May 15, 2018 Kawasumi Laboratories, Inc. Announcement of Mid-term business plan and Restructuring plan Kawasumi Laboratories, Inc. (hereinafter referred as Kawasumi ) announced today that it has decided to execute the new Mid-term business plan and restructuring plan to enhance its profitability and corporate value. 1. Background and purpose of restructuring the business Due to the change of business environment especially for Hemodialysis, it has been difficult for these several years to ensure the profits going forward. Under this circumstance, Kawasumi has been carrying on our Mid-term business plan, announced on 13 th May 2016, to be a company recognized for its originality by developing our technology and strengthen R&D. As a result, R&D of new products are on track as planned and now we can see a piece of the future business of the new products. Considering these circumstances, while our financial foundation is still stable, it has been decided to focus our revenues on growing business segment by minimizing the resources on unprofitable business under the new Mid-term business plan announced today. 2. Overview of Restructuring Kawasumi will launch a restructuring to improve profitability and extend corporate value by executing the measures below: (1) Reformation of Hemodialysis and Plasmapheresis business - Restructuring of unprofitable business Discontinue domestic sales and production of Dialyzer. Discontinue domestic sales of Plasmapheresis. (except OEM) Reassess organization and structure of production in addition to rationalizing 60 domestic employees and 160 overseas employees by the end of FYE Mar 2020. - Reorganization of the sales branches Aggregate 8 sales branches into 3 branches. (Tokyo, Osaka, Fukuoka) Reassess organization and structure of sales in addition to rationalizing 40 domestic employees within FYE Mar 2019. Liquidation of the sales subsidiary, Namsin Trading in Thailand. (2) Expand Endovascular Repair business and launch new products - Establishment of the new basis of profit resource by launching new products Focus our resources on R&D of the growing business such as Endovascular Repair, Digestive organs Repair and Adhesion barrier. Establish the new R&D base in Kanagawa by the end of FYE Mar 2021. - Enhance globalization Strengthen the global activities to launch the new products worldwide. Page 1 of 2
Expand the sales of Stent Graft in Europe and the sales of the current products in US. (3) Improve productivity - Improve efficiency of business operation Centralization of production control by establishing Production Control Center in the organization. Rationalizing the operation by RPA (Robotic Process Automation). Reassess organization and structure of indirect sections such as Headquarter in addition to rationalizing 30 domestic employees within FYE Mar 2019. - Work style reform Improve Human Resource System in order to let employees balance work and life. Enhance the training system to create the new leaders. Based on the above measures to rationalize headcount, Kawasumi will announce a voluntary retirement program of approximately 290 employees globally. Eligible applicants and detailed conditions will be announced once officially finalized. Restructuring related expenses are as follows: One-time expense: 1.5 Billion YEN (FYE Mar 2019), 0.1 Billion YEN (FYE Mar 2020) 3. Financial information of discontinued business Sales (consolidated) Discontinued business (a) FYE Mar 2018 Financial result (b) Ratio (a/b) 3,619 Million YEN 25,437 Million YEN 14.2% 4. Future outlook The restructuring is expected to have a one-time cost of 1.5 Billion YEN during FYE Mar 2019 and 0.1 Billion YEN during FYE Mar 2020. The separate announcement covering the impact is released today, titled Mid-term business plan & Long-term objectives. Page 2 of 2
Mid-term business plan & Long-term objectives May 15 th 2018 1
Index 1. Current Mid-term business plan 2. New Mid-term business plan 3. Long-term objectives 2
Current Mid-term business plan(fye Mar 2017 Mar 2019) Sales amount 290 270 250 230 210 190 170 150 Consolidated basis 59th 60th 61st 62nd Unit: 100Mil YEN Operating income 25 20 15 10 5 0-5 FYE Mar 2016 FYE Mar 2017 FYE Mar 2018 FYE Mar 2019 Sales Operating income Planned R&D expense Unit: 100 Mil YEN R&D expense FYE Mar 16 FYE Mar 17 FYE Mar 18 FYE Mar 19 FYE Mar 20 FYE Mar 21 59th 60th 61st 62 nd plan 63 rd plan 64 th plan R&D expense is increasing 7 10 11 16 15 18 Can t afford it under the current business situation 3
Current Mid-term business plan(fye Mar 2017 Mar 2019) Current Mid-term business plan consists of: Business structural reform Enhancement of R&D Improve C/F of current business Internal structural reform Improve organizational skill and execution Improve efficiency of business operation Enhance globalization Improve motivation Completed the preparation of the execution plan Will shift to the new mid-term business plan which consists of the specific tasks and plans instead of the current mid-term plan so that we can drastically improve the profitability and extend the corporate value. 4
New Mid-term business plan (FYE Mar 2019 Mar 2021) 5
New Mid-term business plan (FYE Mar 19-Mar 21) Overview of Restructuring 1 Reformation of Hemodialysis and Plasmapheresis business Restructuring of unprofitable business Reorganization of the sales branches 2 Expand Endovascular Repair business and launch new products Establish the new basis of profit resource by launching new products Enhance globalization 3 Improve productivity Improve efficiency of business operation Work-style reform 6
Measures 1 Reformation of Hemodialysis and Plasmapheresis business Restructuring of unprofitable business Discontinue domestic sales and production of Dialyzer. Discontinue domestic sales of Plasmapheresis. (except OEM) Discontinue other unprofitable business. Aggregation of the sales branches Aggregate 8 sales branches into 3 branches. (Tokyo, Osaka, Fukuoka) Liquidation of the sales subsidiary, Namsin Trading in Thailand. 7
Measures 2 Expand Endovascular Repair business and launch new products Establish the new basis of profit resource by launching new products Expand Endovascular, Digestive organs and Adhesion barrier business => Sales amount 200% compared to FYE Mar 2018 Establish the new R&D base in Kanagawa by the end of FYE Mar 2021. Enhance globalization Strengthen the global activities to launch the new products worldwide. Expand the sales of Stent Graft in Europe and the sales of the current products in US. 8
Measures Image of new products launch Mid-term business plan (FYE Mar 2019 Mar 2021) New R&D Facility Next Mid-term (FYE Mar 2022- ) Next-gen SG SG for AAA Expansion device for SG Plasmapheresis (CART) Colonic stent Adhesion barrier Biliary stent FYE Mar 2019 FYE Mar 2022 FYE Mar 2025 9
3 Improve productivity Measures Improve efficiency of business operation Centralization of production control by establishing Production Control Center in the organization. Aggregation of some functions of HQ at New R&D facility. Rationalizing the operation by RPA (Robotic Process Automation). Work-style reform Improve Human Resource System in order to let employees balance work and life. Enhance the training system to create the new leaders. 10
Voluntary retirement program Will announce a voluntary retirement program of approximately 290 employees globally. Eligible applicants and detailed conditions will be announced once officially finalized. FYE Mar 2019 FYE Mar 2020 Japan 110 20 Sales related 40 HQ, etc. 30 Production related 40 Production related 20 Thailand 160 Production 160 - Effect by liquidation of Namsin Trading is not included above. 11
New Mid-term business plan Restructuring will be completed by FYE Mar 2020. Resources generated from restructuring will be sourced into R&D activities. Unit: 100 mil YEN FYE Mar 2018 FYE Mar 2019 FYE Mar 2020 FYE Mar 2021 61st 62nd 63rd 64th Net Sales 254 230 215 220 Cost of Sales 168 152 140 135 Gross Profit 87 78 75 85 SG&A (except R&D) 69 65 59 57 SG&A (R&D) 11 16 15 18 Operating income 7 3 1 10 Non-operating income/expense 1 1 1 1 Ordinary income 8 2 2 11 Restructuring expense 0 15 1 0 Income before income taxes 7 17 1 11 $1=107YEN, 1Baht=3.40YEN 12
New Mid-term business plan (100Mil YEN) 300 250 200 150 100 36 Sales Plan 22 5 90 85 83 84 109 102 96 96 50 (D)Endovascular, 19 24 33 41 Digestive organs, 0 Adhesion barrier FYE 2018 Mar 年 3 月期 2018 FYE 2019 Mar 年 3 月期 2019 2020 FYE 年 Mar 3 月期 2020 2021 FYE 年 Mar 3 月期 2021 (61 61st 期 ) (62 62nd 期 ) (63 63rd 期 ) (6464th 期 ) Discontinued business= Dialyzer (Domestic), Blood tubing lines (Overseas), Domestic PP(except OEM), Blood pressure monitoring kit, Catheter Expand Endovascular, Digestive organs and Adhesion barrier business => Sales amount 200% compared to FYE Mar 2018 (A)Discontinued business (B)Blood related (C)HD&PP (D) FYE Mar 2018 FYE Mar 2019 FYE Mar 2020 FYE Mar 2021 Sales (Overseas) 1.4Bil YEN 1.5Bil YEN 1.8Bil YEN 2.1Bil YEN 13
Schedule 項目 FYE Mar 2019 FYE Mar 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Restructuring Close 5 sales branches Finish Production of dialyzer Finish Production of other products Liquidation of Namsin Trading Voluntary retirement Sales, HQ etc. Production (Japan) Production (Thailand) Annou nceme nt = estimated timing of completion 14
Long-term objectives 15
Long-term objectives FYE Mar 2023 (5years later) Sales amount 24Billion YEN Operating income 1.5Billion YEN Endovascular, Digestive organs, Adhesion barrier Sales amount +50% compared to FYE Mar 21 FYE Mar 2025 (7years later) Sales amount 27Billion YEN Operating income 3.5Billion YEN Endovascular, Digestive organs, Adhesion barrier Sales amount +50% compared to FYE Mar 23 16
Image of long-term growth Vision: To be a company widely recognized for its Originality on a global stage FYE Mar 2025 7years later Another growth Sales amount 27 Bil YEN Operating income 3.5 Bil YEN 2 nd year Complete restructuring 5years later FYE Mar 2023 Endovascular, Digestive organs, Adhesion barrier, Sales amount +50% compared to FYE Mar 23 FYE Mar 2019 Restructuring 3years later FYE Mar 2021 Normalized New R&D facility Establish New product segment Sales amoun t 24 Bil YEN Operating income 1.5 Bil YEN Endovascular, Digestive organs, Adhesion barrier Sales amount +50% compared to FYE Mar 21 17
Inquiries: KAWASUMI LABORATORIES, INC. Corporate Planning TEL : +81 (0) 3-5769-2698 Email : webmaster1@kawasumi.jp 18