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I, Kitabatake, will now explain the financial results for the third quarter of the fiscal year ending March 31, 2019.
This first slide shows the overall results. The Ashitaka factory shipping delay issue has been resolved, and third quarter performance was good. This has also resulted in our year-to-date performance recovering.
I will now comment in more detail. First, in revenue. Revenue was growing at 0% year-to-date in the first half, but is now at 2% year-on-year growth. Gross profit turned to positive growth and most other profit measures greatly reduced their negative growth percentages. The only exception was profit for the year. We saw an increase in the negative growth percentage, but this is due to the third quarter of the previous fiscal year including a onetime extraordinary gain due to the U.S. Corporate Tax Reform. Excluding that the negative growth percentages decreased in the third quarter like the other profit measures. Therefore, the good overall third quarter performance showed a return toward recovery.
This next slide explains in more detail the third quarter stand-alone results. It shows the revenue, operating profit and adjusted operating profit of the first, second and third quarters of this fiscal year FY 2018. The shipping delays at Ashitaka caused a large decrease in the second quarter. But in the third quarter, revenue and profit, both grew significantly, beating even the first quarter which was largely unaffected by the delays.
The column on the left shows the previous best ever numbers in a single quarter for the respective measures. Each was from FY 2017, but we see that this recent third quarter exceeded all 3 categories of revenue, operating profit and adjusted operating profit. Revenue was 4% above the best ever, and adjusted operating profit was 10% above the best ever.
The next slide shows our progress towards second half guidance. I just mentioned that the third quarter results were our best ever for a single quarter. However, our progress toward the second half guidance is at exactly 50% for revenue and profit for the year. Operating profit and adjusted operating profit are slightly past halfway.
In most years, SG&A and R&D expenses tend to increase in the fourth quarter. In this fiscal year, there will also be elevated spending related to the new European MDR regulation. Therefore, we know that it will not be easy to achieve our annual guidance. However, we will do everything we can to maximize the momentum of the third quarter toward achieving our FY 2018 guidance.
The next slide details the specific adjustments that result in adjusted operating profit. The major adjustment item is amortization of acquired intangible assets. Temporary gains and losses are shown in detail in the bottom right chart, with 4 of the items having already been discussed in our first half earnings announcement.
Regarding WEB milestone payments, we increased the adjustment amount by JPY 300 million because we have ascertained the FDA PMA approval date. However, this payment was already made in January and there will be no further increase or decrease.
There are 2 new adjustment items. One is loss on disposal of noncurrent assets. This is the total of several items. One example of this is the disposal of equipment from the Fujinomiya factory which became unneeded with the transfer of blood bag production to Vietnam. The other is M&A advisory fees which we incurred in the acquisition of Essen Technology.
This next slide shows the adjusted operating profit income variance analysis. It includes the adjustments that we just saw on the previous slide. The adjustment amount in FY '17 was JPY 11 billion. The adjustment amount in FY '18 was JPY 12.7 billion. The other factors of profit variance are shown on the graph between those adjustments.
The 2 positive factors shown in blue on the left reflect significant restoration of performance in the quarter. Gross profit improvement by sales increase jumped from JPY 1.4 billion in the first half to JPY 8.1 billion in the third quarter.
Gross margin was negative JPY 700 million as of the end of the first half, but increased up to JPY 600 million positively in the third quarter. In price, the impact of the Japanese reimbursement price revision was in line with usual level as we expected. However, other price impacts, which had been positive in the first half, instead, had a negative JPY 1.1 billion impact. This was the result of restored TIS business sales, which had been delayed. With the TIS business recovering, the price impact came close to the level we originally expected. Because TIS products bear the highest price decline impact, restoration of those sales resulted in this negative overall effect.
In SG&A and R&D expenses, we were seeing a large year-on-year increase in the first half. However, these items grew significantly in the second half of the previous fiscal year, so their year-on-year growth shrank in the third quarter.
The last item here is FX impact. Impact was 0 up to the first half, but we saw a negative JPY 900 million impact in the third quarter. The reason for the impact was the depreciation of emerging market currencies in Europe, the Americas and Asia.
The next slide shows revenue by region. In Japan, in addition to the General Hospital and Flood Management companies continuing to perform well, the Cardiac and Vascular Company started recovering. This brought year-on-year results back to positive and year-to-date from minus 2% progress back to flat in the third quarter.
Outside Japan, the TIS recovery resulted in increases, but all markets except China saw negative FX impact due to the depreciation of these emerging market currencies.
The next slide shows revenue by company. Cardiac and Vascular Company, which had been negative 3% in the first half, turned positive in the third quarter.
General Hospital Company continued to show strong results. Blood Management was most affected of all 3 companies by FX impacts. This was due to the emerging market currencies I mentioned as well as the negative impact of high production volume on a US dollar basis and high euro sales.
Next, I will explain company results in detail. First, Cardiac and Vascular Company, in the TIS business, the negative year-on-year amount shrank significantly after the much tougher first half. Year-on-year growth returned to positive outside Japan.
In neurovascular, hydrogel coils for aneurysms and an aspiration catheter for ischemic stroke were drivers, as the business continued its double-digit growth. In addition, the WEB product received FDA PMA approval at the end of December.
In the CV business, we were slightly negative, but this was due to the replacement of the blood parameter monitoring system with its next-generation product falling behind, and we expect it to catch up in the fourth quarter.
In the Vascular Graft business, we had a slight negative result due to a transition to direct sales in Japan. The negative growth in adjusted operating profit was greatly shrunk as a result of controlling SG&A expenses while R&D expenditures increased.
Next is General Hospital Company. Inside and outside Japan and in all businesses, we saw a continuation of strong results, especially in the alliance business. In adjusted operating profit, General Hospital Company maintained a very high 18%, this is thanks to strong revenue growth in high value-added products.
Next is Blood Management Company. The company's year-on-year adjusted operating growth was negative, and there are 3 negative factors currently at play. One is the year-on-year difference resulting from a large onetime therapeutic apheresis sale that happened in the previous year, but not this year.
The transaction was around JPY 2 billion, and the impact year-to-date in the third quarter of FY 2018 was negative JPY 1.4 billion year-on-year.
SG&A and R&D increased with investments in future prospects continuing the trend we saw in the first half. Added to these in the third quarter was the aforementioned negative FX impact. When excluding the FX impact, this year-on-year impact of therapeutic apheresis onetime demand in FY 2017 and SG&A increase were included in our original plan, and we will see improvement in the fourth quarter as those items go away.
The next slide shows major topics. As a group, Terumo has won a Good Design Award for 23 consecutive years. And this year, we received it for a record 5 products. By business, the Ryurei PTCA balloon was launched further boosting sales of the Ultimaster Tansei. We also received FDA PMA approval for WEB, a new neurovascular product, which will provide further revenue growth contributions.
The last slide is our new product pipeline in FY 2018. Most products remain on schedule with a few experiencing delays resulting from the shipping delays at Ashitaka factory. These may end up released in FY '19. Thank you for your attention.