Business Risks

The Company has established the Group Risk Management Policy to guide responses to various internal and external risk factors, and organizational systems and risk factor-specific response measures are put in place accordingly. The major risk factors that could negatively impact the Company’s operating results and financial position are as follows.

Changes in Government Healthcare Policies

In the healthcare industry, governments in Japan and overseas continue attempts to control health expenditures while implementing system reforms to enhance the quality of healthcare. The Company constantly analyzes the government healthcare policies of the countries in which it operates in order to furnish the necessary responses through coordination between relevant internal divisions and stakeholders. However, large scale amendment in healthcare policies exceeding expectations resulting in rapid changes in the operating environment could affect the Company’s operating results and financial position.

Stable Supply-Related Risks

Terumo has established business continuity plans (BCPs) pertaining to material procurement in order to develop sustainable value chains that ensure stable supply of high-quality products to medical settings. In addition, Terumo has been enhancing quality control, compliance, environmental health and safety related initiatives, etc. through various actions including development of systems for collaboration with business partners. However, in case malfunction of the stable supply systems continues for an extended period of time exceeding expectations, the Company’s operating results and financial position could be affected.

Quality-Related Risks

Terumo develops its business on a global scale. For this reason, it is enhancing compliance with legal and regulatory standards and specifications pertaining to pharmaceuticals and medical devices in the countries in which it manufactures and sells its products. It is also reinforcing its quality governance systems globally and developing and constantly improving quality control systems. In addition, internal audits are conducted to verify the status of legal compliance at each production site while quality control-related situations are periodically reviewed. To meet all the required standards, legal or otherwise, rigorous quality and production control provisions are put in place to ensure the quality, efficacy, and safety of its products. However, there are following potential risks which could lead to decrease in sales or rise in quality-related costs, and the Company’s operating results and financial position could be affected as a result.

• A.Risk of inability to comply in a timely manner with more rigorous legal or regulatory standards which could be newly implemented in the countries.

• B.Risk of recalls or temporary halts to product shipments due to quality-related issues with its products.

• C.Need for preventive measures or actions arising from cases in which there would be any medical accident and when Terumo anticipates possibilities that the risks might extend to its products in the future, even if direct involvement of its products is not confirmed

Discovery of New Medical Evidence

As time passes in the healthcare industry, research findings can reveal evidence of previously unknown efficacies or risks of treatments, medical devices, or pharmaceuticals. The Company undertakes product development, business alliances, acquisitions, and other business initiatives based on thorough consideration of all potential risks and opportunities that can be predicted beforehand. Moreover, even after an initiative is started, the decision on whether to continue or discontinue the initiative is made based on analyses of new research reports or clinical data. However, should a product be found not to demonstrate the anticipated efficacy, or new issues or adverse effects be discovered with regard to the treatment previously thought to be effective, the Company’s operating results and financial position could be affected.

Market Price Fluctuations

In the domestic healthcare industry, Japanese government enacts biennial revisions to government reimbursements for drugs, medical treatment, and medical equipment covered by the national health insurance scheme as part of its measures to control health expenditures. In addition, intense competition and innovations in technologies both in Japan and overseas could serve to greatly lower market prices of products. Terumo takes measures to minimize the impacts of such risks through continuous reduction of manufacturing costs and sales expansion of highly value-added products. However, large fluctuations in market prices could adversely affect the Company’s operating results and financial position.

Exchange Rate Fluctuations

Because Terumo’s headquarters is located in Japan, all financial accounts of overseas subsidiaries are converted from the currencies of the respective countries into Japanese yen for the consolidated financial statements and other purposes. Fluctuations in the applied exchange rates could therefore influence conversion of those accounts into yen and result in either gain or loss for the Company. Steps are taken to minimize the impacts of these fluctuations through structural methods, such as by transferring production to overseas factories and importing raw materials, along with flexible utilization of contracts to hedge against exchange rate volatility for trade receivables. However, it is possible that large exchange rate fluctuations could affect the Company’s operating results and financial position.

Changes in Accounting Policies and Taxation Systems

The Company endeavors to incorporate future changes in accounting standards and taxation systems into business plans and growth strategies to the extent that they can be predicted beforehand. However, should new accounting standards or taxation systems be effective at a timing when it is difficult to acquire information in advance or should additional tax burdens be incurred due to difference in interpretation between tax authorities and the Company, the Company’s operating results and financial position could be affected.

Capital and Business Alliances, Corporate Acquisitions

Capital and business alliances, corporate acquisitions, and other such measures have been positioned as one of the important strategies for strengthening business fundamentals. In undertaking such measures, the Company analyzes and evaluates the business potentials and takes steps to mitigate the projected risks and to ensure swift and efficient post-merger integration, etc. However, should a capital and business alliance, corporate acquisition, or other such measure fail to produce the expected benefits, the Company’s operating results and financial position could be affected.

Risks Pertaining to Impairment Losses, Valuation Losses, and Business Reorganizations

Based on its mid- to long-term growth strategies, the Company pursues efficient utilization of management resources in its businesses and maximum return on investments. However, should the Company be unable to achieve the anticipated growth; impairment losses be recorded on goodwill, tangible or intangible assets; or losses might be incurred due to sale or liquidation of businesses, the Company’s operating results and financial position could be affected.

Information Security- and IT System Management-Related Risks

The Company implements scam email countermeasures, unauthorized communication monitoring, and other initiatives to reinforce its security measures in order to protect information and IT systems through multiple layers of defense against external threats. Measures for protecting against internal threats include establishment of the global information security standards and rules, implementation of ongoing associate training, and measures to update or replace aged systems. However, should these security precautions fail to function, there might be risks of unauthorized access, leaks of personal or confidential information, or system failures, the Company’s operating results and financial position could be affected.

Legal Proceedings

Terumo faces the risk of being involved in lawsuits, disputes, and other types of legal proceedings both in Japan and overseas. The Company strives to minimize legal risks through such measures as continuous research efforts on the part of Legal Department, Intellectual Property, and other respective divisions as well as system of internal control. The management structure is also in place to ensure that the Board of Directors and the Audit and Supervisory Committee review situations as needed. However, if the Company were to be sued by a third party for damages, or an injunction against sales or any other major legal action were to be taken, the Company’s operating results and financial position could be affected.

Pandemics, Epidemics, and Large-Scale Natural Disasters

Terumo has established Group BCP Policy to facilitate the implementation of proactive and reactive measures against global pandemics and epidemics as well as against earthquakes, hurricanes, and other natural disasters. In addition, various drills are carried out on a regular basis. However, the Company’s operating results and financial position could be affected if the impacts of such events exceed the projected scale. Against impacts due to the global COVID-19 pandemic, Terumo implemented following three basic policies for business activities, which have been formulated based on Group Mission, Core Values and Group BCP Policy.

• Secure associates health and safety
• Stable supply to sustain healthcare
• Proactive contribution to infection prevention and treatment

Furthermore, on April 1, 2020, the Company began implementing a number of measures to maintain flexible operations and to respond to the rapidly changing situations from the perspective of group-wide crisis management. These measures are to strengthen company management, such as securing financial health (liquidity), assessing performance and forecasts in a faster cycle, detailed expenditure management and discipline.

Risks Related to the Environmental Health and Safety, and Compliance

In regard to compliance with laws pertaining to occupational health and safety, anticorruption, antitrust, and appropriate promotions targeting healthcare professionals as well as measures for addressing climate change and other environment issues, the Company implemented management systems that conform to international standards, pursues ongoing improvements to its activities and systems, and conducts education for associates. However, if these measures were unable to function sufficiently due to substantial changes to the laws of relevant countries or other factors impacting the Company or its stakeholders, there might be risks of serious legal violation or loss of trust in society and the Company's operating results and financial position could be affected.

Economic and Geopolitical Risks

Terumo supplies products to various countries. It is possible that economic recessions, subsequent contractions in demand, acts of terrorism, wars, or other unpredictable political changes could occur in the Company's business domain. The company constantly reviews the political and economic situations of the countries, and in case of emergency, takes necessary actions keeping safety of human lives always as the top priority. However, the Company’s operating results and financial position could be affected if the impacts of such changes exceed the projected scale.