Financial Report First 2 Quarters of Fiscal 2016

1

Financial ReportFirst 2 Quarters of Fiscal 2016

（April 1 – September 30, 2016）

Jun-ichi Hoki, President and CEO

Yukio Yamamoto, Executive Director

Hiroshi Yamashita, Deputy manager public relations

October 17, 2016

2

Notice Regarding Forward-Looking Statements

This presentation contains statements about the Company’s plans, forecasts,

strategies, and beliefs related to its future performance. Such forward-looking statements were prepared based on judgments of the Company’s management

according to information available when this presentation was prepared. Readers are asked not to rely completely on performance forecasts contained herein, and understand that actual results may differ from such forecasts.

Financial results reported herein have not been audited.

Overview

3

-200

-100

0

100

200

300

400

500

600

700

KitNon-woven

fabricsMekkin bag

Other Non-woven fabrics

New products Other productsSales of

subsidiary,other

516

142

-126

38

-8

6128 4

4

659

-300

-100

100

300

500

700

900

FY20141Q

FY20143Q

FY20151Q

FY20153Q

FY20161Q

-27 -2-85

259

-4612

42

-98-121

-72-58

-97-150

24

-44 -81154

236145

317

294

292288

506

416

243

Sales of subsidiary, other Kit products

Non-woven fabrics Mekkin bag

Other non-woven fabrics New products

Other products Growth amount

（17.3期）（15.3期）（16.3期）

Fiscal 2016 – First ２ QuarterSales Growth by Major Products

Fiscal 2016 – First ２ QuarterSales Growth by Quarter

657 Million Yen

（Unit: million yen, rounded down）Fiscal 2016– First ２

Quarter Sales Growth

（Unit: million yen, rounded down）

Operamaster

Regular kit

Total of kit

Fiscal 2016 – First ２ Quarter Income Statements

(Unit: million yen, rounded down)

Fiscal 2015First ２ Quarter

Results


Results

Year-on-Year

Comparison

Amount% of Total

Amount% of Total

Amount %

Net sales 17,652 18,310 657 103.7%

Operating income 4,383 24.8% 4,089 22.3% △294 93.3%

Ordinary income 4,467 25.3% 4,006 21.9% △460 89.7%

Profit attributable to owners of parent 3,035 17.2% 2,685 14.7% △349 88.5%

EPS 193.00yen 170.99yen

5

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

FY20041Q

FY20061Q

FY20081Q

FY20101Q

FTY20121Q

FY20141Q

FY20161Q

0

4

8

12

16

20

契約⼿術件数

契約件数

Fiscal 2016 – First ２ Quarter Income Statements



Results


Results

Year-on-Year

Comparison

Amount% of Total

Amount% of Total

Amount %

Net sales 17,652 18,310 657 103.7%


Ordinary income 4,467 25.3% 4,006 21.9% △460 89.7%

Profit attributable to owners of parent 3,035 17.2% 2,685 14.7% △349 88.5%

EPS 193.00yen 170.99yen

Number of Operamaster Contracts; Number of Surgical Operations

* Number of contracted hospitals is current as of the end of the first ２ quarter of Fiscal 2016.

Number of surgical operations Number of contracts

Contracted surgical operations

Number of contract

Fiscal 2016 (2Q) Highlights

Operamaster: 15 new contracts; 7 cancellations Half of contracted institutions: DPC I and II hospitals Premium Kits: Clinical trials started at end of June;

currently held at 44 hospitals on 230 cases Sales of Premium Kits started EMARO Endoscope Holder: 2 units sold Cost of sales up due to depreciation on new plant and

foreign exchange factors (impact less than predicted thanks to yenʼs appreciation)

Leakage of personal information at Operamaster-contracted hospital

6

Fiscal 2016 Outlook

7Fiscal 2016 Income Forecasts


Fiscal 2015

Results

Fiscal 2016

Plan

Year-on-Year

Comparison

Amount% of Total

Amount% of Total

Amount %

Net sales 36,568 38,400 1,831 105.0%

Operating income

8,784 24.0% 7,180 18.7% △1,604 81.7%

Ordinary income

8,924 24.4% 7,280 19.0% △1,644 81.6%

Profit attributable to owners of parent

5,910 16.2% 5,000 13.0% △910 84.6%

EPS 375.81yen 319.62yen

• Cost of sales to rise due to depreciation on new plant and foreign exchange factors

• Bolster expenditures necessary for boosting revenue- Prototype costs, advertising and promotions, R&D expenses,

etc.• Install/arrange production equipment in new plant• Step up in-house manufacture and development of new products

earmarked as next-generation business pillars • Improve productivity at P.T. Hogy Indonesia• Rebuild services aimed at Operamaster-contracted hospitals

- Build information management system; standardize coordinator processes

• Bolster sales through Operamaster strategy and new products under revenue/income boosting plan

• Premium Kits: Launch clinical trials and sales• Step up sales of new products (Surgery Management System,

EMARO Endoscope Holder, etc.)• Increase EMARO clinical trial numbers• Propose Operamaster to medical institutions (DPC I, II, and upper-

level DPC III hospitals)

Fiscal 2016 Initiatives

8

Sales details

9

0 20 40 60 80 100

Ⅰ群

Ⅱ群

Ⅲ群

(単位：％)

56期2Q時点オペラ契約未契約0

5

10

15

20

25

30

35

40

FY20141Q

FY20143Q

FY2015１Q

FY2015３Q

FY2016１Q

FY2016: Contracts FY2015: Contracts FY2014: Contracts FY2013: Contracts FY2012: Contracts

FY2011: Contracts FY2010: Contracts FY2009: Contracts FY2008: Contracts FY2007: Contracts

FY2006: Contracts FY2005: Contracts FY2004: Contracts

-200

-100

0

100

200

300

400

500

600

700

KitNon-woven

fabricsMekkin bag


New products Other productsSales of

subsidiary,other

516

142

-126

38

-8

6128 4

659

Fiscal 2016 – First ２ QuarterSales Growth by Major Products

657 Million Yen

（Unit: million yen, rounded down）Fiscal 2016– First ２

Quarter Sales Growth

Operamaster

Regular kit

Total of kit

Sales of Operamaster（¥100 million, rounded down）

Operamaster Contract Percentage

* DPC breakdown as of FY2016

DPC type

At FY2016 (２Q) Not yet Contracted

DPC I

DPC II

DPC III

(%)

10

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Fiscal 2010 Fiscal 2011 Fiscal 2012 Fiscal 2013 Fiscal 2014 Fiscal 2015 Fiscal 2016

62.2%

80.7%86.2%

76.2%

87.0%

91.5%89.9%

87.6%87.8%

61.6%

82.9%

78.4% 75.2% 77.1%

48.6%

62.9%

70.5% 69.7%

45.0%

59.8% 60.4%

52.1%

64.6%

39.7%

33.9%FY2004

Contractedhospials

FY2005Contracted

hospials

FY2006Contracted

hospials

FY2007Contracted

hospials

FY2008Contracted

hospials

FY2009Contracted

hospials

FY2010Contractedhospitals







⼿術件数（件）浸透率（%）

0

50,000

100,000

150,000

200,000

FY2005 FY2007 FY2009 FY2011 FY2013 FY20150%

20%

40%

60%

80%

100%

95%

72%

96%87%

96%

86%

88%77%

70%

60%65%

40%

34%Non-conforming surgical operations

Conforming surgical operations

Diffusion rate

Sales： 7,161 million （UP 516 million or 107.8%）

Number of contracts: 15 new contractsDPC I hospitals : 1DPC II hospitals : 7DPC III hospitals : 7

7 cancelled contractsCumulative total number of contracts: 280

Progress of Operamaster Marketing Operamaster Proliferation RatioOperamaster-Proliferation Ratio and Number of

Surgical Procedures, by Fiscal Year

Number of contracted hospitals is current as of the end of the 2 quarter of Fiscal 2016.

11

Operamaster sales: Up 7.8% year on year

New Operamaster-contracted hospitals: 15

(DPC I: 1; DPC II: 7; DPC III: 7)

Slowdown in Operamaster contracts in September

EMARO Endoscope Holder: Sold to 2 institutions; clinical trials commenced at 48 institutions (cumulative total of 86)

Premium Kits: Clinical trials started at end of June; trials currently held at 44 hospitals

Fiscal 2016 (2Q): Sales Highlights

Highly evaluated in clinical trials, but time taken from hospital budget request to execution longer than we expected. We will leverage by strengthening human resources, etc.

Premium Kits: Progress Status EMARO Sales Status

Favorable UnfavorableEasy to open Multiple boxes causing confusionNo shift in kit contents Cotton balls donʼt fit into beakerExpanded operation easy Opening the kit is troublesomeScenario-specific so easy to prepare

Cannot specify contents (covers, gowns, etc.) so difficult to use

Can now prepare just before deployment

Cannot be used without instrument table tray

Transparent so easy to prepare with no need to searchNo concerns about foreign matter and erroneous contentInventory control now easier

◎12%

○49%

△29%

×10%

Viewing stability

40％

Ease of operation

34％

Personnel allocation

26％

Results of EMARO Clinical Trials

Institutions conducting clinical trials (by September 30, 2016): 44 hospitals; No. of cases: 230 Units sold to: 4 hospitals Evaluation Points

12

Fiscal 2017 Full-Year Projections Sales Figures

13 Fiscal 2016Sales Growth by Major Products

-500

0

500

1,000

1,500

2,000

Kit Non-woven mekkin Bag Other non-woven

New products

Other products

Sales of subsidiary,

other

1600

-356 -48 -16

63614

¥1,831 million yenFiscal 2016 Sales Growth

（Unit: million yen, rounded down）

-0

Premium Kits Test marketing plan

Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul

Start of Production at Miho No.2 PlantStart of Production at Miho No.2 Plant

Start of Clinical UseStart of Clinical Use

Launch of Premium KitLaunch of Premium Kit

Decision ofPlaces forClinical Usage

Start of Productionat

New Tsukuba Plant

2016 2017

Fiscal 2016 Initiatives

Premium Kits: Increase number of hospitals conducting clinical trials

Strengthen Premium Kits by fast-tracking sales Continue focus on getting Operamaster up and

running Step up sales of new products (Surgery

Management System, EMARO Endoscope Holder, etc.); increase EMARO clinical trial numbers

Reinforce Operamaster proposals to medical institutions (DPC I, II, and upper-level DPC III hospitals)

14

Profit Details

49.0%

50.0%

51.0%

52.0%

53.0%

54.0%

55.0%

56.0%

57.0%

58.0%

59.0%

60.0%

1Ｑ 2Ｑ 3Ｑ 4Ｑ

50.5% 51.3%

52.7% 53.0%

53.1%

54.4%

55期原価率

56期原価率

15



Results


Results

Year-on-Year

Comparison

Amount% of Total

Amount% of Total

Amount %

Net sales 17,652 18,310 657 103.7%

Cost of sales 8,982 50.9% 9,836 53.7% 853 109.5%

Gross profit 8,669 49.1% 8,474 46.3% △195 97.7%

SG & A expenses 4,286 24.3% 4,384 23.9% 98 102.3%


Non-operating income/loss 84 △82 △166

Ordinary income 4,467 25.3% 4,006 21.9% △460 89.7%

Extraordinary income/loss 3 △1 △4

Net income 3,035 17.2% 2,685 14.7% △349 88.5%

EPS 193.00yen 170.99yen

Cost of Sales Ratio Fiscal 2016 – First 2 Quarter AnalysisFiscal 2015 – First ２ Quarter

Income Statements

Fiscal 2015：51.9%

2016 second half of fiscal outlook ：59.3%

2016 2Q of fiscal outlook ：56.4%

2016 1Q of fiscal outlook ：

53.4%

Fiscal 2015

Fiscal 2016

Cost of sales ratio： UP 2.8 points year-on-year

Increase in depreciation due to acquisition of new plant building

Effect of exchange on overseas transactions

SG&A expenses： Up ¥98 million year-on-year

Capex： ¥4,427 million （Down ¥ 1,065 million from previous corresponding period ）

Depreciation： ¥ 1,952 million （ UP ¥ 502 million from previous corresponding period)

Cost of sales : ¥ 1,450 million （UP ¥507 million）

SG&A expenses: ¥ 502 million（UP ¥4 million）

16

Fiscal 2016 Full-Year Projections

17Fiscal 2016 Income Statements

(Unit: million yen, rounded

down)

Fiscal 2015Results

Fiscal 2016Plan

Year-on-YearComparison

Amount % of Total Amount % of

Total Amount %

Net sales 36,568 38,400 1,831 105.0%

Cost of sales 18,984 51.9% 21,960 57.2% 2,975 115.7%

Gross profit 17,583 48.1% 16,440 42.8% △1,143 93.5%

SG & A expenses 8,799 24.1% 9,260 24.1% 460 105.2%

Operating income 8,784 24.0% 7,180 18.7% △1,604 81.7%Non-operating income/loss 139 100 △39

Ordinary income 8,924 24.4% 7,280 19.0% △1,644 81.6%Extraordinary income/loss △180 0 180

Net income 5,910 16.2% 5,000 13.0% △910 84.6%

EPS 375.81yen 319.62yen

Cost of Sales Ratio：Yoy: +5.3 percentage

points

Foreign exchange

Positive income factors

Negative income factors

Depreciation

SG&A Ratio：Yoy: +¥460 million

Other

New product sales promotion costs

Personnel expenses Prototype costs R&D expenses

Fiscal 2016 Revenue ProjectionsCapex：

¥8,480 million（ down ¥600 million year on year ）

New plant：¥6,719 millionDepreciation ：

¥4,727 million（ up ¥1,350 million year on year )・ Cost of sales ：¥3,636 million（ up ¥1,304 million ）・ SG&A expenses ：¥1,091 million（ up ¥46 million ）

Cash dividends ：¥120.00 per share/full-year

Overview of Medium-Term Business Plan

18

19

Medium-Term Operating EnvironmentFY2016

(current FY) FY2017 FY2018 FY2019 FY2020

External environment

Revision of medical fee remuneration

Foreign exchange


Revision of nursing care system

Seventh Medical Care Plan

Increase in consumption tax8% → 10%


Tokyo Olympics

Market conditions

Our response

Production ・Get new plant running

・Promote production automation at P.T. Hogy Indonesia



Concentration of surgical procedures (functional differentiation of beds)

Launch sales of Premium Kits and Blister Kits

Promote development of new products (joint development with hospitals)

Growing shift from surgical to minimally invasive procedures

Expand hospital management improvement business (promote Surgery Management System, ME Equipment Management System, and Surgery Procedure Manual System) Full-scale launch of minimally invasive business (EMARO, ESD)

Stepped-up regional medical cooperation

Prepare to launch home nursing care business

2025 issuesMarket conditions and our responses

771 thousands

530 thousands

1,576

844

2,284/year

4,265/year

Source: June 15 2015 Cabinet reports

Advanced Acute

Acute

Recovery

RehabilitationHome care, Nursing home

Advanced Acute

Acute

Recovery

Rehabilitation

191 thousands

581 thousands

110 thousands

352 thousands

130 thousands

401 thousands

375 thousands

242 thousands

As of July 2014

1,234 thousands Beds 1,148 thousands Beds

2025 Model

Year 2025 Model for Number of Beds by The Types of Hospital by Government

Number ofHospitals

Need to double the Productivity

Number ofbeds

Dropping Working Population

Rapid Aging of Society

Reduction # of the Hospitals

Scrap and Build of Hospitals

Required Productivity will be 2 times and more

Shifting surgery to the Acute Facilities

source：HOGY MEDICAL data base

DPC clarifiedHospital has

676 thousands beds88%

Advanced Acute and Acute Hospitals2014

7：1

10：1

13：1

15：1

88%

12%

Nursing Base

Number ofbeds

Number ofHospitals

Advanced Acute and Acute Hospitals2025

Functional Differentiation

Consolidation

Medical System Reform Plan – Reduce The Number of Beds

20

Financial Targets

FY2016

Net sales ¥38.4 billion

Operating margin 18.7%

ROE 5.6%

Market capitaliza

tion¥104.0 billion

Long-term plan

¥100.0 billion

30%

10％

¥200.0 billion

FY2020(Medium-term plan)

¥47.5 billion

22.5%

7.3%

¥158.0 billion

Revenue growth strategies Personnel development strategies

Rejuvenate executives

Upgrade education (introduce title- and job-specific education programs)

Foster and improve coordinators

Promote overall business improvement at Operamaster hospitals

Use Premium Kits to foster labor savings at medical front lines

Expand sales of new products (upgrade Surgery Management System, minimally invasive products, etc.)

Develop new products (promote ongoing development with medical institutions) Profit improvement strategies

Improve Groupwide productivity

Raise Operamaster sales ratio to 50% (sell Premium Kits)

Improve productivity by commissioning new plants

Promote production automation at P.T. Hogy Indonesia

Compliance reinforcement strategies

Take inventory of overall business; make improvements

Establish information-related system (acquire ISO27001 certification)

Medium-Term Priorities (Continued Stable Growth)

Basic Stance

Shareholder return

Invest in developing new growth-generating products and associated equipment

Commission new plants

Develop new products; install production equipment

P.T. Hogy Indonesia: Enhance efficiency and promote automation

Important for dividends to reflect performance, not depreciation, etc.!

Profit appropriation: Case by case while considering operating status of new plants and new product-related expenses

Return to employees

Link salaries to profits

Upgrade employee education

Sales/Income Targets

(¥ millions, rounded down; %)

FY2016 (current

FY)

FY2017 FY2018 FY2019 FY2020

Net sales 38,400 39,990 42,140 44,690 47,580

Operating income 7,180 5,660 7,180 8,800 10,690

Ordinary income 7,280 5,760 7,280 9,160 11,010

Net income 5,000 4,810 5,270 6,300 7,570

Operating margin 18.7% 14.2% 17.0% 19.7% 22.5%

EPS (excluding treasury stock)

319.6 307.5 336.9 402.7 483.9

ROE 5.6% 5.2% 5.5% 6.3% 7.3%

Depreciation 4,727 6,537 5,818 5,222 4,518

Medium-Term Business Plan

22

23

Sales Growth by Major Products

-1,000

-500

0

500

1,000

1,500

2,000

2,500

3,000

3,500

FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020

562

1,220

1,699

440

1,335

1,827 1,594

2,150

2,5502,890

Sales of subsidiary,other

Other products New products


Non-wovenfabrics

Regular kit

Operamaster Mekkin bag total

Sales by Major Products

FY2016

FY2020

Operamaster Regular kit Non-wovenfabrics

Mekkin bag

Other products New products Sales of subsidiary,

other

15,027(39.1%)

9,150(23.8%)

2,650(6.9%)

3,350(8.7%)

1,100(2.9%)

286(0.7%)

24,210(50.9%)

8,430(17.7%)

2,530(5.3%)

3,270(6.9%)

2,500(5.3%)

390(0.8%)

New products

Sales of subsidiary

-720 -120 -80

+1,400

+104

38,396

47,580

+9,184

6,833(17.8%)

6,250(13.1%)

-583+9,183

Sales of subsidiary

New products

Sales by Major Products

0

10,000

20,000

30,000

40,000

50,000

60,000

FY2010 FY2011 FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020

31,312 31,874 33,09434,793 35,234

36,56938,400 39,990

42,14044,690

47,580

Sales of subsidiary,other

Other products New products Other Non-woven fabrics

Non-wovenfabrics

Regular kit Operamaster Mekkin bag

Mekkin bag

Operamaster

Regular kit

Non-wovenfabrics


New productsOther products

5%

51%

13%

18%

3%

5%4% FY2020 （Unit: million yen, rounded down）（Unit: million yen, rounded down）（Unit: million yen, rounded down）

24

Operamaster Contract Plan

0 20 40 60 80 100

Ⅰ群

Ⅱ群

Ⅲ群

(単位：％)

56期2Q時点オペラ契約 60期までに契約未契約

* DPC breakdown as of FY2016

DPC type

Operamaster Contract Plan (No. of Surgical Operations)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

48期 50期 52期 54期 56期２Q 58期 60期

Targeting operations of 2 million or more by FY2020

Various Kit Definitions

Premium Kits Blister Kits Tyvek Kits (existing)

Production plant

New plant (Murti) Tsukuba, Miho

Safety Benefits of automated production

Elimination of human error (major declines in input mistakes and contamination)

As before

Supply system

When plant completed: 5-day delivery period(48 hours after receipt of order) As before

Target By surgery type

From surgery preparation to wound closure

Up to 1 box, 3 sets product target

Priority on Operamasterhospitals

As before

Criteria Kit template materials: 80% or more

Kit template materials: 30% to 80%

Cases where small amounts of materials used

Kit template materials: 30% or less

FY2008 FY2010 FY2012 FY2014 FY2016(２Q) FY2018At FY2016 (２Q) By FY2020 Not yet Contracted

DPC I

DPC II

DPC III

(%)

FY2020

25

New Plant Concepts

1. Stable supply• Production equipment protected by seismic isolation structure• Automation ensures stable production and allows short delivery times

2. Easy-to-use products • Shift to product specs that customers find easy use (increase added

value of kits)• Allows materials to be arranged in order of use• Reduced surgery preparation time

3. Improved productivity and safety through automation and unmanned operation

• Automation reduces human error and allows future cost reductions • Maximum reduction in bacteria attachment due to no human contact

with materials

New Plant Plan

(¥ millions, rounded down)

FY2013 FY2014 FY2015 FY2016 (current

FY)

FY2017 FY2018 FY2019 FY2020

Buildings

Production system

Machinery and equipment

■Investment amount¥33,400■Depreciation

5,100 12,681 7,300

815

6,719

2,084

800

4,069

400

3,448

400

2,963 2,627

* Announced FY2016 (1Q)■Investment amount¥30,751■Depreciation

5,100 12,681 7,300

815

4,200

2,170

1,470

3,550 3,390 2,850 2,440

Start of operation

Major investment changes: Increased investments in machinery and systems that improve productivity

Depreciation

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

52期 53期 54期 55期 56期（当期） 57期 58期 59期 60期

販管費

原価（新⼯場以外）

新⼯場

海外

2,712 2,865 2,708

3,376

4,727

6,537

5,818

5,222

4,518

(¥millions)

FY2012 FY2013 FY2014 FY2015 FY2018 FY2019 FY2020FY2016（Current FY) FY2017

Overseas

New plant

Cost of sales (excluding new plant)

SG&A expenses

26

Cost of Sales Ratio

47.0%

49.0%

51.0%

53.0%

55.0%

57.0%

59.0%

61.0%

FY2012 FY2013 FY2014 FY2015 FY2016 FY2017 FY2018 FY2019 FY2020

49.5%

49.0%

50.7%

51.9%

57.2%

60.4%

57.6%

55.6%

53.7%

49.7%

51.6%

50.2%

49.4%

49.0%48.2%

Cost of Sales Ratio

Cost of Sales Ratio（Excluding new plant）

0 2,000 4,000 6,000 8,000 10,000 12,000

56期

60期

販売費人件費

試験研究・減価償却その他

成長戦略・新製品販売戦略費用

SG&A Expenses

1,590(17.3%)

3,489(38.0%)

1,502(16.4%)

2,419(26.4%)

1,970(17.6%)

4,490(40.0%)

+380 +1,001 -4 +173 +500

9,170

11,220

+2,050

670(6.0%)

170(1.9%)

1,498(13.4%)

2,592(23.1%)

Expenditure priorities: Company growth areas (product development, sales promotion, information management)

Net Sales; Operating Income

0

100

200

300

400

500

600

50期 51期 52期 53期 54期 55期 56期（当期）

57期 58期 59期 60期

0%

5%

10%

15%

20%

25%

30%(単位：億円)

売上⾼

営業利益

営業利益率

FY2012 FY2013 FY2014 FY2018 FY2019 FY2020FY2016

((Current FY)

FY2017FY2015FY2011FY2010

(¥ Billions)

Net Sales

Operating Margin

Operating income

Sales costsTesting/research and depreciation Growth strategy and new product sales strategy costs

Personnel expenses Others

FY2016

FY2020

(¥ millions)

10

20

30

40

50

60

Documents

Financial Report First 2 Quarters of Fiscal 2016