May 17, 2023

Financial Results for the
Fiscal Year Ended March 31, 2023 (the 14th term)

President & CEO

Taisuke Murai

I am Taisuke Murai, President & CEO of VITAL KSK HOLDINGS, INC.
I would like to present to you a summary of the financial results for the
fiscal year ended March 31, 2023.

1

▍ Today’s Topics

1. Financial Highlights for the Fiscal Year Ended March 31, 2023
2. Establishment of “Long-term Vision 2035”

3. Efforts Toward Corporate Value Enhancement

4. Full-year Earnings Forecasts for the Fiscal Year Ending March 31, 2024

2

I will begin with an explanation with respect to financial highlights forthe fiscal year ended March 31, 2023.
After that, I will discuss our recently established "Long-Term Vision
2035."
I will then report on the state of progress of "Efforts Toward Corporate
Value Enhancement" announced on October 28, 2022, and finally, I will
explain our earnings forecasts for the fiscal year ending March 31, 2024.

2

1.

Financial Highlights for the Fiscal Year
Ended March 31, 2023

3

Financial Highlights for the Fiscal Year Ended March 31, 2023

3

▍ Summary of Income for the Fiscal Year Ended March 31, 2023
(Million yen, %)Previous year’s results

Results forecast

FY2023 Results

Announced November 8, 2022

Ratio to net
sales

Amount-Amount567,300

Ratio to net
sales

-

AmountNet sales

577,249

579,772

Operating profit

2,945

0.51

1,940

0.34

2,470

Ordinary profit

5,834

1.01

4,900

0.86

Profit attributableto owners ofparent

4,770

0.83

4,400

0.78

Ratio to net
sales

-

Achievement
rate

YoY

102.2

100.4

0.43

127.3

83.9

5,960

1.03

121.6

102.2

4,831

0.83

109.8

101.3

* The forecast was revised upward on April 21, 2023; however, the achievement rate is rate of achievement of forecast announced on November 8, 2022.
4

Net sales for the period under review were ¥579,772 million, 100.4% of
the level a year earlier.
Operating profit was expected to exceed the level a year earlier due toincreased sales of COVID-19-related medical equipment and clinical test
reagents, etc., as well as higher-than-expected revenue from COVID-19
vaccine delivery commissioned by national and local governments, inaddition to thorough price negotiations with an awareness of transaction
costs and sales of vaccines.
However, on October 28, 2022, some of customers filed for voluntary
bankruptcy with the Tokyo District Court. The Group judged that its
receivables may become uncollectible and recorded an allowance for
doubtful accounts in the second quarter. Although the Company
subsequently reversed the allowance for doubtful accounts in the fourth
quarter on expectations that a portion of the receivables is recoverable,
the Company was unable to fully absorb the initial losses and operating
profit amounted to ¥2,470 million, down from the level a year earlier.
Ordinary profit stood at ¥5,960 million, 102.2% of the level a year earlier,due to the recording of non-operating income of around ¥3,600 million,
reflecting a much greater-than-anticipated gain on investments ininvestment partnerships, in addition to administrative service fee income
from pharmaceutical companies and dividend income.

4

Then, profit attributable to owners of parent was ¥4,831 million, 101.3%of the level a year earlier, due to the recording of a gain on sale ofinvestment securities of ¥4,142 million under extraordinary income andthe recording of a loss on goodwill impairment of ¥1,713 million under
extraordinary losses, as announced on April 19, 2023.

4▍ Profit by Segment
Prescription drugs

99.4%

Reagents and medical devices

113.2%OTC drugs

107.0%(Million yen, %)Pharmaceutical Wholesale Business*1
Results

Net sales

546,058

Gross profit

37,154

Selling, generaland administrative
expenseOperating profit

Ratio to net
sales

-

YoY

Pharmacy Business*2

Veterinary Drug
Wholesale Business*3

Other Businesses*4

Results

Results

Results

YoY

YoY

YoY

100.3

18,361

99.8

10,879

104.6

4,473

106.5

6.80

102.8

4,780

98.6

1,661

102.2

3,922

102.1

35,101

6.43

104.1

4,673

100.6

1,322

105.4

4,127

103.8

2,053

0.38

84.0

106

51.7

339

91.4

-204

-

*1: VITAL KSK HOLDINGS, INC. VITAL-NET, INC., KSK Co., Ltd.
*2: OHNO CO. LTD., Goodneighbor Inc., Kenkodo Pharmacy Co., Ltd.
*3: AGRO-JAPAN, Inc.
*4: Agricultural chemicals wholesale business, nursing care business etc.
*5: The sum total of the SG&A expenses and operating profit of each segment may not match the total amounts shown in the previous section as intersegment adjustments of SG&A expenses are omitted.
5

I would now like to explain income by segment.
Starting with the Pharmaceutical Wholesale Business, the Company
focused on sales of products eligible for the price maintenance premium(PMP) and various vaccines; however, the lifting of the suspension ofcompetitors' eligibility from participating in tenders due to collusion had
a considerable impact on the sales of affected facilities mainly in the
Kinki District and the growth rate of prescription pharmaceuticals was
99.4%. Meanwhile, the growth rate of reagents and medical devices was
113.2% due to increased sales of mainly COVID-19-related supplies. As aresult, net sales in this segment came to ¥546,058 million, which is100.3% of the level a year earlier. Gross profit amounted to ¥37,154
million, which is 102.8% of the level a year earlier. SG&A expenses cameto ¥35,101 million, which is 104.1% of the level a year earlier, due to therecording of an allowance for doubtful accounts mentioned in theprevious section. As a result, operating profit amounted to 2,053 million
yen, 84% of the level a year earlier.

Next, I will discuss the Pharmacy Business. Aiming to realize the family
pharmacies sought by the Japanese government, we endeavored todetermine relevant dispensing fees but were negatively impacted by the
NHI drug price revisions, and net sales in the segment amounted to¥18,361 million, which is 99.8% of the level a year earlier, and gross5

profit was ¥4,780 million, which is 98.6% of the level a year earlier.
SG&A expenses were ¥4,673 million, which is 100.6% of the level a year
earlier, mainly due to increased hiring of pharmacists. As a result,operating profit totaled ¥106 million.
Next, I will explain the results of the Veterinary Drug Wholesale Business.
Net sales amounted to ¥10,879 million, which is 104.6% of the level ayear earlier, mainly due to increased sales of pet-related products. Grossprofit was ¥1,661 million, which was 102.2% of the level a year earlier.
SG&A expenses came to ¥1,322 million, which is 105.4% of the level ayear earlier, due to the recording of an allowance for doubtful accounts.
As a result, operating profit amounted to ¥339 million, which is 91.4% of
the level a year earlier.

Turning finally to the Other Businesses segment, sales in the agriculturalchemicals wholesale business were strong; however, other operations
such as the nursing care business and the sports facility managementbusiness were lackluster due to the COVID-19 pandemic and, thesegment recorded an operating loss of ¥204 million.

5▍ Factors in the Year-on-Year Change in Consolidated Net Sales+¥21.3 billion-¥28.4 billion¥579.7 billion+¥0.3 billion¥577.2 billion+¥2.0 billion+¥7.3 billion

Long-term
listed drugs

Year ended
March 31, 2022

OthersVaccines

Products
eligible for PMP+¥2.5 billion

COVID-19related products

Year ended
March 31, 2023
6

I would now like to explain in more detail the main factors for change innet sales.
Firstly, we have been focusing for some time on sales of products eligible
for the price maintenance premium, which allows products to maintainhigher prices for longer. These efforts have paid off, and our sales in thiscategory increased by ¥21,300 million year on year. However, sales oflong-listed products were significantly affected by NHI drug revisions
and fell by as much as ¥28,400 million year on year.
Sales of COVID-related products such as COVID treatments and test kits
and masks increased by ¥7,300 million, sales of various vaccines such as
cervical cancer vaccine and zoster (shingles) vaccine rose by ¥2,000
million, and total sales of other businesses climbed by ¥300 million. Our
final net sales result was ¥579,700 million, an increase of ¥2,500 million
year on year.

6▍ Balance Sheet(Million yen)
Increase/decrease

March 31, 2022

March 31, 2023

Main factors for increase/decrease

Current assets

198,532

188,502-10,030

Cash and deposits

26,971

19,029-7,942

Notes and accounts receivable - trade119,533

118,386-1,147

Payment of trade payables and capital expenditure, etc.

Inventories

31,78830,846-942

Non-current assets

114,501

108,813-5,688Property, plant and equipment andintangible assets

50,79752,402

1,605

Acquisition of land associated with the integration of Amagasaki Branch
and Amagasaki Higashi Branch
Return of manufacturers’ deposits, sale of investment securities

Investments and other assets

63,70356,411-7,292

Total assets

313,033

297,316-15,717

Current liabilities

190,092

178,659-11,433

Notes and accounts payable - trade176,685

164,571-12,114

1,960

1,960

-

Short-term borrowings (including current
portion of long-term borrowings)

Shortening of grace period before payments and payment before holidays

Other current liabilities

11,447

12,127680

Non-current liabilities

22,89818,491-4,407

Total liabilities

212,991

197,150-15,841

Net assets

100,041

100,165

124

Shareholders’ equity

75,631

78,0992,468

Recording of net profit, payment of dividends, and acquisition of own
sharesSales of investment securities

Accumulated other comprehensive
income23,32920,886-2,443

Total liabilities and net assets

313,033

297,316-15,717

Establishment of retirement benefit trust, decrease in deferred tax liabilities

7

I would like to explain the balance sheet.
Firstly, total assets as of the end of the fiscal year under review
amounted to ¥297,316 million, a decrease of ¥15,717 million from theend of the previous consolidated fiscal year. This reflects a decrease of¥7,942 million in cash and deposits due mainly to the payment of trade
payables and capital expenditure, and a decrease of ¥7,292 million in
investments and other assets as a result of the return of manufacturers'
deposits and the sale of cross-shareholdings, which offset an increase of¥1,605 million in property, plant and equipment and intangible assets
due to capital expenditure such as the acquisition of land associatedwith the integration of Amagasaki Branch and Amagasaki Higashi Branch.
Next, liabilities amounted to ¥197,150 million, a decrease of ¥15,841
million from the end of the previous consolidated fiscal year. This mainlyreflects a decrease of ¥12,114 million in trade payables due to theshortening of the grace period before payments and payment before
holidays and a decrease of ¥4,407 million in non-current liabilities due tothe establishment of a retirement benefit trust and a decrease indeferred tax liabilities.
Finally, net assets amounted to ¥100,165 million, a slight increase of¥124 million from the end of the previous consolidated fiscal year. This7

reflects the reporting of net profit of ¥4,831 million, offset by thepayment of dividends, the acquisition of our own shares to improveshareholder returns, and greater progress on the sale of crossshareholdings than in the previous year.

7

2.

Formulation of “Long-Term Vision 2035”

8

I would now like to discuss our newly established "Long-Term Vision
2035."

8▍ Response to Changes in EnvironmentsLowbirthrate
and aging
population

Onlinehealthcare
services

Declining
population

DX inhealthcare

WorkstylereformData
healthChanges in the social environment

Trust × Challenge ×
Cooperation

Changes in the business environment
Selection ofpharmaceuticalwholesalers

Globalwarming
Overpopulationin cities

Unevendistribution
ofhealthcare

Groundbreaking
new drugs

NHI drug
pricerevision

Based on an accurate understanding of changes in the external environment,
we will take on the challenge of transforming the future of health care throughcooperation and collaboration and contributing to society.
9

Let me start by explaining the changes in our environment and the action
we are taking in response.
Looking at changes in the social environment first.
As you know, Japan has the world's most rapidly declining population.
The decline in the working-age population due to the low birthrate is
having a particularly significant impact on the industrial structure itself.
Employment of the elderly to combat labor shortages will become morecommonplace and the development of a working environment in which
women can feel more at ease is also an important responsibility placedon companies.
Alongside the decline in population, there is an overconcentration of
resources in urban areas and the gap between urban and rural grows
ever wider. This also applies to healthcare provision and the geographicalimbalances in the distribution of doctors and other healthcare
professionals are becoming a major social issue.
Furthermore, companies that are responsible for the social infrastructure
also have to take appropriate action in response to the torrential rain andother natural disasters caused by global warming which are becoming anannual occurrence.

9

I will now move on to the changes in our business environment.
Due to the COVID-19 pandemic, online medical treatment and online
drug administration guidance through the use of ICT have gradually
become more widespread. With developments such as electronicprescriptions and the integration of health insurance and My Number
cards, more data will be managed in an integrated fashion online in the
future and new services using this data are expected to emerge. In
addition, new diagnostic and therapeutic techniques that use cuttingedge technology are bringing forth substantial innovations. While thesechanges will drive market growth in the future, they also pose problems
for distribution. Moreover, DX in the healthcare domain will advance
rapidly in the future. This will no doubt help improve the efficiency andsophistication of healthcare provision and also drastically transform all
businesses involved in the healthcare domain. This will also lead to theselection of pharmaceutical wholesalers by pharmaceuticalmanufacturers (limited distribution, for example).
Moreover, the annual NHI drug price revisions aimed at reducing social
security expenditure are not only an issue in terms of adjusting
shipments of pharmaceuticals due to the drug shortage but also a major
factor undermining the sustainability of the pharmaceutical distribution
system.

Our operating environment has thus changed dramatically and become
more challenging. It will be difficult for us to overcome these challenges
if we continue to adopt same ways of doing and approaching things. We
need to change the way we operate flexibly and boldly.
At the same time, there are also things we must not change. And those
are the core values we have developed since our founding. We havealways attached importance to the three values of "Trust, Challenge andCooperation" in our business activities. Our operating companies haveexperienced and overcome two major earthquakes, the Great Hanshin
Earthquake and the Great East Japan Earthquake. We have strong
relationships of trust with medical institutions and local governments
developed through these experiences. We also have a corporate cultureof taking on new challenges such as high performance logistics anddrone research. What is more, through the management integration andclose cooperation of entities that share the same values, we havegenerated a great deal of synergy.
Based on the three values of "Trust, Challenge and Cooperation," we will
gain an accurate understanding of changes in the external environment,take on the challenge of transforming the future of health care throughcooperation and collaboration with various companies and local
governments, and continue contributing to society.

9▍ Long-Term Vision 2035

To transform the future of medical careby going beyond the boundaries of mere pharmaceutical treatment
and acting as a bridge to other beneficial devices and support

Develop a sustainable distribution
structure for drugs and medical products
through independence and cooperation

Expand healthcare-related businesses
with the aim of contributing to theresolution of social issues and theextension of healthy life expectancy

10

We recently established our "Long-term Vision 2035" as follows.

To transform the future of medical care by transcending boundaries and"acting as a bridge" to cutting-edge medicines

Based on this vision, the Group will work together to expand healthcarerelated businesses with the aim of developing a sustainable distribution
structure for drugs and medical products through independence andcollaboration and contributing to the resolution of social issues and theextension of healthy life expectancy.

10▍ Eight Key Domains for Activities

Sophistication of logistics functions

Overhaul of pharmaceuticalwholesale business

Expansion of medical product sales

Expansion of life support business

Nationwide expansion of 3PL business

Optimal business strategies in eachbusiness area

Further development into drug-related
business

Parenting support and disease
prevention

Strengthening of rental business

Expansion of pharmacy business

Cooperation with central andlocal governments

Business expansion in the companion
animal and agritech fields

For both medical institutions andcompanies

Changes to the way medication ispicked up

Contribution to extension of healthy
life expectancy

Area expansion and new businessdevelopment
11

I will now explain the eight key domains for activities.
The first is "sophistication of logistics functions". Given the increase indrugs that required sophisticated temperature control, we will also work
to strengthen our supply chain, aiming to be the pharmaceuticalwholesaler that is chosen by pharmaceutical manufacturers. We will also
expand the 3PL business nationwide, transcending regional boundaries.
Next is "overhaul of pharmaceutical wholesale business." With urban
areas becoming overpopulated, we will intensively invest resources toexpand our share of large markets, focusing on the Tokyo Metropolitan
area and the Kyoto–Osaka–Kobe region. Meanwhile, in rural areas, we willdevelop an efficient distribution structure through low cost operations,to support the stable supply of pharmaceuticals.
Moving onto "Expansion of medical product sales." We identified"enhancement of sales structure for hospital market" as an important
issue under our Fifth Medium-Term Management Plan. In particular, totap into the continually growing therapeutic device market, we created
MAPS- professional sales staff who are experts in hospital treatments,
drugs, devices, diagnostics, etc. By looking not only at drugs but also at
the areas surrounding them, we will step up initiatives to enable us todeepen our involvement in health care.

11

Next, we have "expansion of life support business." Given the increase inemployment of the elderly and the empowerment of women, there is aneed to develop a working environment in which every individual canenjoy good health and fully demonstrate their skills. As a corporategroup involved in health-related business, in addition to our own internal
initiatives, we will provide various services to other companies in theregions we operate to help individuals lead healthy, full lives.
Another business we are currently putting effort into is the rental
business. We will actively take on products that are different from those
we have handled in the past such as welfare equipment, home
appliances and power generators and make these products available aspart of the management support we offer to customers. Recently, there
is also growing rental demand among local governments and companies
as well as medical institutions, We see this as a huge opportunity andwill work to continue strengthening the rental business in the future.
Next, we have "expansion of the pharmacy business." Even in outpatientsettings, therapeutic drugs that require specialist pharmaceuticalmanagement have increased. Moreover, with online medication guidanceand drug delivery services becoming more widespread, the way in whichpharmacies and pharmacists interact with patients has also changed. We
will enhance specialist services to ensure patients take drugs safely andcontinue operating a network of pharmacies that provide convenientservices to meet the diverse needs of local residents.
Meanwhile, the relationships of trust we had built up with local
governments in the past came in very useful for COVID-19 vaccine
delivery services and the operation of large-scale vaccination centers.
To make these relationships of trust even stronger, we will strengthen"cooperation with central and local governments" and actively
participate in business which will help extend local residents' healthy
life expectancy.
Finally, we come to "business expansion in the companion animal andagritech fields." In addition to the core business of selling
pharmaceuticals for human use, the Group includes a company involvedin the wholesale of veterinary pharmaceuticals and a company involvedin the wholesale of agrochemicals. The veterinary drug wholesaler sells
drugs to livestock farmers and veterinary hospitals mainly in Hokkaido,
Tohoku and Niigata and at the same time has also taken advantage ofthe recent pet boom and developed sales channels and product sales in
the companion animal field. Aiming for further growth in the future, it is
now planning to enter the Kanto market (around Tokyo) and is also in theprocess of developing new business. Meanwhile, the agrochemical
wholesaler, which operates in Niigata Prefecture, has contributed to thedevelopment of smart agriculture through initiatives such as the early
adoption of drones to combat labor shortages in the agricultural sector.
Going forward, we will continue contributing to DX in the agricultural
sector, supporting the "food" that is the source of health.

11▍ Vision for 2035

FY2035

FY2022
Healthcarerelated
businesses

Healthcarerelated
businesses

6%

Ratio tonet sales

20%

94%

80%
Pharmaceutical
Wholesale
Business

Healthcarerelated
Businesses

Pharmaceutical
Wholesale
Business

Healthcarerelated
Businesses

17%

Composition ofoperating profit

40%
60%
83%
Pharmaceutical
Wholesale
Business

Pharmaceutical
Wholesale
Business
12

I would now like to explain our target sales and operating profit
breakdown for 2035.
Currently, the Pharmaceutical Wholesale Business accounts for 94% of
our sales, 83% of our operating profit. However, as things stand, withannual NHI drug price revisions and so forth, this business is a low
growth business.
Therefore, under the Fourth medium-Term Management Plan, whichstarted from FY2019, we defined businesses other than the
Pharmaceutical Wholesale Business as emerging businesses and havebeen working to expand them. Our current Fifth Medium-termManagement Plan maintained this approach but there is still a long way
to go.
When formulating our new "Long-Term Vision 2035," we once again
committed to moving away from a business model which is over-reliant on
the Pharmaceutical Wholesale Business. By pushing ahead with theinitiatives explained earlier, our target sales breakdown for FY2035 is
Pharmaceutical Wholesale Business 80% and Healthcare-related
businesses 20%. We hope to increase the operating profit contributionof Healthcare-related businesses to 40% and will also aim for further
improvement in ROE.

12

3.

Efforts Toward Corporate Value Enhancement

13

I will now explain progress on efforts to enhance our corporate value.

13▍ Efforts Toward Corporate Value Enhancement

2016

Enhancement of governanceIntroduction ofsystem for aligning
the interests ofshareholders andmanagers

2022

2024

2025

Improvement of capital efficiency

2026

2032

Less than 20%
of net assets

Less than 10%of net assets

Introduction ofBoard Benefit
Trust (BBT)Introduction of
performance-linked
RS planEnhancement of
the function of theBoard of Directors

Strengthening ofshareholder
returns

2023

Transition to a company with an
Audit & Supervisory Committee
Dividend
payout ratio
25% ormore

Dividend policy: DOE
of 2% or more
Total return ratio of
50% or more

Acquisition orcancellation oftreasury shares

Acquisition of treasury
shares will continue until
the highest PBR in theindustry is achieved

Disposal of crossshareholdings

37.5% ofnet assets

Establishment of
ROE target

Establishment
of ROE target

ROE
5.2%

ROE
5.4%

ROE
8.0%

14

This is a summary of our initiatives to date.
As announced on October 28 last year, we have been actively working on
enhancing corporate governance and improving capital efficiency as partof efforts to strengthen group management.
I will now explain each initiative in more detail.

14▍ Enhancement of Corporate Governance* Subject to resolution of the 14th Annual General Meeting of
Shareholders of the Company to be held in June 2023

(1) Introduction of a performance-linked restricted stock (RS) compensation plan with ROE as
performance indicator◼ For Directors, Executive Officers, and department/branch manager class employees of the Company and its major
operating subsidiaries◼ Introducing a restricted stock unit plan for granting stock-based compensation according to the degree of achievement of
ROE◼ Giving the Company’s management and employees the same perspective as shareholders toward the sustained
enhancement of corporate value

Restricted stock (RS) compensation plan

Timing of introduction

From June 2023

Performance indicator

ROE

Eligibility

Directors, Executive Officers, and department/branch manager class employees of the Company and its
major operating subsidiaries
15

We plan to introduce a performance-linked RS plan with ROE as theperformance indicator, subject to a resolution at the 14th Annual General
Meeting of Shareholders of the Company to be held this June.

This plan is for Directors, Executive Officers, and department/branchmanager class employees of the Company and its major operating
subsidiaries and stock compensation with restrictions will be granted tothem according to the degree of achievement of ROE.
The key point is that performance is linked to ROE, giving the Company's
management and employees the same perspective as shareholders, andthe plan is a sign of our commitment to sustainable enhancement ofcorporate value.

15▍ Enhancement of Corporate Governance* Subject to resolution of the 14th Annual General Meeting of
Shareholders of the Company to be held in June 2023

(2) Transition to a company with an Audit & Supervisory Committee◼ Aimed at speeding up management decision-making and further enhancing discussions on management strategies, etc. atmeetings of the Board of Directors◼ Strengthening of the supervisory function of the Board of Directors through an Audit & Supervisory Committee of which the
majority of members are Outside Directors

Audit & Supervisory Committee

Director
Hirofumi Jinen

Outside Director
Seiya Takahashi(Lawyer)

Outside Director
Tsuyoshi Nishitani(Certified public
accountant)

16

This deals with our transition to a company with an Audit & Supervisory
Committee
This initiative is aimed at speeding up management decision-making andstrengthening of the supervisory function of the Board of Directors by
separating the Company's executive and supervisory functions, in
keeping with the Corporate Governance Code.
We plan to have the following three candidates for Director appointed to
the Audit & Supervisory Committee at the Ordinary General Meeting of
Shareholders this June.
Mr. Hirofumi Jinen as Internal Director,
and Mr. Seiya Takahashi and Mr. Tusyoshi Nishitani as Outside Directors.
By having these three individuals serves as committee members, we will
establish a high level of corporate governance befitting a company listedon the Prime Market.

16▍ Enhancement of Corporate Governance* Subject to resolution of the 14th Annual General Meeting of
Shareholders of the Company to be held in June 2023

(3) Increase in diversity of Board of Directors◼ Appointing of three new Outside Directors, two of whom are women◼ Independent outside directors will account for at least one third of the total number of Directors

Outside Director

Outside Director

Outside Director

Kieko Onoki

Jun Katsura

Masami Tsugita

Japan Post Co., Ltd.
Senior Executive Officer
General Manager of
Tohoku Branch Office

Medical Incubator Japan K.K.
President & CEO

Niigata University of Pharmacy andApplied Life Sciences
Department of Clinical Laboratory
Science, Faculty of Medical
Technology,
Professor, Clinical Infectious
Diseases Laboratory,

17

This deals with the increase in diversity of our Board of Directors.
We recently decided to propose the following three individuals ascandidates for new Outside Directors. Two of the candidates are women.
Ms. Kieko Onoki, who is Senior Executive Officer and General Manager of
Tohoku Branch Office at Japan Post Co., Ltd.
Mr. Jun Katsura, who is President & CEO of Medical Incubator Japan K.K.
Ms. Masami Tsugita, who is a professor in the Clinical Infectious Diseases
Laboratory of the Department of Clinical Laboratory Science in the
Faculty of Medical Technology at Niigata University of Pharmacy andApplied Life Sciences.
With their appointment, independent outside directors will account for atleast one third of the total number of the Company's Directors.
By having these three experts in their respective fields take on the roleof Outside Director, we will seek to further enhance corporate
governance.

17▍ Improvement of Capital Efficiency(1) Strengthening of shareholder returns

Unit: yen

◼ Future dividend policy: Maintain a DOE of 2% or more
◼ Total return ratio: 50% or more every fiscal year

20

2

12

27

12

Year-end dividend(special)
Year-end dividend(ordinary)

19
12

12

12

12

Year ended March 31, 2020

Year ended March 31, 2021

Year ended March 31, 2022

Year ended March 31, 2023

61.0%

56.4%

62.0%

62.5%

Interim dividend

Total return ratio

Year ending March 31, 2024
(forecast)

61.9% (forecast)
18

This is about improvement of capital efficiency
In the previous fiscal year, we changed our dividend policy from
"dividend payout ratio of 25% or more" to "DOE of 2%," adopting
dividend on equity as an index because DOE is relatively immune tochanges in single-year business results. In conjunction with this, we also
set the dividend forecast for the current fiscal year at a total of 39 yen,consisting of an interim dividend of 19 yen and a year-end dividend of 20
yen.
We are also aiming for a total return ratio of 50% or more every fiscal
year. As the shareholders’ equity ratio is not at a particularly high level,
currently at around 30%, we need to remain financially sound going
forward. Nonetheless, we set this total return ratio target to give
maximum consideration for shareholders. The total return ratio was
62.5% in FY2022 and is expected to be 61.9% this fiscal year also.

18▍ Improvement of Capital Efficiency
Treasury shares(2) Acquisition or cancellation of treasury shares
Number of shares issued: Approx. 61.22 million
March 31, 2020

10.03%March 31, 2023

15.23%
9.32 million
sharesJune 30, 2023

Total number of shares issued: approx. 51.78 million shares

All cancelled

Additionally acquiring 1 million treasury shares between May andthe end of September 2023
→ Planning to use some of these treasury shares for the performance-based RS plan
19

This is about the acquisition and cancellation of treasury shares.
We have been continuously acquiring our own shares for the purpose of
improving capital efficiency. Treasury shares accounted for 10.03% of
the total number of issued shares at the end of March 2020. By the endof March 2023, treasury shares had increased to around 9.32 million,
accounting for 15.23% of issued shares.
We are now going to cancel all this treasury shares at the end of Juneand additionally acquire another 1 million treasury shares between May
and the end of September. These shares will be used for the
performance-based RS plan in the future.
Through these initiatives, a higher PBR can also be expected.

19▍ Improvement of Capital Efficiency(3) Acceleration of disposal of cross-shareholdings◼ Funds from sales are used for shareholder returns and invested in business which will help enhance corporate value inthe future.
(Million yen)

40,00035,00030,000

Reduce to lessthan 20% of
net assets

25,000

Reduce to lessthan 10% of
net assets

20,00015,00010,0005,000

0FY2021

FY2022

FY2023

FY2024FY2025

FY2026FY2027

FY2028FY2029FY203020

I would like to explain the disposal of cross-shareholdings.
At the end of March 2022, our cross-shareholdings accounted for 41.6%
of our net assets. We have actively been disposing of them and as aresult, by the end of March 2023, they accounted for 37.5% of our net
assets.
We will continue disposing of our cross-shareholdings in line with the
Corporate Governance Code and will use the funds obtained from theirsale to enhance shareholder returns and for business investments thatwill help enhance our corporate value in the future.

20▍ Improvement of Capital Efficiency(4) Establishment of ROE target
Fifth Medium-Term Management Plan
FY2021 Results

ROE

4.7%

FY2031 Plan
FY2022 Results

FY2023 Plan

FY2024 Plan

・・・・・

4.9%

5.2%

5.4%

・・・・・

Ratio of net income
to net sales
Overhaul of management ofexisting business
Management based onawareness of cost of capital

ATO (Asset turnover)×

Shortening of
payables/receivables cycle
Disposal of idle real estate
Sales of investment securities

8.0%

Financial leverage×Enhancement ofshareholder return policy

Acquisition of treasury shares
Stable high returns
21

This is about the setting of the ROE target.
Our ROE increased from 4.7% in FY2021 to 4.9% in FY2022. To reflect
this, we raised our ROE target to 5.2% for FY2023 and to 5.4% for
FY2024.
In addition to our existing initiatives of disposing of cross-shareholdings
and enhancing our shareholder return policy, we will also improve the net
profit margin by overhauling the management of existing business andactively investing in growth. In this way we will continue working towards
achievement of our FY2031 ROE target of 8.0%.

21

▍ For Achievement of ROE Target

Overhaul of management of existing businessPharmaceutical Wholesale BusinessPharmacy Business

Ensure price negotiations based on awareness of
distribution costs

Strengthen determination of dispensing fees by improving
pharmacy capabilities
Improve productivity through implementation of DX
Increase business size through M&A and new pharmacy
openings

Join the Open Data Revolution (benefitting the wholeindustry or organization through sharing own skills or
information.) with the visualization of contributed
profitDevelop a more sophisticated supply chain
Expand the 3PL business

Veterinary Drug Wholesale Business

Generate profit by strengthening sales of products
other than prescription pharmaceuticals

Expand sales channels focusing on high-priced products
Generate profit by reducing SG&A expenses

Improve productivity by implementing DX
Reorganize logistics centers and allocate personnel
as appropriate

Other Businesses
Consider downsizing or withdrawing from unprofitablebusinesses
22

I will now explain the overhaul of management of existing business inmore detail.
In the Pharmaceutical Wholesale Business, we generate an appropriate
level of profit by ensuring price negotiations based on awareness of
distribution costs and continuing to play our part in the Open Data
Revolution. We will also develop a more sophisticated supply chain andexpand the 3PL business nationwide, aiming to be the wholesaler
preferred by pharmaceutical manufacturers. In addition, we step up salesof products other than prescription pharmaceuticals such as devices,
reagents and diagnostics, to make these into a new source of earnings.
We will also work to improve productive through bold measures such as
the implementation of DX and the reorganization of logistics centers.
In the Pharmaceutical Business, we will acquire certifications forpharmacies in cooperation with specialized medical institutions andpharmacies in cooperation with local health care facilities and will work
to determine dispensing fees in our face-to-face services. We will also
pursue the improvement of productivity and expansion of stores in large
metropolitan areas.
In the Veterinary Drug Wholesale Business, we will generate a stableprofit by expanding sales channels focusing on high priced products and22making inroads in the Tokyo Metropolitan Area, which is a large market.
In Other Businesses, we will carry out business restructuring based on
an awareness of the cost of capital, including downsizing andwithdrawing from unprofitable businesses.

22▍ Topics: Developing a More Sophisticated Supply China

Increase in pharmaceuticals
that require sophisticatedtemperature management

×

Selection of pharmaceuticalwholesalers by pharmaceuticalmanufacturers＝

Development of a highquality distribution
structure that is partially
GMP-compliant

Holding training sessions on topics such as GDP, GMP, GQP and ICH-Q10 for all the senior
management of the Group’s Pharmaceutical Wholesale Business Company
Seeking to further improve quality control and ensure compliance in pharmaceutical distribution

GDP: Good Distribution Practice (standards for appropriate distribution of pharmaceuticals)
GMP: Good Manufacturing Practice (Ministerial Ordinance on Standards for Manufacturing Control and Quality Control for Drugs and Quasi-drugs)
GQP: Good Quality Practice (Ministerial Ordinance on Standards for Quality Assurance for. Drugs, Quasi-drugs, Cosmetics and Medical Devices
ICH-Q10: Pharmaceutical Quality System Guideline
23

I would now like to explain several of our initiatives.
Our Fifth Medium-Term Management Plan identified the development ofa more sophisticated supply chain as a major practical issue.
This requires not only development in terms of logistics centers andother facilities but also the development of the human resources who will
manage and operate them. We are holding training sessions on topics
such as GDP, GMP, GQP and ICH-Q10 for all the senior management of
the Group's Pharmaceutical Wholesale Business Company and working as
an organization to further improve quality control and ensure compliancein pharmaceutical distribution. As a company that handles vitally
important products, we will continue developing a more sophisticatedsupply chain.

23▍ Topics: Developing Visual Inspection System
Identification of product, use-bydate and lot using 2D bar code

Vital Net
Miyagi Logistics Center

Establishing disaster-resilient operations
through the elimination of automated material
handling equipment where possible

Developing our own way of identifying
the quantity of products even when
products are laid on top of each otherand some become hidden

Developing a system which has cameras
installed on the conveyor belt and caninspect products automatically24

We are currently developing a visual inspection system which will
increase productivity and accuracy.
Based on the lessons learned from the 2011 Great East Japan Earthquake,
Vital Net's Miyagi Logistics Center, which is central to our logistics
capabilities, is eliminating automated material handling equipment asmuch as possible and product inspections are carried out manually using
a two-tiered approach.
To do this more efficiently, we are currently developing a system which
has cameras installed on the conveyor belt and can inspect products
automatically. This system has its own unique way of counting thequantity of products accurately even when they are placed on top ofeach other, with some hidden. A 2D barcode is used to identify products,
use-by-dates and lots, enabling reliable product inspections.
In addition to this system, we are also incorporating the predictive
ordering system and packaged delivery introduced previously in a bid todevelop even more sophisticated and efficient logistics capabilities.

24▍ Topics: Reorganization of Branches

KSK Amagasaki BranchService area: Itami City, Takarazuka City, Kawanishi Cityand Kawabe District in Hyogo Prefecture

Source: Geospatial Information Authority of Japan

Integration of Amagasaki Branch and Amagasaki Higashi Branch

KSK Amagasaki Higashi Branch- Planned completion in 2026
- Branch which also has logistics center
capabilities- Realization of fully packaged delivery

Service area: Amagasaki City and Nishinomiya City in Hyogo Prefecture25

We are also considering the reorganization of branches where necessary.
I would like to explain the integration of KSK's Amagasaki Branch andAmagasaki Higashi Branch as one example. Both branches are large
branches in urban areas which provide around 1,800 homes withpharmaceuticals and other products on a daily basis. We are planning toreorganize the two branches in 2026, integrating them to realize more
efficient fully packaged delivery and to create a site which also functions
as a logistics center close to central Osaka.
In addition, we plan to actively optimize our logistics centers based onregional characteristics.

25

▍ Topics: Development of New Products, Services and Sales Channels

Nursing careequipment

Drugs
Reagents

RentalElectric
appliances

RentalPower
generators

Diagnostics
Hospital/Clinic

Local governments

Sales

Vaccines
Medicaldevices
Sales

SystemPharmacy

Healthproducts
Test kits

Sales

Private-sector enterprises

In addition to providing a wide range of new products and services also develop new sales channels
to evolve from a “pharmaceutical wholesaler” into a “healthcare-related distributor”
26

This is about the development of new products, services and sales
channels.
So far, we have sold pharmaceuticals, reagents, diagnostics, vaccines,
medical equipment and systems to hospitals, clinics and pharmacies.
Recently, we have also been expanding the business of renting welfare
equipment, electric appliances and power generators. We have also been
stepping up sales of new products such as health products and testingkits.
Moreover, we are not only expanding products and services for existingcustomers but also developing new customers such as local governments
and private-sector enterprises and have started making rental proposals
and selling health products to them.
In this way, we are using existing business relationships to expand new
business opportunities, aiming to evolve from a "pharmaceuticalwholesaler" into a "healthcare-related distributor".

26

4.

Full-year Earnings Forecasts for the
Fiscal Year Ending March 31, 2024

27

Finally, I will explain our full-year earnings forecasts for FY2023.

27

▍ Full-year Earnings Forecasts for the Fiscal Year Ending March 31, 2024
(Million yen, %)Year ended March 31, 2023

Year ending March 31, 2024

Results

Forecast

AmountRatio to net
sales

－

Amount576,000

Ratio to net
sales

ChangeYoY(1) Recording of administrative service fee income in net sales
Approx. 1,600 million yen(2) Improvement of profit, etc.
Approx. 200 million yen(3) Decrease in amortization of goodwill
Approx. 200 million yen(4) Expected reversal of allowance for doubtful accounts
Approx. 200 million yen

－

－

－

－

－

Net sales

579,772

Operating profit

2,470

0.43

4,700

0.82

Ordinary profit

5,960

1.03

6,000

1.04

40

100.7

Profit attributable toowners of parent

4,831

0.83

5,200

0.90

369

107.6

(Note) The amount of change and YoY comparison for net sales and operating profit are omitted because “administrative service fee income,” which was previously
recorded in non-operating income, will be recorded in net sales following a change of presentation method from FY2023 due to the increased importance of thedata business.
28

Net sales for the fiscal year ending March 31, 2024 are expected toamount to 576,000 million yen, falling around 4,000 million from theprevious year.

The main negative factors are (1) the suspension of transactions with
one foreign pharmaceutical company, (2) decline in the sale of JCHO
reflecting the lifting of the suspension of rival wholesalers fromparticipating in tenders, and (3) decline in COVID-related delivery
earnings and sales of related products as result of the change inclassification of COVID-19. These negative factors combined are
expected to have a negative impact on sales of around 16,000 million yen.
Meanwhile, the main positive factors are (1) growth of thepharmaceutical market, (2) stepped-up initiatives for products otherthan pharmaceuticals, (3) the recording of administrative service fee
income from pharmaceutical manufacturers in net sales instead of nonoperating income as before. These positive factors combined are
expected to have a positive impact on sales of around 12,000 million yen.
Accordingly, full-year net sales will fall by around 4,000 million yen, to576,000 million yen.
Turning next to operating profit.

28

The abovementioned recording of administrative service fee income innet sales as well as other factors such as initiatives to improve profit, adecrease in the amortization of goodwill and the expected reversal of
the allowance for doubtful accounts are expected to push operating
profit up by around 2,200 million yen from the previous year, to 4,700
million yen.
We forecast ordinary profit of 6,000 million yen and profit attributableto owners of parent of 5,200 million yen.

28

▍ Revision of Profit Plan due to Change in Method of Presentation(Million yen, %)Year ending March 31, 2024 (FY2023)
AmountYear ending March 31, 2025 (FY2024)

Ratio to net
sales

YoY

－

－

566,000

576,000

Before revision

After revision

Ratio to net
sales

YoY

－

Net sales

576,000

100.0

Operating profit

4,700

0.82

－

3,700

5,300

0.92

112.8

Ordinary profit

6,000

1.04

100.7

6,200

6,200

1.08

103.3

Profit attributable toowners of parent

5,200

0.90

107.6

5,400

5,400

0.94

103.8

(Note) The YoY comparison for net sales and operating profit for FY2023 is omitted because "administrative service fee income," which was previously recorded in nonoperating income, will be recorded in net sales following a change of presentation method from FY2023 due to the increased importance of the data business.
29

I would also like to explain our revision to the profit plan for
FY2024 as a result of the aforementioned change in presentation
method.
Our plan for FY2024 is net sales of 576,000 yen, operating profitof 5,300 million yen, ordinary profit of 6,200 million yen, andprofit attributable to owners of parent of 5,400 million yen.

29▍ Note on Forward Looking Statements

The Company’s current plans, strategies, earnings forecasts and other forward-looking statements inthese materials are based on information currently available to the Company, and include potential
risks and uncertainties.
Please be aware that there is a possibility that actual business activities and performance will differ
greatly from these outlooks due to changes in the economic situation, market conditions and various
other factors.
For this reason, please do not rely entirely on these forward-looking statements alone when
considering aspects of the Company such as its performance and corporate value.
Furthermore, none of the information contained in these materials is intended to induce you to buy orsell the Company’s stock or recommend investment in the Company’s stock.
Final decisions on investment should be made at your own discretion.

30

Please refer to the note on forward-looking statements shown here.

30▍ Contact for Inquiries

Corporate Communications Department
Mail:

ir@vitalksk.co.jp

Contacts: Sato, Nanjo

31

I would like to ask you to direct any inquiries your might have about
today s presentation to our Corporate communications Department.
Thank you for your attention.

31