[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference

Financial Results for the Fiscal Year Ended March 31, 2018: Reference

Analysis of Business Performance and Financial Position

Analysis of Business Performance
1. Overview of Financial Results for the Fiscal Year Ended March 31, 2018
The Terumo Group is adopting International Financial Reporting Standards (IFRS), in place of Japanese Generally
Accepted Accounting Principles (JGAAP), starting from the consolidated business results for the fiscal year ended
March 31, 2018. In addition, consolidated business results for the previous fiscal year have been rearranged basedon IFRS for the purpose of conducting a comparative analysis.

(1) Overview of Consolidated Business Results
In December 2016 the Terumo Group devised a Mid- to Long-term Growth Strategy with a five-year horizon. The
Mid- to Long-term Vision is to become a “Global Corporation with Unique Excellence.” The Company aims tobecoming recognized by medical professionals worldwide as a top brand and a trusted manufacturer. To this end,
we are focused on earning a high level of trust globally for our total quality (which includes the total quality of itsproducts, supply, and services). In the fiscal year under review, which is the first year of this growth strategy,
Terumo attained its highest-ever results in revenue and all profit categories.

(million yen)

FYE3/2017

FYE3/2018

Growth (%)

Growth excluding
impact of forex
translations (%)

Revenue

514,164

587,775

14.3

10.7

Gross profit

273,835

319,333

16.6

12.1

Adjusted operating profit

104,643

124,929

19.4

12.1

Operating profit

87,777

108,552

23.7-

Profit before tax

74,881

106,630

42.4-

Profit for the year

54,891

91,201

66.1-

Profit for the year

55,00391,29566.0-

attributable to owners ofthe parent

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference(million yen)
Growth (%)

Growth excluding
impact of forex
translations (%)

Regional revenue

FYE3/2017

FYE3/2018

Japan

187,000

188,856

1.0

1.0

Europe95,013

118,216

24.4

14.6

Americas139,698

171,636

22.9

19.5

Asia etc.

92,451109,065

18.0

13.2

Overseas total

327,163

398,919

21.9

16.3

Total

514,164

587,775

14.3

10.7

Ref. JGAAP basis(million yen)Growth excluding
FYE3/2017

FYE3/2018

Growth (%)

impact of forex
translations (%)

Net sales

514,164

587,775

14.3

10.7

Gross profit

278,000

327,226

17.7

13.2

Operating income

76,57892,232

20.4

11.7

Ordinary income

68,552

88,46729.1-

54,22575,59039.4-

Profit attributable to ownersof the parent

Revenue
Revenue totaled 587.8 billion yen, a growth of 14.3% in comparison with the previous fiscal year.
In Japan, overall revenue increased year on year, reflecting brisk sales in the Interventional Systems (TIS)
business in the Cardiac and Vascular Company for products including access devices, the VISICUBE, anintravascular ultrasound system, and AltaView, an intravascular ultrasound catheter.
Meanwhile, revenue overseas expanded in contrast with a year earlier. In the TIS business in the Cardiac andVascular Company, access device sales trended briskly. At our production subsidiary in Puerto Rico, which is aterritory of the United States, production of the Angio-Seal, a vascular closure device, had been suspended since
September 20, 2017 due to the impact of Hurricane Maria. Production was resumed in November 2017 andshipments were recommenced in January 2018. In the neurovascular business, revenue increased owing to solid
sales for products including coils for the embolization of cerebral aneurysms. Furthermore, in the BloodManagement Company, revenue grew to blood centers and in the field of therapeutic apheresis systems.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference

Gross profit
Gross profit amounted to 319.3 billion yen, a rise of 16.6% compared with the previous fiscal year. This mainlyreflects contribution from an expansion in sales at the Cardiac and Vascular Company, which boasts a high profit
margin, and a reduction in manufacturing costs at the General Hospital Company.

Adjusted operating profit
Adjusted operating profit factors out depreciation expense for intangible assets obtained during acquisitions andone-off income and expenses from operating profit. In addition, adjusted operating profit is consistent withsegment profit. We are disclosing adjusted operating profit as we are using it as an earnings management indicator.
In the fiscal year under review, adjusted operating profit came to 124.9 billion yen, a climb of 19.4% year on year,
as the growth in gross profit offset the rise in selling, general and administrative expenses, excluding acquisition
costs and amortization expense for intangible assets.
We are additionally disclosing adjusted operating profit as an indicator but it is not defined by IFRS, which is theaccounting standard we have adopted. Adjusted operating profit is also being used as an indicator for corporate
management to grasp earnings performance in each business as a part of our goal to achieve sustainable growth in
the mid to long term. We believe this is also effective data for individuals using our financial statements to assess
the Terumo Group’s earnings.

Operating profit
Operating profit came to 108.6 billion yen, a growth of 23.7% year on year. The growth in gross profit offset anincrease in selling, general and administrative expenses.

Profit before tax
Profit before income tax was 106.6 billion yen, an increase of 42.4% versus a year earlier. This reflects
contribution from an increase in operating profit as well as a decrease in financial cost owing in part to a decline
in forex translation loss.

Profit for the year attributable to owners of the parent
Profit for the year attributable to owners of the parent totaled 91.3 billion yen, a rise of 66.0% year on year. This is
attributable to an increase in profit before tax and also a one-off decline, mainly in the corporate tax, owing
mainly to the revaluation of deferred tax assets and liabilities due to the tax reform in the United States.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference

Revenue results by company are as follows:(million yen)
FYE3/2017

FYE3/2018

Growth (%)

Growthexcluding impactof forextranslations (%)

Revenue

261,529

324,001

23.9

19.1

(Japan)50,97553,9855.9

5.9(Overseas)

210,554

270,015

28.2

22.3

Revenue

157,946

158,848

0.6

(0.5)

(Japan)123,797

122,720

(0.9)

(0.9)

(Overseas)

34,14936,127

5.8

0.8

Blood

Revenue

94,483

104,697

10.8

6.3

Management(Japan)12,023

11,933

(0.7)

(0.7)

Company(Overseas)

82,46092,76312.5

7.3

Segment

Cardiac &Vascular Company

General HospitalCompany[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: ReferenceCardiac and Vascular Company
In Japan, overall revenue increased year on year, reflecting brisk sales in the TIS business for products such asaccess devices, the VISICUBE, an intravascular ultrasound system, and AltaView, an intravascular ultrasoundcatheter.
Meanwhile, overseas in the TIS business, access device sales trended briskly. At our production subsidiary inPuerto Rico, which is a territory of the United States, production of the Angio-Seal, a vascular closure device, hadbeen suspended since September 20, 2017 due to the impact of Hurricane Maria. Production was resumed inNovember 2017 and shipments were recommenced in January 2018. In the neurovascular business, sales weresolid for coils for the embolization of cerebral aneurysms, which use hydrogel, and suction catheters.
Accordingly, revenue in the Cardiac and Vascular Company totaled 324.0 billion yen, a growth of 23.9% year onyear, reflecting double-digit revenue expansion in the overseas segment.

General Hospital Company
In Japan, sales trended firmly for infusion systems, which are expected to contribute to an improvement intreatment safety, analgesics to alleviate pain, and spray type adhesion barriers to reduce post-surgery adhesion.
Meanwhile, revenue declined due to a sharp increase in competition for commodity products, including syringes,and infusion solutions.
Overseas, we continued to review low-margin businesses in Europe and Latin America. Overseas revenue
increased on brisk sales of high-margin business-to-business for pharmaceutical companies and infusion systems
in Asia.
Reflecting this, revenue in the General Hospital Company was 158.8 billion yen, an increase of 0.6% versus thesame period a year earlier.

Blood Management Company
Sales were strong for automated blood component collection systems for blood centers in developed markets,including the United States and Europe, and for blood bags in emerging markets, including Latin America andAsia. Also therapeutic apheresis system sales grew, mainly in North America and Japan, reflecting replacement
demand.
Consequently, revenue in the Blood Management Company totaled 104.7 billion yen, a rise of 10.8% year on year.

(2) Overview of Consolidated Balance Sheets
Goodwill and intangible assets decreased 29.0 billion yen owing to amortization of intangible assets,excluding goodwill. Meanwhile, given brisk revenue, cash and cash equivalents rose 62.8 billion yen,trade and other receivables increased 10.3 billion yen, and property, plant and equipment climbed 6.6
billion yen. Consequently, as of March 31, 2018, total assets stood at 1,079.0 billion yen, an increase of
56.7 billion yen compared with March 31, 2017.
Liabilities came to 528.5 billion yen, a decrease of 2.2 billion yen. This was primarily attributable to anincrease in trade and other payables of 6.4 billion yen, a rise of 4.9 billion yen in current tax liabilities.
Meanwhile, deferred tax liabilities were down 16.0 billion yen due in part to impact from tax reforms inthe United States.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference

Equity was 550.4 billion yen, an increase of 58.9 billion yen versus a year earlier.

(3) Cash flow trends in the fiscal year ended March 31, 2018
(million yen)
FYE3/2017

FYE3/2018

Cash flows from operating activities

82,888

114,562

31,674

Cash flows from investing activities(183,517)(44,105)

139,411

Cash flows from financing activities60,993(4,132)(65,126)

105,046

167,832

62,786

Cash and cash equivalents as of the end of the
fiscal year under review

ChangeCash flows from operating activities
Net cash provided by operating activities was 114.6 billion yen. During the fiscal year under review, profit before
tax was 106.6 billion yen and depreciation and amortization was 42.0 billion yen. In addition, corporate and othertaxes paid came to 24.1 billion yen.
Cash flows from investing activities
Net cash used in investment activities was 44.1 billion yen. This primarily reflects the 31.9 billion yen used toacquire property, plant and equipment and 9.5 billion yen to acquire intangible assets.
Cash flows from financing activities
Net cash used in financing activities was 4.1 billion yen. Although there was 19.9 billion yen in proceeds from abond issuance and 119.6 billion yen in proceeds from long-term loans, outflow included 15.8 billion yen for
dividends payment, 120.0 billion yen for repayment of short-term loans and 7.8 billion yen for the repayment oflong-term loans.

(Reference) Cash flow indicators
FYE3/2017FYE3/2018

Equity ratio (%)

48.1

51.0

Market cap-based equity ratio (%)

133.1

183.2

Interest-bearing debt to cash flow ratio (annual)

2.9

2.1

Interest coverage ratio (x)

62.9

101.4

Note: Equity ratio = Shareholders’ equity/Total assets
Market cap-based equity ratio = Total market capitalization/Total assets
Interest-bearing debt to cash flow ratio = interest-bearing debt/cash flow
Interest coverage ratio = cash flow/total interest payments*All of the above is calculated on a consolidated basis*Market capitalization = fiscal year-end share price X the total number of shares outstanding excluding treasury

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Referencestock*The cash flow above is the cash flow provided by operating activities as stated in the consolidated statements ofcash flows. The interest-bearing debt includes all debt posted in the consolidated balance sheet on which thecompany pays interest. Also the figure for interest expense in the consolidated statements of cash flows wasemployed as the amount for interest payments.
*The transition date for IFRS was set as April 1, 2016. IFRS was adopted starting from the fiscal year ended
March 31, 2018. Consequently, data prior to the fiscal year ended March 31, 2016 is not included herein.

(4) Mid- to Long-term Outlook
The medical device market is expected to expand going forward mainly due to a rise in chronic illnesses intandem with an increase in the number of seniors. Meanwhile, as a rise in medical spending squeezes government
coffers, there will likely be a shift to healthcare that emphasizes value and efficiency. In addition, the industry
overseas will continue to undergo reorganization, owing mainly to acquisitions, resulting in companies ofenormous scale, more concentration, and a growing oligopoly.
Amid this business environment, we are implementing our Mid- to Long-term Growth Strategy. The fiscal year
ended March 31, 2018 was the first year of this strategy. We were off to a smooth start working towards our goalto achieve revenue growth that surpassed market growth (compound annual growth rate in the upper single digit
range) and profit growth that outperformed our revenue growth (compound annual growth rate in the doubledigits). In the fiscal year ending March 31, 2019, the second year of this strategy, we expect negative impact will
likely accompany revisions to NHI reimbursement prices and prices for special treatment materials, and anincrease in depreciation expense due to a rise in capital expenditure and IT investments for growth. To absorb thisimpact and achieve sustainable growth, we plan to “strengthen our global operations” including the production
system, “accelerate strategic development” to fortify creative innovation capabilities, and “leveragecomprehensive group strengths” by promoting the use of personnel that exceeds the framework of our businesses
and regions.
The following are our forecasts for the fiscal year ending March 31, 2019.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference

Forecast of Consolidated Financial Results(million yen)
FYE3/2018

FYE3/2019

ActualForecast

ChangeChange (%)

587,775

608,000

20,224

3.4

124,929

128,500

3,570

2.9

21.3%

21.1%

--

Operating profit

108,552

114,500

5,947

5.5

Operating margin

18.5%

18.8%

--

91,29583,500(7,795)(8.5)

Revenue
Adjusted operating
profitAdjusted operating
marginProfit attributable toowners of the parent

Actual exchange rate for the fiscal year ended March 31, 2018: ¥111/USD, ¥130/EUR
Exchange rate assumption for the fiscal year ending March 31, 2019: ¥105/USD, ¥130/EUR(5) Basic policy for profit distribution, dividend payouts in the fiscal year ended March 31, 2018 and payout
plan for the fiscal year ending March 31, 2019As a measure to secure high profit margins and sustainable growth, the Terumo Group adequately and actively
reinvests profits to constantly enhance its corporate value. This is consistent with the group’s pledge to distributeprofits to shareholders and maximize the value of its investments.
Following the transition to IFRS, Terumo will continually aim to steadily increase its dividend payouts toshareholders and has set a mid- to long-term dividend payout ratio target of 30%.
In the fiscal year ended March 31, 2018, the company plans to pay cash dividends per share of 50 yen.
Consequently, the fiscal year-end dividend is 27 yen per share, and the interim dividend, which has already been
paid, was 23 yen per share.
In the fiscal year ending March 31, 2019, Terumo plans annual cash dividends per share of 54 yen (interimdividend of 27 yen).

Cautionary note:
Forward-looking statements, including earnings forecasts, contained in Terumo’s disclosure materials are based on
currently available information and assumptions believed to be reasonable by management. This is not a promise
or guarantee by Terumo that it will achieve these goals. Please note that the actual results or outcomes could differ
due to a number of factors. Key elements that are likely to have an impact on actual earnings performance include

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference

economic conditions surrounding the company’s business environment, volatility in foreign exchange rates, andcompetition.

[Terumo Corporation] Financial Results for the Fiscal Year Ended March 31, 2018: Reference

2. Basic stance on the selection of accounting standards
We are adopting the International Financial Reporting Standards (IFRS) and applying them to the financial results
for the fiscal year ended March 31, 2018. The goal is to strengthen our corporate governance and improve theprecision of our management by standardizing our rules globally and to enhance the comparability of financial
data internationally in capital markets.