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News Release

May. 15, 2007

Tsumura Announces Medium-Term Management Plan for FY 2007 to FY 2009 (Consolidated)

Tsumura & Co. (Headquarters: Tokyo, President: Junichi Yoshii) is pleased to announce that a meeting of the Board of Directors held on May 15, 2007 has adopted a medium-term management plan for the three years starting fiscal 2007 (ending March 31, 2008). Details are as follows:

Details

1. Background to Development of the Medium-Term Management Plan
In July 2005, Tsumura developed and announced a medium-term management plan for the three years from fiscal 2005. Since then, the Company has restructured its businesses, aiming to bolster its strengths and respond to changes in the business environment. Specifically, we have taken the following initiatives:

  • Continuing activities to establish kampo medicine
  • Drug fostering and evolution of kampo
  • Promoting development of kampo in the United States
  • Merging Nihon Shoyaku Co., Ltd., Tsumura's subsidiary
  • Spinning off the household products business
  • Establishing a Botanical Raw Materials Division that controls the procurement, processing and research of botanical raw materials
  • Selling the head office building

As a consequence, Tsumura has achieved an important milestone, creating an environment that enables the Company to specialize in kampo and botanicals. At the same time, because of these initiatives, the operating environment surrounding the Company and Group has changed significantly from July 2005. Hence, Tsumura positions FY2007 as the first year of its specialization in the kampo and botanicals business and has accordingly developed a new medium-term management plan.

The main points of the new medium-term management plan are as follows:

(1) Sales and profits
We aim to post consolidated sales of 104.5 billion and operating profit of 20 billion for fiscal 2009 based on the assumption that the volume of sales of prescription kampo preparations will grow 7%.

(2) Important management indexes
From the perspective of the improvement of capital efficiency and rate of return, we continue to view ROA (return on asset) as an important management index. We aim to record an ROA of 13.5% in fiscal 2009, although total assets increased following the sale of the head office building, a rise in the market value of our investment securities holdings, and other factors.

(3) Capital investment
With a rise in demand for prescription kampo preparations, we will replace our existing equipment and begin to build a new plant on the site of the Ibaraki Plant. Capital investment will be recorded from fiscal 2009.

(4) Interest-bearing debt
We will continue to reduce the interest-bearing debt, aiming for 23 billion for fiscal 2009.

(5) Dividend
We will consider increasing dividends, taking investment situations into account.

2. Numerical Targets in the Medium-Term Management Plan for FY 2007 to FY 2009 (Million Yen)

  2006
performance
FY 2007 FY 2008 FY 2009
Plan Year on year Plan Year on year Plan Year on year
Net sales 91,227 95,000 4.1% 99,000 4.2% 104,500 5.6%
(Pharmaceutical
products)
76,182 79,600 4.5% 82,100 3.1% 87,000 6.0%
(Household products) 15,044 15,400 2.4% 16,900 9.7% 17,500 3.6%
Operating profit 15,505 16,000 3.2% 17,000 6.3% 20,000 17.6%
(Pharmaceutical products) 14,550 15,200 4.5% 15,600 2.6% 18,400 17.9%
(Household products) 954 800 △16.1% 1,400 75.0% 1,600 14.3%
Recurring income 14,643 15,500 5.9% 16,500 6.5% 19,600 18.8%
Net income 13,152 8,800 △33.1% 9,500 8.0% 11,500 21.1%
R&D expenses 4,829 4,600 △4.7% 4,600 - 4,600 -
Capital investment 3,906 4,700 20.3% 6,700 42.6% 8,200 22.4%
Interest-bearing debt 35,705 28,500 △20.2% 25,000 △12.3% 23,000 △8.0%
Equity capital 68,455 75,600 10.4% 83,300 10.2% 92,800 11.4%
Equity capital to total assets 47.7% 54.6% - 56.9% - 59.8% -
  2006
performance
2007
projection
2008
projection
2009
projection
ROA
(Return on assets)
11.1% 11.3% 11.9% 13.5%

3. Action Targets in the Medium-Term Management Plan

(1) Establish kampo medicine
We will continue to support improved kampo education at 80 medical schools in Japan and the establishment of outpatient kampo clinics in university hospitals.

(2) Foster drugs
Examining the recent structure of illnesses and areas where medical needs are heavy, we will focus on disorders that are difficult to treat with modern drugs but for which kampo preparations have shown specific results, and will collect clinical and basic data of the kampo preparations.

(3) Internationalize kampo
We will develop TU-100 Daikenchuto, which we need to achieve further growth within the pharmaceutical industry.

(4) Develop production systems
We will take initiatives such as new investments and equipment replacement, reviews of personnel assignment for efficient operations, securing the botanical raw materials for kampo preparations of drug fostering and evolution and internationalization as well, and reviewing production systems, development of distribution systems, etc.

(5) Establish a botanical raw materials traceability system
To maintain stable supplies of safe botanical raw materials, we will strive to improve the quality assurance and quantity assurance of botanical raw materials.

(6) Create an open company
We will build a management system that improves corporate value and that makes clear disclosure of our position through communication with our stakeholders.

4. Progress of the Medium-Term Management Plan Announced in July 2005 (Consolidated, Million Yen)

  FY 2005 FY 2006
Plan* Performance Performance
vis-a-vis Plan
Plan** Performance Performance
vis-a-vis Plan
Sales 89,000 90,419 1.6% 91,500 91,227 △0.3%
Pharmaceutical products 74,800 75,439 0.9% 76,450 76,182 △0.4%
Household products 14,200 14,979 5.5% 15,050 15,044 △0.0%
Operating profit 14,300 16,467 15.2% 15,700 15,505 △1.2%
Pharmaceutical products 13,800 15,775 14.3% 14,840 14,550 △2.0%
Household products 500 692 38.4% 860 954 10.9%
Recurring income 13,000 15,507 19.3% 15,000 14,643 △2.4%
Net income 10,400 12,380 19.0% 13,400 13,152 △1.9%
ROA 11.6% 12.8% - 11.6% 11.1% -

*The figures in this column were announced in July 2005.
**The figures in this column followed the May 2006 revision of the medium-term management plan announced in July 2005.
Sales and operating profit by segment were revised again when interim results were announced in November 2006.