios of the Company to the entire plan during
the years ended March 31, 2017, and 2016 are 3.90% and3.82%, respectively.
(3) Supplemental information
As of March 31, 2017, the difference described in (1), ¥(6,243) million (US$(55,646) thousand), was calculated by the sum of thebalance of the unamortized prior service cost of ¥(34,540) million(US$(307,870) thousand), deficient amount carry forward of¥(21,454) million (US$ (191,229) thousand), and voluntary reserveof ¥49,751 million (US$ 443,453 thousand).

As of March 31, 2016, the difference described in (1), ¥9,644
million, was calculated by the sum of the balance of the unamortized prior service cost of ¥(40,107) million, earnings of the fundof ¥14,310 million, and voluntary reserve of ¥35,440 million.
The balance of unamortized prior service cost represents thepresent value of special premium income and is amortized using
the straight-line method with a 15.5‰ premium ratio burdened by
the employer. The remaining amortization period is six years andzero months as of March 31, 2016.
The ratios in (2) are not equal to the actual share ratio.

13 Stock options
Not applicable.

14 Income Taxes(a) The significant components of deferred tax assets and liabilities as of March 31, 2017, and 2016 are as follows:
As of March 31,

Deferred tax assets:
Net defined benefit liability
Accrued bonuses
Accrued business office taxes
Consigned research expenses
Impairment loss
Loss on valuation of inventories
Other
Total deferred tax assets
Valuation allowance
Deferred tax assets recognizedDeferred tax liabilities:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Net defined benefit asset
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)¥ in millions

US$ in thousands

2016

2017

2017

¥      20
726
192
469
173
188
600
2,371
(183)
2,187

¥   24
697
124
604
–
96
611
2,159
–
2,159

$   213
6,212
1,105
5,383
–
855
5,446
19,244–
19,244(1,595)
(274)
(37)
(178)
(2,085)¥  101(1,590)
(410)
(324)
(199)
(2,524)¥  (365)(14,172)(3,654)(2,887)(1,773)(22,497)$ (3,253)¥ in millions

US$ in thousands(Note) Net deferred tax assets and liabilities are included in the following accounts:

As of March 31,

2016

2017

2017

Current assets–deferred tax assets¥1,271¥1,325$11,810Non-current assets–deferred tax assets
Non-current liabilities–deferred tax liabilities

32

43

383

(1,202)(1,733)(15,447)

Annual Report 2017

71

FINANCIAL SECTION(b) The significant differences between the statutory tax rate and the actual effective tax rate are as follows:2017

As of March 31,

Statutory tax rate
Effect of:
Inhabitants per capita taxes
Permanent differences (non-deductible) such as entertainment expenses
Permanent differences (non-taxable) such as dividend income
Tax credit for research and development expenses
Tax credit for taxation scheme to promote production facilities investment
Decrease in valuation allowance
Other
Actual effective tax rate

30.9%
0.5%
0.3%
(0.2)%(2.8)%(0.3)%(1.1)%(1.4)%
25.9%

The reconciliations for the year ended March 31, 2016 are not presented because the difference between the statutory tax rate and theactual effective tax rate was less than or equal to 5%.

15 Asset Retirement Obligations
Disclosure omitted due to insignificancy.

16 Segment Information(Segment information)
Information by reportable segments for the years ended March 31, 2017, and 2016 is omitted since the Group has categorized its
reportable segments into a single segment, pharmaceutical products operation.
(Related information)(1) Information by products and services
Information by products and services for the years ended March 31, 2017, and 2016 is omitted since more than 90% of sales andservices to external customers consisted of single category of product and service.
(2) Information by geographical areas1) Sales
Information on sales by geographical area for the years ended March 31, 2017, and 2016 is omitted since sales to external customers in Japan exceeded 90% of net sales in the consolidated statements of income.
2) Property, plant and equipment
Information on property, plant and equipment by geographic area for the years ended March 31, 2017, and 2016 is as follows:
As of March 31, 2017
¥ in millions
Japan

China

¥54,540¥10,145

Other

¥0

Japan

China

¥64,686$486,139$90,426

As of March 31, 2016
¥ in millions

72

Japan

China

¥51,530¥11,290

TSUMURA & CO.

Other

Total

¥0

US$ in thousands

Total¥62,822

Other

Total

$0

$576,575

(3) Information on major customers
For the year ended March 31,

Related segment

Sales to:Alfresa Holdings Corporation
MEDIPAL HOLDINGS CORPORATIONSUZUKEN CO., LTD.
TOHO HOLDINGS CO., LTD.

Pharmaceutical products
Pharmaceutical products
Pharmaceutical products
Pharmaceutical products¥ in millions

US$ in thousands

2016

2017

2017

¥27,577
24,957
18,595
14,244¥28,065
25,05019,642
14,478$250,155
223,281
175,077
129,048¥ in millions

US$ in thousands

17 Amounts per Share
Net assets per share
Profit per share

2016

2017

2017

¥2,169.13
178.06¥2,250.34
179.46$20.05
1.59¥ in millions

US$ in thousands

Notes:
1. The diluted profit per share is not stated due to no dilutive shares.
2. Basis of calculation

1) The basis of calculation of net assets per share is as follows:
As of March 31,

Total net assets
Amounts to be deducted from total net assets[Of which, non-controlling interests]
Amounts attributable to shareholders of common stock
Number of shares outstanding at the end of the year (Shares in thousands)

2016

2017

2017

¥155,702
2,726[2,726]¥152,976
70,524¥157,397
2,613[2,613]¥154,783
68,782$1,402,950
23,290[23,290]$1,379,650¥ in millions

US$ in thousands2) The basis of calculation of profit per share is as follows:
As of March 31,

Profit attributable to owners of the parent
Amounts not attributable to owners of the parents
Amounts attributable to owners of the parent related to common stock
Weighted-average number of shares outstanding (Shares in thousands)

2016

2017

2017

¥12,557–¥12,557
70,524¥12,488–¥12,488
69,592$111,311–$111,311

Annual Report 2017

73

FINANCIAL SECTION

18 Subsequent Events(Issuance of corporate bonds)
Based on the comprehensive resolution at the Board of Directors’ Meeting held on April 28, 2017, the Company issued unsecured corporate
bonds with the following terms and conditions on June 2, 2017.
(1) The 1st unsecured corporate bond with limited inter-bond pari(2) The 2nd unsecured corporate bond with limited inter-bond paripassu clausepassu clause
1. Total amount of bonds ¥15,000 million (US$133,701 thousand)1. Total amount of bonds ¥15,000 million (US$133,701 thousand)
2. Issue price	¥100 (US$0.89) per face value of ¥100
2. Issue price	¥100 (US$0.89) per face value of(US$0.89)¥100 (US$0.89)
3. Interest rate
0.230% per annum
3. Interest rate
0.345% per annum
4. Issue dateJune 2, 2017
4. Issue dateJune 2, 2017
5. Redemption period
May 31, 2024
5. Redemption period
June 2, 2027
6. Use of funds	Repayment of borrowings and invest6. Use of funds	Repayment of borrowings and investment and finance activities
ment and finance activities
7. Special provision
Restrictions on providing collateral
7. Special provision
Restrictions on providing collateral
8. Collateral	No guarantee nor collateral is granted.
8. Collateral	No guarantee nor collateral is granted.
In addition, there is no asset
In addition, there is no asset
appropriated to be assigned as
appropriated to be assigned ascollateral of this bond.
collateral of this bond.

19 Supplemental Information(1) Corporate Bonds
Not Applicable.

(2) Short-term loans payable, long-term loans payable and lease obligations¥ in millions

US$ in thousands

Average interest
rates (%)

Maturity due

2016

2017

2017

Short-term loans payable
Current portion of long-term loans payable
Current portion of lease obligations
Long-term loans payable excluding current
portion

0.4
–
–

–
–
–

¥21,957–
31¥12,581–34$112,140
–
303

0.3

15,00024,376217,274

Lease obligations excluding current portion
Other interest-bearing debt
Total

–
–
–

September 2021
April 2018 toNovember 2023
–
–

60
–
¥37,04897–¥37,088864–$330,582

As of March 31,

Notes:
1. “Average interest rate” represents the weighted-average interest rate of loans as of the balance sheet date.
2. Long-term guarantee deposited is not included above, although the amount equivalent to the interest is recognized.
3. Lease obligations on the balance sheet include the amount equivalent to the interest portion of total lease payments. Therefore, “average interest rate” of lease obligations is not stated.
4. The repayment schedule of long-term loans payable and lease obligations excluding current portion is as follows:

74

TSUMURA & CO.

¥ in millions
Over three years
within four years

Over four years
within five years¥        –¥        –¥9,376¥        –

23

¥19

13

¥14

Over one year
within two years

Over two years
within three years

Over three years
within four years

Over four years
within five years

Over five years$133,701

$  –

$  –

$83,572

$  –

222

205

169

115

124

(Year-to-date)

First quarter

Second quarter

Third quarter

Fiscal year

Net sales (millions)
Profit before income taxes (millions)
Profit attributable to owners of parent (millions)
Profit per share (yen)¥28,692
4,161
2,952
41.87

¥56,359
7,346
5,311
75.57

¥87,959
15,453
11,163159.85¥114,954
17,184
12,488179.46(Quarterly)First quarter

Second quarter

Third quarter

Fiscal year

¥41.87¥33.64¥84.89¥19.27(Year-to-date)

First quarter

Second quarter

Third quarter

Fiscal year

Sales (thousands)
Profit before income taxes (thousands)
Profit attributable to owners of parent (thousands)
Profit per share (dollar)$255,744
37,08826,3120.37$502,353
65,47847,3390.67$784,018
137,739
99,5001.42$1,024,636
153,168
111,311
1.59(Quarterly)First quarter

Second quarter

Third quarter

Fiscal year

$0.37

$0.29

$0.75

$0.17

Long-term loans payable
Lease obligations

Over one year
within two years

Over two years
within three years¥15,000
25

Over five years

US$ in thousands

Long-term loans payable
Lease obligations(3) Details of Asset Retirement Obligations
Not Applicable.

20 OtherQuarterly information

Profit per share (yen)Profit per share (dollar)

Annual Report 201775

FINANCIAL SECTION

Independent Auditor’s Report

76

TSUMURA & CO.

Annual Report 2017

77

FINANCIAL SECTION

Corporate Data
As of March 31, 2017

Head Office: 2-17-11, Akasaka,

Founded: April 10, 1893

Minato-ku, Tokyo 107-8521, Japan

Incorporated: April 25, 1936

Corporate Communications Department

Number of Employees: 3,331 (Consolidated)

Phone: 81-3-6361-7101

Plants: Shizuoka, Ibaraki, Shanghai

Fax: 81-3-5574-6630

Research Laboratory: Ibaraki

URL: http://www.tsumura.co.jp/english/

Subsidiaries and Affiliates:
Country

Company

BusinessJapan

LOGITEM TSUMURA CO., LTD.

Logistics, storage, distribution, and materials handling services

YUBARI TSUMURA CO., LTD.

Production, processing, and storage of botanical raw materials

United States

TSUMURA USA, INC.

Development of pharmaceutical products in the United States

China

SHENZHEN TSUMURA MEDICINE CO., LTD.

Procurement, sorting, processing, and storage of botanicalraw materials

SHANGHAI TSUMURA
PHARMACEUTICALS CO., LTD.

Production and sale of Kampo extract intermediates

SICHUAN CHUANCUN TRADITIONALCHINESE MEDICINES CO., LTD.

Procurement and sorting of botanical raw materials

Investor Information
As of March 31, 2017

Stock Exchange Listing: Tokyo
Stock Code: 4540

Major Shareholders
Japan Trustee Services Bank, Ltd. (Trust Account)

Paid-in Capital: ¥19,487 million

The Master Trust Bank of Japan, Ltd. (Trust Account)

5.91

Net Assets: ¥157,397 million

Japan Trustee Services Bank, Ltd. (Trust Account 9)

4.65

Common Stock:

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

3.19

Authorized: 250,000,000

Employees’ Stockholding

2.77

Issued: 70,771,662

THE BANK OF NEW YORK MELLON (INTERNATIONAL) LIMITED 131800

2.65

Closing Date of Accounts: March 31

JP MORGAN CHASE BANK 385632

2.31

Independent Auditor:

DAIICHI SANKYO COMPANY, LIMITED

2.22

PricewaterhouseCoopers Aarata LLC

THE BANK OF NEW YORK 133524

1.93

Sumitomo Fudosan

Japan Trustee Services Bank, Ltd. (Trust Account 5)

1.88

Shiodome Hamarikyu Bldg.,
8-21-1 Ginza, Chuo-ku,
Tokyo 104-0061, Japan% of equity

6.66

Ownership and Distribution of Shares%

Shareholder Register Agent for
Common Stock in Japan:
Mitsubishi UFJ Trust andBanking Corporation
1-4-5, Marunouchi, Chiyoda-ku,
Tokyo 100-8212, Japan
Number of Shareholders: 10,198

78

TSUMURA & CO.

Japanese financial institutions
Foreign institutions
Other Japanese corporations
Japanese individuals and others
Japanese securities firms

35.83%
36.85%
11.06%
14.97%
1.29%

WebsiteHome page:

Investor Relations:

http://www.tsumura.co.jp/english/

http://www.tsumura.co.jp/english/ir/

Annual Report 201779

TSUMURA & CO.
2-17-11, Akasaka, Minato-ku, Tokyo 107-8521, Japan

オンプロダクト-スタンドードタイプ 英語版

CCC
Printed in Japan

オンプロダクト-ミニラベル

英語版（印刷スペースが無い場合）