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APEI International LBO Challenge 2018 - Fujifilm LBO

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APEI International LBO Challenge 2018 - Fujifilm LBO

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Team: Phoenix Partners
Proposed leveraged buyout of Fujifilm. Unlocking value of the Japanese conglomerate through the trimming of declining businesses while focusing on the burgeoning Informations Solutions business. Our strategy will deliver our GPs a return of 32.4% IRR.

Team: Phoenix Partners
Proposed leveraged buyout of Fujifilm. Unlocking value of the Japanese conglomerate through the trimming of declining businesses while focusing on the burgeoning Informations Solutions business. Our strategy will deliver our GPs a return of 32.4% IRR.

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APEI International LBO Challenge 2018 - Fujifilm LBO

  1. 1. Unlocking Long Term Value through Restructuring
  2. 2. Deal Team i Deal Team consists of both technical specialists and business consultants well versed in their area of expertise… Darren Cheng Structuring and Execution • BBM, SMU School of Business • Standard Chartered Plc • Seatown Holdings • Sumitomo Mitsui Banking Corporation • Lumen Capital Investor Ernest Ong M&A and Corporate Development • BBM, SMU School of Business • Auric Pacific • Seatown Holdings • PwC • IncuVest Asia Josephine Soh Consulting and Business Development • BBM & BBA, SMU School of Business and Accountancy • Parthenon-EY • PwC • DHL • Telenor Cao Yu Mergers and Acquisitions • BBA, SMU School of Accountancy • Morgan Stanley • Lazard • TSR Partners
  3. 3. Executive Summary 1 We believe that Fujifilm has the potential to unlock tremendous value through 3 key levers and will exist as a more efficient organization post restructuring • Generating 43.6% of our returns, EBITDA growth is the biggest driver of our IRR. We believe that the renewed focus in the pharmaceuticals business coupled with our short, medium, and long term strategies to boost Fujifilm’s growth will transform the firm into an integrated healthcare solutions provider. • We see EBITDA growing by 18.7% CAGR up our exit in FY2022 and continue to grow post-IPO with the implementation of our proposed strategy #1 EBITDA Margins Expansion through improved operations • Generating 18.0% of returns, value is unlocked by levering the firm from 1.9x to 5.0x in Total Debt/EBITDA, utilising Fujifilm's available debt headroom • While maintaining a healthy Debt Service Coverage Ratio of ~1.5x, we could potentially benefit from the lower of cost of capital • The low cost of borrowing in Japan makes it an attractive place for LBO transactions • At the end of the 5 year projection period, we expect to paydown ~71% of the total debt and exit at a 0.54x Total Debt/Equity #2 Lowering cost of capital through increased leverage • Generating 38.4% of our returns, we believe that the firm is currently significantly undervalued due to the prevalence of a conglomerate discount • Disposing low growth assets early in the post- LBO strategy allows resources to be focused on Fujifilm’s high growth pharmaceuticals segment • Aim at disposing businesses to strategic investors which have higher willingness to pay due to achievable synergies • Exit as a more pure-play pharmaceuticals company, with an attractive blended EV/EBITDA of 13.9x #3 Potential for valuation re-rating due to perceived conglomerate discount IRR 32.4% MoM 3.5x
  4. 4. Screening Process Note: 1. Based on Net Debt/EBITDA, 2. EV/EBITDA, 3. Full details in the appendix Source: Team Analysis 2 Our screening methodology takes into account the firm’s external and internal environment, as well as signs of undervaluation, opportunities for EBITDA expansion, and low net debt Company Attractiveness of Industry Firm’s Cash Flow Stability Firm’s Potential to Grow Debt Headroom1 Valuation2 Incompetence of Management3 AMD 4 2 4 2 1 2 Micron 4 3 4 1 4 2 Kraft Heinz 1 4 2 1 3 1 Pepsi Co 1 4 2 3 4 4 GE 3 3 3 1 3 2 Mattel 2 2 2 1 1 3 2 3 3 4 4 4 2 Kodak 2 2 3 4 4 2 Our analysis shows that Fujifilm is the best LBO candidate
  5. 5. Company Profile 3 Company Overview 3-Year Share Price History with P/E Bands 0.00 1000000.0 2000000.0 3000000.0 4000000.0 5000000.0 6000000.0 7000000.0 8000000.0 9000000.0 0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Max: 23.6x High: 20.8x Avg: 18.1x Low: 16.0x Min: 13.9x Share Price (¥ ) 52W Return: (4)% 52W Return: 8% Institutions 28.8% Corporations 1.5% Individuals/Insiders 0.0% Public 69.7% Shares Outstanding 430.2mm Holder Appointment Stock Held Komori, Shigetaka Chairman & CEO 22,500 Toda, Yuzo CTO, Corporate VP 11,600 Tamai, Koichi CIO, Corporate VP 7,600 Key Insiders 342 900 1,081 11% 9% 8% 14% 15% 13% 0% 10% 20% 0 500 1,000 Imaging Solutions Information Solutions Document Solutions Revenue EBIT Margins EBITDA Margins ¥ (mm) Margins (%) • Established in 1934, Fujifilm Holdings Corporation develops, produces, distributes and services imaging, pharmaceutical and printing solutions worldwide, headquartered in Tokyo, Japan • Market Cap: ¥2,204bn; Enterprise Value: ¥2,151bn • Derives revenue from 3 operating segments (% of Revenue): o Imaging (15%): Offers photo imaging (e.g. Instax) and optical device and electronic imaging (e.g. mirrorless/ DSLR cameras) products globally, with strong acceptance in NA and EU o Information (39%): Offers mainly pharmaceuticals (e.g. regenerative medicine) and medical systems, and highly functional materials (e.g. electronic/ fine chemicals and graphic inkjet systems) o Document (46%): Offers office and printing products and leasing services through 75% subsidiary Fuji Xerox Segment Breakdown Shareholder CompositionSummary Financials FYE 31 Mar (¥ bn) 2014A 2015A 2016A 2017A CAGR Revenue 2,418.1 2,463.4 2,460.4 2,322.2 -1.34% % growth 9.94% 1.87% -0.12% -5.62% Adjusted EBITDA 219.4 229.7 246.5 231.2 1.75% % margin 9.07% 9.32% 10.02% 9.95% Adjusted EBIT 128.5 164.4 180.6 172.3 10.28% % margin 5.31% 6.67% 7.34% 7.42% Debt to EBITDA (x) 1.6 1.5 1.5 2.4 ROE (%) 3.9 5.5 5.8 6.5 18.56% Key Products Imaging Solutions Information Solutions Document Solutions 3Y High: ¥5,009 3Y Low: ¥3,455 Source: Company Filings, Bloomberg Fujifilm Nikkei 225 (Rebased)
  6. 6. 2,151 389 3,001 858 (209) 1,963 Current EV Imaging Solutions Document Solutions Information Solutions Corporate Center Eliminations SOTP Valuation Documents Canon Seiko Epson Ricoh Fujifilm Placing vs peers Market Share 29% 11% 27% 17% 3rd Average EBITDA Margins 16% 17% 12% 13% 3rd Average EBIT Margins 12% 14% 8% 8% 3rd Average ROCE3 23% 27% 7% 8% 3rd Situational Overview Notes: 1. 4 year historical average segment results for various firms, 2. Information solutions segment, 3. CE represents segment assets, 4. Return on Research Capital = EBIT/R&D Source: Company Filings, Euromonitor, Bloomberg 4 Imaging Canon1 Nikon1 Sony1 Fujifilm1 Placing vs peers Market Share 25% 15% 14% 13% 4th Average EBITDA Margins 19% 12% 11% 10% 4th Average EBIT Margins 15% 9% 6% 7% 3rd Average ROCE3 41% 23% 36% 7% 4th Industry Comparables Benchmarking Indicative SOTP Value • Operational performance appears depressed with Fujifilm underperforming peers in its various segments • This demonstrates a lack of focus by management leading to inconsistent results between operating segments Operational “dis-synergies” could be unlocked in the event of a split Pharmaceuticals /Chemicals2 Takeda Pharma Johnson & Johnson Novartis Fujifilm Placing vs peers Average EBITDA Margins 20% 33% 22% 15% 4th Average EBIT Margins 8% 27% 19% 9% 3rd Average ROCE3 6% 21% 11% 6% 4th Average R&D/Revenue 19% 12% 17% 7% 4th Average RORC4 44% 221% 109% 131% 2nd 7.4x 8.1x 8.3x 14.9x 7.4x ~10.4x EV/EBITDA • By marking the segments to peer multiples, the current valuation significantly undermines the market value of the standalone business segments • Using a bottoms-up SOTP approach we estimate that the indicative upside is ~39.5%, with the business valued at 10.4x EV/EBITDA, significantly higher than current trading multiples Lack of focus limits operational efficiency, while valuations are mismatched due to perceived conglomerate discounting SOTP Pure-play Implied Valuations Tremendous value could be unlocked by splitting up businesses ~¥850bn unlocked Existing Enterprise Value
  7. 7. Strategic Alternatives Source: Broker Reports 5 After considering other strategic alternatives, we feel that an LBO is the preferred method of investing Investor Activism 65.6% 55.2% 29.6% 68.6% 62.1% 46.7% US UK Asia 2014 2015 Increasing activist success rates between 2014 - 2015 • Investor activism would entail taking up a small stake in the Fujifilm business and asking management to split the business • Japan has strong legal rights of shareholders and is increasing its emphasis on board governance • Activist investor Dan Loeb has managed to table for increasing shareholder’s returns in Seven & I Corp. • Fujifilm has a dispersed shareholder’s structure which is favourable for a proxy contest • Launching a proxy contest however entails high sunk costs with no guarantee of success Key Strategy Activist Tools Financial • Changing capital structure to reduce overall cost of capital • Return cash to shareholder’s through share buybacks and dividends • Public Communication • Shareholder’s Proposal Operational • Spinning off unprofitable businesses and reinvest proceeds into the pharmaceutical business • Improve efficiency of core businesses • Proxy Contest • Shareholder’s Proposal A successful activist campaign may unlock value, however, activism is is an expensive venture and subject to investor perception • Similarly, we could co-participate in this buyout as a mezzanine investor • This allows us to limit our downside risk but yet participate in the upside unlocked through value creation Proposed Structure incorporating a structured note with equity warrants… Our value proposition requires control in order to initiate value levers and investing in Mezzanine fails to give us this leverage Sources of Value 1. Coupon payable from cashflows derived from Fujifilm’s operating businesses. 2. Warrants allow us to buy into equity at low prices allowing cashflows derived from asset sale to flow back in the form of dividend recap to mezzanine holders 3. During asset divestitures, issuers may opt to pay back the loan however incurring a prepayment penalty charge 95% ownership LP investor SPV Mezzanine 5% ownership Fujifilm A B C IRR ~10-15% consisting of: Prepayment penalty Equity Participation Coupon/ Payment-In- Kind 1 2 3 Mezzanine Investing
  8. 8. Transaction Structure Source: Bloomberg 6 Deal Structure Valuation Analysis Institutions 1.5%28.8% 69.7% Pre-LBO Post-LBO Selected Key Management 79.9%0.1% 20.0% Corporations Public Investors Sources and Uses Capital Structure Dispersed pre-LBO shareholding structure reduces the probability of dissident blockholders rejecting the deal Methodology Per Share Price Valuation Range 5,121 6,892 5,8004,800 MarketValues Trading Comparables 1,000 2,000 3,000 4,000 5,000 6,000 7,000 4,265 6,094 Current Price: ¥4,270 EV/EBITDA: 7.4x Offer Price: ¥5,124 TV/EBITDA: 8.9x Offer Premium: 20.0% 52W Range Since IPO Broker Target Prices LTM P/E LTM EV/EBITDA 5,7101,273 3,932 4,838 We propose to buyout Fujifilm at 8.9x EV/EBITDA at a 20% premium to the current price 697,056 2,680,985 697,056 348,528 1,000 749,876 187,469 Tranch A Tranch B Mezzanine Management: Phoenix Partners Bain Capital Total Debt: ¥ 1,742,640m (65%) Equity: ¥ 938,345m (35%)Sources: Amount (¥'m) x EBITDA % Total: Uses: Amount (¥'m) x EBITDA % Total: Tranch A: 697,056 2.4x 21.2% Purchase Price: 2,645,120 9.1x 80.6% Tranch B: 697,056 2.4x 21.2% Refinance Debt: 558,842 1.9x 17.0% Mezzanine: 348,528 1.2x 10.6% Transaction Fees: 36,451 0.1x 1.1% Excess Cash: 600,000 2.1x 18.3% Financing Fees: 40,572 0.1x 1.2% Management: 1,000 0.0x 0.03% Total Uses: 3,280,985 11.3x 100.0% Sponsor Equity: 937,345 3.2x 28.6% Total Sources: 3,280,985 11.3x 100.0%
  9. 9. Overview of Strategic Plans Notes: 1. Includes Graphic Systems division currently part of Information Solutions segment 7 Our post-transaction strategy is executed in 3 phases: Pruning, Weeding and Nurturing Pruning: Uproot distractions from value creation1 Weeding: Divesting the printing business at attractive terms2 Nurturing: Unlocking massive value from Healthcare3 • Slow growth trajectory which can only be changed through a consolidation with a similar sized competitor • Repackaging Fujifilm’s printing solutions segment to include graphic systems (ink) business • Asset sale to Xerox would fetch attractive valuations due to market leader premium and operational synergies from the acquisition • Brand-sticky customers in the cameras industry result in high customer acquisition costs • Imaging solutions segment is shrinking and unable to increase market share due to lack of extensiveness of product range • Existing appetite for M&A increases feasibility of divestment in FY18-19 • Expand CDMO pipeline for OEM drug manufacturing to capture industry growth • Improving customer acquisition through analytics of physician preferences • Establishing an IoT feedback loop through sale of medical wearables • IPO exit in FY22 to unlock shareholder value at expanded multiples Imaging Solutions Document Solutions Information Solutions 2New Document Solutions1 3 1 Proposed disposal through trade sale to Nikon Proposed disposal of newly packaged Documents division to Xerox Pursue organic top line growth and margin expansion; exit through IPO Implementation Period FY18-19 FY18-19 FY18-22
  10. 10. 2 Segment Overview Source: Euromonitor, Various Company Websites 8 34% 25% 18% 22% 35% 27% 12% 14% 19% Sony Olympus Canon 129 132 83 60 50 34 0 20 40 60 80 100 120 140 DSLR + Mirrorless Market Share Evolution Product Range Analysis Key Commentary • Canon has been gaining market share in Fujifilm’s key camera segments with their extensive product range, excellent distribution capability and strong brand loyalty • A key consumer purchase criteria would be the range and quality of camera bodies and lenses. Canon possesses a strong advantage in this, allowing them to capture new customers and convert current users • With Fujifilm’s current capabilities, it is unlikely that they are able to compete effectively and gain market share from incumbents 55% 56% 63% 39% 37% 32% 5% 7% 5% 2015 2016 2017 Canon Nikon Pentax DSLRMirorrless TotalNo.ofCameraBodies +CameraLenses Globally, the market is expected to decline and Fujifilm does not have the requisite competitive advantage to gain market share Global DSLR + Mirrorless Camera Market Key Market Developments Key Commentary • Overall, the market is expected to decline and there is limited room for growth. Consolidation is expected to take place as camera manufactures attempt to scale and lower costs • Smartphones have become very close substitutes and recent industry partnerships and innovations such as Apple’s Portrait Mode further threaten digital cameras • Overall, a longer replacement cycle and stronger substitutes drive the market’s decline Smartphones • Image quality of smartphones have improved tremendously, becoming a stronger substitute for digital cameras. Industry partnerships such as Huawei with Leica are an attempt from camera lens manufacturers to stay relevant 0 100 200 300 400 500 600 700 2015 2016 2017 F2022 ¥ Bn Longer Camera Replacement Cycles • Replacement cycles of cameras have increased significantly, as consumers have stopped upgrading their camera, and are presumably happy with their current camera. Moreover, new product launches only have incremental benefits, and lack any significant differentiating factor to entice consumers Information Solutions Document Solutions Imaging Solutions
  11. 11. Disposal of Imaging Solutions to Strategic Buyers Source: Bloomberg, Company Filings, Capital IQ 9 Nikon has been facing pressures to merge from industry pundits Nikon’s current product line are complementary to Fujifilm’s A tie-up with Nikon will leverage on both company’s respective competencies 557 468 429 370 357 122 137 149 149 221 2013 2014 2015 2016 2017 SLRs Mirrorless …as the global Industry has moved from SLRs into mirrorless cameras Mirrorless SLRs ProductMix Merger would allow Nikon to gain access to its mirrorless sensor technology and increase market share Nikon’s failure to diversify product mix has since sparked speculations of a merger with Fujifilm -18% -8% -5% -3% Nikon Sony Canon Fujifilm Japanese Strategic Players 703 457 383 352 247 105 87 65.6 Canon Fujifilm + Nikon Nikon Sony Panasonic Fujifilm Ricoh Olympus Camera Subsegment Growth (¥ bn)Last 3 Year Revenue CAGR (%) Other Strategic Buyers Exit Valuation Total Digital Camera Market Sales (¥ Bn) Acquirer Target Deal Value (US$m) 2006 Sony Konica Minolta - 2011 Blackstone Leica 179.0 2011 Ricoh Pentax 124.2 2012 Sony Olympus 640.0 2017 DJI Hasselblad - Deal space has been active We see appetite for acquirers looking to expand capabilities Prospective Buyer Universe Chinese Strategic Players 200 400 600 Trading Comparables EV/ T12M EBITDA EV/ 5 Year Avg EBITDA Precedent Transactions EV/T12M EBITDA • Based on ¥47.9bn 2018E EBITDA, we derive a exit value of between ¥350 – 400Bn, valuing the camera business at 7.3x – 8.3x EV/2018E EBITDA • We believe this to be conservative, using a lower exit multiple and not valuing potential synergies between Fujifilm and strategic buyers. We note that the Sony’s non-controlling stake in Olympus in 2012 was valued at 10.7x EV/T12M EBITDA. Nikon’s revenues have halved since 2014… Combined Revenue ¥350bn Information Solutions Document Solutions Imaging Solutions
  12. 12. Segment Overview Note: 1. By EBITDA margins Source: J.P. Morgan, Gartner, McKinsey, Various company annual reports 10 0 400 800 1,200 2016A 2017A 2018E 2019E 2020E Others Global Services Production Services Office Printers Office Products 1,165 ¥ Bn 1,081 1,080 1,060 1,040 2017– 2020 CAGR -1.92% -4.98% 0.10% 2.30% -1.27% -1.28% Fuji Xerox Sales by Segment • Document solutions is Fujifilm’s worst performing business line1 • While there is slight growth in Global Services, providing its clients value added services such as print management and security, this growth from Global Services alone is insufficient and cannot reverse the overall downward trend • Moreover, Fujifilm has no cost advantage, and lacks the expertise to pursue new business lines • With no pricing power and cost advantage, Fujifilm does not have bright prospects 0% 4% 8% 12% 16% 20% 2013 2014 2015 2016 2017 Fuji Xerox HP Canon Epson • The printers and copiers market is expected to decline at a -1.5% CAGR through to 2022 • As the market shrinks, consolidation is underway and will pick up speed as companies aim to gain scale and cut costs. Going forward, scale and costs will be key success factors • Some firms have ventured into and expanded their product line to include 3D printers. As strong growth is expected in this industry, many competitors have already entered and built their presence in the market. Fujifilm is a laggard and lacks knowledge and expertise Digitization • Digitalization of business processes and the growth of digital business, are accelerating the decline of printed pages Consolidation • HP acquired Samsung Printers in Nov 2017. By 1Q18, HP’s printer sales grew by 7.2%, while margins improved by 10bps Foray into 3D Printers • HP and Ricoh now manufacture their own 3D printers targeted at existing enterprise and healthcare customers • Canon, Ricoh, and Konica Minolta have been reselling 3D printers to their existing clients Key Commentary Key Market Developments Key Commentary Operating Margins Analysis Proposed sale of documents segment based on dim prospects for and lack of competitive edge 15% 15% 13% 13% 12% 19% 21% 20% 21% 20% 19% 18% 20% 19% 20% 24% 24% 23% 22% 24% 23% 23% 24% 25% 25% 2013 2014 2015 2016 2017 Fuji Xerox Ricoh Canon HP Others Information Solutions Document Solutions Imaging Solutions Global Printers Market Share Evolution
  13. 13. 694 773 859 202 226 250 222 0 500 1000 1500 Bear Base Bull Value from EBITDA (Documents) Value from EBITDA (Graphic Systems) Value from Cost Synergies 650 1250 1250 2250 400 200 1000 COGS SG&A R&D Total Cost Savings Revenue Synergies Total Synergies Consolidate manufacturing footprint + streamline logistics Remove duplicative G&A Remove duplicative R&D Cross selling, widened product portfolio and greater R&D firepower to accelerate market share gains Disposal of Documents Solutions to Xerox Notes: *Intercompany transactions have been deducted, 2. Fujifilm management guidance 2018 through proposed capital restructuring of Fuji Xerox, 3. Only 20% of FY22E cost synergies priced in Source: Company Filings, Bloomberg, Broker Reports, Team Estimates 11 Xerox the most suitable buyer of Fuji Xerox… …creating a new market leader in the printing solutions space An upstream acquisition is currently the best way for Xerox to immediately expand margins in the maturing documents market Apart from market leadership, consolidation implies greater value chain control and direct margin capture by Xerox Evaluation of Synergies2 Exit Valuation Conservative cost savings of US$1.25Bn and revenue enhancement of US$1Bn per annum by 2022… …allows us to dispose the business at a premium valuation even before factoring revenue enhancement synergies in the sale price 2.1+ 2.1 1.8 1.8 1.2 1.1 0.8 0.7 0.4 New Xerox HP Inc Canon Ricoh Xerox Fuji Xerox Konica Minolta Seiko Epson Brother (¥ Tn) Combined Revenue Smooth integration due to existing partnerships and brand coherence ~85% achievable by 2020 (US$ MM) (US$ Bn) Substantially all office products sold by Xerox are produced by Fuji Xerox (¥ Bn) 6.7x 7.5x 8.3x With substantial cost and revenue synergies to be gained, a Fuji Xerox acquisition is an attractive and strategic proposition for Xerox Exit Multiple (EV/EBITDA) 1 3 12.3 11.1 10.4 10.0 14.4% 13.7% 13.4% 13.0% 12% 13% 14% 15% 0.0 5.0 10.0 15.0 2014 2015 2016 2017 Xerox's Revenue (LHS) Xerox's EBITDA margins (RHS) Information Solutions Document Solutions Imaging Solutions
  14. 14. Segment Overview Note: 1. Contract Development and Manufacturing Organization Source: World Health Organization, Zion, McKinsey, Frost & Sullivan Company Presentations 12 Fujifilm can do more to capture the healthcare market in Asia which is expected to grow across Drugs, Devices, and Services Disease ‘13 ‘14 ‘15 ‘16 ‘17 Heart Disease 2 2 1 1 1 Respiratory Disease 1 1 2 3 4 Lung Cancer 3 3 3 2 2 Stomach Cancer 5 4 4 4 3 Liver Cancer - - 5 5 4 Diarrheal Diseases 4 5 - - - Change in Top 5 Diseases in Asia Growing demand for drugs treating heart disease, lung, stomach, and liver cancer • Market expected to grow at 7.4% CAGR till 2021 Trends in Medical Device Segment Medical Devices • Globally, Asia Pacific recorded the highest growth rate of 10% CAGR from 2013 to 2017. This growth is expected to accelerate, reaching 13.2% till 2022. Drivers of Growth • Rising disposable incomes drive expenditures on healthcare in hospitals, and at home. • An aging population, growth in mobile and broadband Internet services, and rising costs of services drive demand for more at-home care and portable medical devices. Fujifilm can expand its product range to manufacture consumer medical devices Growth in Analytics within Healthcare While there is opportunity in telehealth, strong partnerships underpin its success Telehealth • Telehealth is expected to growth at 12% CAGR till 2022, reaching a total market value of $1.79Bn within Asia Pacific. This is in line with the push to develop Smart Cities. Key Factors for Success • There is a need to establish a sustainable and clear business model that involves hospitals and patients, which is well supported by strong network infrastructure and regulations. • With a large volume of data exchanges, players need strong network security measures. Fujifilm’s Mismatched Drug Portfolio Inability to Market New Products Heavy Reliance on Hospitals as an End-user Fujifilm should produce more drugs for cancer and cardiovascular diseases While Fujifilm has the ability to R&D many new products, it’s unable to market them Currently, Fujifilm does not sell any medical devices targeted at consumers Female Medical Care (28.9%) Diagnostic Drugs (38.1%) Others (21.1%) CDMO1 (6.7%) Cardiovascular (2.7%) Cancer (2.7%) 436 1,109 1,487 2,626 0 500 1,000 1,500 2,000 2,500 3,000 2014 2015 2016 2017 0% 5% 10% 15% 20% No.ofNewProducts SalesGrowth New Products Sales Growth • All of Fujifilm’s medical devices are for use by hospitals and medical professionals o Endoscope Utilizes HD Imaging for diagnosis o Ultrasound Utilizes ultrasound for imaging o X-Ray Utilizes X- Ray for imaging o In-Vitro Used for fluid and blood tests Information Solutions Document Solutions Imaging Solutions
  15. 15. Acquiring more cardiovascular and cancer related CDMO contracts Tailoring analytics process to Fujifilm Insufficient exposure to growing trends Enhancing our drugs and pharmaceuticals division Notes: 1. IMS Health Group, 2. Japan Medical Data Center, 3. Japan Health Policy NOW, 4. National Health Insurance Japan Source: SAS, Postgraduate Medical Journal, Company filings, Broker Reports, FDA 13 1. In the short term, we strengthen Fujifilm’s drug portfolio by securing more cancer and cardiovascular CDMO clients 2. To effectively bring our enhanced drug portfolio to market, we want to adopt an analytics-driven approach to marketing BenefitsAnalytics ModelData Collected • IMS Sales data1 • Census data • Physician data • Call center data • CRM data on samples • Data on promotions • Managed care data • Predict which sales tactic (e.g. samples, vouchers, access to experts) appeals most to each physician • Reduce ~50% of physicians detailed • Higher return per physician, per product • Less sales staff needed By implementing analytics in our marketing, we will be able to achieve higher profitability in our pharmaceuticals segment AnalyticsModel Data To Collect: • JMDC Sales data2 • Census data • Physician data • Clinic data • Call center data • CRM data on samples • Data on promotions • Data from JHPN2 • Data from NHI Japan2 • Data from Science Ministry • Data from expert speakers Benefits • By targeting physicians via a personalized sales strategy, Fujifilm can expect higher returns per physician • Reduce cost by optimizing the use of samples • Able to strengthen relationship with physician and clinic by possessing a deeper understanding of them 2019 2020 2021 2022 2023 ITK-1 T-817M FF-21101 FF-10101 FF-10102 FF-10501 T-4288 These CDMO contracts can help us to quickly align our portfolio towards market trends, enhancing our offerings and returns • In addition to cardiovascular drugs, focus on gastrointestinal and lung cancer, Asia’s leading causes of cancer • We want to target US and European companies who are seeking to expand and penetrate Asia, specifically Japan • Acquiring these CDMO clients can enable Fujifilm to quickly monetize these drugs, while it develops its own cancer and cardiovascular drugs • Some firms could be: : Cancer Respiratory Diseases : Alzheimer's • While Fujifilm’s pipeline consists mainly of caner drugs, this pipeline is insufficient to capture market growth . Fujifilm needs to produce more drugs targeted at cancer and cardiovascular diseases. • On average, drugs take about 10 years to develop and launch. This is too slow, hence we suggest Fujifilm target current players acquire them as CDMO clients.1 Janssen Pharmaceuticals has achieved success through analytics Fujifilm’s Drug Pipeline for the next 5 Years Information Solutions Document Solutions Imaging Solutions
  16. 16. Finding new markets for our ultrasound devices A healthcare ecosystem that creates value for all stakeholders Venturing into medical wearables and IoT services Source: Company website, Carleton University , Financial Times 14 3. In the medium term, we will penetrate the consumer market capitalizing on existing capabilities in ultrasound 4. Building an integrated healthcare ecosystem in Japan by offering IoT services to our customers Foray into medical wearables allows us to target end-consumers, building our presence in the healthcare industry • Ultrasound sensors have a diverse range of applications in medical wearables • Begin to research, develop, and manufacture miniature ultrasound probes and sensors to target medical wearables manufacturers • Current uses of ultrasound sensors in wearables include: • Some clients are: • Therapeutic Ultrasound Device Used to relieve pain by producing waves to penetrate the skin. Typically used by cancer patients • Ultrasonic Cardiac Monitor The device can detect and diagnose the cause of irregular heartbeats. Used by at risk and current heart patients. • Ultrasound Probe Allows caregivers and patients to examine the body, find veins, and to check the flow of fluids Offering IoT services bridges the gap between hospitals, manufacturers, and patients, solidifying our presence in healthcare Hospital Patients Better products Feedback Benefits to stakeholders: • Hospital: Higher revenues, driven by higher service levels • Manufacturers: Closer to market, develop more relevant products • Patients: Better service quality • We will develop analytics, to deliver data-backed insights to its stakeholders • We will partner with telcos (Softbank, KDDI, and NTT DoMoCo), who will provide the network infrastructure to support IoT services • This rides on the government’s push for industries to adopt and grow Japan’s IoT landscape • Enhancing Fujifilm’s product offerings, allowing it to better compete with other healthcare players such as Fujitsu and Philips • Future-proof Fujifilm’s business as it moves towards the digitization of services, collects data, and focuses on newer technologies Taking steps to become an IoT service provider Information Solutions Document Solutions Imaging Solutions
  17. 17. Impact of Strategies 15 Our strategies aim to better align Fujifilm's healthcare segment to market needs, and evolve Fujifilm into a future-ready healthcare company - 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 2018 2019 2020 2021 2022 Post Exit Enhanced Drug Portfolio Improved Marketing Tactics Miniaturise Ultrasound Sensors Venture into IoT Our enhanced drug portfolio, improved marketing tactics, and entry into consumer medical wearables will foster deeper relationships with physicians, hospitals, clinics, and patients – essential in building a holistic and value-creating ecosystem that can meet Japan’s pressing healthcare needs Incremental Impact on Operating Income Key Commentary ¥ Mn 1 2 43Enhanced Drug Portfolio Improved Marketing Tactics Miniaturized Ultrasound Sensors Venture into IoT • Expanding our drug portfolio, thus selling more types of drugs to clinics and hospitals • With the high prevalence of lung and stomach cancer, as well as cardiovascular diseases, we believe that adding these drugs can drive sales. • By adopting an analytics backed personalized marketing approach to sales, we can increase revenue per client and reduce the cost to serve per client, growing the profitability of our customer accounts. • An expanded product range is able to drive revenue growth. • Entrance into wearables help us to fill an important gap in our customer base, and sets the stage for us to provide a holistic IoT service to all players in healthcare. • IoT services can be provided to our current clients helping us to increase revenue per customer. • By building a strong ecosystem, we are better able to retain customers, and will also posses a stronger value proposition. 14,750 31,840 47,794 66,575 100,777 With access to patients, hospitals, physicians further complemented by strong data analytics platforms, Fujifilm can provide new insights This added service can help us to differentiate ourselves against competitors and allow us to better attract and retain customers in our ecosystem After building a strong base in Japan, we will be able to scale the business in other parts of Asia, allowing us to achieved sustained growth for Fujifilm in the coming years. ~35% CAGR 2017A Operating Income: ¥82,959 Information Solutions Document Solutions Imaging Solutions
  18. 18. Exit Strategy Note: 1. P/E calculated based on NOPAT, IPO proceeds would be used to repay debt 16 # Unit Adj. 2018E 2019E 2020E 2021E 2022E CAGR Revenue ¥' m 793,707 854,380 905,073 973,712 1,047,483 7.2% % Growth % n.m 7.6% 5.9% 7.6% 7.6% EBITDA ¥' m 123,696 156,904 176,972 202,673 245,246 18.7% % Growth % n.m 26.8% 12.8% 14.5% 21.0% % Margin % 15.6% 18.4% 19.6% 20.8% 23.4% NPATMI ¥' m NA 22,645 42,240 53,814 77,358 -41.3% % Growth % n.m n.m 86.5% 27.4% 43.7% % Margin % n.m 2.7% 4.7% 5.5% 7.4% Pro-forma Key Financials of Information Solutions We intend to re-IPO the firm as “Fuji Pharma” 0 2000 4000 6000 8000 10000 12000 14000 LTM P/E LTM EV/EBITDA LTM P/E LTM EV/EBITDA TradingComparablesTradingComparables Pharmaceuticals Specialty Chemicals Indicative Valuation based on Pharma and Chemical Comps ¥2,848bn 1. We exit our investment at a blended EV/EBITDA of 13.9x based on our EBIT-weighted comps set 2. This represents an indicative P/E1 on IPO at 15.0x and equity value of ¥2,848bn IPO Story We think that “Fuji Pharma”, with its renewed growth story driven by its new position as an integrated healthcare solutions provider, will benefit from an IPO exit: • The full implementation of our IoT services will be realized in FY2023 • The LP consortium will exit 50% of our investment post-IPO lock up period • Management will continue to retain a significant stake in the firm to continue of alignment of interests This is reasonable given the firm’s IPO growth story which should allow it to command a premium valuation We intend to retain our remaining 50% stake of Fuji Pharma due to our conviction in its growth story Information Solutions Document Solutions Imaging Solutions
  19. 19. Management Plans and Incentives Notes: 1. based on constituents of Nikkei 225 Source: Bloomberg, Company Filings 17 Evaluation of Skills and Value-Add by our Shareholders Plugging the skill gap Management Compensation Milestone 1 Restricted Stock (0.25%) Management will receive 0.25% in restricted stock upon completion of both trade sales. Vesting period till IPO exit at Year 5 Milestone 2 Stock Options (0.25%) Second tranche of compensation comes in upon the final IPO of the business structured with tag-along rights upon exit of the LP 1. Use of equity-based compensation to align risk-appetites of LP and managers 2. Option to co-invest with LP consortium 3. Management non-compete clauses to prevent them from engaging in solicitory behaviour Fujifilm’s current board could welcome external advisers Non-Exec Directors Expertise Tatsuo Kawada Business, CEO of Textile Firm Makoto Kaiami Legal, District Judge Kunitaro Kitamura Supervisory, Banking Executive Executive Directors % Shares Held Tenure in Fujifilm (yrs) CEO 0.0040% 55 COO 0.0012% 41 CIO 0.0015% 15 CTO 0.0023% 45 CVP 0.0004% 38 CVP 0.0005% 38 Total: 0.0099% Average: 39 Managers could do with better shareholder alignment and a fresh set of eyes Only one 1 of 3 non-exec directors has experience in expanding Fujifilm’s network. We choose Bain Capital is our co-investment partner due to: their reputation for value creation, their experiences in the field of pharmaceuticals and in Japan 0 0.01 0.02 0.03 0.04 0.05 0.06 0.07 -20 0 20 40 60 Positive relation between CEO ownership and shareholder’s returns1 % CEO Ownership % Avg Shareholder Returns 0.01 12.7 0.02 15.4 0.03 14.0 0.04 14.4 0.05 28.2 0.06 -6.0 0.07 31.5 Achieving management buy-in is vital for company performance List of Pharmaceutical investments: Year Acquired Deal Size (US$bn) 2014 Macromill 0.4 2017 Toshiba Semicons 18.0 2017 Asatsu-DK Inc 1.4 2018 (pending) Takata - List of Japanese Investments: Total Average 5 Year Shareholder’s Returns CEOOwnership% OutstandingShares Skill Assessment of the current Board of Directors
  20. 20. Returns Analysis 18 Returns Attribution Analysis Investors’ Returns Analysis Returns to Phoenix Partners and Bain Capital # Units 2017 2018 2019 2020 2021 2022 Common Equity Initial Investment: ¥' m (937,345) Dividends: ¥' m 433,394 Equity: ¥' m 2,805,847 Total Cash Flows: ¥' m (937,345) - 433,394 - - 2,805,847 Money-on-Money (MoM) Multiple: 3.5x Internal Rate of Return (IRR): 32.4% Returns to Management Team # Units 2017 2018 2019 2020 2021 2022 Common Equity Initial Investment: ¥' m (1,000) Dividends: ¥' m 462 Equity: ¥' m 10,104 Total Cash Flows: ¥' m (1,000) - 462 - - 10,104 Money-on-Money (MoM) Multiple: 10.6x Internal Rate of Return (IRR): 64.9% Multiple value levers contribute to our solid 32.4% IRR • EBITDA Growth (43.6%): By channelling our resources to the growing Information Solutions division • Multiple Expansion (38.4%): By unlocking the conglomerate discounted and by the realisaiton of market values of each individual segment • Debt Paydown (18.0%): By utilizing Fujifilm’s available debt headroom IRR: 32.4% MoM: 3.5x
  21. 21. Sensitivity Analysis 19 Sensitivity Analysis - IRR and Purchase Premium vs. Exit Multiple (Healthcare): EBITDA Exit Multiple: 11.9 x 12.4 x 12.9 x 13.4 x 13.9 x 14.4 x 14.9 x 15.4 x 15.9 x 4,484 5.0% 34.7% 35.8% 36.8% 37.8% 38.8% 39.7% 40.7% 41.5% 42.4% 4,697 10.0% 32.5% 33.6% 34.6% 35.6% 36.6% 37.5% 38.5% 39.4% 40.2% 4,911 15.0% 30.3% 31.4% 32.4% 33.5% 34.5% 35.4% 36.4% 37.3% 38.2% 5,124 20.0% 28.1% 29.3% 30.4% 31.4% 32.4% 33.4% 34.3% 35.3% 36.2% 5,338 25.0% 26.1% 27.2% 28.3% 29.4% 30.4% 31.4% 32.4% 33.3% 34.2% 5,551 30.0% 24.0% 25.2% 26.4% 27.4% 28.5% 29.5% 30.5% 31.4% 32.4% 5,765 35.0% 22.0% 23.3% 24.4% 25.5% 26.6% 27.7% 28.7% 29.6% 30.6% Sensitivity Analysis - IRR and Purchase Premium vs. Exit Multiple (Xerox) EBITDA Exit Multiple: 5.5 x 6.0 x 6.5 x 7.0 x 7.5 x 8.0 x 8.5 x 9.0 x 9.5 x 4,484 5.0% 36.5% 37.1% 37.7% 38.2% 38.8% 39.4% 39.9% 40.4% 40.9% 4,697 10.0% 34.2% 34.8% 35.4% 36.0% 36.6% 37.2% 37.7% 38.2% 38.7% 4,911 15.0% 32.1% 32.7% 33.3% 33.9% 34.5% 35.0% 35.6% 36.1% 36.7% 5,124 20.0% 30.0% 30.6% 31.2% 31.8% 32.4% 33.0% 33.6% 34.1% 34.7% 5,338 25.0% 27.9% 28.6% 29.2% 29.8% 30.4% 31.0% 31.6% 32.2% 32.7% 5,551 30.0% 25.9% 26.6% 27.2% 27.9% 28.5% 29.1% 29.7% 30.3% 30.9% 5,765 35.0% 24.0% 24.7% 25.3% 26.0% 26.6% 27.2% 27.8% 28.4% 29.0% Sensitivity Analysis - IRR and Purchase Premium vs. Exit Multiple (Camera) EBITDA Exit Multiple: 5.3 x 5.8 x 6.3 x 6.8 x 7.3 x 7.8 x 8.3 x 8.8 x 9.3 x 4,484 5.0% 38.0% 38.2% 38.4% 38.6% 38.8% 39.0% 39.2% 39.4% 39.6% 4,697 10.0% 35.8% 36.0% 36.2% 36.4% 36.6% 36.8% 37.0% 37.2% 37.4% 4,911 15.0% 33.6% 33.8% 34.0% 34.3% 34.5% 34.7% 34.9% 35.1% 35.3% 5,124 20.0% 31.6% 31.8% 32.0% 32.2% 32.4% 32.6% 32.8% 33.0% 33.3% 5,338 25.0% 29.6% 29.8% 30.0% 30.2% 30.4% 30.6% 30.9% 31.1% 31.3% 5,551 30.0% 27.6% 27.8% 28.1% 28.3% 28.5% 28.7% 28.9% 29.1% 29.4% 5,765 35.0% 25.7% 25.9% 26.2% 26.4% 26.6% 26.8% 27.1% 27.3% 27.5% Purchase Premium and Per Share Offer Price: Purchase Premium and Per Share Offer Price: Purchase Premium and Per Share Offer Price: IRR is insensitive to key variables, and possesses sufficient buffer to weather through market fluctuations
  22. 22. Risks and Mitigation 20 Pre-LBO Risks Post-LBO Risks Evaluation of Pre-emptive Defences • Board had sought to remove flip-in poison pill defences during the company’s 117th OGM • Fujifilm does not have hidden cross-holding structures traditional of Japanese firms that mask true ownership • 6 out of 9 non-independent directors makes hostile deal unlikely to be approved • These directors are unlikely to vote against offer for fear of losing their jobs • Shareholder apathy has led to Japanese shareholder’s disapproval of hostile deals, believing that they are value destructive • Fujifilm has an appointed independent board to evaluate potential acquisition offers • Management buy-in allows them to tag along as co-investors in this deal • Giving out golden parachutes to executives • Entering the investment with an existing toehold stake to try and nominate board members loyal to our proposal • Public white paper of proposed plans to highlight value creation by the Phoenix Partners’ consortium Approval Risks Mitigation Drugs from US and EU might not possess the requisite regulatory approval to be developed and manufactured locally Provide on-boarding and regulatory support services to these CDMO clients Data protection laws in Japan might restrict clinics and physicians from revealing personal data of patients Work with the government in coming up with specific clauses for scientific research, with the understanding that the Japanese government is actively promoting the pharmaceutical industry Target customers might have pre-existing contracts with other suppliers Provide attractive sales terms to incentivise target customers to select us as their supplier 1 2 3 We assessed Pre-LBO and Post-LBO risks, both of which can be mitigated by a significant extent
  23. 23. 0.23 3.45 13.10 18.60 27% 46% 0% 10% 20% 30% 40% 50% - 4.00 8.00 12.00 16.00 20.00 Before 1987 1987 - 1996 1997 - 2006 2007 - 2016 Avg Inbound M&A Transaction Value (USD Bn) % Cross-border Deals of Total M&A Value (Avg) Bonus Slide Source: Mergermarket, Activist Insight, Private Equity International, Broker Reports 21 Reasons why LBO has not taken place What has changed? Relevant Information Shareholder Apathy • Shareholders in Japanese corporations have not typically leveraged their rights to force management to effect change, and tend to support the status quo • Results in management entrenchment and increased M&A difficulty • Case study: Failure to split up Sony Corporation in 2013 (Daniel Loeb) Size Does Matter • Lack of compelling success cases of Japanese corporate giants being acquired • Largely deters foreign investors looking to buyout Japanese conglomerates Regulatory and Ownership Trends • Launch of Stewardship Code in 2014 forced institutional investors to be more engaged in investee companies decisions • Increasing foreign ownership in Japan creates more support to effect change • Though lagging, increased shareholder activism success rates indicate greater openness to more active investing Inflection Point for Inbound M&A • Success cases have started appearing, potentially starting an inbound M&A wave targeted at assets of underperforming conglomerates • Hampered by accelerated deregulation of FDI laws under PM Shinzo Abe (with the exception of Japan’s media operators) since 2014 Major PE Firms Potentially Interested 1 2 We believe willingness to invest in this deal is based on 2 key factors: • Exposure to and experience in inbound Japan M&A deals • Expertise in growing Pharmaceutical supply chain networks and developing IoT product ecosystems Recent Acquisitions of Japanese Conglomerates Increasing Inbound Deal Value The following Private Equity firms meet both criterion: Date Acquirer Target Deal Size 03/16 Hon Hai/ Foxconn SHARP Corporation US$2.5Bn 09/17 Bain Capital (Consortium) Toshiba Memory US$10.6Bn Cultural and regulatory barriers would have previously decreased the attractiveness of this deal, but things have changed…
  24. 24. Appendix
  25. 25. Income Statement Projections # Unit Adjusted 2018E 2019E 2020E 2021E 2022E Revenue ¥' m 793,707 854,380 905,073 973,712 1,047,483 % Growth % n.m 7.6% 5.9% 7.6% 7.6% EBITDA ¥' m 121,384 152,278 169,736 192,629 232,181 % Growth % n.m 25.5% 11.5% 13.5% 20.5% % Margin % 15.3% 17.8% 18.8% 19.8% 22.2% D&A ¥' m (58,291) (45,844) (46,749) (48,334) (49,891) EBIT ¥' m 63,093 106,434 122,987 144,295 182,290 % Growth % n.m 68.7% 15.6% 17.3% 26.3% % Margin % 7.9% 12.5% 13.6% 14.8% 17.4% Finance Costs ¥' m (68,224) (71,655) (62,875) (69,219) (76,775) Other Expense ¥' m 848,694 (5,501) (5,501) (5,501) (5,501) PBT ¥' m 843,562 29,278 54,610 69,575 100,013 % Growth % n.m n.m 86.5% 27.4% 43.7% % Margin % n.m 3.4% 6.0% 7.1% 9.5% NPATMI ¥' m 652,472 22,645 42,240 53,814 77,358 % Growth % n.m n.m 86.5% 27.4% 43.7% % Margin % n.m 2.7% 4.7% 5.5% 7.4% EPS ¥ n.m 44 82 105 150
  26. 26. Balance Sheet Projections # Unit Adj. 2018E 2019E 2020E 2021E 2022E Cash and cash equivalents ¥' m 200,000 200,000 200,000 200,000 200,000 Notes and accounts receivable: ¥' m 678,387 436,112 461,987 497,023 534,679 Inventories ¥' m 361,954 238,784 249,643 264,697 276,076 Other current assets ¥' m 130,187 30,220 31,320 32,844 33,996 Total current assets ¥' m 1,370,528 905,116 942,950 994,565 1,044,751 Total investments and long-term receivables ¥' m 319,613 344,045 364,458 392,098 421,804 Net property, plant and equipment ¥' m 518,154 293,943 310,005 324,784 338,330 Goodwill, net ¥' m 659,052 659,052 659,052 659,052 659,052 Other intangible assets, net ¥' m 655,530 390,397 389,075 387,753 386,432 Other non-current assets ¥' m 127,817 125,113 122,408 119,703 116,998 Total long-term assets ¥' m 2,280,167 1,812,549 1,844,998 1,883,391 1,922,616 TOTAL ASSETS ¥' m 3,650,695 2,717,666 2,787,948 2,877,956 2,967,368 Notes and accounts payable: ¥' m 275,127 144,963 151,555 160,695 167,603 Accrued income taxes ¥' m 32,005 32,005 32,005 32,005 32,005 Accrued liabilities ¥' m 191,043 176,362 184,382 195,501 203,905 Other current liabilities ¥' m 93,098 (30,295) (31,672) (33,582) (35,026) Total current liabilities ¥' m 591,272 323,036 336,270 354,618 368,487 Accrued pension and severance costs ¥' m 42,085 43,088 45,048 47,764 49,817 Deferred taxes liabitility ¥' m 136,195 329,660 329,660 329,660 329,660 Other long-term liabilities ¥' m 63,942 51,810 54,166 57,432 59,901 Revolver: ¥' m - - - - - Tranch A ¥' m 522,937 - - - - Tranch B ¥' m 690,086 303,500 261,529 214,633 142,487 Mezzanine: ¥' m 390,351 437,194 489,657 548,416 614,226 Total long-term liabilities ¥' m 1,845,596 1,165,251 1,180,060 1,197,905 1,196,091 TOTAL LIABILITIES ¥' m 2,436,869 1,488,287 1,516,330 1,552,523 1,564,578 Retained earnings ¥' m 41,666 291,034 333,274 387,088 464,446 Common Equity ¥' m 938,345 938,345 938,345 938,345 938,345 TOTAL EQUITY ¥' m 1,213,826 1,229,379 1,271,619 1,325,433 1,402,790
  27. 27. Cashflow Projections # Unit Adj. 2018E 2019E 2020E 2021E 2022E Net income ¥' m 87,433 22,645 42,240 53,814 77,358 Adjustments: Depreciation and amortization ¥' m 131,271 50,620 54,135 58,528 63,106 Accrual of PIK Interest: ¥' m 41,823 46,842 52,463 58,759 65,810 Other Adjustments ¥' m (46,086) (47,188) (35,345) (49,573) (56,151) Net cash provided by operating activities ¥' m 214,442 72,920 113,493 121,528 150,123 Purchases of property, plant and equipment ¥' m (78,828) (38,738) (41,039) (44,149) (47,493) Other ¥' m (30,483) (30,483) (30,483) (30,483) (30,483) Net cash used in investing activities ¥' m (109,311) (69,221) (71,523) (74,632) (77,977) Cash dividends paid to shareholders ¥' m - (433,857) - - - Total Cash Flow Used to Repay Debt: ¥' m (181,089) (909,523) (41,970) (46,897) (72,146) Net cash used in financing activities ¥' m (181,089) (1,343,380) (41,970) (46,897) (72,146) Net increase (decrease) in cash and cash equivalents ¥' m (75,958) (1,339,681) - - - Cash and cash equivalents at beginning of year ¥' m 275,958 1,539,681 200,000 200,000 200,000 Cash and cash equivalents at end of year ¥' m 200,000 200,000 200,000 200,000 200,000
  28. 28. Debt Schedule Interest LIBOR Prepay Principal Undrawn Years Debt Tranche: %: ¥' m x EBITDA Rate: Floor: Allowed: Repayment: Fee: PIK: Revolver: 15.0% - 0.0 x L + 100 1.00% Yes 0.0% 0.50% Tranch A 40.0% 697,056 2.4 x L + 50 0.00% Yes 10.0% Tranch B 40.0% 697,056 2.4 x L + 250 0.00% Yes 1.0% Senior Notes: 0.0% - 0.0 x L + 150 1.00% No 0.0% Subordinated Note: 0.0% - 0.0 x 5.0% 0.00% No 0.0% Mezzanine: 20.0% 348,528 1.2 x 12.0% 0.00% No 0.0% 5 Total: 100.0% 1,742,640 6.0 x # Unit Adj. 2018E 2019E 2020E 2021E 2022E Sources of Funds: Beginning Cash Balance: 275,958 1,539,681 200,000 200,000 200,000 Less: Minimum Cash Balance: (200,000) (200,000) (200,000) (200,000) (200,000) Plus: Cash Flow Available for Debt Repayment: 105,131 (430,158) 41,970 46,897 72,146 Subtotal Before Revolver: 181,089 909,523 41,970 46,897 72,146 Revolver Borrowing Required: - - - - - Total Sources of Funds: 181,089 909,523 41,970 46,897 72,146 Uses of Funds: Mandatory Debt Repayment: Revolver: - - - - - Tranch A 69,706 69,706 - - - Tranch B 6,971 6,971 6,971 6,971 6,971 Mezzanine: - - - - - Mandatory Repayment Total: 76,676 76,676 6,971 6,971 6,971 Optional Debt Repayment: Revolver: - - - - - Tranch A 104,413 453,232 - - - Tranch B - 379,616 35,000 39,926 65,176 Mezzanine: - - - - - Optional Repayment Total: 104,413 832,847 35,000 39,926 65,176 Cumulative Debt Paydown: 181,089 1,090,613 1,132,583 1,179,480 1,251,626 Cumulative Paydown % Initial Debt: 10.4% 62.6% 65.0% 67.7% 71.8%
  29. 29. Fujifilm Holdings Trading Comparables by Segment (1/2)
  30. 30. Fujifilm Holdings Trading Comparables by Segment (2/2)
  31. 31. Sensitivity Analysis (Operational) Sensitivity Analysis - IRR and Purchase Premium vs. % Debt: % Debt 55.0% 57.5% 60.0% 62.5% 65.0% 67.5% 70.0% 72.5% 75.0% 4,484 5.0% 32.8% 34.1% 35.5% 37.1% 38.8% 40.7% 42.9% 45.4% 48.3% 4,697 10.0% 30.9% 32.1% 33.5% 34.9% 36.6% 38.4% 40.5% 42.9% 45.7% 4,911 15.0% 29.0% 30.2% 31.5% 32.9% 34.5% 36.2% 38.2% 40.5% 43.2% 5,124 20.0% 27.3% 28.4% 29.6% 30.9% 32.4% 34.1% 36.0% 38.2% 40.7% 5,338 25.0% 25.5% 26.6% 27.7% 29.0% 30.4% 32.0% 33.9% 35.9% 38.4% 5,551 30.0% 23.9% 24.9% 25.9% 27.1% 28.5% 30.0% 31.7% 33.7% 36.1% 5,765 35.0% 22.3% 23.2% 24.2% 25.3% 26.6% 28.1% 29.7% 31.6% 33.8% Sensitivity Analysis - IRR and Purchase Premium vs. Healthcare Revenue Healthcare Revenue Annual Adjustments to Base Case -10.0% -7.5% -5.0% -2.5% 0.0% 2.5% 5.0% 7.5% 10.0% 4,484 5.0% 36.6% 37.2% 37.7% 38.3% 38.8% 39.3% 39.8% 40.3% 40.8% 4,697 10.0% 34.4% 35.0% 35.5% 36.1% 36.6% 37.1% 37.6% 38.2% 38.7% 4,911 15.0% 32.2% 32.8% 33.4% 33.9% 34.5% 35.0% 35.5% 36.1% 36.6% 5,124 20.0% 30.1% 30.7% 31.3% 31.9% 32.4% 33.0% 33.5% 34.0% 34.5% 5,338 25.0% 28.1% 28.7% 29.3% 29.9% 30.4% 31.0% 31.5% 32.1% 32.6% 5,551 30.0% 26.1% 26.7% 27.3% 27.9% 28.5% 29.1% 29.6% 30.2% 30.7% 5,765 35.0% 24.2% 24.8% 25.4% 26.0% 26.6% 27.2% 27.8% 28.3% 28.9% Sensitivity Analysis - IRR and Purchase Premium vs. Healthcare Margin Healthcare Margin Annual Adjustments to Base Case -4.0% -3.0% -2.0% -1.0% 0.0% 1.0% 2.0% 3.0% 4.0% 4,484 5.0% 34.1% 35.3% 36.5% 37.7% 38.8% 39.9% 40.9% 41.9% 42.9% 4,697 10.0% 31.8% 33.1% 34.3% 35.5% 36.6% 37.7% 38.7% 39.7% 40.7% 4,911 15.0% 29.5% 30.9% 32.1% 33.3% 34.5% 35.6% 36.6% 37.7% 38.7% 5,124 20.0% 27.4% 28.7% 30.0% 31.2% 32.4% 33.5% 34.6% 35.7% 36.7% 5,338 25.0% 25.3% 26.7% 28.0% 29.2% 30.4% 31.6% 32.7% 33.7% 34.8% 5,551 30.0% 23.3% 24.7% 26.0% 27.3% 28.5% 29.7% 30.8% 31.9% 32.9% 5,765 35.0% 21.2% 22.7% 24.1% 25.4% 26.6% 27.8% 28.9% 30.0% 31.1% Purchase Premium and Per Share Offer Price: Purchase Premium and Per Share Offer Price: Purchase Premium and Per Share Offer Price:
  32. 32. Ownership Percentage Ownership Percentages: Pre-Deal: Post-Deal: Upon Exit Rollover Investor Ownership %: 0.0% 0.0% Existing Investor Ownership %: 100.0% 0.0% New Investor Ownership %: 0.0% 99.9% 98.6% Management Equity %: 0.1% 0.1% Management Performance Kicker %: 0.3% Mezzanine Kicker %: 1.0% Total: 100.0% 100.0% 100.0%
  33. 33. Bear Case Scenario # Unit Adj. 2018E 2019E 2020E 2021E 2022E Revenue ¥' m 2,477,784 2,558,455 2,638,285 2,736,600 2,840,640 % Growth % n.m 3.3% 3.1% 3.7% 3.8% EBITDA ¥' m 309,798 356,644 374,001 396,741 436,087 % Growth % n.m 15.1% 4.9% 6.1% 9.9% % Margin % 12.5% 13.9% 14.2% 14.5% 15.4% D&A ¥' m (126,257) (125,395) (124,139) (123,470) (122,678) EBIT ¥' m 183,541 231,249 249,862 273,271 313,409 % Growth % n.m 26.0% 8.0% 9.4% 14.7% % Margin % 7.4% 9.0% 9.5% 10.0% 11.0% Finance Costs ¥' m (68,224) (71,655) (77,915) (86,557) (97,193) Other Expense ¥' m (5,351) (5,501) (5,501) (5,501) (5,501) PBT ¥' m 109,965 154,093 166,446 181,213 210,715 % Growth % n.m n.m 8.0% 8.9% 16.3% % Margin % n.m 6.0% 6.3% 6.6% 7.4% NPATMI ¥' m 85,055 119,187 128,741 140,163 162,982 % Growth % n.m n.m 8.0% 8.9% 16.3% % Margin % n.m 4.7% 4.9% 5.1% 5.7% EPS ¥ n.m 232 250 272 317 Returns to Phoenix Partners and Bain Capital # Units 2017 2018 2019 2020 2021 2022 Common Equity Initial Investment: ¥' m (937,345) Dividends: ¥' m - Equity: ¥' m 2,405,386 Total Cash Flows: ¥' m (937,345) - - - - 2,405,386 Money-on-Money (MoM) Multiple: 2.6x Internal Rate of Return (IRR): 20.7%
  34. 34. Indicative Core Management Team We don’t expect to make numerous changes to the core management team, whilst promoting COO Kenji as the new CEO • Joined Fujifilm in 1977 working mainly in the accounting and finance fields • Instrumental in positioning Fujifilm towards the healthcare segment during his tenure in the planning division • Building a network of strategic partnerships with other key pharmaceutical giants like Takeda Pharmaceuticals and Merck • Instrumental in Fujifilm’s M&A acquisitions of SonoSite and Toyama Pharmas CEO – Kenji Sukeno, 63 COO – Kouichi Tamai, 66 • Joined Fujifilm in 2003 • Previously the General Manager of Medical Systems, Research & Development Center of Research & Development Management Headquarters • Worked as the Chief Innovation Officer of Fujifilm CIO – Yuzo Toda, 72 • Joined Fujifilm in 1973 • Currently serves as a General Manager of Pharmaceutical Products Division at Fujifilm Diosynth Biotechnologies UK Limited. He has been Chief Technical Officer and Corporate Vice President of Fujifilm Holdings Corporation • Initiated the Cosmetic and Supplement business, Pharmaceutical business and Regenerative business and ushered Fujifilm into the new market segments
  35. 35. Screening Process Firms Reasons for not choosing… • Declining industry • No opportunity for value creation • Complex business makes would require tremendous financial engineering • Leveraged balance sheet • Limited opportunities for restructuring • Leveraged balance sheet • Turnaround story accompanies execution risks • Limited opportunities for EBITDA expansion in light of 3G Capital management • Leveraged balance sheet • Lofty valuations not supported by cashflows • Limited opportunities for PE value creation • Limited PE value-add storey • Commoditized business susceptible to revenue fluctuations • Lack of management support for break up would entail costly hostile takeover • Pepsi market cap >US$150bn entails complex structuring Valuations of screen universe appear overpriced Valuation Summary By elimination, Fujifilm appears to be an attractive LBO candidate These three firms appear comfortably valued with sufficient debt capacity to increase leverage 33.7x 17.2x 13.5x 14.4x 13.2x 7.4x 5.1x 3.8x (5.0) -- 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x 40.0x AMD US Equity MAT US Equity PEP US Equity KHC US Equity GE US Equity 4901 JT Equity MU US Equity KODK US Equity Net Debt to EBITDA EV to EBITDA Valuations appear rich in today’s market, our methodology screens for undervaluation, opportunities for EBITDA expansion and low net debt
  36. 36. Screening Process Note: 1. Based on Net Debt/EBITDA, 2. EV/EBITDA, 3. Incompetence of management indicates potential for value add from our deal team Source: Team Analysis Company Attractiveness of Industry Firm’s Cash Flow Stability Firm’s Potential to Grow Debt Headroom1 Valuation2 Incompetence of Management AMD 4: Demand for microchips expected to grow due to increasing demand for broadband, servers, and digital devices 2: Recently restructured their debt, first positive net FCF in 2016 4: Firm is in a good position to capture growth driven by blockchain and cloud 2: 0.6x 1: 33.7x 1: Management has strong ability to monetize near term cryptocurrency trend Micron 4: Demand for microchips expected to grow due to increasing demand for broadband, servers, and digital devices 3: Falling DRAM and NAN D prices have affected the company’s cash flow negatively 4: Has good R&D capabilities and is well poised to capture growth in microchips with more chatter on blockchain and cloud 1: 0.2x 4: 5.2x 2: New management from SanDisk recently onboarded, efforts have yet to materialize Kraft Heinz 1: Food is highly commoditized only opportunities are in cost advantages, or premiumization 4: Sells recession proof products, cash flows are highly stable 2: Margins are already high ~39%. Most growth will be inorganic 1: 3.6x 3: 14.4x 1: Backed up by 3G capital, many strategic opportunities due to Warren Buffet’s connections Pepsi Co 1: Food & beverage is highly commoditized, distribution and access to emerging markets is paramount. Opportunities in either in cost cutting or premiumization 4: Highly stable, dividend payouts have been growing for ~43 years 2: Many of its brands are market leaders in their segment, unlikely to have revolutionary growth potential. Margins have room for slight improvement 3: 1.5x 4: 13.5x 1: Strong visionary management, especially CEO Nooyi’s belief of “Profits with Purpose” Our screening methodology takes into account the firm’s external and internal environment, as well as signs of undervaluation, opportunities for margin expansion, and low net debt
  37. 37. Screening Process Note: 1. Based on Net Debt/EBITDA, 2. EV/EBITDA Source: Team Analysis Company Attractiveness of Industry Firm’s Cash Flow Stability Firm’s Potential to Grow Debt Headroom1 Valuation2 Incompetence of Management GE 3: Industries such as healthcare and engineering are poised to experience strong growth 1: Did not have enough cash to maintain dividends, slashed dividend by 50% 4: With many divisions, GE has the opportunity to spinoff subsidiaries with limited synergies and focus on segments with higher growth potential 1: 4.0x 3: 13.2x 2: Strong management team, who are focused on divesting unwanted segments and focusing on high growth segments Mattel 3: Rising disposable incomes signal increasing ability to spend on children, many trends changing the industry and the way children play 2: Experiencing declining cash flow 2: Most of the famous brands are controlled by Hasbro, difficult to create a blockbuster character to monetize 1: 4.6x 1: 17.2x 3: Board of directors have many old guards, who are not very receptive to change 2: Photocopiers and cameras are not expected to grow much 3: Stable cash flows supported by its photocopiers segment 4: With many divisions, it has the opportunity to focus on segments with higher growth 4: -0.6x 4: 7.4x 2: Management is able to identify opportunities for growth and make the right investments Kodak 1: Printing industry is not expected to grow 1: Company’s cash balance has been declining due to operating losses 1: Company mainly focuses on printing and film which are low growth industries 4: 0.4x 4: 3.8x 4: Management is unable to diversify business to protect itself from declining print business Our screening methodology takes into account the firm’s external and internal environment, as well as signs of undervaluation, opportunities for margin expansion, and low net debt
  38. 38. Transaction Structure Notes: 1. Based on all public Japanese M&A transactions >US$1bn Source: Bloomberg 0 5000000 10000000 15000000 20000000 25000000 30000000 800 1800 2800 3800 4800 5800 FUJIFILM Holdings Corporation (TSE:4901) - Volume FUJIFILM Holdings Corporation (TSE:4901) - Share Pricing +1 SD -1 SD Mean Offer Price ¥5,124 Price represents 20% upside to current price. This values the company at 8.9x TV/EBITDA Average APAC M&A Deal Metrics 33x 25x 17x 11x 10x 4x 0 10 20 30 40 50 60 0x 10x 20x 30x 40x EV/EBITDA % Premium Paid Price Chart of Fujifilm (since IPO in 1992) Siam Makro PCL Zoll Medical Corp CP Pokphand Co Ltd Toll Holdings Ltd Hutchison Whampoa Ltd Daihatsu Motor Co Ltd Target CP ALL PCL Asahi Kasei Corp Charoen Pokphand Foods PCL Japan Post Holdings Co Ltd CK Hutchison Holdings Ltd Toyota Motor Corp Acquirer 4,083 2,063 2,211 6,271 41,705 3,098 Transaction Value (US$m) Median Premium Paid on Japanese M&As is ~17%1 Median TV/EBITDA on Japanese M&As is 10x1 Offer premium of 20% is reasonable considering precedents
  39. 39. Guide to Cameras Source: Company filings, Company websites, Bloomberg, Broker Reports Understanding the different consumer cameras in the market DSLR Mirrorless Compact Cameras • Ability to change lenses • Superior picture quality • Heaviest • Ability to change lenses • Superior picture quality • Medium Weight • Fixed Lens • Inferior Picture Quality • Lightest
  40. 40. Nikon’s Failure to Break into the Mirrorless Market Source: Company filings, Company websites, Bloomberg, Broker Reports Produced in 2015, the J5 was a commercial flop… But of course, the 1-inch sensor still remains far behind just about every mirrorless competitor, meaning the J5 shouldn’t be the camera of choice for anyone concerned with shallow depth of field, strong low-light performance, or the ability to mount lenses from other systems. And despite the lack of interchangeable lenses, Sony’s RX100 line of compact cameras remain great buys, with the same size and resolution sensor in smaller bodies with tiny collapsible zoom lenses that are faster than anything Nikon offers for the 1 series. The Verge Review: "It has, although it's certainly not up to our total expectations," Nikon senior technical manager Steve Heiner tells The Verge when asked whether the 1 series has performed well. "I think we had bigger expectations. The problem is that we introduced this into a market where there were competitors." Heiner says that Nikon "doubled the market just by entering it" in 2011, and believes the series has greater potential. "I think in the long term we're going to continue to build out the Nikon 1 Nikkor lens line, and the more options that we make available will make these bodies and others offerings more and more attractive. So it is doing well. It could do better." Even the executives are not confident of the product:
  41. 41. Solutions and Services 25% Others 6% Graphic Communication 12% Office Products and Printers 57% Synergy Analysis Between Xerox and Fuji Xerox (1/3) Source: Company filings, Company websites, Bloomberg, Broker Reports Xerox Currently Operates Mostly in Low Growth Markets Compatible Geographical Mix Minimal sales territory overlap compared to sizeable competitors Current Shareholding in Fuji Xerox Fuji Xerox FY17 Revenue Breakdown Xerox is a major customer of Fuji Xerox for Office Products Xerox Sales TerritoryFuji Xerox Sales Territory APAC Oceania Canada US Developing Markets Developing Markets Europe 21 1 22 11 13 5 7 3Workflow Auto SMB MPS Production Color A4 MFPs Managed Document Services A3 MFPs Production Mono Single Function Printers Market Size ($Bn) CAGR +10% +6% +4% +3% +1% -6% -12% -10% Growing Markets Declining Markets Largely declining market exposure necessitates inorganic growth • Fuji Xerox was established as a JV between Fujifilm and Xerox in 1962 in Tokyo, Japan • Currently in the midst of discussing a merger where Xerox ceases to exist while Fujifilm Holdings gains effective control of the combined assets, a move largely opposed by Xerox block holder and activist investor, Carl Icahn 75% 25% Xerox shareholders would be open to acquisition of Fuji Xerox Current Ownership Structure: $9.5Bn (FY17) Solutions and Services • Document services tailored to various industries or processes • Provides high value- added solutions through system integration and cloud-based services Graphic Communications • Provides solutions for graphic communications, in-plant and production print with high-volume requirements Office Products and Printers • Helps customers address various business challenges related to documents and communications • Supplies office products such as multifunction devices and printers to large/ small and medium- sized businesses • Provides cloud-based or mobile solution services Initial shareholding of Fuji Xerox and initial partnerships with Xerox increases the ease of post-merger integration
  42. 42. Synergy Analysis Between Xerox and Fuji Xerox (2/3) Fuji Xerox Market Leadership in Key Segments A3 MFP Segment Japan MPS Segment A3 MFP Segment Different core competencies between Xerox and Fuji Xerox make the deal complementary for both parties Market Share Market Position 35% 35% 61% 54% 47% 51% #1 #1 #1 #1 #1 #1 Combined Company’s Strengths Broad Global Scale • Exposure to >180 countries • #1 in equipment revenue market share • Overall #1 in printing industry and comparably sized with HP • ~$120Bn total addressable opportunity • > $18Bn in annual revenue World-Class Innovation • ~$1Bn combined R&D firepower • 6 Innovation labs • > 6,600 engineers • ~18,880 combined patents Strong Financial Profile • > $1.25Bn annual cost synergies by 2022 • High double digit operating margins by 2022 • $1.5Bn FCF by 2020
  43. 43. Synergy Analysis Between Xerox and Fuji Xerox (3/3) Notes: *Potential restructuring cost savings that can be unlocked at Fuji Xerox independent of acquisition, **Management Estimates Source: Company filings, Company websites, Bloomberg, Broker Reports Cost Savings Breakdown Cost Synergies Realisation Progression Revenue Synergies Breakdown Incremental Revenue Opportunities Revenue synergies are estimated at ~$1Bn COGS SG&A R&D Fuji Xerox JV Savings* • Plant footprint optimization • Optimization of 3rd party outsourcers • Improved design efficiency and scale • Integrate supply chain and procurement • Consolidation of central support functions i.e. Finance, HR • Optimize selling related costs • Purchasing scale • Eliminate redundancies and optimize footprint of research centers • Integrate device controllers • Combine print drivers, apps, solutions, MPS tools to achieve best in class solutions • Manufacturing and R&D cost reduction • Product portfolio optimization • SG&A productivity initiatives ~85% cost savings realisable by FY20** Global Account Coverage Streamlined Portfolio Manufacturer Margin SMB Transformation • Improved win rates on global accounts and growth of existing relationships • Integrated global service delivery • Strengthened distribution and global delivery capabilities • More competitive portfolio and time-to-market • Unified user experience • Access to Fujifilm’s inkjet (Graphic Systems) and production IP • Complete international entry for A3 portfolio • Eliminate intercompany margin stacking • Capture manufacturer margin in all markets • Added flexibility for quoting process to increase win-rate on price- competitive deals • SMB (Small and Medium Businesses) channel transformation • Competitive pricing for select target areas • Expanded go-to-market through resellers and acquisitions • Significant growth opportunity via market share gains and penetration of ~$100Bn production and industrial segment • Additional opportunities to further diversify business leveraging strength of combined relationships globally • Enhanced innovation, strategy alignment and investment capacity to support longer-term growth FY18 FY19 FY20 FY21 COGS SG&A R&D 100% 100% 100% 76% 100% 80% 58% 81% 81% 56%47% 47% 100% of cost savings are attainable by FY21, revenue
  44. 44. Competitors in Healthcare Industry Daiichi-Sankyo Takeda Pharmaceuticals Astellas Pharmaceuticals Company Strategy In the light of slow growth, Daiichi- Sankyo aims to target the cancer market and build a competitive advantage in oncology. Takeda’s current strategy is to strengthen its foothold in its current target areas – oncology, central nervous system, and gastroenterology. With a current foothold in oncology, Astellas aims to target new disease areas (Muscle Diseases and Ophthamology) via new technologies (Fusion protein, gene therapy, cell therapy). Key Products • Ulcer treatment • Osteoperosis • Antiplatelet agent • Alzheimer’s disease • Bone complications due to cancer • Chron’s disease • Lymphoma • Depression • Prostate cancer • Urination disorder • Post transplant treatment • Pancreatic caner Revenue (¥ Bn) 955.1 1,807 1,377 2012 – 2017 Revenue CAGR 0.05% 4.5% 9.18% Cancer is a key driver of growth. Fujifilm can focus on gastrointestinal and lung cancer.
  45. 45. Fujifilm is highly reliant on diagnostic drugs FY17 YoY Change ¥ mm FY13 FY14 FY15 FY16 FY17 Amount Percentage Diagnostic Drugs 9,158 10,656 11,123 13,808 13,473 (335) -2.4% Hormone Drugs 8,134 9,511 10,071 9,709 10,275 566 5.8% Metablolic Drugs 1,584 2,003 2,893 2,706 2,828 122 4.5% Circulatory Drugs 920 985 937 1,008 945 (63) -6.3% Antibiotics & Chemotherapeutics 793 845 874 812 874 62 7.6% In-vitro Diagnostics 802 799 742 695 805 110 15.8% Urogenital & Genital Organ Drugs 406 437 464 486 492 6 1.2% Dermatological Preparations 289 301 327 352 384 32 9.1% Others 1,856 1,857 2,055 2,414 2,907 493 20.4% CMO Business 1,226 1,818 2,190 2,236 2,401 165 7.4% Total 25,174 29,215 31,680 34,229 35,387 1,158 3.4% - 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 FY13 FY14 FY15 FY16 FY17 CMO Business Others Dermatological Preparations Urogenital & Genital Organ Drugs In-vitro Diagnostics Antibiotics & Chemotherapeutics Circulatory Drugs Metablolic Drugs Hormone Drugs Diagnostic Drugs 38.1% 29.0% 8.0% 2.7% 2.5% 2.3% 1.4% 1.1% 8.2% 6.8% Sales Breakdown by Therapautic Category Diagnostic Drugs Hormone Drugs Metablolic Drugs Circulatory Drugs Antibiotics & Chemotherapeutics In-vitro Diagnostics Urogenital & Genital Organ Drugs Dermatological Preparations Others CMO Business ¥mm
  46. 46. Most of Fujifilm’s key drugs have declining sales Product Name Therapeutic Category FY13 FY14 FY15 FY16 FY17 YoY Change (¥ mm) Amount Percentag e OYPALOMIN Injection Diagnostic Drugs 6,727 6,465 6,500 7,029 6,879 (150) -2.1% LUNABELL Tablets (LD/ULD) Hormone Drugs 2,967 3,491 3,756 3,017 2,845 (172) -5.7% IOPAGUE Injection Diagnostic Drugs 1,876 1,754 1,968 2,133 2,162 29 1.4% OPTIRAY Injection Diagnostic Drugs - 1,861 1,972 1,927 1,923 (4) -0.2% Filgrastim BS Injection Syringe Metabolic Drugs 243 539 1,344 1,481 1,671 190 12.8% MAGNESCOPE Intravenous Injection Diagnostic Drugs - - 57 1,310 1,353 43 3.3% HMG Intramuscular Injection Hormone Drugs 854 901 939 917 891 (26) -2.8% MDEXART Injection Hormone Drugs 682 680 724 813 866 53 6.5% LIPIDOL Injection Diagnostic Drugs - - 24 722 643 (79) -10.9% FAVOIR Tablets Hormone Drugs 301 394 456 537 601 64 11.9% SOL-MELCORT for Injection Hormone Drugs 649 607 627 598 585 (13) -2.2% FOLYRMON-P Injection Hormone Drugs 491 528 507 512 583 71 13.9% UTROFESTAN Vaginal Capsules Hormone Drugs - - - 254 578 324 127.6% LIMAPROST ALFADEX Tablets Metabolic Drugs 474 587 600 588 572 (16) -2.7% ALPROSTADIL Injection Circulatory Drugs 586 609 550 593 536 (57) -9.6% Total Top 15 Sales 16,567 19,538 20,481 22,440 22,695 255 1.1% Pct. of Total Sales 65.8% 66.9% 64.6% 65.6% 64.1% New Products - 436 1,109 1,487 2,626 1,139 76.6% Other Products 7,381 7,423 7,900 8,065 7,664 (401) -5.0% CMO Business (OLIC) 1,226 1,818 2,190 2,236 2,401 165 7.4% Total 25,174 29,215 31,680 34,229 35,387 1,158 3.4%
  47. 47. Currently, Fujifilm does not have any cancer drugs Breakdown by Medical Field FY13 FY14 FY15 FY16 FY17 YoY Change (¥ mm) Amount Percentage Acute Medical Care 14,059 15,663 17,082 19,997 20,264 267 1.3% Medical Care for Women 7,969 9,400 9,943 9,582 10,212 630 6.6% Others 1,919 2,333 2,463 2,413 2,509 96 4.0% CMO Business (OLIC) 1,226 1,818 2,190 2,236 2,401 165 7.4% Total 25,174 29,215 31,680 34,229 35,387 1,158 3.4% Breakdown by Drug Category FY13 FY14 FY15 FY16 FY17 YoY Change (¥ mm) Amount Percentage Parenteral Injections 15,463 17,212 18,596 21,452 21,463 11 0.1% Oral Medications 6,416 7,974 8,663 8,020 8,547 527 6.6% External Preparation 1,243 1,399 1,477 1,818 2,165 347 19.1% In-vitro Diagnostics, Others 825 811 752 701 811 110 15.7% CMO Business (OLIC) 1,226 1,818 2,190 2,236 2,401 165 7.4% Total 25,174 29,215 31,680 34,229 35,387 1,158 3.4%
  48. 48. We can do more to increase average sales per hospital FY12 FY13 FY14 FY15 FY16 FY17 YoY Change Amount Percentage No. of Hospitals Adopting DPC System 1,505 1,496 1,585 1,580 1,667 1,664 (3) -0.2% No. of DPC Hospitals with FujiPharma Coverage 1,333 1,339 1,492 1,505 1,622 1,629 7 0.4% Coverage Ratio 88.6% 89.5% 94.1% 95.3% 97.3% 97.9% Average Sales per Hospital (¥ '000) 4,268 4,383 4,775 5,470 6,373 6,533 160 2.5%
  49. 49. We can leverage on our CDMO business to boost sales growth Product Name YoY Change ¥ mm Therapeutic Category FY17 FY18E Amount Percentage OYPALOMIN Injection Diagnostic Drugs 6,879 6,775 (104) -1.5% LUNABELL Tablets (LD/ULD) Hormone Drugs 2,845 2,910 65 2.3% IOPAGUE Injection Diagnostic Drugs 2,162 2,560 398 18.4% OPTIRAY Injection Diagnostic Drugs 1,923 2,075 152 7.9% Filgrastim BS Injection Syringe Metabolic Drugs 1,671 1,725 54 3.2% MAGNESCOPE Intravenous Injection Diagnostic Drugs 1,353 1,535 182 13.5% HMG Intramuscular Injection Hormone Drugs 891 910 19 2.1% DEXART Injection Hormone Drugs 866 866 - 0.0% UTROFESTAN Vaginal Capsules Hormone Drugs 578 830 252 43.6% DIENOGEST Tablets Hormone Drugs 307 690 383 124.8% LIPIDOL Injection Diagnostic Drugs 643 660 17 2.6% FAVOIR Tablets Hormone Drugs 601 640 39 6.5% SOL-MELCORT for Injection Hormone Drugs 585 600 15 2.6% LIMAPROST ALFADEX Tablets Metabolic Drugs 572 580 8 1.4% FOLYRMON-P Injection Hormone Drugs 583 575 (8) -1.4% Total Top 15 Sales 22,467 23,974 1,507 6.7% Pct. of Total Sales 63.5% 62.9% New Products 2,318 2,950 632 27.30% Other Products 8,200 8,765 565 6.90% CDMO Business (OLIC) 2,401 2,450 49 2% Total 2,401 38,139 2,752 7.80%

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