Staying Ahead of Change
ANNUAL REPORT 2018
For the year ended April 30, 2018

AIN HOLDINGS at a Glance

Hope, Beauty and Compassion
Starting in fiscal 2018, AIN HOLDINGS selected Audrey Hepburn as its
communication icon.
As an actress, Audrey Hepburn embodies beauty, vigor and glamour, and as

AIN HOLDINGS operates Japan’s leading dispensing pharmacy business and a unique cosmetic anddrug store business focused on women. Over the years, we have achieved sustained growth by
expanding these businesses while consistently anticipating and responding flexibly to changes in
the operating environment.
Net Sales by Segment

a mother, strength and purity. She is also seen as an independent woman with

Other Businesses ¥5,623 million (2.1%)

Cosmetic and Drug Store Business¥24,117 million (9.0%)

elegance and grace. In her later years, Audrey Hepburn was a UNICEF Goodwill
Ambassador. In that role and through other humanitarian work, she became

Fiscal 2018
Consolidated
Net Sales¥268,385 million

known for her kindness, warmth and compassion in the way she treated others.
Even today, she remains one of the world’s best-loved actresses.

Dispensing Pharmacy Business¥238,645 million (88.9%)

To live life to the full and with the level of generosity that Audrey Hepburn
displayed over the years is the dream of many people. AIN HOLDINGS is nodifferent. We want to contribute to society as a company that supports people
everywhere, making that an integral part of the way we do business, just as
Audrey Hepburn led her life.
We have chosen her image and words to represent the AIN Group, which will
be used widely to connect with customers across the Group through advertisingand posters in ainz & tulpe stores and in our dispensing pharmacies.

Dispensing Pharmacy Business

Cosmetic and Drug Store Businessleader in Japan’s

Beauty products account for more thanThe

80%of store merchandise

dispensing pharmacy market

1

AIN HOLDINGS at a Glance

24 Board of Directors and Corporate Auditors

2

Message from the President

26		Financial Section
		26 Management’s Discussion and Analysis
			 of Financial Condition and Results of Operations
		26 11-year Financial Summary
		30 Consolidated Balance Sheet
32 Consolidated Statement of Income
32 Consolidated Statement of Comprehensive Income
33 Consolidated Statement of Changes in Net Assets
34 Consolidated Statement of Cash Flows
35 Notes to Consolidated Financial Statements
59 Independent Auditor’s Report

8 Growth Strategy
		 8 Dispensing Pharmacy Business				
8 Operating environment
				10 Top-line growth				 12	Supporting the government’s vision forpatient-focused dispensing pharmacies				 14 Recruit and train personnel
16 Cosmetic and Drug Store Business				 16 Standing out in the market
				18 Brands
20 ESG– Supporting Value Creation
			 20 Responding to ESG Issues
			 22 Corporate Governance

60 Investor Information

The dispensing pharmacy sector is one of Japan’s few
growth markets. We aim to reinforce our position as
the dominant player in the sector by responding to new
demands on dispensing pharmacies and by playing a keyrole in society as part of Japan’s healthcare system.
Market distribution of dispensing pharmacies in Japan—Comparison of net sales and operating margin among major
companies operating dispensing pharmacies in JapanWe are rolling out new retail formats for women under our
ainz & tulpe brand. Brand power and earnings are bothincreasing by the year, thanks to a strategy of opening newstores in prime locations in the Tokyo metropolitan area
and using interesting retail displays that keep customers
coming back. We are confident our cosmetic and drug store
business will become a second key source of earnings for
the AIN Group.

8.0
7.0

Operating margin (%)

Contents

Qol
AIN HOLDINGS

6.0
5.0

SOGO MEDICAL

4.0

NIHON CHOUZAI
3.0

MEDICAL SYSTEM NETWORK

2.0
1.0

Forward-looking Statements
This annual report contains forecasts and projections concerning the plans, strategies and performance of AIN HOLDINGS INC. and its subsidiaries and affiliates.
These forecasts and projections constitute forward-looking statements that are not historical facts, but are based on assumptions and beliefs in accordance withdata currently available to management. These forward-looking statements are subject to a number of risks and uncertainties that include, but are not limited
to, economic conditions, intense competition in the healthcare industry, demand, foreign exchange rates, tax systems, and laws and regulations. As such, AIN
HOLDINGS INC. wishes to caution readers that actual results may differ materially from those projected.

0.0
040,00080,000120,000

160,000

200,000

240,000

280,000

Net sales (¥ million)

Notes:
1. Net sales and operating margin are compiled by AIN HOLDINGS based on eachcompany’s summary of financial statements for FY 3/18 (AIN HOLDINGS: FY 4/18) .
2. Size of circle is proportional to market capitalization as of July 31, 2018.

ainz & tulpe Grand Emio TOKOROZAWA

AIN HOLDINGS ANNUAL REPORT 20181

Message from the President

currently leading efforts to attract pharmacies to their premises, and the shift to onsite dispensing
pharmacies, including at private hospitals, is likely to accelerate over the next two or three years.
Revisions to dispensing fees are also driving far-reaching changes to existing approaches inthe sector. In the April 2018 revisions, dispensing fees were reduced, and changes to technicalfees are set to have a significant impact on earnings at major dispensing pharmacy operators,
including the AIN Group. In addition, small and medium size dispensing pharmacy companies face
the prospect of being forced out of business or selling their operations. Many are struggling toadapt to the government’s vision for patient-focused pharmacies, and they are also finding it hard
to attract enough pharmacists and identify successors to run their businesses.
However, those developments are likely to trigger sector restructuring, which we view as anopportunity to reinforce our position as the dominant player in the dispensing pharmacy sector.

Dispensing pharmacy business growth strategyL everage advantages in quality, personnel and finances to become
the pharmacy chain of choice
Kiichi Otani
President and Representative Director

Staying Ahead of Change
Record operating income and net income
For fiscal 2018, ended April 30, 2018, we reported net sales of ¥268,385 million, up 8.2% year
on year, operating income of ¥19,622 million, up 34.7%, and profit attributable to ownersof parent of ¥10,567 million, up 32.9%. Profits were a record high. The dispensing pharmacy
business did not face revisions to drug prices or dispensing fees in fiscal 2018, and internalmeasures implemented to address the previous round of revisions in April 2016 yielded significant
results. The cosmetic and drug store business moved into profit, one year earlier than our April
2019 target. That reflected a strong performance by existing stores opened through 2017, as wellas an improvement in brand power and store profitability.

The deregulation of onsite pharmacies presents a significant risk for dispensing pharmacies
located in prime locations near hospitals, as they could struggle to attract business if patientschoose to use pharmacies on hospital premises. However, as a relatively late entrant to the sector,
we operate only a handful of dispensing pharmacies near major university hospitals nationwide.
That means the recent end to restrictions on onsite pharmacies offers the AIN Group new market
opportunities.
Hospitals that want pharmacies to locate on their premises are looking for companies withsound finances and good prospects for long-term viability. Onsite pharmacies also have to beopen 24 hours throughout the year, and pharmacies at large hospitals need a large staff of skilled
and experienced pharmacists who can handle complex medicines such as anticancer drugs.

History of Growth
Net sales(¥ million)
300,000

Net sales

Ordinary income

Ordinary income(¥ million)
25,000250,000

20,000200,000

15,000150,000
10,000100,000

The dispensing pharmacy sector stands at a major turning pointPharmacies
now allowed on hospital sites, business conditions
becoming more challenging
Japan’s dispensing pharmacy sector stands at a major turning point. One reason is the end ofrestrictions on dispensing pharmacies on hospital sites, although private pharmacies are still notallowed inside hospital buildings. Before the ban was lifted in 2016, the key to success in the
sector was opening dispensing pharmacies in prime locations near hospitals, providing easy accessfor patients. However, that dynamic no longer holds true, as pharmacies located within hospitalsites have a clear advantage over those located outside hospitals. Large public hospitals are

2 AIN HOLDINGS ANNUAL REPORT 2018

5,000

50,000
0

93/4

95/4

01/4

Fiscal 1995

Fiscal 2001

06/4

11/4

19/4

0

TopicsFiscal 2006

Fiscal 2011

• Opened pharmacies inprime locations• Opened pharmacies
across Japan• Actively opened
pharmacies, used M&A• Promoted sales ofgeneric drugs• Built modern dispensing
system• Rebuilt the drug store
chain• Established WHOLESALE
STARS• Created Yubari homehealthcare model• Opened drug storeswith dispensing
pharmacy functions• Improved efficiency andsafety at pharmacies• Expanded the ainz &tulpe chain• Tightened cost control

Fiscal 2019 (plan)• Open pharmacies in prime
locations including on
hospital premises, M&A• Increase pharmacy
capabilities• Recruit and train personal• Expand the ainz & tulpechain

AIN HOLDINGS ANNUAL REPORT 20183

Message from the President

At the Ain Pharmacy Engaru, which was opened on the premisesof the Engaru-Kosei General Hospital in Hokkaido in April 2018, we
have deployed 21 pharmacists and 17 administrative staff. Opening
pharmacies in regional areas like Engaru requires significant upfront
investment, including the cost of securing accommodation for
employees. From a cost perspective as well, only a handful of companies
in the sector have the resources to open onsite pharmacies in regional
areas on a sustained basis.
I believe AIN HOLDINGS is well-placed to meet all those criteria, thanks
to our efforts over the years to expand our business, increase the quality
and number of pharmacists, and build a sound financial base. Our trackrecord in fostering close links with medical institutions as part of ourpharmacy opening program also gives us a competitive advantage in the sector. I believe thosestrengths will start to yield clear results over the next two or three years.
There is considerable demand for onsite pharmacies from major hospitals. They also fit the
government’s vision for patient-focused dispensing pharmacies, allowing us to leverage the
AIN Group’s strengths. And they could generate solid profits if the onsite pharmacy businessgains momentum. Given those factors, we aim to respond appropriately to developments inonsite pharmacies as the leading company in the sector. We plan to open more than 10 onsite
pharmacies each year, mainly in the Tokyo area and at large regional hospitals. We raised capitalthrough a share issue in August 2017. The funds will mainly be used to facilitate the opening ofdispensing pharmacies on hospital sites. In other words, to invest in growth.
We will also use the funds to improve efficiency in pharmacy operations, such as investingin automation, in order to boost profitability at existing pharmacies and across our dispensing
pharmacy network as a whole.

M&A deals as a proxy for the AIN Group’s growth.
In fiscal 2018, we acquired 11 dispensing pharmacies through M&A deals. That represents
a significant decline from numbers in recent years, but it reflects careful due diligence of eachpotential deal based on more rigorous criteria than before. » See pages 10-11 for more details M&A deals
are vital to driving growth in our business and we will continue to use them strategically, provided
they offer real value for money.

Dispensing pharmacy business growth strategy

Leverage all the Group’s resources to secure the necessary personnel
One of the reasons we are now the leader in the dispensing pharmacy sector is our continuousemphasis on recruiting the best dispensing pharmacists. That has been our focus since the firstdays of the Company.
In April 2018, we hired 279 new pharmacists, which fell short of our target. That disappointing
result prompted us to strengthen our recruitment systems. » See pages 14-15 for more details
Specifically, we are stepping up efforts across the Group, such as giving a greater role inrecruitment to personnel responsible for pharmacy operations, including area managers andpharmacy managers. We aim to hire at least 400 pharmacists in fiscal 2019. Going forward, we
will devote even more energy to hiring and training pharmacists in order to increase corporate
value and drive sustained growth.

Cosmetic and drug store business growth strategy

Stand out in the market and strengthen the brand
Dispensing pharmacy business growth strategy

Continue to use strategic M&A deals
Some investors have asked us whether we are slowing down our M&A activity. As a company thathas aggressively expanded its business using M&A, many investors appear to see the number of

AIN Group’s growth strategy

Sound financial structure—Comparison of financial indexes among major companies operating dispensing pharmacies in Japan
Dispensing pharmacy business

Top-line growth

Support government’s
vision for patient-focused
dispensing pharmacies

Cosmetic and drug store business

Grow
the ainz & tulpe chain

Dispensing pharmacy business

Fiscal 2017(¥ million)AIN
HOLDINGS

Average of
3 competitors

Market capitalization

252,075

64,212

Cash on hand in banks

29,775

15,401

Interest-bearing debt

27,402

Net cash
Shareholders’ equity ratio

Fiscal 2018(¥ million)AIN
HOLDINGS

Average of
3 competitors

Market capitalization

282,859

59,386

Cash on hand in banks

63,77920,94046,819Interest-bearing debt

19,30342,335

2,371(31,418)

Net cash

45,551(20,723)

38.4%

28.1%

Shareholders’ equity ratio

52.7%

31.3%

Notes:
1. Market capitalization data are as of July 31, 2017 and July 31, 2018.
2. Interest-bearing debt = Short- and long-term debts + Corporate bonds (excluding Lease obligations)
3. Net cash = Cash on hand and in banks – Interest-bearing debt
4. 3 competitors: NIHON CHOUZAI Co., Ltd., SOGO MEDICAL CO., LTD., Qol Co., Ltd.
Source:		Compiled by AIN HOLDINGS from the above companies’ financial results for fiscal 2017 and fiscal 2018.

Recruit and train personnel

4 AIN HOLDINGS ANNUAL REPORT 2018

Our cosmetic and drug store business is performing well, with profits at existing ainz & tulpe
stores growing at an average rate of 20%. Profits are up by around 50% at new format storesthat were opened from 2015 as part of our push into the Tokyo metropolitan market, such as ainz
& tulpe SHINJUKU HIGASHIGUCHI.

Cosmetic and drug store business
AIN HOLDINGS ANNUAL REPORT 20185

Message from the President

One factor behind that growth is our success in attracting more customer traffic. We arestarting to see concrete results from our decision to select prime locations for all ainz & tulpe
stores, and from efforts to increase brand visibility. Also, in the previous fiscal year, new store
opening costs weighed heavily on profits, but that negative factor dropped out in the fiscal year
under review. We also worked to optimize purchasing costs. Overall, we reduced costs in thecosmetic and drug store business by several hundred million yen.
Over the last few years, we have exited suburban drug store locations and focused on
establishing new ainz & tulpe formats. Our store opening program will continue to target the fastgrowing Tokyo metropolitan market.
Our new retail formats are aimed at young women as part of a strategy to stand apart fromconventional drug stores and department stores. We want to create fun and interesting storeswith a wide choice of cosmetics and original brand products that encourage women to stay andbrowse for a couple of hours.
One area we want to improve is the ratio of original brands, which currently accounts for about
10% of products in our stores. We also plan to expand the business by accelerating the pace ofstore openings. Our goal is to increase sales from the current ¥25 billion to ¥50 billion as soon
as possible, while also achieving a profit margin of 7%. The cosmetic and drug store businessachieved a profit margin of 2.7% in fiscal 2018, which followed losses of ¥866 million in fiscal
2017. For fiscal 2019, our goal is to grow the business to generate segment operating income of¥1 billion.

Actively implementing ESG initiatives

Fulfilling our corporate social responsibility
AIN HOLDINGS takes a proactive stance on environmental, social and governance (ESG) issues.
We have reinforced corporate governance in various ways, such as appointing outside directors,
overhauling the Board of Directors and its decision-making processes, promoting women tosenior positions, and actively disclosing information. We also launched a pharmacy-led project in2012 in which frontline pharmacists are taking the initiative in improving operational efficiency atmore than 1,000 pharmacies. The head office plays a supporting role in the bottom-up project,which is yielding results in various areas. From a social perspective, moves by the dispensing
pharmacy business to improve its capabilities will help strengthen and enhance local healthcare
provision and address challenges associated with Japan’s aging society. Another area we arefocusing on is empowering women, who make up a large proportion of our employees. We are
putting in place maternity and childcare leave systems that make it easier for them to return towork and increasing the ratio of women in management positions. We are also actively creating
better workplace environments that motivate all our employees. Our long-term contribution tosociety can also be seen in our support for joint research and course endowments at universities
and research institutions and through sponsorships for sports teams, events and organizations.
Meanwhile, the cosmetic and drug store business is constantly working to improve its stores,
products and services to help people lead healthier and fuller lives.
Going forward, we plan to step up our ESG activities with the help of experts in the field.

6 AIN HOLDINGS ANNUAL REPORT 2018

Basic policy on shareholder returns

Investing in growth and paying stable dividends
The AIN Group’s growth potential is attractive for investors. We plan tocontinue investing in growth to increase corporate value and meet the
expectations of all shareholders and investors.
For the fiscal year ended April 30, 2018, we paid a full-year dividendof ¥50 per share. For the next fiscal year, we plan to increase thedividend to ¥55.
We will continue to pay stable dividends in line with earnings, while
also aiming to maintain a dividend payout ratio at least 20%.

Navigating turbulent times

Aiming to live up to our name as Japan’s leading dispensing
pharmacy group
Starting Fiscal 2018, we chose Audrey Hepburn as the person to represent our brand. Even 25 years
after she passed away, Audrey Hepburn remains hugely popular among many generations dueto her performance in many famous movies, which showed her maturing from a young woman
into a confident adult. She remained beautiful and elegant into her later years, while also working
tirelessly to help the disadvantaged through her UNICEF humanitarian activities. Those characteristics
encapsulate our vision for the ainz & tulpe brand in our cosmetic and drug store business and ourdispensing pharmacy business, which plays a vital role in healthcare provision in Japan.
As already outlined above, Japan’s dispensing pharmacy sector stands at a major turning point.
However, as the leading player in the sector, we believe our competitive advantages will remain
intact. Despite our leading position, the AIN Group’s market share currently stands at 3%, so there
is still substantial room for us to grow. And while brand visibility and profits are improving steadily inthe cosmetic and drug store business, our next challenge is to grow the business into a second key
source of earnings.
Leveraging the AIN Group’s unique strengths, we will work to meet the needs of patients andcreate attractive retail environments that exceed the expectations of customers.
We remain convinced that those strengths can only come from maximizing the potential of ouremployees and strategically harnessing their capabilities.
We want to live up to our name as the leading dispensing pharmacy and cosmetics and drug
store group in Japan – for customers, employees and all our other stakeholders – and everyonein the AIN Group will work together to realize that goal. I hope we can count on your continued
support and trust for many years ahead.
July 31, 2018

Kiichi Otani
President and Representative Director

AIN HOLDINGS ANNUAL REPORT 20187

Growth Strategy: Dispensing Pharmacy Business

Operating environment

A major turning point in the market
The dispensing pharmacy business is our core business, generating roughly 90% of sales. Based on scale, the qualityof our pharmacies, earnings and other measures, we are the leader in Japan’s dispensing pharmacy market.
The market is one of only a few in Japan with prospects for growth over the medium to long term.
However, the dispensing pharmacy business faces various risks, such as pressure from government policy
requiring pharmacies to play a greater role in healthcare, revisions to dispensing fees and a shortage of
qualified pharmacists. Those factors mean the sector is heading for a major turning point – a period offull-blown restructuring. In this section, we look at the characteristics of Japan’s dispensing pharmacy
market and the key points of our business strategy.
Dispensing pharmacy business growth strategy of the AIN Group
Support government’s
vision for patient-focused
dispensing pharmacies

Top-line growth

Pharmacy
openings

Impact of drug price and dispensing fee revisions on profits

Dispensing pharmacy market value
In principle, the government revises drug prices and dispensing
Fiscal year
12(%)
with revision(¥ trillion)

fees once every two years. After revisions in April 2018, the next
10
round is scheduled for April 2020, but we expect the
government
to announce additional revisions before then to adjust
8 for a planned
increase in consumption tax in October 2019. Profits tend to drop
6
sharply at dispensing pharmacies in years when revisions are carried
4out. However, in response, we implement measuresto
improve11.5%
11.0%
pharmacy efficiency and enhance the skills of our2 pharmacists,
0.47
supporting an early recovery in profits and a strong rebound in
1989 1990
0
earnings in the year after drug price and dispensing fee revisions.

Recruit and train personnel» See pages 12-13

M&A

Dispensing fee revisions once every two years

80

Non-hospital dispensing ratio
Ratio of elderly people
Fiscal year
Fiscal year
Fiscal year
80.0%
after revision
with revision
after revision
70.0%

60

(%)

7.2

80

60

40

4.6

20

29.1%

25.9％

20.2%
0

40

20

-20
1995

-40

2000

2005

2010

2015

2020 (April to

March year)
1516171318onwards:
2005-2014:
1Q 2Q 3Q 4Q 1Q 2Q
3Q 4Q
1Qof 5.1%
2Q 3Q
4Q growth
1Q 2Q
3Q 4Q
annualizedof 3.0–5.0%
annualized
growth0Note:Graph shows year-on-year change in the consolidated operating income of AIN
HOLDINGS from fiscal 2015 to fiscal 2018.

» See pages 14-15

Increase efficiency + Improve workplace environment(Pharmacy-led project)» See pages 14-15

Dispensing pharmacy earnings model

Focus on pharmacies near or on hospital premises» See pages 10-11

Top-line growth

A fragmented market

Dispensing pharmacy market value

Non-hospital dispensing ratio

12

Ratio of elderly people
72.8%

80

60

8
6

5.1

4

21.5%

0

11.5%
11.0%

27.7%

30.3%

20

1995

2000

2007

2010

2017

2025

2007-2016:
annualized growthof 4.2%2017 onwards:
annualized growthof 3.0–5.0%(April to 0
March year)

Source: AIN HOLDINGS estimates, based on data from the Japan Pharmaceutical Association, dispensing cost trends
issued by the Ministry of Health, Labour and Welfare, Population Estimates of the Ministry of Internal Affairs
and Communications Statistical Bureau, and Cabinet Office White Paper on the Aging Society.

Support government’s
vision pharmacy
for patient-focused	Dispensing
company
market sharepharmacies

Recruitand train personnel
	 Market
structure—Breakdown by company size

(Fiscal 2018)» See pages 12-13» See pages 14-15
J a p a n ’s d i s p e n s i n g p h a r m a c y s e c t o r i s
6.4％
Top 5 major companies*
500 or more pharmacies
fragmented,
with
the
top
five
companies
11.5%
Focus on pharmacies near or on hospital premises
9.8％
50-499 pharmacies
accounting for only 11.5% of the market,
18.2％
Top 50including the Group’s leading share of about
10-49 pharmacies
Increase
efficiency+
improve
workplaceenvironment
Pharmacy
major companies
3%. ApproximatelyM&A
30% of pharmacies
in(Pharmacy-led
project)
29.3%
openings
Small and medium size
OthersJapan are run by individuals. As the shortage» See pages 14-15
pharmacies account
63.8％
70.7%
9
or
fewer
pharmacies
for more than 60%
of pharmacists becomes more acute and smallof the market» See pages 10-11.
operators struggle to keep up with regulatorychanges, we expect the pace of M&A activity*Top 5 major companies:	
Notes:1. 	The above figure dose not include1.7% of no response.
AIN HOLDINGS INC., NIHON CHOUZAI Co., Ltd.,
2. 	AIN HOLDINGS estimates based on data from a random
and business closures to accelerate in the
KRAFT Inc., Qol Co., Ltd., WELCIA HOLDINGS CO., LTD.
survey conducted by the Ministry of Health, Labour andsector. Those broader trends, along with recent
Source: AIN HOLDINGS estimates, based on data from
Welfare in August 2016 (1,000 dispensing pharmacies
DRUG
Magazine
(July
1,
2018)
and
FY2016
surveyed, 46.7% response rate).
changes to rules that allow onsite dispensing
dispensing fee statistics released by the
Source:Report on Creating Dispensing Pharmacies forpharmacies, mean there is still significant room
Ministry of Health, Labour and Welfare.
Patients, Ministry of Health, Labour and Welfare, Marchfor growth in the market for the AIN Group.
31, 2017

8 AIN HOLDINGS ANNUAL REPORT 2018

Dispensing pharmacy earning model

Drug price revisions• Case by case ............................

40

0.47
1989 1990

Factors that affect dispensing pharmacy profitability

7.5

57.2%

2

(%)

80.0%

10

medicines, cooperation with healthcare providers and support forpatient health management. The government is revising dispensing
fees in a way that only pharmacies capable of providing these
services will be able to generate profits.

Drug procurement• Low cost, high volume ................
• High cost, low volume ................
Scale (number of prescriptions
and pharmacies)• Increase ......................................
• Decrease .....................................

Dispensing fee revisions (criteria
for additional reimbursement points)• Looser ........................................
• Tighter ........................................
Hiring and training pharmacists• Higher quality (secure premiums) .
• Lower quality ..............................

Total store sales*1
Purchasing cost of drugs
Drug price margin
Pharmaceuticalmanagement fees
Technical fees(includes premiums forgeneric drug dispensing)Store operation costs+ Store labor costs
Gross profit

Japan’s dispensing pharmacy market hasdeveloped in unique ways, driven by factors
such as the government’s efforts to promote
non-hospital dispensing services under a policy
launched in 1994. The government is aiming tocurb national healthcare costs, but per capita
spending continues to rise due to Japan’s
aging society, increasingly advanced medical
treatments and the launch of new drugs. The
dispensing pharmacy market in Japan was
worth roughly ¥8 trillion as of March 31, 2017,
but we estimate the market is on track to reach¥10 trillion.

Market growth(¥ trillion)

Dispensing fees*2 Sales from drugs

A growth market

Dispensing pharmacies are being asked to play a radically differentrole in healthcare provision to address Japan’s super-aging society
and rising healthcare expenses. Pharmacies now need to provide
higher quality services, such as the management of left over

SG&A expenses

Operating income

Inventory management• Optimized inventories ..................
• Excess inventories .......................
Productivity at pharmacies• Improvement:
lower personnel costs .................
• Deterioration:higher personnel costs ................
Head office costs• Consolidation and streamlining ....
• Uncontrolled increase ..................
Increase earnings
Government policies

Decrease earnings
Management capabilities*1: Dispensing pharmacies receive 0-30% of medical expenses depending on the type of insurance of customers.
Dispensing pharmacies then charge the remainder of medical expenses to health insurance bodies such as national health insurance.
*2: Dispensing fees comprise pharmaceutical management fees and technical fees for pharmacists.
These fees are added depending on the services at pharmacies.

Pharmacies located near hospitals are the most common format
Japan has three main types of dispensing pharmacy: pharmacies
located near hospitals, pharmacies not located near hospitals, anddrug stores with dispensing pharmacy functions. People are free tochoose any type of dispensing pharmacy to fill their prescription,
regardless of their health insurance provider. However, dispensing
pharmacies located near hospitals are the most common in

Japanese cities, as limited car use means they are more convenient
for patients. Many pharmacies near hospitals also satisfy thegovernment’s conditions for primary care dispensing pharmacies.
Onsite pharmacies which were permitted from October 2016 arealso included in this category.

AIN HOLDINGS ANNUAL REPORT 20189

Growth Strategy: Dispensing Pharmacy Business

Dispensing pharmacies now permitted on hospital sites
Dispensing pharmacies separated from hospitals by fencesor other barriers to prevent direct entry from hospitals

BeforeHospital
Pharmacy
Entry/exit

Entry/exit

Public road
AIN Pharmacy SHINDAIMAE

Barriers removed to improve convenience for patients
Pharmacies now permitted to be located on the same premises as hospitals

After
AIN Pharmacy ENGARU

The following cases are still not permitted:

Entry/exit

Pharmacy

Pharmacy

Entry/exit

Entry/exit Entry/exit

10 AIN HOLDINGS ANNUAL REPORT 2018

Public road

Public road

Located inside
the same building

Connected bya private road or passage

For hospitals

Differences between Japan and the US

Convenient and costcompetitive pharmacies

Reduces dispensing errors,
other risks

Opportunity to leverage
quality of pharmacists, othercompetitive advantages

Closer cooperation in homehealthcare and provision ofother local health services

Higher volume of prescriptions,additional reimbursement points

	AIN Group’s new store openings, pharmacies acquired
through M&A deals and EV/EBITDA multiples
250

5.0

200

3.96
150

4.0
3.0

100

2.0

11
25

50

14/4

US

Universal healthcare(10-30%)Private healthinsurance (depends oncontract terms)

Freedom toselect hospitals /pharmacies

No
restrictions

Affiliated service
providers

Non-hospital
dispensing ratio

70%

100%

Drug prescriptions

Refills ×
Mail order ×

Refills
Mail order

Drug prices

Set by the government Market price(Usually revised once
every two years)

15/4

Pharmacies acquired through M&A deals
New store openings

16/4

17/4

	Changes to AIN Group’s M&A criteria(times)
6.0

5.50

13/4

Japan
Medical insurance(patient cost)

For AIN HOLDINGS

Rental income

0

AIN Pharmacy ASAHIKAWAIDAI(Scheduled to open in October 2018)

18/4

EV/EBITDA multiples

patients and our business. » See page 9 for more details For
example, pharmacies located on prime sites near hospitals
are much more profitable than those in other locations.
In October 2016, the regulation was changed to allow
dispensing pharmacies to open on hospital sites. In otherwords, the dispensing pharmacy sector now has theopportunity to use an even closer prime location. New onsite
dispensing pharmacies are likely to lead to a dramatic dropin the number or prescriptions filled by existing pharmacies
located near hospitals, potentially undermining profitability.
However, the risk to our business from onsite pharmacies islimited, because as a relatively late entrant to the market, ournetwork includes only a handful of dispensing pharmacies
located near major hospitals, which are leading the pushfor onsite pharmacies. The deregulation of onsite drug
dispensing is major opportunity for the AIN Group.
Onsite pharmacies are beneficial for all parties. Hospitals
receive rental income from the pharmacy operator, and thecloser links between the hospital and pharmacy reduce therisk of dispensing errors and other issues, as well as improvecooperation in areas such as home healthcare provision.
Onsite pharmacies will give companies like AIN HOLDINGS

Entry/exit

Merits of onsite dispensing pharmacies

Number of pharmacies

pharmacists. » See pages 13-14 for more details
Until now, our strategy has been to channel management
resources into dispensing pharmacies located near hospitals
and grow our business by opening new pharmacies andusing M&A. That approach reflected the realities of Japan’ssocial environment and systems, which made dispensing
pharmacies located near hospitals the best option forthe chance to leverage their competitive advantages,
such as highly skilled pharmacists, and also lead to higher
prescription volumes and additional reimbursement points.
However, companies that want to open onsite pharmacies
will have to show hospitals they can keep pharmacies open
24 hours and secure sufficient numbers of well-trained
pharmacists. Hospitals will also look at their ability to sustain
operations over the long-term, backed by access to funds
and a sound financial position. Only a handful of companies
in the sector will be able to meet those requirements. We
believe AIN HOLDINGS is one of those companies, and weplan to open 10 onsite pharmacies each year.
Japanese dispensing pharmacies have a different roleand earnings structure to their counterparts in the US andother countries due to contrasting social welfare systems
and business conditions. Japan has a system of universal
healthcare. The system does not restrict treatment to certain
hospitals or pharmacies based on the type of insurance heldby patients or other criteria, allowing them to choose when
and where they want their illness or injury to be treated.
Also, because prescription refills are not permitted in Japan,
the elderly and patients with serious conditions have to makeregular and frequent visits to hospital. That means onsite
pharmacies fit the government’s vision for patient-focused
dispensing pharmacies in terms of both convenience andtheir capacity to provide high-quality, reliable services. Amid
strong demand from hospitals, we have already started
developing our strategy, which will be geared towards
opening new pharmacies in onsite locations.
M&A deals are a vital part of our growth strategy.
Together with our pharmacy opening program, we willcontinue to use M&A to increase sales based on rigorous
due diligence and an emphasis on investment efficiency.

Entry/exit

Hospital

Public roadAchieving growth in the dispensing pharmacy businesslargely depends on responding appropriately to changes
in government policy. Key to success is securing prime
locations for new pharmacies and recruiting and training

Pharmacy

Changing our pharmacy opening strategy

Hospital

HospitalpremisesHospital

Top-line growth

1.00

EV/EBITDA multiples

M&A criteria(Before)M&A criteria(From FY4/18)

Pharmacy size

Annual sales of ¥120
million or higher

Single pharmacy:
Annual sales of atleast ¥200 million
Pharmacy chains:
Annual sales of atleast ¥120 million

EV/EBITDA
multiple

5-7 times

5-7 times

Contribution to
consolidated
earnings

Fiscal year following
deal

Fiscal year following
deal

Potential risks

None

Onsite pharmacies
Compliance issues

AIN HOLDINGS ANNUAL REPORT 201811

Growth Strategy: Dispensing Pharmacy Business

The changing role of dispensing pharmacies
In the past

From now on

Trends in Dispensing Fees

(criteria for primary caredispensing pharmacies)
Guidance for drug usage
Integrated management of drug usage
and other treatments

Primary careservices receive
more reimbursement
pointsPre-avoid activities
Management of leftover medicines
24-hour support
Focused on dispensing drug

Support for home-based healthcare
and nursing care

Guidance for drug usage

Promote generic drugs

Dispensing drugs

Dispensing drugs

Supporting the government’s vision for patient-focused dispensing pharmacies

Conventional
dispensing services
receive lessreimbursement points

Raising pharmacy standards further
AIN Group’s initiatives for patient-oriented dispensing pharmacies

AIN
Group
dispensing
pharmacies

Links with Group’s
dispensing pharmacies
Selects
preferred
generic drugs

No. of primary care cases that resulted
in additional reimbursement points(thousandsof cases)
160

Generic drug procurement

171

150

94

80

100

40

50

13
3

0

May 16

Oct.16Apr.17

Oct.17

Mar.18Generic
drug
makers（No. of cases）
30,00025,65625,00020,00015,000 11,176
10,0005,000
00

Apr.16

Jul.16

Oct.16

Jan.17

Apr.17

Jul.17 Oct.117 Jan.18 Mar.18

Number of prescription checks that resulted in additional reimbursement points

No. of primary care cases that resulted in additional reimbursement points
Total no. of patient consent forms
Data source: 1,018 dispensing pharmacies, excluding recently acquired pharmacies through M&A

Data source: All pharmacies (number of pharmacies fluctuates each year due to pharmacy
openings and closures)

Home-based dispensing (monthly cases)

Generic drug dispensing (monthly cases)

93.3

20,00015,00010,000

5,000

(%)

(%)

86.8

100

80

14,764

80

8,952
31.0
3,690
Apr.14 Oct.14 Apr.15 Oct.15 Apr.16 Oct.16 Apr.17 Oct.17 Apr.18

60
40
20
0

Data source: 1,018 pharmacies, excluding recently acquired pharmacies through M&A and cases
involving delivery of medicines only

Share of total prescriptions

No. of home-based dispensing cases（No. of cases）

No. of home-based dispensing cases
Ratio of pharmacies providing home-based dispensing

Maintains genericdrug pricemargins

WSS(thousandsof cases)
200

120

0

Monitors andmanages total
generic drug usage
across the Group

Prescription checks (monthly cases)

77.4
18.9

60

(points)
25
20
15

40

20

0

23.7

10

6.4

5

Apr. Apr. Mar. Apr. Apr. Apr. Apr. Apr. Mar. Apr. Apr. Mar.
10 11 12 12 13 14 14 15 16 16 17 18
Share of total prescriptions
Average generic drug reimbursement points

Average generic drug
reimbursement points

12 AIN HOLDINGS ANNUAL REPORT 2018

Roles and merits of WSS

Provision of primary care services (monthly cases)

Ratio of pharmacies providing
home-based dispensingof drug dispensing. » See page 13 for more details In order todeliver those services, our pharmacists need to improvetheir specialist skills and communicate more closely withpatients and medical institutions.
Primary care dispensing pharmacies offer an excellent
opportunity for the AIN Group to leverage its competitive
advantages gained from raising the quality of its
pharmacists and dispensing pharmacies – an area where wehave led the industry. Those efforts to create primary caredispensing pharmacies will also help us meet the rigorous
criteria for opening onsite dispensing pharmacies.
Consequently, we will actively work to convert all
our dispensing pharmacies to the primary care format.
In addition to internal training programs, our unique
pharmacy-led project launched in 2012 is helping tolift standards. The project was launched to improve theefficiency of dispensing pharmacy operations based on
input from pharmacists at each location. As the project has
been rolled out across the Group, we have seen efficiency
gains and an increase in the time pharmacists have tocommunicate with patients and medical institutions, as wellas improvements in the way pharmacists think and act infrontline situations.
We are also seeing steady growth in home-based
dispensing and generic drug dispensing. Growth in genericdrug dispensing typically leads to a decline in sales in value
terms, putting pressure on pharmacy profits. However, weestablished a generic drug wholesaling subsidiary called
WHOLESALE STARS Co., Ltd. (WSS) in 2006, the year thegovernment started actively promoting wider use of genericdrugs. Through WSS, we negotiate prices and procure
products directly with manufacturers. We already purchasemore generic drugs than any other company in Japan andwe have narrowed down our suppliers to just a few firms,
further strengthening our buying power. WSS is one of ourcompetitive advantages, because the subsidiary supports
the Group’s profits while also helping the government
achieve its policy goals.

Total no. of consent forms

We understand that our dispensing pharmacies play animportant role in society. That is why we have implemented
a range of measures over the years to raise the standardsof our dispensing pharmacies and improve the skills of ourpharmacists.
The government is currently promoting its vision for patientfocused dispensing pharmacies. As part of that approach,
the government is stepping up its support for primary caredispensing pharmacies that can help deliver local healthcare
services, such as adjusting the way additional reimbursement
points are calculated for dispensing fees.
To fulfill that primary care role, dispensing pharmacies
have to offer higher quality services, such as promoting
generic drugs, managing left over medicines, managing
patient health, cooperating with local healthcare providers,providing 24-hour dispensing services and supporting
home-based healthcare, in addition to their traditional role0

Data source: Four main Group companies (AIN PHARMACIEZ, AIN MEDIO, DAICHIKU, Asahi Pharmacy)

Negotiates withand buys directlyfrom genericdrug makers

AIN HOLDINGS ANNUAL REPORT 201813

Growth Strategy: Dispensing Pharmacy Business

Number of new pharmacist graduates hired(persons)
700
600
500

Improvements to recruitment system
(%)
12

11.7
10.0
8.0

10

8.0
400-450

400

6

279

300

8

BeforeRecruitment
program run byhead office

After (Present)
Recruitment
activities closer tobusiness frontline

Personnel
Division

Operations
Division

Lead group

4

200

152

100

210

0
14/4
15/4
16/4
17/4
18/4
19/4
(plan)
Pharmacists
New hires for cosmetic and drug store business and for general positions
Company's share of new pharmacists that joined dispensing pharmacies
after graduation

2

Approaches
used to• Contact via
connect with recruitment officers
pharmacy
students0

Key outcomes from pharmacy-led project

Inventory optimization
Actual total inventory value
Estimated inventory value
Sales of dispensing pharmacy business
Number of pharmacies
at the end of month

Recruit and train personnel
Pharmacy-led projectIncreasing headcount and improving pharmacist skills

238,645（+73.8%）

To fulfill the new role envisioned for dispensing pharmacies
and to generate sustained growth, companies in the sector
need to recruit more pharmacists and improve the skills of
existing staff. Dispensing pharmacies and companies thatfail to do that are likely to fall by the wayside.
Since it was established, the AIN Group has consistently
focused on hiring and training pharmacists. Our approachto recruitment is highly regarded by students anduniversities, thanks to our hiring track record and highquality training systems. We also give pharmacists plentyof opportunities to fully demonstrate their skills due to thelarge number of complex prescriptions at our pharmacies.
That reputation has helped us perform well in pharmacist
recruitment. However, we need to increase headcountfurther to support our move into onsite dispensing
pharmacies, which will require large teams of highly skilledpharmacists. Competition for pharmacists is also likely to
become tougher in the sector.
To address those challenges, we started reinforcing ourrecruitment systems in April 2017 as a top management
priority. We have transferred responsibility for recruitment
activities from the personnel division to the operations
division, aiming to use input from our pharmacies andleverage frontline capabilities in recruitment. Our aim is
to use a broad company-wide approach, supported by

14 AIN HOLDINGS ANNUAL REPORT 2018

improvements to our recruiter system and final interviewsfor candidates with area managers.
After joining the AIN Group, our pharmacists haveaccess to a range of training programs tailored to theircareer stage. We also run a number of unique initiatives toimprove the motivation and skills of our pharmacists. One
initiative is our pharmacy-led project, launched in autumn
2012. Under this project, pharmacists at all our dispensing
pharmacies are asked to identify new ways of increasing
efficiency, improving profitability and enhancing service
provision at existing pharmacies. Originally designed tostrengthen pharmacy operations, the project has delivered
real improvements in frontline capabilities, such as
optimization of in inventory value and patient wait times.
But the project has also clarified other issues that need
to be addressed and has delivered clear results, helping
to change thinking among frontline personnel and boost
motivation, leading to a lower level of staff turnover.
The dispensing pharmacy sector faces a wave ofrestructuring as business conditions become tougher, but
we view sector realignment as an excellent opportunity
to drive top-line growth. We aim to meet society’s
expectations and create new value by continuing to expand
our dispensing pharmacy business while increasing thenumber and quality of our pharmacists.

Responsive todispensing
fee revisions

1,021（+89.4%）

Issues clarified

Inventory
optimization• Changing thinking• More motivated• Lower staff turnover• Efficient store
operations• Improved profitability

137,291

Optimized
inventory value
8,356

Higher quality
pharmacies andpharmacists

A Message from
the Managing Director

Miya Oishi
Managing Director andSenior General Manager,
Operations Department

Our pharmacy-led project to improve efficiency andservices is also enhancing the skills of our employees
Pharmacists are being asked to play a greater role in healthcare
in Japan’s super-aging society. Specifically, pharmacists need toacquire specialist knowledge to handle and manage anticancer
drugs and strong medicines used to treat pain. They also needto know how to run pharmacies that are sustainable and highly
convenient for patients.
AIN HOLDINGS has been preparing for this operating
environment for some time. In 2012, we launched a pharmacyled project to radically overhaul dispensing pharmacy
operations. We asked our pharmacy staff to explore ways of
improving efficiency and providing the best-possible services topatients by identifying, acting on and then revisiting the most

15,828 (+89.4%)

539

13/4

7,986 (-4.4%)

18/4• Contact via recruiters,
promoters, follow-up
work by frontline
pharmacists• Recruiters act as
mentors

Notes:
1. Inventory value is as of the endof April each year.
2. Inventory value shown left islargely unrelated to the value of
inventories (products) shown on
the balance sheet, as thebalance sheet includes
inventories from Group
companies with different fiscal
year-ends.
3. Estimated inventory value is a
pro rata calculation using
inventory value and the numberof pharmacies as of end-April
2013.
4. Number of pharmacies andinventory value as of end-April
2013 is for four main Group
companies: AIN PHARMACIEZ,
AIN MEDIO, DAICHIKU andAsahi Chozai. Number ofpharmacies and inventory value
as of end-April 2018 is for allcompanies in the AIN Group.

important aspects of pharmacy operations, while also ensuring
compliance with all laws and regulations.
Efficiency gains in operations naturally feed through to
improvements in profitability, but the “Think, Act and Think
Again” cycle is also accelerating the personal growth anddevelopment of our dispensing pharmacy staff, translating into
improvements that go beyond what we could achieve by simply
following operational manuals.
Deregulation in the dispensing pharmacy sector, which started
with pharmacies located in the same premises as hospitals,
means each one of our pharmacists needs to think more carefully
about overall pharmacy operations as part of their job. Throughtheir interaction with patients, our pharmacists have to decidethemselves the best course of action to take for patients. That
approach also leads to greater efficiency in pharmacy operations.
These are fundamental aspects of a pharmacist’s job, but
personnel who can help improve pharmacy operations are highly
valued in the AIN Group.
Through our pharmacy-led project, we are working toraise the quality of dispensing pharmacist activities andprovide services to patients nationwide as a key part of Japan’s
healthcare infrastructure.

AIN HOLDINGS ANNUAL REPORT 201815

Growth Strategy: Cosmetic and Drug Store Business	Comparison of ainz & tulpe and general drug stores:
product mix
ainz & tulpe *1
General drug stores *2
4.2% 2.2%
11.6%

27.0%

30.3%

Beauty products
Foods and health foods

Drugs and sanitary products
Daily necessities

Drug storesYoung women

Families,
overseas visitors

High-income
earners,
includingoverseas visitors

Merchandise Beauty products Daily necessities
account for 80% and foodaccount forof lineupmore than 80%
of lineup

Brand products
only

Pricing

NormalPremium

Sales areas• Brands sold• Customers can • Small retailthrough own
areas, clutteredpersonally try
boutiquedisplaysvarious beauty
store, reducing
products in store
convenience• Designed tofor shoppers
encouragebrowsing for
more than 1 hour

*1 Data is for the fiscal year ended April 2018
*2 Source: Monthly Report on the Current Survey of Commerce (May 2018),
Ministry of Economy, Trade and Industry

ainz & tulpe SHINJUKU HIGASHIGUCHI	Product mix change of ainz & tulpe

Standing out in the market

80
60

To encourage women to spend a few hours browsing
our stores, we are expanding our range of lounge wear andaccessories to complement the existing cosmetics lineup.
By creating merchandise lineups and in-store displays toattract young women, we are setting ainz & tulpe apartfrom conventional drug stores. That gives our retail formats
better access to tenant opportunities in fashion retail malls
and department stores.
Developing original brands is also part of our effort tostand out in the market. To coincide with the roll out of
the new retail formats, we launched two original brands, acosmetics brand called LIPS and HIPS and a beauty supply
brand called cocodecica. We also acquired the popular
AYURA cosmetics brand acquired from Shiseido Company,
Limited. We are expanding the range of products undereach brand, helping to lift the gross margin. We have also
opened standalone LIPS and HIPS stores.
Going forward, we plan to further increase the ratio
of products sold under original brands to create uniquemerchandise lineups and achieve high profit margins. We
also aim to tap into the expertise and experience of themany pharmacists in the AIN Group to develop highly
functional products, helping to increase the number of
product categories in our original brands. We will also
create flagship products with dominant brand positions.

40
20
0

	AIN Group’s cosmetic and drug stores by type
Beauty products

FY2005

Drugs and sanitary products
Foods and health foods
Daily necessities

FY2018

82.0%
44.6%
39.2%

02/4

18/4

Cosmetic and drug store business results of the AIN Group
5,829
24,117
Sales
1,487
8,925
Gross profit
25.5%
37.0%
Sales ratio

89.6%(¥ million)

Urban ainz & tulpe stores

Suburban drug storesainz & tulpe Odakyu Department Store Machida

LIPS and HIPS

16 AIN HOLDINGS ANNUAL REPORT 2018

Discount(%)
100

Creating a more distinct position in the market
Our efforts to establish new retail formats are starting tobear fruit.
The AIN Group has operated a drug store business since it
was established, but a narrowing quality gap in retailing put
pressure on margins. In response, in the last few years, wehave exited suburban locations and rapidly switched to newretail formats. Today, our cosmetic and drug store business isfocused on opening stores in highly convenient locations in
the Tokyo metropolitan area under the ainz & tulpe brand.
Our first real move into new retail formats came in thefiscal year ended April 2016, when we opened two flagshipainz & tulpe stores: ainz & tulpe SHINJUKU HIGASHIGUCHI(Shinjuku, Tokyo; retail space: roughly 1,290m 2 ) andainz & tulpe Le Trois (Sapporo, Hokkaido; retail space: roughly
990m2). Both are large stores in prime urban locations,
helping them attract considerable attention from shoppers.
The main target of our new retail formats are women in
their 20s and 30s with a strong interest and curiosity in thelatest trends. We are also using the product lineup to createa unique position in the market for the ainz & tulpe brand,with cosmetics, accessories and other beauty products
accounting for more than 80% of products on sale. The
idea is to avoid direct competition with conventional drug
stores, which typically sell a mix of pharmaceuticals, foodand daily necessities at discounted prices. Our new retail
formats also differ to traditional department stores.

Department
storesainz & tulpe
Customer
base

15.1%

27.6%
82.0%

	Differences between ainz & tulpe and rival retail formats

AYURA

AIN HOLDINGS ANNUAL REPORT 201817

Growth Strategy: Cosmetic and Drug Store Business	Brand power:
Stores opened in the Tokyo metropolitan areaainz & tulpe Colette Mare SAKURAGICHO• June 2016
ainz & tulpe
Colette Mare SAKURAGICHO-B1• November 2016ainz & tulpe GINZA NAMIKIDORI• December 2016
ainz & tulpe
Colette Mare SAKURAGICHO

(%)
40.0

12,000

38.0

Net sales（¥ million）
16,000

4,000

34.0

15/4

16/4

17/4

18/4

No. of stores

11

14

22

26

Net sales

0Gross margin	Medium-term plan

• April 2017
ainz & tulpe YOKOHAMA JOINUS• August 2017
ainz & tulpe
Odakyu Department Store Machida400

Net sales

then used to design in-store sales areas and shared withother stores, helping to drive growth in customer traffic andprofits at existing stores.
Strong growth in customer traffic and improving profits
at existing stores ensured the cosmetic and drug store
business moved into profit in fiscal 2018, one year earlier
than planned.
Going forward, we will continue to open new stores inprime locations in the Tokyo metropolitan area while also
relocating stores to other sites if needed, aiming to create
stores that offer a fun retail experience for shoppers. We
will also work to raise brand visibility further and create
unique products and sales displays to avoid competition
with conventional retail stores and cosmetics manufacturers.
In the cosmetics and drug store business, we aretargeting sales of ¥50 billion and an operating marginof 7% in fiscal 2022, ending April 30, 2022. To achieve
those targets, we will continue to aggressively expand thebusiness, establish new retail formats and strengthen theainz & tulpe brand, so that in the long term our ainz & tulpe
retail format and original brands are recognized in theirown right. Everyone in the business is pushing themselvesto achieve those objectives.

• March 2017	ainz & tulpe
KEIO DEPARTMENT STORESHINJUKU

300

500
34.6
208

35.6
213

• March 2018ainz & tulpe
Grand Emio TOKOROZAWA

A Message fromthe Executive Officer

Kaori Ishikawa
Executive Officer,
Division Manager of Cosmetic andDrug Store Operations

Expanding our chain of unique specialty stores with abroad range of cosmetics for a fast-changing market
Sales promotion strategies in Japan’s cosmetics market
have changed, with brands moving away from saturation
advertising campaigns using TV commercials and othermainstream media to highly targeted promotions via social
media. That has opened up the market to a raft of new
products from less well-known manufacturers, and many of
those products are gaining popularity among young women.
In response, we are rapidly adjusting our in-store displaysby closely watching the latest trends and introducing products
from emerging manufacturers. Thanks to that merchandising

241

42.0

37.3

40

270

30

200

20

2.5

3.7

17/4

18/4

19/4 20/4 21/4 22/4
(plan) (plan) (plan) (plan)

52

48

55

100

• November 2017
ainz & tulpe MARUI KICHIJOJI

37.0

0

16/4

No. of stores

52

Net sales(%)
50

Operating margin

7.0

65

80

10

Operating margin / Gross margin（¥ million）
500

Establishing new brands

18 AIN HOLDINGS ANNUAL REPORT 2018

36.0

0

BrandsAwareness of the ainz & tulpe brand has been growing
steadily since 2015, thanks to large stores opened in prime
locations across Tokyo, such as Shinjuku and Ginza.
We are also opening smaller stores, such as ainz & tulpe
KEIO DEPARTMENT STORE SHINJUKU (Shinjuku, Tokyo; retailspace: roughly 260m2). The success of these small stores,
as well as large locations, is another key feature of our
new retail formats. Property developers have been taking
a close interest in the formats, because they can attract
young shoppers and are easily adapted to different types oftenant locations. As a result, we have received numerous
requests to open new stores in urban retail facilities, station
shopping centers and other prime locations. In April 2018,
we opened four new stores, including ainz & tulpe Odakyu
Department Store Machida (Machida, Tokyo; retail space:roughly 500m2), taking the total number of ainz & tulpe
stores to 48.
The increase in brand visibility and positive feedback has
given us more power in lease negotiations with property
owners, which along with strong demand for our original
brands, is supporting a significant improvement in the grossmargin. We have also put significant trust in our frontline
sales staff, who rapidly identify the latest interests andtrends in our target consumer groups. That information is

8,000

Gross margin• July 2015
ainz & tulpe SHINJUKUHIGASHIGUCHI• March 2016
ainz & tulpe OMIYA
MARUI

0

100

Gross margin

approach, ainz & tulpe is now recognized as a chain of
specialty cosmetics stores that always stocks the latest trendsetting products.
As that reputation has become more widespread, we
have been able to attract more customers, as well as improve
our negotiating position with manufacturers in productpurchasing. That in turn has supported higher sales of original
brands – a key factor behind the move into profit in thecosmetic and drug store business. We aim to expand thebusiness further by opening new stores based on this retailconcept, focusing on major cities.
We are targeting sales of ¥50 billion, a gross margin of
42.0% and an operating margin of 7.0% in the fiscal year
ending April 30, 2022. However, we are unlikely to achieve
those goals with the current number of stores, SKUs andoriginal brands. We will continue to open new stores, but toachieve our goals we also need to raise our game in otherareas, such as pushing forward the development of private
merchandise brands and working with national brands on
product tie-ups.

AIN HOLDINGS ANNUAL REPORT 201819

ESG – Supporting Value Creation

Responding to ESG Issues
AIN HOLDINGS aims to create value by addressing social issues through its two core businesses – thedispensing pharmacy business, which plays a key role in society, and the cosmetic and drug store
business, which helps people lead full lives through health and beauty.
We are implementing a range of initiatives covering the environment, society and corporate
governance (ESG). In this section, we focus on the Group’s social initiatives, which are backed by ourbusiness activities and strengths.

ES

nvironment

Helping to reduce environmental impact· Building a management system to ensure minimal use of resources· Creating an environmental risk management system at Group companies and businesses· Reducing environmental impact at outsourced manufacturers· Raising environmental awareness at pharmacies and cosmetic and drug stores· Reducing resource use and CO2 emissions at pharmacies and cosmetic and drug stores

Society

Case Study 2

Social issue

Supporting advances in healthcare,
improving quality of dispensing pharmacies

AIN Group’s
initiatives

University course endowments
and joint research projects

Cooperation between pharmacists – who stand at the frontlineof healthcare – and educational and research institutions, willplay a vital role in driving the development of the medical andpharmaceutical sectors. AIN HOLDINGS is actively working with
the University of Tokyo, Kyoto University, Osaka University, Sapporo
Medical University and Asahikawa Medical University throughcourse endowments and joint research projects to support researchand development in the medical and pharmaceutical fields.
As part of efforts to improve local healthcare provision, we
have also teamed up with universities and other partners to carryout advanced clinical simulations. Specifically, we are runningsimulations with Hokkaido University and Caress Sapporo toacquire knowledge and technologies for home healthcare, apromising growth field.

Advanced clinical simulations

ocietyGovernance

Addressing social issues· Promoting diversity· Empowering women
Case Study 1· Creating better working environments· Implementing our pharmacy-led project to improve efficiency· Providing endowments for university courses
Case Study 2· Conducting joint researchStrengthening corporate governance· Evaluating the effectiveness of the Board of Directors· Reinforcing governance at pharmacies and cosmetic and drug stores· Adjusting the remuneration system for executives· Tightening selection criteria for executive candidates· Promoting diversity (increase of the female executive ratio)· S trengthening risk management (including measures to reduce dispensing errors)·R einforcing compliance

GovernanceSocial issue

Case Study 3

Case Study 3

Case Study 3

Strengthening risk management/
Reinforcing compliance

Dispensing errors are an inherent risk in pharmacy operations.
We view dispensing errors as an issue that can affect the
public’s trust in the AIN Group, so we respond rapidly to address
any problem that arises. Written on the back of every employee
name badge is the process that should be followed in the eventof a dispensing error or complaint from a patient, ensuring ourcustomers receive an immediate response (See the photographlower right). In addition, supervising pharmacists, who areresponsible for managing pharmacy operations, are required tocontact the Company through a direct hotline in the event of
a compliance violation in their pharmacy, in order to limit any
damage from misconduct or other issues.

AIN Group’s
initiatives

Reinforcing compliance in pharmacy
operations

PDA devices to prevent selection of incorrect drugs from shelves

Preparations to ensure an
immediate response by all staff

Society

Case Study 1

Social issue

Empowering women /Improving workplace environments

AIN HOLDINGS has a particularly high ratio of female employees(79.5% as of April 30, 2018). That is one reason we are actively
supporting women’s participation and career advancement in
the workplace. We have put in place systems to ensure ourfemale employees can feel at ease about continuing to work for
the AIN Group, even after major life events such as marriage orchildbirth. We are also empowering women through training
courses designed to support career advancement, aiming toincrease the number of women in management positions. Our
efforts in this area have been recognized by the government.
AIN PHARMACIEZ, our main operating subsidiary, was awarded
Kurumin certification in April 2015 due to its support for
20 AIN HOLDINGS ANNUAL REPORT 2018

AIN Group’s
initiatives

Creating better workplaces for womenparenting and childcare. The company was also awarded
the highest Level 3 Eruboshi certification in March 2018 forsupporting women’s participation and career advancementin the workplace Kurumi and Eruboshi marks are awarded by
Japan’s Ministry of Health, Labour and Welfare.
The AIN Group as a whole is also actively working to create
better workplace environments to motivate its employees. To
ensure our personnel achieve a proper work-life balance, weare encouraging them to take more paid holidays and cut backovertime hours. In addition to setting up personnel support
systems, we are focusing on creating workplaces where our
employees can actually use those systems.

Ratio of women in management positions
All management positions*2
Directors
Executive officers
General managers

30.9%
16.7%
31.3%
18.2%

Number of employees taking maternity, childcare
and reduced working hours for childcare (employees)
Maternity leave
Childcare leave
Reduced working hours for childcare

341
512
630

Notes:
1. Data is for the fiscal year ended April 2018
2. All management positions: section leaders and higher management
grades in head office divisions, pharmacy managers and store managers

AIN HOLDINGS ANNUAL REPORT 201821

ESG – Supporting Value Creation(As of July 27, 2018)

Corporate Governance
AIN HOLDINGS assumes responsibility for people’s health and the well-being of the wider community
through its business activities. We promote a highly efficient and transparent management system andimplement ongoing initiatives toward enhancement of corporate governance.

BASIC POLICY FOR CORPORATE GOVERNANCE
Dispensing pharmacies and drug and cosmetic store chains
are the key business areas being developed by AIN HOLDINGS.
Both of these businesses are characterized by a responsibility
towards people’s health, and as such, we recognize theindispensability of continuing with sound and transparent
business activities that prioritize compliance.
We have adopted a corporate auditor system to oversee
not only key management decisions and the business executionof directors, but also general corporate management. In orderto ensure the effective mutual management oversight of
directors, the Board of Directors convenes more than once amonth, while a management meeting is held for directors andthe standing corporate auditor on a weekly basis.
To minimize potential risks, the Internal Audit Officeensures comprehensive compliance with basic pharmacy
regulations, while the Safety Policy Office conducts analysis andimplements measures to prevent drug dispensing errors.
As part of efforts to enhance corporate governance, wehave established a Compliance Committee to promote andembed systems that ensure compliance with business ethics,
laws and regulations. The committee is made up of all the
Company’s directors and auditors and legal advisors.

OUTSIDE DIRECTORS AND OUTSIDE CORPORATE
AUDITORSThe Board of Directors is comprised of twelve members,
including four outside directors. Two of the Company’s three
corporate auditors are outside corporate auditors. There areno conflicts of interest between the Company and its outside
directors and outside corporate auditors. The outside directors
and outside corporate auditors have a number of functions
and roles to fulfill in the Group’s corporate governance system.
Drawing on their specialist knowledge and experience, they
contribute to the Group’s business strategy, discussions on board
resolutions, and internal control mainly by monitoring businessexecution and providing input at meetings of the Board of
Directors from a neutral, independent and objective standpoint.
The Company has no specific standards in place at the
moment, but the basic policy for appointing outside directors
and outside corporate auditors is to ensure they can effectively
fulfill the above roles. Four outside directors and one outside
corporate auditor have been designated as independent officers
in accordance with the provisions of the Tokyo Stock Exchange.

Reasons for selection of outside directors

OUTLINE OF CORPORATE GOVERNANCE
Corporate governance structure
Chairman of the Board
Number of directors
Number of corporate auditors
Board of Directors meetings*

Corporate Auditor System
Kiichi Otani
12 (including 4 outside directors)
3 (including 2 outside corporate auditors)
Number of meetings: 12
Examples of resolutions: Annual budget, issues related to new businesses, store openings
Outside Director attendance at Board of Directors meetings* 97.8%
Outside Corporate Auditor attendance
91.7%
at Board of Directors meeting*Number of meetings: 12
Board of Corporate Auditor meetings*
Examples of resolutions: Audit policy, audit plans and business division audits
Management meetings*
52
Key meetings attended by corporate auditors
Board of Directors meetings, Board of Corporate Auditor meetings, Management meetings
Independent director appointment
Outside directors Ko Mori, Yasuyuki Hamada, Shigeki Kimura and Noriko Endo andoutside corporate auditor Osamu Muramatsu have all been designated as independent
officers in accordance with the provisions of the Tokyo Stock Exchange.
Systems to strengthen and promote Group management
Group management meetings (weekly)
Accounting auditor
ERNST & YOUNG SHINNIHON LLC

Ko MoriYasuyuki
Hamada*Data is for the fiscal year ended April 2018.

General Meeting of Shareholders
Appointment

Appointment
Board of Directors
Outside Directors
Appointment

Appointment

Accounting Auditors

Audit
Appointment

Representative
Directors

Board ofManaging Directors

Audit
Cooperation

ReportingBusiness execution

Executive Officers

Compliance
Committee

Appointment

Board ofCorporate Auditors

Management
Meeting

ReportingInternal Audit Office

Reporting
Audit
Store Development
Division

Operating Management
Division

Information Technology
Division

Guidance
Group Companies

22 AIN HOLDINGS ANNUAL REPORT 2018

Shigeki
KimuraReportingOperational Support
Division

NorikoEndo

Mr. Ko Mori was appointed as an outside director to broadly
contribute to the Company’s activities by providing advice tothe Board of Directors and other bodies and by monitoringbusiness execution, drawing on his extensive knowledge
and experience as the manager of a major trading company.
Mr. Mori is judged to be a highly independent and objective
appointment, as he has no affiliation with the parent
company, its subsidiaries, major corporate shareholders or key
customers of the Group.
Mr. Yasuyuki Hamada was appointed as an outside director
to broadly contribute to the Company’s activities by providing
advice to the Board of Directors and other bodies and bymonitoring business execution. Although Mr. Hamada has
no experience of business management, he is able to draw
on his specialist knowledge and experience as an academic,
particularly in the field of economics and finance.
Since April 2010, Mr. Hamada has been an emeritus
professor at Hokkaido University, which has received
donations from the Company in the past. However, he isjudged to be a sufficiently independent appointment, as the
purpose of the donations was limited and they were notdirectly related to Mr. Hamada’s research activities.
Mr. Shigeki Kimura was appointed as an outside director tobroadly contribute to the Company’s activities by providing
advice to the Board of Directors and other bodies and bymonitoring business execution, drawing on his specialist
knowledge and experience from working in the accounting
department of a major retailer. Mr. Sato works for SevenEleven Japan Co., Ltd., which has a business relationshipand lease contracts with the Company. However, he isjudged to be a sufficiently independent appointment, as theinterdependence of Seven-Eleven Japan Co., Ltd. And theCompany is low due to a minimal level of business between thetwo companies. He has no special interest in the Company.
Ms. Noriko Endo was appointed as an outside director tobroadly contribute to the Company’s activities by providing
advice to the Board of Directors and other bodies and bymonitoring business activities, drawing on her extensive
knowledge and experience from positions in the editing
department of an economics magazine and a publicresearch institution, as well as knowledge gained frommarket research in Japan and overseas. Ms. Endo previously
worked for the Company in an advisory capacity, but
the level of mutual dependence between Ms. Endo and
the Company is low, as her contract was completed at
the end of May 2018. There are no other affiliations thatraise questions about Ms. Endo’s independence from theCompany’s senior management team. Ms. Endo is judged
to have no conflicts of interest with ordinary shareholders
and has been designated as an independent officer.

Reasons for selection of outside corporate auditors
Akira
Ibayashi

Mr. Akira Ibayashi was appointed as an outside corporate
auditor to contribute to improvements in sound andefficient business management, drawing on his specialist
knowledge from working at financial institutions and his
experience in business management.

Mr. Osamu Muramatsu was appointed as an outside
corporate auditor to contribute to improvements in soundOsamu
and efficient business management, drawing on his
Muramatsu specialist knowledge from working at a major securities
firm, experience in business management and track record
as an outside auditor for the Group.

REMUNERATION FOR DIRECTORS AND AUDITORSThe maximum total amount of remuneration for directors
was determined by a resolution at the 44th Ordinary General
Meeting of Shareholders held on July 30, 2013 to be ¥300
million annually (does not include payments made to directors
for their duties as employees; the maximum total amount foroutside directors was determined to be ¥50 million annually).
The maximum total amount of remuneration for corporate
auditors was set at ¥30 million annually at the 22nd Ordinary
General Meeting of Shareholders held on July 30, 1991. The
actual amount each year is determined within this limit via
discussions among the corporate auditors.
The amount of remuneration for directors and corporate
auditors for the year ended April 2018 is as follows:
Item

Directors(excluding outside
directors)
Corporate auditors(excluding outside
corporate auditors)
Outside directors andoutside corporate
auditors

Total
remuneration(¥ million)

Remuneration by type(¥ million)
Basic
Bonus
remuneration

Numberof eligible
individuals

181

141

39

6

7

7

–

1

21

21

–

4

STATUS OF ACCOUNTING AUDITS
Three certified public accountants from ERNST & YOUNG
SHINNIHON LLC conducted the accounting audits of AIN
HOLDINGS based on the Companies Act and Financial
Instruments and Exchange Act. Audit fees for the year endedApril 2018 are as follows:(¥ thousand)

The Company
Consolidated
subsidiaries
Total

Compensation paid foraudit certification activities

Compensation paid for *non-audit activities

39,700

–

7,500

–

47,200–AIN HOLDINGS ANNUAL REPORT 201823

Board of Directors and Corporate Auditors(As of July 27, 2018)*Figures in brackets show the number of AIN HOLDINGS shares held as of April 30, 2018.

BOARD OF DIRECTORSCORPORATE AUDITORS

Kiichi Otani

Miya Oishi

President and Representative Director(3,238,400 shares)

Managing Director
Senior General Manager, Operations Department(5,000 shares)

July 1980
November 1981
July 1983
May 1985
May 1988

President and Representative Director of
Otani Corporation (now AIN HOLDINGS
INC.)
Director of newly established Daiichi
Medical Testing Laboratories Co., Ltd.
(now AIN HOLDINGS INC.)
President and Representative Director of
Daiichi Medical Testing Laboratories Co., Ltd.
Managing Director of the Company
President and Representative Director(current post)

September 1990
July 1993
July 2008
April 2011
February 2012
July 2012
July 2014
November 2015

Masahito Sakurai
Representative Senior Managing Director(1,000 shares)
April 1972
April 1987
July 1996
July 1998
January 2001
February 2001
October 2008
July 2009
November 2015

Joined Ministry of Health and Welfare (nowMinistry of Health, Labour and Welfare)
Head of Administration Section, Fund for
Drug ADR Relief
Head of Air Protection Section, Japan
Environment Agency
Head of Regional Medical Affairs Office for
Tokai Hokuriku
Retired from Ministry of Health and Welfare
Commissioner of All-Japan Federation of
National Health Insurance Organizations
Joined the Company
Senior Managing Director
Senior Managing Director andRepresentative Director (current post)

Shoichi Shudo
Representative Senior Managing Director
In charge of development(9,400 shares)
April 1978
March 1982
May 1993
July 2000
May 2003
May 2004
May 2012
November 2015

Rieko Kimei
Director
In charge of Personnel Department(6,000 shares)
April 1986
December 1995
May 2003
May 2004
August 2009
July 2014
July 2016

Joined The Daiei, Inc.
Joined Daiichi Medical Testing
Laboratories Co., Ltd. (now AINHOLDINGS INC.)
General Manager of Cosmetic and DrugStore Business, Merchandising Business
General Manager of Personnel
Department
Executive Officer
Director (current post)
President and Representative Director of
AYURA LABORATORIES INC. (current post)

Hidehiro Awaji
Director(4,600 shares)
December 1983
December 2000
May 2004
August 2009
May 2010
November 2015
May 2018
July 2018

Joined Daiichi Medical Testing Laboratories
Co., Ltd. (now AIN HOLDINGS INC.)
Manager of Tohoku BranchManager of Hokkaido Branch
Executive Officer
Senior General Manager for Western Japan
Managing Director of AIN PHARMACIEZ INC.,
responsible for Western Japan
Senior Managing Director of AIN
PHARMACIEZ INC., responsible for WesternJapan (current post)
Director of the Company (current post)

Koichi Kawamura

Director Outside(- shares)
April 1971
April 2002
April 2004
June 2006
June 2007
July 2012

Independent

Joined Marubeni Corporation
Executive Officer and General Manager ofChemicals Division
Managing Executive Officer
Representative Director and Senior
Managing Executive Officer, Materials
Division
President and Representative Director of
Marubeni Safenet Co., Ltd.
Director of the Company (current post)

April 1991
April 1997
April 2003
April 2010
April 2014
December 2014
July 2015

Professor of Faculty of Economics, Hokkaido
University
Special Assistant for the president of same
university
Professor of Advanced Scientific ResearchCenter, Hokkaido University(concurrent post)
President of Sapporo International University
Emeritus Professor of Hokkaido University
President and Chairman of Dohto University
President of Hamanasu Foundation(current post)
Outside Director of the Company(current post)

Shigeki Kimura
Director Outside(- shares)

Independent

March 1986
March 2014

Joined Seven-Eleven Japan Co., Ltd.
Executive Officer,
Manager of Accounting Management
Department,
Manager of Corporate Policy Department
December 2016 Executive Officer,
Senior Officer of Corporate Development
Office of Seven & i Holdings Co., Ltd.
(current post)
December 2016 Executive Officer,
Manager of Secretarial Office of SevenEleven Japan Co., Ltd.
July 2017
Outside Director of the Company(current post)

Director Outside(200 shares)

May 2003
May 2012
November 2015
July 2018

December 2016
July 2018

April 1963
June 2001
June 2003
July 2012

Joined The Hokkaido Bank, Ltd.
Director, Executive Officer and Deputy
President
Retired from The Hokkaido Bank, Ltd.
Outside Corporate Auditor of the Company(current post)

Osamu Muramatsu
Corporate Auditor Outside(- shares)

Noriko Endo

July 2000
February 2001

July 2012

Corporate Auditor Outside(- shares)

Director(7,400 shares)

Joined SSP Co., Ltd.
Joined Otani Corporation (now AINHOLDINGS INC.)
Director
General Manager of Cosmetic and DrugStore Business
Managing Director
Senior Managing Director of the Company
Senior Managing Director andRepresentative Director of the Company(current post)
Head of Information and Technology
Division (current post)

July 1997
May 2003

Joined Daiichi Medical Testing Laboratories
Co., Ltd. (now AIN HOLDINGS INC.)
Auditor
General Manager of Administrative
Department
Corporate Auditor (current post)

Akira Ibayashi

Independent

Masato Sakai
Joined Nisshin Oil Mills, Ltd.
Joined the Company
Manager of Tohoku Branch
Head of Corporate Planning Office
Executive Officer
President and Representative Director of
Asahi Pharmacy Co., Ltd. (current post)
Director of AIN PHARMACIEZ INC.,
responsible for Eastern Japan (current post)
Director of the Company (current post)

October 1985

Director Outside(2,000 shares)

Representative Senior Managing Director
In charge of business operations, business supportand information technology(27,600 shares)

April 1995
January 1999
May 2004
May 2006
July 2011
June 2014

Corporate Auditor (full-time)(5,000 shares)

Yasuyuki Hamada

Toshihide Mizushima

April 1982
April 1986

24 AIN HOLDINGS ANNUAL REPORT 2018

Joined Sapporo Medical Testing Laboratories
Co., Ltd.
Joined Daiichi Medical Testing Laboratories
Co., Ltd. (Asahikawa, now AIN HOLDINGS
INC.)
Head of Corporate Planning Division
Director
Managing Director
General Manager of Dispensing Pharmacy
Business
Senior Managing Director
Senior Managing Director andRepresentative Director (current post)

Joined KYOEIDO Co., Ltd.
Director of DAICHIKU Co., Ltd. (current
post)
Representative Director of same company
Vice President and Representative Directorof AIN MEDICAL SYSTEMS INC. (now AINHOLDINGS INC.)
President and Representative Director ofsame company
Director of the Company
Managing Director (current post)
President and Representative Director of
AIN PHARMACIEZ INC. (current post)

Ko Mori

April 1972
June 1994
June 1996
October 2007
August 2011
June 2012
July 2016

Independent

Joined Nomura Securities Co., Ltd.
Head of Sapporo Branch
Director
Retired from Nomura Securities Co., Ltd.
President and Representative Director of
Executive Partners, Inc.
Outside Corporate Auditor of Asahi
Pharmacy Co., Ltd.
(current post)
Outside Corporate Auditor of the Company(current post)

Independent

June 1994
April 2004

Joined DIAMOND, Inc.
Head and Director of Tokyo Office, Kyushu
University
April 2006
Deputy Editor of Diamond Weekly,
DIAMOND, Inc.
September 2013 Visiting Researcher at Policy Alternatives
Research Institute, University of Tokyo(current post)
April 2015
Project Professor, Graduate School of Mediaand Governance, Keio University(current post)
July 2018
Outside Director of the Company(current post)

AIN HOLDINGS ANNUAL REPORT 201825

Financial Section

Management’s Discussion and Analysis of Financial
Condition and Results of Operations
BUSINESS ENVIRONMENT SURROUNDING
THE AIN HOLDINGS GROUP
The core business of the AIN HOLDINGS Group (the Group)is the dispensing pharmacy business that includes preparing
and dispensing drugs based on prescriptions. Drug prices anddispensing fees* are stipulated by the Ministry of Health, Labourand Welfare.
The Japanese government is progressively revising drug prices
and dispensing fees as part of its policy to curb national medical
expenses. Earnings at dispensing pharmacies are the total ofdispensing fees and sales of drugs, so earnings are affected bythese revisions.
In drug price revisions in April 2018, the average drug pricedeclined 1.36% on a government expenses basis and 6.17% on adrug price basis (including exceptional special reductions for highcost drugs, the declines were 1.65% and 7.48%, respectively).
Furthermore, the role of pharmacies located near hospitals
was reviewed, with primary care dispensing pharmacies andpharmacists receiving a higher evaluation as part of government
efforts to drive a structural shift from dispensing focused only on
dispensing drugs to dispensing focused on services that contributeto local healthcare services.
The gap in performance is widening between companies in
the industry, which are struggling with changes to their profit
structures resulting from revisions to dispensing fees. However,Effective from the fiscal year under review, the Group haschanged the name of the drug and cosmetic store business to thecosmetic and drug store business. This is a change in name onlyand does not affect segment information.

the Group regards these changes in the operating environment asa perfect opportunity to push ahead with its strategy of further
increasing profitability.
*	Dispensing fees comprise pharmaceutical management fees and technical feesfor pharmacists

BUSINESS OVERVIEW FOR THE FISCAL YEARUNDER REVIEW
During the fiscal year ended April 30, 2018, the Japanese economy
improved at a moderate pace amid signs of a pickup in consumer
spending and improving corporate earnings and employment
conditions.
In this economic environment, the AIN HOLDINGS Group (theGroup) worked to expand its business and increase earnings.
Specifically, the Group opened new dispensing pharmacies andused M&A to expand the business. It also developed its cosmetic
and drug store business.
For the fiscal year under review, net sales rose 8.2% year on
year to ¥268,385 million, operating income increased 34.7% to¥19,622 million, ordinary income increased 33.5% to ¥20,129
million and profit attributable to owners of parent increased 32.9%
year on year to ¥10,567 million.
As of the end of the fiscal year, the number of stores in theGroup totaled 1,077, a net decrease of 41 stores from the end of
the previous fiscal year.

BUSINESS RESULTS BY SEGMENT
Dispensing Pharmacy BusinessTo ensure our pharmacists and dispensing pharmacies fulfill theirprimary care role, the Group continues to build links with local
medical service providers, strengthen pharmaceutical management
and guidance based on the integrated and continuous managementof drug information using patient medication notebooks and othermeans, and promote wider use of generic drugs.
The shortage of pharmacists in the healthcare sector is
becoming more serious. To address this issue, the Group is working
to attract new graduates, with 279 new pharmacist graduates
joining the Group in April 2018. The Group is also upgrading
pharmacist training programs to enhance their capabilities so thatthey can fill their role as pharmacists at the heart of the community.
In business development, the Group pushed ahead withbusiness expansion by opening new dispensing pharmacies andusing M&A deals. Store operations are also being overhauled.
During the fiscal year under review, the dispensing pharmacy
business reported sales and profit growth with sales rising 7.6%
year on year to ¥238,645 million and segment income increasing
18.6% to ¥22,668 million.
During the same period, the Group opened 36 new dispensing
pharmacies, including those acquired through M&A deals, andclosed 73 pharmacies, resulting in a total of 1,029.

Cosmetic and Drug Store BusinessIn the cosmetic and drug store business, the market environment
remained challenging due to a narrowing competitive gap between
companies in the sector and the emergence of new competitorsfrom sector consolidation and realignment that also extends toother business sectors.
Against this backdrop, the Group continued to open ainz &tulpe cosmetic and drug stores in the Tokyo metropolitan area
and worked to make stores more appealing by refurbishingexisting stores and strengthening merchandise lineups, particularly
cosmetics and drug products. Earnings also improved, supported
by lower costs due to greater business efficiency and by an increasein the gross margin due to active efforts to develop LIPS and
HIPS, cocodecica and other original brands and an overhaul ofprocurement activities.
As a result, for the fiscal year under review, the cosmetic anddrug store business reported an increase in sales of 12.8% year on
year to ¥24,117 million. And segment income was ¥657 million,
compared with segment loss of ¥866 million a year earlier. During
the fiscal year under review, the Group opened the ainz & tulpe
Odakyu Department Store Machida (Machida City, Tokyo), ainz &tulpe MARUI KICHIJOJI (Musashino City, Tokyo), ainz & tulpe Grand
Emio TOKOROZAWA (Tokorozawa City, Saitama) and ainz Grand
Emio TOKOROZAWA (Tokorozawa City, Saitama) and closed eight
stores, resulting in a total of 48 cosmetic and drug stores at theend of the fiscal year.
Other Businesses
Net sales from other businesses rose 14.2% year on year to ¥5,623
million and segment loss was ¥1,164 million compared with theloss of ¥1,496 million a year earlier.

11-YEAR FINANCIAL SUMMARY
For the year:
Net sales
Selling, general and administrative expenses
Operating income
Profit attributable to owners of parent
Capital expenditures
Depreciation and amortization
At the end of the year:
Equity capital*1
Total net assets
Total assets
Number of shares outstanding (shares)
Number of employees (persons)
Number of stores: Dispensing pharmacy business
Number of stores: Drug and cosmetic store business
Per share information (¥):
Net income*2
Net assets*2
Cash dividends*2
Stock information (based on the closing price as of April 30) (¥):
Stock price
Ratios (%):
Operating margin
Return on sales *3
Return on assets (ROA) *4
Return on equity (ROE) *5
Shareholders’ equity ratio

26 AIN HOLDINGS ANNUAL REPORT 2018(¥ million)

2008/4

2009/4

2010/4

2011/4

2012/42013/4

2014/4

2015/4

2016/42017/42018/4106,231
9,203
4,444
1,615
1,914
968

115,387
9,948
5,296
2,127
2,891
1,119

125,495
10,744
6,492
3,131
2,573
1,286

129,387
11,981
8,107
3,916
2,750
1,560

142,790
12,83910,253
4,899
5,870
1,749

154,560
14,740
9,701
5,075
7,235
2,212

170,225
15,635
10,113
5,259
6,328
2,258

187,904
17,50911,452
6,197
6,413
2,553

234,843
23,915
14,619
7,917
11,2093,259

248,110
27,52914,563
7,949
4,786
3,687

268,385
28,37019,622
10,5675,311
3,596

12,04012,70757,546
11,361,000
2,582
356
45

16,071
16,10962,032
12,831,376
2,741
375
46

21,445
21,49265,898
14,101,164
2,918
397
49

29,45029,49876,94015,941,004
3,104
448
53

33,69533,74585,90815,940,790
3,326
494
56

38,31238,356
95,83915,940,740
3,551
560
61

42,122
42,240101,382
15,854,190
3,806
616
59

47,92848,046
114,149
31,707,617
4,429
754
56

53,25853,324
139,888
31,707,617
5,511
881
52

60,10560,178156,323
31,707,568
6,469
1,066
52

96,697
96,733
183,435
34,079,508
6,498
1,029
48

71.18
529.8910.0

85.37
626.2715.0

114.04760.4020.0

127.83923.7322.5

153.67
1,056.89
25.0

159.181,201.71
30.0

165.04
1,328.43
30.0

195.45
1,511.57
30.0

249.691,679.69
40.0

250.71
1,895.63
50.0

310.082,729.44
50.0

1,490

1,481

2,920

3,115

4,290

4,765

4,495

4,245

5,340

7,720

7,300

4.2
1.5
3.0
14.2
20.9

4.6
1.8
3.6
15.1
25.9

5.2
2.5
4.9
16.7
32.5

6.3
3.0
5.5
15.4
38.3

7.2
3.4
6.0
15.5
39.2

6.3
3.3
5.6
14.1
40.0

5.9
3.1
5.3
13.1
41.5

6.1
3.3
5.8
13.8
42.0

6.2
3.4
6.2
15.6
38.1

5.9
3.2
5.4
14.0
38.4

7.3
3.9
6.2
13.5
52.7

Note:
Amounts of less than one million yen wererounded down.
*1: Equity capital =Total net assets – Non-controllinginterests*2: The Company conducted a 2-for-1 stock
split of common shares with an effective
date of October 1, 2014. Net income
per share, net assets per share and cash
dividends per share have been adjusted
retroactively to reflect the impactof the stock split.
*3: Return on sales =Profit attributable to owners of parent /Net sales × 100*4: Return on assets =Profit attributable to owners of parent /Total assets(yearly average) × 100*5: Return on equity =Profit attributable to owners of parent /Equity capital(yearly average) × 100

AIN HOLDINGS ANNUAL REPORT 201827

Financial Section

FINANCIAL POSITION
The balance of total assets at the end of the fiscal year underreview increased by ¥27,112 million from the end of the previous
fiscal year to ¥183,435 million. That mainly reflected an increase in
cash and deposits from the public offering and private placements.
Current assets at the end of the fiscal year under review totaled¥96,169 million, an increase of ¥30,749 million from ¥65,420
million at the end of the previous fiscal year. This mainly reflected
an increase of ¥34,004 million in cash on hand and in banks to¥63,779 million.
Fixed assets at the end of the fiscal year under review totaled¥87,162 million, a decline of ¥3,740 million from ¥90,902 million
at the end of the previous fiscal year. The Company’s assets
increased through investment in new stores and expansion in theasset base at consolidated subsidiaries that become part of theGroup through M&A deals, but in the fiscal year under review, thedecline in fixed assets mainly reflected a lack of M&A deals.
The balance of current liabilities at the end of the fiscal year
under review was ¥70,235 million, a decline of ¥2,720 million from¥72,955 million at the end of the previous fiscal year, while thebalance of long-term liabilities was ¥16,467 million, down ¥6,721
million from ¥23,188 million a year earlier.
As a result, the balance of total liabilities was ¥86,702 million,a decline of ¥9,441 million from ¥96,144 million at the end of theprevious fiscal year.
The balance of net assets at the end of the fiscal year underreview was ¥96,733 million, an increase of ¥36,555 million from¥60,178 million at the end of the previous fiscal year. As a result,the shareholders’ equity ratio increased 14.3 percentage points to
52.7%, compared with 38.4% at the end of the previous fiscal
year. ROA improved 0.8 of a percentage point to 6.2% and ROE
declined 0.5 of a percentage point to 13.5%.

BASIC POLICIES FOR PROFIT DISTRIBUTION
The Company considers the return of profits to shareholders as
an important management issue. Our basic policy is to repay ourinvestors proportionate to the profit we make, and to maintainthese payments at stable levels.
Internal reserves are held to strengthen the corporate structure
and in preparation for new store openings and future developmentof the business. We will make effective use of these funds togenerate profits to be returned to shareholders in the future.
The Company’s basic policy is to pay dividends from retained
earnings once per year at the end of the fiscal year.
For the fiscal year under review, the Company paid a dividend
from retained earnings of ¥50 per share, the same as the previous
fiscal year.
In view of our profit forecasts, plans for investment and otherfactors, we intend to pay an ordinary dividend from retained
earnings of ¥55 per share in the fiscal year ending April 30, 2019.

CASH FLOWSIn the fiscal year under review, cash and cash equivalents (“cash”)
increased ¥33,998 million (116.3%) year on year to ¥63,233
million. This reflected operating cash flow generated by dispensing
pharmacy and cosmetic and drug store businesses, which was

28 AIN HOLDINGS ANNUAL REPORT 2018

mainly used to actively invest in new store openings and M&A.
Some cash was also retained to provide constant access to a certain
level of funds.
Cash flows from each category and their relevant factors are as
follows:
Cash Flows from Operating Activities
Net cash provided by operating activities was ¥21,656 million,
compared with net cash provided of ¥18,409 million in theprevious fiscal year.
The main items that were positive for cash flow were income
before income taxes of ¥17,852 million, as well as depreciation
and amortization of ¥3,596 million and amortization of goodwillof ¥3,937 million related to business expansion through new store
openings and M&A.
The main item negative for cash flow was income taxes paid of¥5,487 million.
Cash Flows from Investing Activities
Net cash used in investing activities was ¥5,281 million, comparedwith net cash used of ¥11,183 million in the previous fiscal year.
This mainly reflected payments of ¥3,134 million for purchasesof property, plant and equipment related to the opening of newcosmetic and drug stores and dispensing pharmacies, and ¥1,310
million for purchases of shares in subsidiaries due to changes inthe scope of consolidation related to shares acquired in sevencompanies through M&A deals.
Cash Flows from Financing Activities
Net cash provided by financing activities was ¥17,623 million,
compared with net cash provided of ¥116 million in the previous
fiscal year.
The main cash inflow was ¥27,631 million from the issue of
new shares and sale of treasury stock related to a public offeringand private placements.
The main cash outflows were net repayment of ¥7,775 million
from short-term and long-term debt repayment and proceeds, and¥1,585 million for cash dividends paid.

BUSINESS AND OTHER RISKS
The following factors may affect the Group’s operating results andfinancial position. Statements in the text referring to the futurereflect the judgment of the Group at the end of the fiscal year
under review.
1. Laws and regulations
a. Regulations under the Law for Ensuring the Quality,
Efficacy, and Safety of Pharmaceuticals and Medical Devices
We operate the dispensing pharmacy business under various
permits, licenses, registrations and notifications including those
set forth by the Law for Ensuring the Quality, Efficacy, and Safetyof Pharmaceuticals and Medical Devices (the Pharmaceuticaland Medical Device Law), the Health Insurance Law, and thePharmacists Law, under the supervision of the Ministry of Health,Labour and Welfare, and of prefectural health and welfare
departments.
The drugstore business in our cosmetic and drug store businessalso involves drug sales, which are similarly regulated under the
Pharmaceutical and Medical Device Law.

b. Easing of drug sales regulations
In sales of over-the-counter (OTC) drugs, the Pharmaceuticaland Medical Device Law classifies drugs into different categories
based on risk. Only qualified pharmacists are permitted to selldrugs requiring guidance and category 1 drugs, while registeredsellers, as well as pharmacists, are permitted to sell category 2 andcategory 3 drugs.
In addition, the “Law for Partial Revision of the Pharmaceutical
Affairs Law” (enacted June 12, 2014) ended restrictions on the saleof OTC drugs online. Factors such as the entry into the market offirms from other industries as a result of a continuing trend in the
future to deregulate drug sales may affect the Group’s performance.
2. Details of business
The Group’s dispensing pharmacy business operates a chain of
dispensing pharmacies.
As the dispensing pharmacy business accounted for 88.9% of
net sales in the fiscal year under review, we plan to continue themulti-store operation mainly based on dispensing pharmacies.
Accordingly, the Group’s operating results may be affected by the
success or failure of the store opening policies including M&A andby trends in store openings by competitors in the same industry.
Furthermore, sales of dispensing pharmacies significantly dependon the medical institutions that write prescriptions. Therefore,
uncertainties such as the issuance of non-hospital prescriptions by
the medical institutions or suspension/discontinuation of operations
thereof may affect the Group’s performance. In addition, due toseasonal outbreaks of influenza and other conditions, the numberof prescriptions filled may be affected by seasonal trends.
3. Industry trends
The revenues in our dispensing pharmacy business come frompharmacy operations involving the dispensing and supplying ofdrugs based on prescriptions. The drug prices and dispensing fees
are set by the Ministry of Health, Labour and Welfare. As a way
to contract medical expenses, both medical treatment fees anddrug prices are being revised incrementally. In the future as well,changes in profit structure resulting from factors such as revisions
in the medical treatment fee system could continue to affect theGroup’s performance and financial position.
4. Securing qualified staff
Dispensing pharmacies and drugstores (Stores for Category 1
Drugs) are required by the Pharmaceutical and Medical Device Law
to have a pharmacist on site; the Pharmacists Law stipulates thatthe dispensing of drugs must be handled by a pharmacist.
The Group continues to have a policy of expansion by
aggressively opening new stores, but if it becomes difficult tosecure qualified pharmacists, this could affect our store openings
and the Group’s performance.
5. Risks of loss of trust in the Company
a. Dispensing operation
In our dispensing pharmacy business, pharmacists dispense andsupply prescription drugs that affect the human body. This businesscarries the risk that medical accidents might be caused throughdispensing errors.
The Group recognizes that any medical accidents could have aseverely damaging effect on society’s confidence in the Group, andwe place the highest priority on measures to avoid the risk from all
aspects.

b. Protection of personal data
We possess patient data in the dispensing pharmacy business,
including medical histories and prescription information, and we
possess personal data in the cosmetic and drug store businessobtained from the ainz & tulpe Point Card and Tulpe Mobile Club.
The Group takes all possible steps to protect personal
data through personal information protection systems andthe rigorous enforcement of rules on the handling of suchinformation. Also, key subsidiary AIN PHARMACIEZ INC. has
acquired Privacy Mark accreditation in the healthcare, medical
and social service fields. However, we believe it is possible thatany accidental or illegal leakage of personal data may not only
affect the Group’s performance but also lead to a loss of society’s
confidence in the Group.
6. Risk in business strategy
The Group has promoted the expansion of the business scaleof dispensing pharmacies through actively promoting new store
openings and M&A.
Our basic policies regarding M&A strategy require us to carefully
examine target companies and determine the amount to be paid
for acquisitions thereof in order to stably secure a profitability levelthat exceeds the amortization of goodwill to be incurred. If matters
do not go as planned, however, we may incur losses on valuationof shares in subsidiaries and impairment losses on goodwill, which
may have an adverse impact on the Group’s operating results andfinancial position.
7. Interest rate risks
In the Group’s promotion of business expansion based on actively
promoting new store openings and M&A, costs for ordinary
store openings are covered by internal funds within the range of
operating cash flow, while in large-scale M&A, costs are sometimes
financed by borrowings from financial institutions.
In order to ensure flexible access to funds to support these
activities, the Group maintains a certain level of liquidity on its
balance sheet. As of the end of the fiscal year under review, cashon hand and in banks totaled ¥63,779 million, compared with a
total balance of short- and long-term debt of ¥18,228 million.
We focus on the possibility of return on investment and seek
to reduce interest-bearing debt through efficient investment in
implementing M&A deals. However, if the Group fails to secure
an adequate return on its M&A investment, or due to interest rate
fluctuations associated with conditions in financial markets, theGroup’s financial position and operating results including interest
payable may be affected.
8. Impact of consumption tax
Under Japan’s Consumption Tax Act, dispensing sales in thedispensing pharmacy business related to social insurance medical
examinations are exempt from consumption tax. However, thebusiness is required to pay consumption tax on pharmaceutical andother products that it procures.
As a result, consumption tax borne by the Group is booked
under cost of sales in the dispensing pharmacy business.
In the past, when consumption tax was introduced anddispensing fees were revised, the government took into accountthe higher rate of consumption tax when it set drug prices.
However, future revisions to the rate of consumption tax may not
be reflected in drug prices, which could have an impact on theGroup’s operating results.

AIN HOLDINGS ANNUAL REPORT 2018

29

AIN HOLDINGS INC.
AIN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETCONSOLIDATED BALANCE SHEETAS OF APRIL 30, 2018ASSETSASSETSAS OF APRIL 30, 2018

Millions of yen
2018
2017

Thousands ofThousands of
U.S. dollars
U.S. dollars(Note Millions
1(1)) of yen(Note 1(1))
2018
2018
2017
LIABILITIES AND
2018NET ASSETSLIABILITIES AND NET ASSETS

Current assets:
Current assets:
Cash on hand and in banks (Notes
Cash
2 and
on hand4) and¥ 63,779
in banks (Notes¥ 29,775
2 and 4)
Notes and accounts receivable (Note
Notes 4)and accounts
10,466
receivable (Note9,990
4)
Other accounts receivable
Other accounts receivable
7,751
9,402
Inventories (Note 3)Inventories (Note 3) 9,580
11,668Deferred tax assets (Note 10) Deferred tax assets 1,611(Note 10)
1,166
Short-term loans
Short-term loans
641
632
Other current assets
Other current assets2,470
2,829
Allowance for doubtful accountsAllowance for doubtful(131)
accounts(44)
Total current assets
Total current assets
96,16965,420¥$ 63,779
582,989 ¥
10,466
95,667
7,751
70,8509,580
87,568
1,611
14,725
641
5,859
2,470
22,577(131)(1,197)
96,169879,058

Property, plant and equipment (NoteProperty,6): plant and equipment (Note 6):
Buildings and structures, net Buildings and structures,
14,934net
15,365Land
Land
10,041
9,958
Construction in progress
Construction in progress
118
316
Other property, plant and equipment,
Other netproperty, plant2,759
and equipment,2,823
net
Total property, plant and equipment
Total property, plant
27,853and equipment
28,464

14,934
136,508
10,041
91,782
118
1,078
2,759
25,21927,853
254,597

Investments and other assets: Investments and other assets:
Investment securities (Notes 4 andInvestment
5)
securities
2,375(Notes 4 and 5)
2,435
Deferred tax assets (Note 10) Deferred tax assets 2,216(Note 10)2,167
Net defined benefit asset (Note Net9) defined benefit asset9(Note 9)22Long-term loans
Long-term loans
789
1,194
Deposits and guarantees
Deposits and guarantees
11,33910,443
Goodwill
Goodwill
38,01140,939Other intangible fixed assets Other intangible fixed
2,121
assets2,170
Other investments and other assets
Other investments and2,985
other assets 3,378
Allowance for doubtful accountsAllowance for doubtful(540)accounts(312)
Total investments and other assets
Total investments
59,309and other assets
62,4382,375
21,7092,216
20,255
9 82
789
7,212
11,339103,647
38,011
347,449
2,121
19,387
2,985
27,285(540)(4,936)59,309542,129

Deferred Assets:
Share issuance cost
Total deferred assets
Total assets

Deferred Assets:
Share issuance cost 103
Total deferred assets
103
Total assets ¥ 183,435

See accompanying notes.

See accompanying notes.

30 AIN HOLDINGS ANNUAL REPORT 2018

¥ 156,323

Millions of yen
2018
2017

Thousands of
U.S. dollars(Note Millions
1(1)) of yen
2018
2018
2017

Thousands of
U.S. dollars(Note 1(1))
2018

Current liabilities:
Current liabilities:
29,775
Accounts$payable
582,989(Note 4)
Accounts payable (Note 4)¥
9,990
Short-term debt95,667(Notes 4 and 7)Short-term debt (Notes 4 and 7)
9,402
Accrued income
70,850taxes
Accrued income taxes
11,668Deposits received
87,568Deposits received
1,166
Allowance for bonuses
14,725 to employees
Allowance for bonuses to employees
632
Allowance for bonuses
5,859 to directors
Allowance for bonuses to directors
2,829
Reserve for reward
22,577
obligations Reserve for reward obligations
Provision(44)
for sales(1,197)
returns
Provision for sales returns
65,420
Other current 879,058
liabilities
Other current liabilities
Total current liabilities
Total current liabilities

38,728
6,717
4,947
12,675
1,911
16
420
6
4,810
70,23539,325
7,596
2,898
14,223
1,903
16
410
14
6,566
72,955¥$ 38,728
354,003
6,717
61,398
4,947
45,21912,675
115,859
1,911
17,468
16146
420
3,839
6 54
4,810
43,967
70,235642,001$

15,365Long-term liabilities:
136,508
Long-term liabilities:
9,958
Long-term debt91,782(Notes 4 and 7) Long-term debt (Notes 4 and 7)
316
Lease obligations
1,078
Lease obligations
2,823
Net defined benefit
25,219liability (NoteNet
9) defined benefit liability (Note 9)28,464
Other long-term
254,597
liabilities
Other long-term liabilities
Total long-term liabilities
Total long-term liabilities

11,511
632
2,625
1,698
16,467

18,254
958
2,331
1,644
23,188

11,511
105,219
632
5,776
2,625
23,994
1,698
15,521
16,467
150,521¥¥

39,325
7,596
2,898
14,223
1,903
16
410
14
6,566
72,955

18,254
958
2,331
1,644
23,1882,435
Net Assets: (Note21,709
11)
Net Assets: (Note 11)
2,167
Shareholders’ equity
20,255
Shareholders’ equity
Common22
stock (Note8214)
Common stock (Note 14)
200,127
21,894
8,682
21,894
8,682
1,194
Authorized - 44,000,000
7,212
shares Authorized
in 2018 and- 44,000,000
2017
shares in 2018 and 2017
10,443Issued - 35,428,212
103,647 shares in 2018
Issuedand- 35,428,212
31,888,212 shares in 20182017 and 31,888,212 shares in 201740,939
Capital surplus
347,449
Capital surplus
20,5006,367
20,500187,3856,367
2,170
Retained earnings
19,387Retained earnings
54,26845,28654,268496,051
45,286
3,378
Treasury stock 27,285(688 shares in 2018
Treasuryand 180,644
stock (688
sharessharesin 2017)in 2018 and 180,644(1)shares in 2017)(419)(1) (9)(419)(312)
Total shareholders’(4,936)equity
Total shareholders’ equity
96,662
59,91896,662
883,564
59,91862,438
Accumulated other542,129
comprehensive
Accumulated
income: other comprehensive income:Unrealized holding gains on securities
Unrealized holding gains on securities
84
86
84767
86
Remeasurments of defined benefit
Remeasurments
plans
of defined benefit plans
(457)
(50)
101
(50)
101
Total accumulated other comprehensive
Total accumulated
income other comprehensive income
34
187
34310
187
103941
Non-controllinginterests
941
Non-controlling interests
36
73
36329
73
103941Total
net assets 941
Total net assets
96,73360,17896,733884,21360,178¥$ 183,435
1,676,736 ¥ 156,323Total liabilities$ 1,676,736
and net assets Total liabilities and net assets¥ 183,435¥ 156,323¥$ 183,435
1,676,736 ¥ 156,323

354,003
61,39845,219115,859
17,468146
3,839
5443,967642,001

105,219
5,776
23,994
15,521
150,521200,127
187,385
496,051(9)883,564
767
(457)
310
329
884,213$ 1,676,736

AIN HOLDINGS ANNUAL REPORT 201831

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETSYEAR ENDED APRIL 30, 2018

YEAR ENDED APRIL 30, 2018

Net sales (Note 15)
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income
Other income (expense):
Interest and dividend income
Gains on investments in partnership
Commissions received
Real estate rental revenue
Consignment income
Technical advisory fee
Gains on sales of fixed assets
Gains on sales of investment securities
Gain on transfer of business
Refund of premium for cancelled insurance
Interest expenses
Losses on sales of accounts receivables
Rent expenses on real estates
Provision of allowance for doubtful accounts
Losses on disposal and sales of fixed assets
Impairment losses on fixed assets
Directors' retirement benefits
Bad debts written off
Loss on valuation of investments in capital
Other, net¥

Thousands ofsharesBalance at April 30, 2016
Profit attributable to owners of parent
Cash dividends paid
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2017
Issuance of new shares
Profit attributable to owners of parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2018

31,88831,8883,540

3,540
35,428Millions of yen

Shareholders' equity

Number ofshares ofcommon stock

Common stock

-

¥

8,682

8,682
13,212¥

13,212
21,894-Retainedearnings

Capital surplus

¥

6,367

6,367
13,212-921¥

14,13320,500-¥38,605¥(1,268)6,681
45,286
10,567(1,585)
8,982
54,268-

7,949

Treasury stock

¥

¥

(419)
(0)
(0)
(419)
(0)
418
417
(1)

¥

53,237¥(1,268)(0)
6,680
59,91826,424
10,567(1,585)(0)
1,339
36,744
96,662

¥

101
136
61
181
201
70
76
8
59
31
(117)
(71)
(88)
(200)
(624)
(1,175)
(127)
(440)
148
(1,770)17,852

108
63
44
193
149
62
11
264
32
63
(143)
(67)
(89)
(488)
(453)
(11)
(216)
220
(255)
14,307

923
1,243
557
1,654
1,837
639
694
73
539
283
(1,069)(648)(804)(1,828)(5,703)(10,740)(1,160)(4,021)
1,352(16,179)
163,180

7,863
(540)
7,322
10,530(37)
10,567

6,040
310
6,350
7,956
7
7,949

71,873(4,936)
66,92896,252(338)
96,590¥$Common stock

Balance at April 30, 2017
Issuance of new shares
Profit attributable to owners of parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2018$$

79,360120,767

120,767
200,127$-

58,199120,767

8,418$

129,186
187,385$$

413,948

96,590(14,488)
82,102496,051

¥

¥

(63)
149
149
86
(1)
(1)
84

Total
accumulated
othercomprehensive
income (loss)

Remeasurmentsof defined
benefit plans

¥

84

16
16
101

¥

-

(152)
(152)
(50)

¥

21

166
166
187

Non-controllinginterests

-

(153)
(153)
34

¥

¥

65

7
7
73

¥

-

(37)
(37)
36

Total net assets¥

53,324

7,949(1,268)
(0)
173
6,854
60,17826,424

10,567(1,585)

¥

(0)
1,339
(190)
36,55496,733Thousands of U.S. dollars (Note 1(1))

Accumulated other comprehensive income (loss)

Retainedearnings

Capital surplus

7,949

Accumulated other comprehensive income (loss)
Unrealized
holding gains(losses) on
securities

Total
shareholders’equityShareholders' equity

Profit before income taxes
Income taxes (Note 10):
Current
DeferredProfit(Loss) profit attributable to non-controlling interests
Profit attributable to owners of parent

Millions of yen
2018
2017
268,385¥ 248,110
220,392
206,01747,99342,092
28,37027,52919,622
14,563Thousands of
U.S. dollars(Note 1(1))
2018$ 2,453,244
2,014,552
438,692
259,323
179,360$$(3,829)
(0)
3,820
3,811
(9)

Unrealized
holding gains(losses) on
securities

Total
shareholders’equityTreasury stock$$

547,696
241,535
96,590(14,488)(0)
12,239335,868
883,564

$

$

786

(9)
(9)
767

Total
accumulated
othercomprehensive
income (loss)

Remeasurmentsof defined
benefit plans

$

$

923

(1,389)(1,389)
(457)

$

$

1,709

(1,398)(1,398)310

Non-controllinginterests

$

$

667

(338)
(338)
329

Total net assets$$

550,073
241,535
96,590(14,488)(0)
12,239(1,736)334,131884,213

See accompanying notes.

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED APRIL 30, 2018

ProfitOther comprehensive income:Unrealized holding (losses) gains on securities
Remeasurements of defined benefit plans, net of tax
Total other comprehensive (loss) income
Total comprehensive income
Comprehensive income attributable toowners of parent
Comprehensive (loss) income attributable tonon-controlling interests¥

Millions of yen
2018
2017
10,530¥
7,956

Thousands of
U.S. dollars(Note 1(1))
2018$
96,252

(1)
(152)
(153)
10,376

149
16
166
8,122

(9)
(1,389)(1,398)
94,844

10,413

8,115

95,182

(37)

7

(338)

See accompanying notes.
32 AIN HOLDINGS ANNUAL REPORT 2018

AIN HOLDINGS ANNUAL REPORT 201833

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF CASH FLOWSAIN HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEAR ENDED APRIL 30, 2018

Cash flows from operating activities:
Profit before income taxes
Depreciation and amortization
Amortization of goodwill
Impairment losses on fixed assets
Loss on valuation of investments in capital
Increase (decrease) in allowance for doubtful accounts
Increase in net defined benefit liability
Increase in allowance for bonuses to employees
Interest and dividend income
Interest expenses
Gains on investments in partnerships
Gains on sales of investment securities
Losses on disposal and sales of fixed assets(Increase) decrease in accounts receivable
Bad debts expenses
Decrease in inventories
Decrease in other assets
Decrease (increase) in other accounts receivable
Decrease in accounts payable(Decrease) increase in other liabilities
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

YEARS ENDED APRIL 30, 2018 AND 2017

Millions of yen
2018
2017

Thousands of
U.S. dollars(Note 1(1))
2018¥ 17,852
3,596
3,937
1,175
440
313
157
0
(101)
117
(135)
(2)
548
(25)
2,278
64
1,685
(1,076)(3,668)27,157104(117)(5,487)21,656¥ 14,307
3,687
3,654
453

(15)
233
197
(108)
143
(52)
(263)
477
5,369
216
449
2,536
(2,820)(4,340)
2,007
26,135112(143)(7,695)
18,409$ 163,180
32,87035,987
10,740
4,021
2,861
1,435
0
(923)
1,069
(1,234)
(18)
5,009
(228)
20,822585
15,402(9,835)(33,528)
248,235950(1,069)(50,155)
197,952

Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Proceeds from sales of investment securities
Purchases of subsidiaries' shares resulting in obtaining controls
Payments for loans receivable
Proceeds from collections of loans receivable
Payments for purchase of intangible fixed assets(Increase) decrease in other investments
Proceeds from withdrawal of time deposits
Other, net
Net cash used in investing activities(3,134)421
84(1,310)
(404)
482
(574)
(868)
152
(128)
(5,281)(2,415)513
869(9,697)(349)
448(1,032)
13
534(68)(11,183)(28,647)
3,848
767(11,974)(3,692)
4,405(5,246)(7,934)
1,389(1,170)(48,272)

Cash flows from financing activities:
Net repayments from short-term debts
Proceeds from long-term debts
Repayments of long-term debts
Repayments of lease obligations
Proceeds from issuance of common shares
Proceeds from sales of treasury stock
Cash dividends paid
Other, net
Net cash provided by financing activities(119)(7,656)(646)
26,292
1,339(1,585)(0)
17,623(391)
11,729(9,217)(735)(1,268)(0)
116(1,087)(69,981)(5,904)
240,329
12,239(14,488)(0)
161,087

33,99829,234¥ 63,233

7,342
21,892¥ 29,234

310,767
267,221$ 577,998

Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year (Note 2)
See accompanying notes.

1. Summary of significant accounting policies(1) Basis of presenting consolidated financial statements
The accompanying consolidated financial statements have been prepared in accordance with theprovisions set forth in the Japanese Financial Instruments and Exchange Law and its related
accounting regulations, and in conformity with accounting principles generally accepted in Japan("Japanese GAAP"), which are different in certain respects as to application and disclosure
requirements of International Financial Reporting Standards.
The accompanying consolidated financial statements have been reclassified and translated into
English from the consolidated financial statements of AIN HOLDINGS INC. (the “Company”) preparedin accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministryof Finance as required by the Financial Instruments and Exchange Law. Some supplementary
information included in the statutory Japanese language consolidated financial statements, but notrequired for fair presentation, is not presented in the accompanying consolidated financial statements.
The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenienceof readers outside Japan, using the prevailing exchange rate at April 30, 2018, which was ¥109.4 to
U.S. $1. The convenience translations should not be construed as representations that the Japanese
yen amounts have been, could have been, or could in the future be, converted into U.S. dollars at thisor any other rate of exchange.
As permitted by the Financial Instruments and Exchange Law of Japan, amounts of less than one
million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial
statements (both in yen and U.S. dollars) do not necessarily agree with the sums of the individual
amounts.
(2) Consolidated statement of cash flows
In preparing the consolidated statement of cash flows, cash on hand, readily-available deposits andshort-term highly liquid investments with maturities not exceeding three months at the time of purchaseare considered to be cash and cash equivalents.
(3) Basis of consolidation and accounting for investments in affiliates
The consolidated financial statements comprise the accounts of the Company and its 73 and 87
subsidiaries as of April 30, 2018 and 2017, respectively. All significant intercompany accounts andtransactions have been eliminated in consolidation. All companies are required to consolidate all
significant investees which are controlled through ownership of majority voting rights or existence of
certain conditions.
The investments in affiliates are stated at their underlying equity value. All companies are required toaccount for investments in affiliates (20% to 50% owned and certain others that are 15% to 20%
owned) by the equity method, in principle.
Of consolidated subsidiaries, AIN PHARMACIEZ INC., MEDIWEL Corp. and AYURA LABORATORIES
INC. close its accounts on April 30. The account closing date for 10 consolidated subsidiaries in thedispensing pharmacy business is the end of January. The account closing dates for six consolidated
subsidiaries in the dispensing pharmacy business are the end of February. The account closing dates
for two consolidated subsidiaries in the dispensing pharmacy business are the end of August and
September, respectively. The account closing date of other consolidated subsidiaries is the end of
March 31. Financial statements as of these respective closing dates are used in preparing theconsolidated financial statements. However, necessary adjustments are made to importanttransactions that occur between these subsidiaries’ account closing dates and the account closing date
for the consolidated financial statements.
(4) Securities
The Company and its consolidated subsidiaries examine the intent of holding each security and classify
those securities other than equity securities issued by subsidiaries and affiliates: (a) securities held for
trading purposes (hereafter, "trading securities"), (b) debt securities intended to be held to maturity

34 AIN HOLDINGS ANNUAL REPORT 2018

AIN HOLDINGS ANNUAL REPORT 201835

(hereafter, "held-to-maturity debt securities"), (c) other securities that are not classified in any of theabove categories (hereafter, "available-for-sale securities").

(10) Bonuses to employees

Trading securities are carried at fair value and held-to-maturity debt securities are carried at amortizedcost. Marketable securities classified as available-for-sale securities are carried at fair value withchanges in unrealized holding gains or losses, net of the applicable income taxes, included directly in
net assets. Non-marketable securities classified as available-for-sale securities are carried at cost.
Cost of securities sold is determined by the moving average method.

Allowance for bonus to employees is provided for payments to employees of the Company and its
consolidated subsidiaries at the amount expected to be paid in respect of the calculation period ended
on the balance sheet date.

(5) Inventories

Allowance for bonus to directors is provided for payments to directors of the Company and its
consolidated subsidiaries at the amount expected to be paid in respect of the calculation period ended
on the balance sheet date.

Dispensed drugs were stated at lower of cost or market, cost being determined using the gross averagemethod. Merchandise was stated at lower of cost or market, cost being determined using the retailmethod. Supplies were stated at cost determined using the last purchase method.
(6) Depreciation and amortization
Depreciation of property, plant and equipment other than leased assets is computed by the
declining-balance method at rates based on the useful lives, except that the straight-line method isapplied to buildings acquired on or after April 1, 1998 and to facilities attached to buildings andstructures acquired on or after April 1, 2016. The useful lives of major property, plant and equipment
are summarized as follows:
Buildings and structures: 10 to 50 years
The straight-line method is applied over a three-year period for assets with an acquisition price of¥100,000 or more and less than ¥200,000.
Amortization of software other than leased assets used by the Company and its consolidated
subsidiaries is computed by the straight-line method over the useful lives, five years. Amortization of
long-term prepaid expenses is computed by the straight-line method. Amortization of goodwill iscomputed by the straight-line method over a period (5 to 20 years).
Leased assets capitalized under finance leases are depreciated over the lease terms of the respective
assets with no residual value. Finance lease transactions that do not transfer ownership thatcommenced prior to April 1, 2008, are accounted for under methods pertaining to standard leasetransactions.
(7) Impairment of fixed assets
Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount may not be recoverable. When amounts of undiscounted future cash flows of fixed
assets are less than the carrying amounts, the fixed assets are determined to be impaired. Then, anamount by which the carrying amount exceeds the recoverable amount is recognized as an impairment
loss.
The Company and its consolidated subsidiaries identify group of assets by store as the smallest
identifiable group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows from other assets or groups of assets. With respect to non-performing
assets, real estate is regarded as an independent asset group.
The recoverable amount of the asset group is measured by the respective net selling prices. The land
is assessed based on the appraisal value by an independent real estate appraiser. The fair vaule ofassets other than the land is the disposal value from which costs of disposal are deducted, and its
value in use is calculated by discounting the future cash flows at a discount rate of 1.4%.
(8) Deferred charges
Amortization of share issuance cost is computed by the straight-line method over three years.
(9) Allowance for doubtful accounts
The Company and its consolidated subsidiaries provide an allowance for doubtful accounts forprobable collection losses by applying the actual rate of bad debt losses experienced in a pastreference period for normal receivables and by individual assessment of collectability for doubtfulreceivables.

36 AIN HOLDINGS ANNUAL REPORT 2018(11) Bonuses to directors(12) Reserve for reward obligations
In terms of the estimated redeemable amount of the purchase points given in the parent company’s
Cosmetic and Drug Store Business, the Company sets a reserve based on actual redemptions in thepast.
(13) Provision for sales returns
As a provision for losses associated with sales returns, the Company and its consolidated subsidiaries
record an estimated loss amount considering past return rates and distribution in the market.
(14) Retirement benefits
Retirement benefits covering all employees are provided through two plans: a lump-sum benefit plan
and a defined-benefit pension plan. Upon retirement or termination of employment, employees are
generally entitled to lump-sum or annuity payments based on their current rate of pay, length of service
and cause of termination.
The Company and some of its consolidated subsidiaries employ the simplified method when computing
retirement benefit obligations.
In calculating the retirement benefit obligation, the benefit formula basis is used to attribute theexpected benefit attributable to the respective fiscal year. Unrecognized prior service cost is amortizedon a straight-line basis over a period (six years) within the employees’ average remaining service
period at incurrence. Unrecognized actuarial gains and losses are recognized in expenses using thedeclining-balance method over a period (six years) within the average of the estimated remaining
service period, commencing from the year after the year in which they are incurred.
(15) Income taxes
Deferred tax assets and liabilities are determined based on the differences between financial reporting
and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws
which will be in effect when the differences are expected to reverse.
(16) Amounts per share of common stock
Basic earnings per share is computed based on the weighted average number of shares of common
stock outstanding during the year.
Diluted earnings per share is computed based on the weighted average number of shares of common
stock outstanding each year after giving effect to the dilutive potential of common shares to be issued
upon conversion of the convertible bonds.
Net assets per share are computed based on the net assets excluding non-controlling interests, andthe number of common stock outstanding at the year end.
Cash dividends per share represent the actual amount declared as applicable to the respective years.
(17) Consumption taxes
The Company and its consolidated subsidiaries are accounted for using the tax excluded method.
With regard to consumption taxes and other taxes that are not subject to deduction, the related
expenses are reported in the fiscal year in which they are incurred.

AIN HOLDINGS ANNUAL REPORT 201837

However, consumption taxes and other taxes that are not subject to deduction but related to fixed
assets are recorded in “Other investments and other assets” within “Investments and other assets” andamortized using the straight-line method.
Accrued consumption taxes are indicated in the corresponding “other” sections within current assets
and current liabilities.
(18) Recoverability of deferred tax assets
The Company and its consolidated subsidiaries have applied “Revised Implementation Guidance on
Recoverability of Deferred Tax Assets” (Accounting Standards Board of Japan (“ASBJ”) Guidance No.
26 revised on March 28, 2016) from the beginning of the fiscal year ended April 30, 2017.
(19) Unapplied accounting standards
Tax Effect Accounting
Implementation Guidance on Tax Effect Accounting (ASBJ Statement No. 28 issued February 16,
2018)
Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26 revised
February 16, 2018)
The treatment of future taxable temporary differences pertaining to shares of subsidiaries in the
non-consolidated financial statements has been revised. Also, the treatment of recoverability ofdeferred tax assets in companies classified into Category 1 has been clarified.
The Company and its consolidated subsidiaries intend to adopt the Implementation Guidance from the
beginning of the fiscal year ending April 30, 2019.

2. Cash and cash equivalents(1) Reconciliations of cash on hand and in banks shown in the consolidated balance sheet and cash
and cash equivalents shown in the consolidated statement of cash flows as of and for the years
ended April 30, 2018 and 2017 are as follows:

Cash on hand and in banks
Less: Time deposits with maturities
exceeding three months
Cash and cash equivalents

Millions of yen
2018
2017
¥ 63,779¥ 29,775

Thousands of
U.S. dollars
2018$
582,989(546)¥ 63,233$

1. Identify the contracts with a customer
2. Identify the separate performance obligations in the contract
3. Determine the transaction price
4. Allocate the transaction price to the performance obligations
5. Recognize revenue when or as the performance obligation is satisfied
The Company and its consolidated subsidiaries intend to adopt the Accounting Standard and the
Implementation Guidance from the beginning of the fiscal year ending April 30, 2022.
Effects of adoption of the Accounting Standard and the Implementation Guidance are currently
evaluated.
(20) Reclassification and restatement
Certain prior year amounts have been reclassified to conform to the current year presentation.
These reclassifications and restatement had no impact on previously reported results of operations.

(a) Major breakdown of assets and liabilities of companies newly included in the consolidated
financial statements for the years ended April 30, 2018 and 2017 due to the acquisition of shares(i) Acquisition of shares of seven companies in the dispensing pharmacy business and one othercompany for the year ended April 30, 2018
The following is the summary of assets acquired and liabilities assumed through the acquisitionof shares of the companies relating acquisition cost and net disbursement.

Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Acquisition cost of the companies
Historical costs of shares of affiliatesthat are not accounted for by theequity method
Gain on step acquisition
Cash and cash equivalents held by
the companies
Net disbursement due to theacquisition

Millions of yen
2018
¥
1,129
311
1,274
(917)
(137)
1,660
(2)

Thousands of
U.S. dollars
2018$10,3192,842
11,645(8,382)(1,252)
15,173
(18)

(49)

(447)

(298)

(2,723)

¥

1,310

$

11,974(ii) Acquisition of shares of 38 companies in the dispensing pharmacy business and one othercompany for the year ended April 30, 2017
The following is the summary of assets acquired and liabilities assumed through the acquisitionof shares of the companies relating acquisition cost and net disbursement.

Current assets
Fixed assets
Goodwill
Current liabilities
Long-term liabilities
Acquisition cost of the companies
Cash and cash equivalents held by
the companies
Net disbursement due to theacquisition

38 AIN HOLDINGS ANNUAL REPORT 2018

(4,990)577,998(2) The following table summarizes assets acquired and liabilities assumed through the acquisition ofshares of the companies relating acquisition cost and net disbursement:

Effects of adoption of the Implementation Guidance are currently evaluated.
Revenue Recognition
Accounting Standard for Revenue Recognition (ASBJ Statement No. 29 issued March 30, 2018)
Implementation Guidance on Accounting Standard for Revenue Recognition (ASBJ Guidance No. 30
issued March 30, 2018)
The Accounting Standard and the Implementation Guidance provide comprehensive principles forrevenue recognition. An entity applies the following five steps to recognize revenue.

(540)¥ 29,234

Millions of yen
2017
¥
9,019
2,767
10,967(8,332)(3,347)
11,074(1,377)¥

9,697

AIN HOLDINGS ANNUAL REPORT 201839

3. Inventories
Inventories at April 30, 2018 and 2017 consisted of the following:

Merchandise
Supplies

Millions of yen
2018
2017
¥
9,372
¥ 11,402
208
266
¥
9,580
¥ 11,668(c) Policies and systems for risk management
Management of credit risk (the risk that a business partner will default on its business transactions)Thousands of
U.S. dollars
2018$
85,667
1,901$
87,568

4. Financial instruments(1) Qualitative information on financial instruments(a) Policies for using financial instruments
The Company and its consolidated subsidiaries have expanded business by opening dispensing
pharmacies and cosmetic and drug stores and through M&A activities. Operating cash flows
provide the majority of the funds the Company and its consolidated subsidiaries require to fund its
shop openings. The Company and its consolidated subsidiaries secure additional funding as
needed for M&A activities through bank borrowings and issuance of new shares and invests inhighly liquid financial assets.
(b) Details of financial instruments used and the exposures to risk and how they arise
Notes and accounts receivable, which relate to trade receivables, are mostly composed ofprescription dispensing fees receivable from National Health Insurance associations and theSocial Insurance Medical Care Fee Payment Fund. In addition, most of other accounts receivable
are collected in a short period. Therefore, these do not entail any risk.
Investment securities, which are principally equity securities held for the purpose of maintaining
operating relationships with other companies, involve the risk of market price fluctuations.

As the Company’s notes and accounts receivable, which relate to sales, are mostly composed ofprescription dispensing fees receivable from National Health Insurance associations and the Social
Insurance Medical Care Fee Payment Fund, and most of other accounts receivable are alsocollected in a short period, no particular risk management is employed.
Securities held to maturity are based on the Company’s Marketable Securities Investment
Standards. Such investments are based on careful decisions, following internal screenings ofinvestees and investment amounts. Furthermore, such investments are monitored regularly,
determining the investee’s financial status throughout the investment period to quickly determine
and minimize potential repayment difficulties.
The Company manages default risk on lease deposits and guarantee deposits through the credit
control upon making contract periods and regular credit screening.
Management of market risk (the risk of exchange and interest rate fluctuations)
The Company and its consolidated subsidiaries raise funds mainly through long-term debt. With
regard to investment securities, the Company and its consolidated subsidiaries regularly check thefinancial conditions of the issuers of unlisted securities. The Company and its consolidated
subsidiaries review on an ongoing basis the status of their holdings of listed securities, taking into
consideration market conditions and their relationships with the issuing companies.
Management of liquidity risk associated with fund procurement (the risk of being unable to execute
payments when due)
To manage liquidity risk, the Company and its consolidated subsidiaries create cash flow plans
based on annual capital expenditures forecasts. These plans are updated each month, based onrevised operating performance and forecast figures. To ensure the Company’s ability to respondflexibly to sudden demands for funding in relation to M&A activities, the Company maintains acertain level of liquidity, including through issuance of new shares.

Lease deposits and guarantee deposits are primarily deposits placed with the owners ofproperties that the Company leases for the operation of dispensing pharmacies and cosmetic anddrug stores. Such deposits involve lessor credit risk.
Notes and accounts payable, which relate to purchases, are payable within three months.
With respect to borrowings, the Company raises funds primarily as working capital or in relation tocapital expenditures. Redemption periods on such debts are typically 17 years from the date ofborrowing, at the longest.

40 AIN HOLDINGS ANNUAL REPORT 2018

AIN HOLDINGS ANNUAL REPORT 201841

(2) Fair values of financial instruments
Carrying values and fair values of the financial instruments on the consolidated balance sheet at April
30, 2018 and 2017 are summarized in the following table:
AssetsThousands ofMillions of yen
U.S. dollars
2018
2017
2018
Carrying value
Cash on hand and in banks¥ 63,779¥ 29,775$
582,989
Notes and accounts receivable
10,466
9,990
95,667
Other accounts receivable
7,751
9,402
70,850Investment securities
1,521
1,542
13,903
Deposits and guarantees
11,282
10,386103,126
Total
94,80061,096
866,544
Fair value
Cash on hand and in banks
63,77929,775582,989
Notes and accounts receivable
10,466
9,990
95,667
Other accounts receivable
7,751
9,402
70,850Investment securities
1,524
1,545
13,930
Deposits and guarantees
11,211
10,353
102,477
Total
94,732
61,066865,923
Difference
Cash on hand and in banks
Notes and accounts receivable
Other accounts receivable
Investment securities
32
27
Deposits and guarantees
(70)
(32)
(639)
Total
¥
(67)
¥
(30)
$
(612)
Liabilities
Carrying value
Accounts payable
Short-term debt including current
portion of long-term debt
Deposits received
Long-term debt
Total
Fair value
Accounts payable
Short-term debt including current
portion of long-term debt
Deposits received
Long-term debt
Total
Difference
Accounts payable
Short-term debt including current
portion of long-term debt
Deposits received
Long-term debt
Total

¥

¥

Millions of yen
2018
2017

Thousands of
U.S. dollars
2018

38,728$¥39,325
7,596
14,223
18,254
79,40061,398115,859
105,219
636,499

38,72839,325354,003

6,717
12,675
11,486
69,608

7,606
14,223
18,28879,444

61,398115,859
104,990636,270

-

-

-

(0)
(24)
(24)

9
34
43

(0)
(219)
(219)

$

(c) Deposits and guarantees
The Company determines credit risk from the standpoint of credit management, according to
repayment amount and contract period. These amounts are discounted to their present value using
appropriate rates of interest.
Liabilities:(a) Accounts payable, short-term debt and deposits received
As these instruments are settled in the short term, their carrying value approximates fair value. The
fair value of current portion of long-term debt included in short-term debt is determined bydiscounting the total amount of principal and interest by the assumed interest rate on new
borrowings of the same type.
(b) Long-term debt
The fair value of long-term debt is determined by discounting the total amount of principal andinterest by the assumed interest rate on new borrowings of the same type.
Financial instruments for which fair value is not readily determinable:
The fair values of unlisted equity securities with carrying amounts of ¥854 million ($7,806 thousand)and ¥892 million as of April 30, 2018 and 2017, respectively, are not readily determinable.

354,003

6,717
12,675
11,511
69,633¥(b) Investment securities
The fair values of equity securities are determined by their prices on stock exchanges. The fairvalues of bonds are determined by the prices indicated by the counterparty financial institutions, or
the Company determines credit risk from the standpoint of credit management, according to
repayment amount and contract period, and these amounts are discounted to their present value
using appropriate rates of interest.

Method of calculating the fair value of financial instruments and matters related to available-for-salesecurities and derivative transactions:
Assets:(a) Cash on hand and in banks, notes and accounts receivable, and other accounts receivable
As these instruments are settled in the short term, their carrying value approximates fair value.

42 AIN HOLDINGS ANNUAL REPORT 2018

AIN HOLDINGS ANNUAL REPORT 201843

5. Securities

The redemption schedule for monetary claims and securities with maturity dates as of April 30,
2018 and 2017 are summarized as follows:(1) The following tables summarize acquisition costs, carrying values and differences of securities withavailable fair values as of April 30, 2018 and 2017:

Millions of yen

1 year or
less

Cash on hand and in banks
Notes and accounts receivable¥

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

¥

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

Other securities:
More than
10 years

63,240 ¥10,466
7,751

-

¥

- ¥
-

-

155
2,134
83,747 ¥54,444
4,449 ¥

2,470
2,470 ¥

2,289
2,289

1 year or
less

Cash on hand and in banks
Notes and accounts receivable

2018
More
More
than 1than 5year but
years butless thanless than
5 years
10 yearsThousands of
U.S. dollars
2018
More
More
than 1than 5year but
years butless thanless than
5 years
10 yearsMore than
10 years$ 578,062 $
95,66770,850

-

$

- $
-

-

1,416
19,506$ 765,511 $

45
40,621
40,667 $

22,577
22,577 $20,92320,923

Securities with carrying values exceeding acquisition costs

Acquisition cost
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total
Carrying value
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total
Difference
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total

Millions of yen
2018
2017
¥

¥

369
-

¥

367
-

Thousands of
U.S. dollars
2018
$

3,372
-

9
378

17
384

82
3,455

589
-

562
-

5,383
-

13
603

26
588

118
5,511

219
-

195
-

2,001
-

4
224

9
204

36
2,047

¥

$

Millions of yen

1 year or
less

Cash on hand and in banks
Notes and accounts receivable¥

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

44 AIN HOLDINGS ANNUAL REPORT 2018

¥

2017
More
More
than 1than 5year but
years butless thanless than
5 years
10 yearsMore than
10 years

29,295 ¥
9,990
9,402

-

¥

- ¥
-

-

179
2,086
50,953 ¥10
3,735
3,745 ¥

2,518
2,518 ¥

2,102
2,102

AIN HOLDINGS ANNUAL REPORT 201845

6. Leases
Other securities:

The following table summarizes details of lease expenses, reversal of impairment losses for leased
assets, depreciation, interest expense and impairment losses, if they had been capitalized:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018

Securities with carrying values not exceeding acquisition costs

Acquisition cost
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total
Carrying value
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total
Difference
Equity securities
Bonds
Limited partnerships
and similar
investments
Other
Total

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
¥

396
160

¥

412
189

$

Lease expense
Reversal of impairment losses forleased assets
Depreciation
Interest expense
Impairment losses

3,619
1,462

451
9
1,018

411
19
1,034

4,122
82
9,305

297
160

333
189

2,714
1,462

451
9
918

411
19
954

4,122
82
8,391

(99)
-

(79)
-

(904)
-

(0)
(99)

(0)
(80)

(0)
(904)

¥

1

-

$

-

0
0
-

-

Remaining lease expenses for non-cancellable operating lease transactions are as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Due within one year
Due after one year
Total

¥

1,502
8,463
9,966

¥

¥

1,508
9,955
11,463¥$

13,72977,35891,096$

7. Short-term debt and long-term debt¥¥$

(2) The following table summarizes total sales amounts of other securities sold, and amounts of therelated gains and losses in the years ended April 30, 2018 and 2017:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Total sales ofother securities sold
¥
84
¥
869
$
767
Related gains
8
264
73
Related losses
5145(3) The following table summarizes impairment losses on other securities in the years ended April 30,
2018 and 2017:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018

46 AIN HOLDINGS ANNUAL REPORT 2018-

Equivalent interest is calculated by applying the interest method to allocate for each fiscal year over theterm of the lease the difference between the total lease amount and the equivalent acquisition price ofthe leased asset.

Stocks of non-consolidated subsidiaries and affiliates were ¥162 million ($1,480 thousand) and¥115 million at April 30, 2018 and 2017, respectively.

Other securities with fair value
Other securities without fair value

¥

¥

1
0

¥

-

$

Short-term debt and long-term debt at April 30, 2018 and 2017 consisted of the following:Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Short-term bank loans with aweighted-average interest rate of
0.2%
Current portion of long-term debt
with a weighted-average interest rateof 0.3%Current portion of lease obligation
with a weighted-average interest rateof 1.1%Long-term debt (2019-2034) with aweighted-average interest rate of
0.3%
Lease obligation (2019-2023) with aweighted-average interest rate of
1.2%
Total

¥

¥

56

¥

151

$

511

6,661

7,445

60,886

443

594

4,049

11,511

18,254105,219632
19,304¥958
27,403$

5,776
176,453

90

AIN HOLDINGS ANNUAL REPORT 201847

At April 30, 2018 and 2017, the carrying amounts of assets pledged as collateral for long-term debt are
as follows:
Assets pledged as collateral:Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Investment securities
Total

¥
¥

-

¥
¥

5
5

Liabilities corresponding to collateral:

¥
¥

-

¥
¥

-

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
Accounts payable
Total

$
$

1
1

$
$

The aggregate annual maturities of long-term debt at April 30, 2018 are as follows:
Thousands ofYear ending April 30,
Millions of yen
U.S. dollars
2019
¥
6,661
$
60,8862020
5,501
50,2832021
3,697
33,7932022
1,601
14,634
2023
539
4,926
The aggregate annual maturities of lease obligations at April 30, 2018 are as follows:
Thousands ofYear ending April 30,
Millions of yen
U.S. dollars
2019
¥
443
$
4,049
2020
339
3,098
2021
187
1,709
2022
93
850
2023
12
109

-

8. Sales, disposal and impairment of fixed assets(1) Gains and losses on sales of fixed assets for the years ended April 30, 2018 and 2017 are as
follows:
Gains on sales of fixed assets:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Buildings and structures
Land
Other property, plant andequipment
Goodwill
Other intangible fixed assets
Other investments and otherassets
Total

¥

¥

2
1

14
41
0
1
¥

Losses on sales of fixed assets:

Buildings and structures
Land
Other property, plant andequipment
Other intangible fixed assets
Other investments and otherassets
Total

16
2

76

8
¥

11

55
50

¥

21
4

3
0
¥

42
153

127
374
0
9
$

$

10
3
39

¥

146
18

694

Thousands of
U.S. dollars
2018

Millions of yen
2018
2017
¥

$

502
457
27
0

$

383
1,398

(2) Losses on disposal of fixed assets for the years ended April 30, 2018 and 2017 are as follows:
Millions of yen
2018
2017
Buildings and structures
Other property, plant andequipment
Goodwill
Other intangible fixed assets
Deposits and guarantees
Other investments and otherassets
Disposal cost
Total

¥

¥

242

¥

155

Thousands of
U.S. dollars
2018
$

2,212

46
11
48
84

23
158
6
67

420
100
438
767

25
13
471

3
34
449

228
118
4,305

¥

$

(3) For the years ended April 30, 2018 and 2017, the Company recognized impairment losses for thefollowing property groups:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Property group
Description of assets
StoresBuildings and structures
¥
538
¥
252
$
4,917
Buildings and structures,and goodwill
384
201
3,510
Land, Buildings andstructures, and goodwill
135
1,234
Real estate
Land
9
82
Land, and Buildings andstructures
108
987
Total
¥
1,175
¥
453
$
10,74048 AIN HOLDINGS ANNUAL REPORT 2018

AIN HOLDINGS ANNUAL REPORT 201849

9. Retirement benefits(3) Reconciliation of the beginning and the ending balance of liabilities of the simplified method

Defined-benefit pension plan
(1) Reconciliation of the beginning and the ending balance of retirement benefit obligation (excluding
the amount of the simplified method)

Balance as of May 1, 2017
Service costs
Interest cost on retirement benefit obligation
Actuarial losses incurred
Pension and severance payments
Other
Balance as of April 30, 2018

Millions of yen
2018
¥
2,462
353
10
103
(154)
12
¥
2,786

Balance as of May 1, 2016
Service costs
Interest cost on retirement benefit obligation
Actuarial gains incurred
Pension and severance payments
Other
Balance as of April 30, 2017

Millions of yen
2017
¥
2,300
339
7
(93)
(113)
¥
21
¥
2,462

Thousands of
U.S. dollars
2018$
22,504
3,226
91
941(1,407)
109$
25,466

Balance as of May 1, 2017
Expected return on plan assets
Actuarial gains incurredBusiness owner’s contribution
Pension and severance payments
Balance as of April 30, 2018

Balance as of May 1, 2016
Expected return on plan assets
Actuarial losses incurredBusiness owner’s contribution
Pension and severance payments
Balance as of April 30, 2017

Millions of yen
2017
¥
772
5
(16)
85
(38)
¥
808

50 AIN HOLDINGS ANNUAL REPORT 2018

Thousands of
U.S. dollars
2018
$
7,385
54
73
877
(539)
$
7,851

Thousands of
U.S. dollars
2018
$
5,987
1,553
(201)
(877)

9
(28)
689

82
(255)
6,297

¥

$

Millions of yen
2017
¥
525
149
(18)
(71)

Balance as of May 1, 2016Retirement benefit expenses
Business owner’s contribution
Pension and severance payments
Increases due to a newly consolidated
subsidiary
Other
Balance as of April 30, 2017(2) Reconciliation of the beginning and the ending balance of plan assets (excluding the amount of thesimplified method)
Millions of yen
2018
¥
808
6
8
96
(59)
¥
859

Balance as of May 1, 2017Retirement benefit expenses
Business owner’s contribution
Pension and severance payments
Increases due to a newly consolidated
subsidiary
Other
Balance as of April 30, 2018

Millions of yen
2018
¥
655
170
(22)
(96)

5
64
655

¥

(4) Reconciliation of the retirement benefit obligation and plan assets to net defined benefit liability andnet defined benefit asset reported on the consolidated balance sheet

Funded retirement benefit obligation
Plan assets
Subtotal
Unfunded retirement benefit obligation
Net of liability and asset reported on the
consolidated balance sheet
Net defined benefit liability
Net defined benefit asset
Net of liability and asset reported on the
consolidated balance sheet

Millions of yen
2018
2017
¥
1,266
¥
1,190
(1,015)
(952)
251
237
2,364
2,071
2,616
2,625
(9)
¥

2,616

Thousands of
U.S. dollars
2018$11,572(9,277)2,294
21,608

2,309
2,331
(22)
¥

2,309

23,912
23,994(82)$

23,912(5) Retirement benefit expenses for the years ended April 30, 2018 and 2017 comprised the following:

Service costs
Interest cost on retirement benefit
obligation
Expected return on plan assets
Amortization of actuarial (gains) losses
Amortization of prior service costs
Retirement benefit expenses calculated
under the simplified method
Retirement benefit expenses

Millions of yen
2018
2017
¥
353
¥
339

¥

Thousands of
U.S. dollars
2018
$
3,226

10
(6)
(10)
(34)

7
(5)
28
(34)

91
(54)
(91)
(310)

170

149

1,553

483

¥

484

$

4,414

AIN HOLDINGS ANNUAL REPORT 201851

(6) Remeasurements of defined benefit plans
The breakdown of remeasurements of defined benefit plans (before deducting tax effect) is asshown below:(a) Current

Prior service costs
Actuarial (losses) gains
Total

Millions of yen
2018
2017
¥
(34)
¥
(34)
(104)
105
¥
(139)
¥
70

Thousands of
U.S. dollars
2018
$
(310)
(950)
$
(1,270)Millions of yen
2018
2017
¥
(13)
¥
(48)
87
(16)
¥
74
¥
(64)

Thousands of
U.S. dollars
2018
$
(118)
795
$
676

(b) Accumulated

Unrecognized prior service costs
Unrecognized actuarial gains (losses)
Total

10. Income taxes
The aggregate statutory income tax rates used for calculation of deferred income tax assets andliabilities for the years ended April 30, 2018 and 2017 were 30.6%.
(1) The following table summarizes the significant differences between the statutory tax rate and theeffective tax rates for consolidated financial statement purposes for the years ended April 30, 2018and 2017:
Statutory tax rate
Non-deductible expenses
Per capita inhabitant tax
Amortization of goodwill
Valuation allowance
Tax credits on tax system to expand
incomeTax credits on tax system forpromoting equipment andinvestment to improve productivity
Different tax rates applied toconsolidated subsidiaries
Other
Effective tax rates(7) Plan assets(a) Percentages for major categories within total plan assets are as follows:
Bonds
StocksGeneral accountSeparate account
Other
Total

2018
21%
13%
46%
15%
5%
100%

2017
7%
4%
47%
42%
100%

(b) Method of establishing the long-term expected return on plan assets
The long-term expected return on plan assets is determined by taking into consideration current
and expected allocation of plan assets, as well as the current and future long-term expected
profitability of the diverse assets that constitute the plan assets.
(8) Actuarial assumptions used in accounting for the Company’s plans as of April 30, 2018 and 2017
are principally as follows:
2018
2017
Weighted average discount rate
Weighted average expected rate of
return on plan assets
Expected rates of salary increase

0.61%

0.64%

0.75%
1.00%-4.24%

0.75%
1.00%-4.24%

2018
30.6%
0.6
0.4
6.3
0.4

2017
30.6%
1.0
0.7
6.6
0.4

(0.0)

(1.0)

-

(0.1)

4.8
(2.0)
41.0%

3.9
2.4
44.4%

(2) Significant components of deferred tax assets and liabilities as of April 30, 2018 and 2017 are as
follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Deferred tax assets:
Impairment losses
¥
422
¥
330
$
3,857
Excess of depreciation
582
485
5,319
Excess of allowance for bonuses
648
596
5,923
Excess of reserve for rewards obligation
143
140
1,307
Net defined benefit liabilities
901
741
8,235
Goodwill on transfer of business
440
555
4,021
Asset retirement obligations
326
296
2,979
Income taxes payable
463
242
4,232
Accrued expense
289
194
2,641
Tax loss carryforwards
720
1,545
6,581
Other
845
282
7,723
Sub-total deferred tax assets
5,784
5,412
52,870
Valuation allowance
1,586
1,869
14,497
Total deferred tax assets
4,197
3,542
38,363
Deferred tax liabilities:
Capitalized removal costs
(178)
(160)
(1,627)Net unrealized holding gains on securities
(37)
(37)
(338)
Other accounts receivable
(423)
(309)
(3,866)
Other
(15)
(38)
(137)
Total deferred tax liabilities
(655)
(545)
(5,987)
Net deferred tax assets
¥
3,542
¥
2,997
$
32,376

11. Net assets
Under Japanese laws and regulations, the entire amount paid for new shares is required to be
designated as common stock. However, a company may, by a resolution of the Board of Directors,
designate an amount not exceeding one-half of the price of the new shares as additional paid-in capital,
which is included in capital surplus.
Under the Japanese Corporate Law (the “Law”), in cases where a dividend distribution of surplus ismade, the smaller of an amount equal to 10% of the dividend or the excess, if any, of 25% of common
stock over the total of additional paid-in-capital and legal earnings reserve must be set aside asadditional paid-in capital or legal earnings reserve. The legal earnings reserve is included in retained
earnings in the accompanying consolidated balance sheets.
52 AIN HOLDINGS ANNUAL REPORT 2018

AIN HOLDINGS ANNUAL REPORT 201853

15. Segment information
Under the Law, the legal earnings reserve and additional paid-in capital could be used to eliminate or
reduce a deficit or could be capitalized by resolution of the shareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not be distributed as dividends. However, alladditional paid-in capital and all legal earnings reserve may be transferred to other capital surplus andretained earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as dividends is calculated based on the
non-consolidated financial statements of the Company in accordance with the Law.

12. Commitment
The Company entered into overdraft agreements with 18 and 19 banks as of April 30, 2018 and 2017,
respectively, to finance working capital requirements. The outstanding balances of such overdrafts asof April 30, 2018 and 2017 are as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2017
2018
Total overdraft available¥ 21,450¥ 23,950$
196,069
Amount utilized
32
32
292
Outstanding balance¥ 21,418¥ 23,918$
195,776

13. Contingencies
The Company has contingent liabilities for the claims for lease deposits and guarantee deposits paid toowners of shops, due to their transfers to third parties. Such contingent liabilities amounted to nil and¥742 million as of April 30, 2018 and 2017, respectively.

(1) Overview of reporting segments
Reporting segments of the Company and its consolidated subsidiaries are composed of thoseindividual business units for which separate financial information is available, from which the boardof directors makes decisions regarding the allocation of management resources and for which
operating performance can be evaluated, allowing the reporting segments to be analyzed
periodically.
The Company and its consolidated subsidiaries divide their operations into two main businesses,
the Dispensing Pharmacy Business and the Cosmetic and Drug Store Business, and the Other
Business. The Dispensing Pharmacy Business primarily includes the dispensing pharmacy
business, sale of generic drugs, staff dispatching and introduction services and consulting business.
The Cosmetic and Drug Store Business primarily consists of the management of cosmetic and drug
stores. The Other Business primarily involves real estate rental business. The Company and its
consolidated subsidiaries plan and execute strategies for each business.
Consequently, the business operations of the Company and its consolidated subsidiaries areclassified into the three following reporting segments: Dispensing Pharmacy, Cosmetic and DrugStore and Other.
(2) Methods of calculating sales, income (loss), assets and other items by reporting segment
Methods of accounting for reported business segments are in principle the same as those indicatedin Note 1 “Summary of Significant Accounting Policies.” Income or loss of reporting segments are
based on ordinary income. Income or loss between segments and transfer amounts are based onmarket prices.
(3) Information on sales, income (loss), assets and other items by reporting segment as of and for theyears ended April 30, 2018 and 2017 are summarized as follows:
Millions of yen
2018

14. Amounts per share
Net assets per share at April 30, 2018 and 2017 and basic and diluted earnings per share for the years
then ended are as follows:
Yen
U.S. dollars
2018
2017
2018
Net assets per share¥ 2,729.44¥ 1,895.63$
24.94
Basic earnings per share
310.08250.71
2.83
Diluted earnings per share
Cash dividends per share attributable to the year
50
50
0.45
Cash dividends per share represent the cash dividends declared as applicable to the respective years,
including dividends to be paid after the end of the year and not accrued in the accompanying
consolidated financial statements.

Sales
Sales to third parties
Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assets54 AIN HOLDINGS ANNUAL REPORT 2018¥

Dispensing

Cosmetic andpharmacy

Drug store

238,645
238,645¥

Other

24,117
24,117

¥

Total

5,623
278
5,901

¥

268,385278
268,664

Adjustments¥

Consolidated

- ¥
(278)
(278)

268,385
268,385¥

22,668
155,572

¥

657
9,943

¥

(1,164)
10,016 ¥22,161
175,532¥(2,031)
7,903 ¥

20,129183,435

¥

2,229

¥

334

¥

387

2,951

¥

191

3,143

¥

¥

3,910

-

27

3,937

-

3,937

803

128

243

1,175

-

1,175

1,523

931

1,183

3,637

305

3,942

AIN HOLDINGS ANNUAL REPORT 201855

Amortization of goodwill and unamortized balances by reporting segment as of and for the years endedApril 30, 2018 and 2017 are summarized as follows:

Thousands of U.S. dollars
2018
Sales
Sales to third parties
Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assetsDispensing

Cosmetic andpharmacy

Drug store$ 2,181,398
2,181,398
207,202$ 1,422,047$

20,374

$

$

$

Other

220,447
220,447
6,005
90,886

3,053

$

$

$

Total

51,3982,541
53,939Adjustments$ 2,453,244
2,541
2,455,795(10,639)
202,568
91,553 $ 1,604,497

3,537

$

26,974$$$

Millions of yen
2018

Consolidated- $ 2,543,244(2,541)(2,541)2,543,244

Amortization of goodwill
Unamortized balances of goodwill¥$

28,72935,740
7,340

1,170

246
2,221

35,987
10,740-35,987
10,74013,921

8,510

10,81333,244

2,787

36,032

Cosmetic andpharmacy

Drug store

3,910
37,870

¥

Other

-

¥

Adjustments

27
140

¥

Consolidated

-

¥

3,937
38,011Thousands of U.S. dollars
2018(18,564)
183,994
72,239 $ 1,676,736

1,745

Dispensing

Amortization of goodwill
Unamortized balances of goodwill$

Dispensing

Cosmetic andpharmacy

Drug store

35,740346,160

$

Other

-

$

Adjustments

246
1,279

$

Consolidated-$

35,987
347,449

Millions of yen
2017
Amortization of goodwill
Unamortized balances of goodwill¥

Dispensing

Cosmetic andpharmacy

Drug store

3,625
40,719

¥

Other

-

¥

Adjustments

29
220

¥

Consolidated

-

¥

3,654
40,939Millions of yen
2017
Sales
Sales to third parties
Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assets56 AIN HOLDINGS ANNUAL REPORT 2018

¥

¥

¥

Dispensing

Cosmetic andpharmacy

Drug store

221,801
221,801
19,110148,765

2,299

¥

¥

¥

Other

21,383
21,383¥(866)
10,118 ¥

357

¥

Total

4,925
379
5,305

¥

(1,496)
11,054 ¥400¥

Adjustments

248,110379
248,489
16,747
169,937

3,058

¥

¥

¥

Consolidated

- ¥
(379)
(379)
(1,666)(13,614) ¥201¥

248,110248,110
15,080156,323

3,260

3,625

-

29

3,654

-

3,654

368

85

-

453

-

453

2,620

907

381

3,908

26

3,934

16. Comprehensive income
Each component of other comprehensive income (loss) for the years ended April 30, 2018 and 2017
was the following:

Unrealized holding (losses) gains on securities:
Gains arising during the year
Reclassification adjustments to losses
Amount before income tax effect
Income tax effectTotal unrealized holding (losses) gains on
securities
Remeasurments of defined benefit plans:(Losses) gains arising during the year
Reclassification adjustments to losses
Amount before income tax effect
Income tax effectTotal remeasurments of defined benefit plans
Total other comprehensive (loss) income

Millions of yen
2018
2017
¥

¥

1
(2)
(1)
0

¥

480
(263)
217
(67)

Thousands of
U.S. dollars
2018
$

9
(18)
(9)
0

(1)

149

(9)

(94)
(44)
(139)
(13)
(152)
(153)

77
(6)
70
(54)
16
166

(859)
(402)
(1,270)(118)(1,389)(1,398)¥$AIN HOLDINGS ANNUAL REPORT 201857

17. Quarterly Information(1) Quarterly net sales for the year ended April 30, 2018 are as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2018
Three months ended July 31, 2017¥
66,095$604,159
Six months ended October 31, 2017
132,342
1,209,707
Nine months ended January 31, 2018
200,043
1,828,546
Twelve months ended April 30, 2018268,385
2,453,244(2) Quarterly income before income taxes and non-controlling interests for the year ended April 30,
2018 is as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2018
Three months ended July 31, 2017
¥
3,983
$
36,407Six months ended October 31, 2017
8,104
74,076Nine months ended January 31, 2018
14,003
127,998
Twelve months ended April 30, 2018
17,852
163,180(3) Quarterly profit attributable to owners of parent for the year ended April 30, 2018 is as follows:
Thousands ofMillions of yen
U.S. dollars
2018
2018
Three months ended July 31, 2017
¥
2,120
$
19,378Six months ended October 31, 2017
4,418
40,383Nine months ended January 31, 2018
7,931
72,495
Twelve months ended April 30, 2018
10,56796,590(4) Quarterly earnings per share for the year ended April 30, 2018 is as follows:
Yen
U.S. dollars
2018
2018
Three months ended July 31, 2017
¥
66.88
$
0.61
Six months ended October 31, 2017134.91
1.23
Nine months ended January 31, 2018
235.74
2.15
Twelve months ended April 30, 2018
310.082.83(5) Quarterly earnings per share for each accounting period of the year ended April 30, 2018 is asfollows:
Yen
U.S. dollars
2018
2018
Three months ended July 31, 2017
¥
66.88
$
0.61
Three months ended October 31, 2017
70.16
0.64
Three months ended January 31, 2018
104.400.95
Three months ended April 30, 2018
77.35
0.70

58 AIN HOLDINGS ANNUAL REPORT 2018

AIN HOLDINGS ANNUAL REPORT 201859

Investor Information

CORPORATE DATASTOCK INFORMATION

Corporate NameAIN HOLDINGS INC.

Transfer Agent
Mizuho Trust & Banking Co., Ltd.

Head Office
5-2-4-30, Higashisapporo,
Shiroishi-ku, Sapporo,
Hokkaido 003-0005, Japan

Stock Listings
First Section of the Tokyo Stock
Exchange and Sapporo Securities
Exchange

Established
August 1969

Securities Code Number
9627

Paid-in Capital¥21,894 million

Fiscal Year
May 1 to April 30 of the following year

Number of Employees
Consolidated: 6,498
Non-consolidated: 139

Ordinary General Meeting of
Shareholders
July

Business Lines
Planning, management and operationof the corporate Group, focused ondispensing pharmacy and drugstore
operation, generic drug wholesaling,sales of cosmetics, and the Group’s
other businesses

Date of Record
April 30
(The Company will announce otherdates as and when required.)(Fiscal 2018)(Fiscal 2018)

Number of Shares Outstanding
35,428,212 shares(including treasury stock)* The Company conducted a 2-for-1 stock splitof common shares with an effective date ofOctober 1, 2014.

Number of Shareholders
5,360

Major Shareholders		

(As of April 30, 2018)

Shareholders

Number ofshares held
(thousandshares)Shareholding
ratio (%)

Kiichi Otani

3,238

9.14

Seven & i Holdings Co., Ltd.

2,750

7.76

Retirement Benefit Trust managed
by Mizuho Trust & Banking Co., Ltd.
(Marubeni Corporation account)*3;
Trust & Custody Services Bank, Ltd. as a Trustee of Retrust

1,594

4.50

The Hokkaido Bank, Ltd.

1,472

4.15

MSIP CLIENT SECURITIES

1,391

3.93

GOLDMAN SACHS INTERNATIONAL

1,186

3.35

North Pacific Bank, LTD.

1,085

3.06

Japan Trustee Services Bank, Ltd. (Trust account)

965

2.73

The Master Trust Bank of Japan, Ltd.

820

2.32

STATE STREET BANK AND TRUST COMPANY

789

2.23

Notes: 1. Kiichi Otani, who was a major shareholder at the end of the previous fiscal year, is no longer a major
shareholder as of the end of the fiscal year under review.
2. The figure excludes 180,688 shares of the treasury stock owned by the Company.
3. Shares held in the Retirement Benefit Trust managed by Mizuho Trust & Banking Co., Ltd. (Marubeni
Corporation account) are part of Marubeni Corporation’s retirement benefit trust.
4. All shares held in Japan Trustee Services Bank, Ltd. (Trust Account) are related to trust services.

60 AIN HOLDINGS ANNUAL REPORT 2018