Terumo : Q&A Session at the Financial Results for the Third Quarter of Fiscal Year Ending March 31, 2023 (FY2022)

Among the information that Terumo discloses, the forward-looking statements including financial projections are based upon our assumptions using information available to us at the time and are not intended to be guarantees of future events or performance. Accordingly, it should be noted that actual results may differ from those forecasts or projections due to various factors. Factors affecting to actual results include, but are not limited to, changes in economic conditions surrounding Terumo, fluctuations of foreign exchange rates, and state of competition. The market share information in this presentation is partly derived from our own independent research. Information about products (including products currently in development) which is included in this material is not intended to constitute an advertisement or medical advice.

Terumo Corporation

February 13, 2023

Q&A Session at the Financial Results Briefing

for the Third Quarter of FY22

Outlined below are the Q&As from the financial results briefing on February 13, 2023.

Moderator: We will now take your questions. First, Mr. Yamaguchi from Citigroup Global Markets, please ask your question.

Hidemaru Yamaguchi: My name is Hidemaru Yamaguchi from Citi. Thank you. In the revised forecast, it says C&V, -19, TMCS, -52, and TBCT, -31, by company. The overall picture is an addition to revenue by JPY40 billion and a decrease in operating profit by JPY10 billion. I believe that there was a fairly large revision to operating profit. Can you tell us the main reasons for this?

I think you just made various numbers and comments sequentially, but can you tell me if TMCS is particularly significant, or if Plasma Innovation in TBCT is a big factor. What factors will cause profit to drop by this amount in the future?

Kenichi Hata, IR Terumo: Thank you for your question. I will answer it. First of all, as for the JPY40 billion in revenue, most of it or more than JPY40 billion, is due to foreign exchange rates, the yen's depreciation. In terms of the actual value excluding the exchange rates, we will lose about JPY5 billion. This is due to the portfolio rationalization that has continued in the previous quarter and the current quarter, which has somewhat reduced revenue. Another factor is that the start-up of CSL Plasma fell short of the expected figure, although we have not disclosed the target number.

In terms of revenue, the foreign exchange rates are the main factor, but the actual value will also be a bit lower. In terms of profit, CSL's less-than-originally-expected revenue, as I mentioned earlier, has a direct effect on profit. More significantly, the impact of inflation exceeded the assumption at the beginning of the year. This boosted costs by roughly JPY6 billion to JPY8 billion. The yen has weakened somewhat, the dollar has mostly been neutral, but the Euro and Chinese Yuan have had some positive effects. I hope I answered your question.

Among the information that Terumo discloses, the forward-looking statements including financial projections are based upon our assumptions using information available to us at the time and are not intended to be guarantees of future events or performance. Accordingly, it should be noted that actual results may differ from those forecasts or projections due to various factors. Factors affecting to actual results include, but are not limited to, changes in economic conditions surrounding Terumo, fluctuations of foreign exchange rates, and state of competition. The market share information in this presentation is partly derived from our own independent research. Information about products (including products currently in development) which is included in this material is not intended to constitute an advertisement or medical advice.

Yamaguchi: I understand. In terms of profit, inflation is responsible for JPY8 billion, so the remaining JPY2 billion is attributable to something like CSL, is that correct?

Hata: That's right, and the exchange rates pushed back the figure a bit. That led to the net decrease of JPY10 billion.

Yamaguchi: So, the big negative factor is CSL.

Hata: Yes, we originally took the start-up costs into account, and the actual amount was a bit higher than that, but it was not so substantially larger.

Yamaguchi: I understand. Thank you. That's all.

Moderator: Next, Mr. Kohtani from Nomura Securities.

Motoya Kohtani: This is Motoya Kohtani from Nomura Securities. I would like to organize the situation for the next fiscal year, but in short, the price increases will take effect next year. But on the other hand, as inflation continues, I think electricity and such things will go up, especially in Japan. In addition, I wonder if the inflation we have now will ease gradually, or about the same. Furthermore, CSL, which seems to be a bit behind schedule, will contribute to earnings in the next fiscal year.

On top of that, there will actually be a price increase for infusions, won't be there? I don't know how much this will be from the outside, but it comes out as quite a body blow. I believe these are some of the factors, but would you cite any other factors that may be involved?

Hata: Thank you. I think the factors you just mentioned account for a large part of the structure.

Amid the current inflationary trend, especially freight is showing signs of falling. Unfortunately, our income statement did not reflect this relaxation, but we expect that it will do so shortly. However, what makes us remarkable compared to our competitors is that we use domestic automated production plants, so we are subject to the rising costs of electricity in Japan. However, this is another remarkable point, as you mentioned, we will receive a large amount of money from, not a price increase but a price correction related to infusions. We believe that the rising electricity costs will adequately be offset.

The other thing is that CSL, which is a bit stalled at the moment, will finally be up and running, and we will take care of it so that there will be no cost increase as there was in the quarter under review. I would like to tell you a little more. In VBP, or volume-based

Among the information that Terumo discloses, the forward-looking statements including financial projections are based upon our assumptions using information available to us at the time and are not intended to be guarantees of future events or performance. Accordingly, it should be noted that actual results may differ from those forecasts or projections due to various factors. Factors affecting to actual results include, but are not limited to, changes in economic conditions surrounding Terumo, fluctuations of foreign exchange rates, and state of competition. The market share information in this presentation is partly derived from our own independent research. Information about products (including products currently in development) which is included in this material is not intended to constitute an advertisement or medical advice.

procurement, in China, our bid for the national tender for the second round of coronary artery stents was successful with a price increase. And this will also have some effect.

As to the other major factor, in Interventional Systems, or TIS, in North America, the supply shortage of contrast agents has finally recovered recently. Their revenue will turn to an uptrend from Q4 to the next fiscal year, so we have various bright factors. That's all.

Kohtani: That's very helpful, but was the effect of the delay in the start-up of CSL only on Q3, or on H2 alone, and will it not have an effect on the next fiscal year? I wasn't sure what it really is like.

Hata: The current situation is called a Limited Market Release (LMR). Our initial assumption was that this would be much shorter. However, since this was the launch of a large-scale product amid the COVID-19 pandemic in the first place, it was affected by various supply chain disruptions more than anticipated. Also, there was a shortage of personnel.

To be a little more specific, Rika is a combination of hardware, disposables, and software. As there were some disruptions on the part of the suppliers in hardware and disposables, the initial specifications were slightly modified for some of them. In this situation, the quality of the product was a little lower than we had initially hoped for, so we decided to take a little longer for this LMR to ensure that the product would perform well.

Also, with regard to the software, both CSL and we had to conduct training and carefully connect the software and start it up, which was somewhat affected by the shortage of labor in North America.

There were a number of problems, but these have finally been resolved, and it is now expected that the rollout will resume between today and the next announcement of our financial results in May. There was some delay, but I think we can catch up from the next fiscal year onward. That's all.

Kohtani: In short, is my understanding right that the delay was due to supply chain problems caused by COVID-19, rather than demand incompatibility on the CSL side or something like that?

Hata: That's right.

Kohtani: I understand. Thank you.

Among the information that Terumo discloses, the forward-looking statements including financial projections are based upon our assumptions using information available to us at the time and are not intended to be guarantees of future events or performance. Accordingly, it should be noted that actual results may differ from those forecasts or projections due to various factors. Factors affecting to actual results include, but are not limited to, changes in economic conditions surrounding Terumo, fluctuations of foreign exchange rates, and state of competition. The market share information in this presentation is partly derived from our own independent research. Information about products (including products currently in development) which is included in this material is not intended to constitute an advertisement or medical advice.

Moderator: The next question is from Mr. Mori of Mizuho Securities.

Takahiro Mori: This is Takahiro Mori from Mizuho Securities. Thank you. On slide 13, about New Measures to Raise Corporate Value, you cited the M&A promotion as the growth strategy and in Capital policy reinforcement, you aim at a 50% return ratio to customers.

If you are to aggressively pursue M&A, I wonder if you could have made the decision to reduce total returns as well. Why did you decide to pursue both targets?

Naoki Muto, CAFO Terumo: It's not that we are chasing both. In our cash allocation policy, for example, we have stated that our first priority in GS26 is to invest in growth. The growth investment strategy is in the form of M&A and new investments. This is basically unchanged here. Naturally, as the Company grows and considers its cash allocation, it is important to consider shareholder returns as an area where it can achieve the greatest effect. We believe that the overall policy has not changed from where we initially revealed our thinking.

Mori: Regarding the enforcement of capital efficiency and financial leverage, first of all, in terms of capital efficiency, are you going to actively sell businesses as you have announced this time? And in terms of financial leverage, are you going to focus not on equity, but on debt?

Muto: Well, I think that is right as a basic idea.

Mori: Thank you. That's all.

Moderator: Now, Mr. Hayashi from Morgan Stanley MUFG Securities.

Ryotaro Hayashi: This is Ryotaro Hayashi from Morgan Stanley Securities. Thank you. At the bottom of page 11, you showed changes in your forecast for revenue by company.

I cannot understand the significance of the percentages of (C)÷(A), which are written in parentheses and exclude the effects of exchange rates. Since this is C divided by A, is this a new figure for the percentage increase in revenue excluding the effects of foreign exchange rates compared to FY2021, or is it an upwardly revised percentage of the previous revenue plan?

Hata: This is just a figure that shows the YoY growth rate after the revision, excluding the foreign exchange effects. Overall, we previously expected a 6% increase, but now we have lowered the rate to 5%. Because of the foreign exchange effects I mentioned

Among the information that Terumo discloses, the forward-looking statements including financial projections are based upon our assumptions using information available to us at the time and are not intended to be guarantees of future events or performance. Accordingly, it should be noted that actual results may differ from those forecasts or projections due to various factors. Factors affecting to actual results include, but are not limited to, changes in economic conditions surrounding Terumo, fluctuations of foreign exchange rates, and state of competition. The market share information in this presentation is partly derived from our own independent research. Information about products (including products currently in development) which is included in this material is not intended to constitute an advertisement or medical advice.

earlier, we have raised our estimate on revenue, which means that on an actual basis, we have lowered the expected growth rate to 5%. This is the growth excluding the foreign exchange effects.

Hayashi: In that case, I am not comfortable with the TBCT numbers. The revised annual guidance for revenue is a 4% increase excluding the impact of foreign exchange rates, but since 10% revenue growth was achieved in the first nine months through Q3, this annual figure would not be seen without a substantial decline in revenue in Q4. Will this big decrease be possible in Q4?

Hata: In January of this year, not only TBCT, but also others saw declines in China, but I think it's fair to say that we look at Q4 very conservatively.

Hayashi: Is there no such thing as revenue cancellations in relation to CSL?

Hata: Unfortunately, revenue has not been generated that much so cancellations didn't take place.

Hayashi: I understand. That part seems a bit conservative, but I understand the implications of the numbers. Thank you. That is all from me.

Moderator: Next, Mr. Tokumoto from SMBC Nikko Securities.

Shinnosuke Tokumoto: I would like to ask about cardiovascular access devices. You mentioned that there was some impact from contrast agents, but I would like to ask how much of a recovery you expect in Q4 and into the next fiscal year. As a result, I would like to know how much you think the effect of contrast agents has lowered your Company's gross net to date.

At the same time, in terms of access devices, I think there is a positive side to the shortage of nurses, such as the increased use of closure devices, so can you tell us how we should look at the growth of access devices compared to what we have seen so far?

Hata: Thank you for your question. Regarding contrast agents, in the previous quarter, if you look at TIS alone, the top line growth of about 2% was impaired. They pulled down the overall growth of the cardiovascular business by at least 1%, which means that the total growth rate would normally have been 1 percentage point higher without contrast agents. Thus we can expect that the performance will be better in the next fiscal year and beyond, starting in this Q4.