Converting Challenges to Opportunities
ANNUAL REPORT 2019
For the year ended April 30, 2019

Profile

Message from the President

AIN HOLDINGS operates Japan’s leading dispensing pharmacy

Net Sales by Segment

business and a unique cosmetic and drug store businessfocused on women customers. Over the years, we haveachieved sustained growth by expanding these businesses
while consistently anticipating and responding flexibly tochanges in the operating environment.
The dispensing pharmacy sector is one of Japan’s few
growth markets and it now stands at a major turning point,

Other Businesses¥5,382 million (2.0%)

Cosmetic andDrug Store Business¥25,210 million (9.1%)

with deregulation and other developments set to drive farreaching change in market structure. We aim to respond to
new demands on dispensing pharmacies by playing a key rolein Japan’s local healthcare infrastructure and reinforce our

Fiscal 2019
Consolidated
Net Sales¥275,596 million

position as the dominant player in the sector. In the cosmetic
and drug store business, we are opening new format stores
under our ainz & tulpe brand in prime locations in urban
markets. The brand is growing stronger each year thanks toappealing retail spaces that keep customers engaged, raising

Dispensing Pharmacy Business¥245,003 million (88.9%)

expectations that the business can become a long-term growth
driver for the Group.
Going forward, the AIN Group will continue working toKiichi Otani

increase corporate value as a company that contributes to

President and Representative Director

society and supports people everywhere.

Raising our game toconvert challenges into opportunities

Contents
1 Message from the President
8 AIN Group’s History
10 Growth Strategy
			 10 Dispensing Pharmacy Business					 10 Business Characteristics					 12 Scale – Expanding the Business					 14	Flexible – Adapting to Changes					 16	Quality – Improving Pharmacist Standards andIncreasing Headcount			 18 Cosmetic and Drug Store Business					 18	Original – Deploying Unique Retail Formats					 20	Brand – Establishing the ainz & tulpe Brand to
Drive Growth
22 Corporate Governance

24 Board of Directors and Corporate Auditors

Japan marked a major turning point in May 2019 with the beginning of the new Reiwa era.

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
		 58 Independent Auditor’s ReportAIN HOLDINGS also faces a crucial moment in its history.

59 Investor Information

Until now, the key to growth in Japan’s dispensing pharmacy sector has been securing prime
locations that are convenient for patients (dispensing pharmacies near hospitals). However, thelogic of that strategy has changed, as restrictions on opening dispensing pharmacies on hospitalsites have been lifted, creating opportunities for even better locations. At the same time, demands
on dispensing pharmacies are also changing and pharmacists increasingly need more value-added
skills. For some time, we have been enhancing our dispensing pharmacies and upgrading thecapabilities of our pharmacists to ensure the Group is well-placed to fully leverage its strengths
as the sector is transformed. The major changes ahead will be a “Big Bang” for the dispensing
pharmacy sector in Japan, which we view as an opportunity for the Group.

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.

In the cosmetic and drug store business, our new store formats, launched in 2015, are shaking
up the sector. Going forward, we plan to expand the business further to transform it into a longterm growth driver for the Group.

AIN HOLDINGS ANNUAL REPORT 20191

Message from the PresidentInternal efforts mitigated the impact of the tough earnings environment

Leveraging our competitive advantages to prevailin the pharmacy sector “Big Bang”

For fiscal 2019, ended April 30, 2019, we reported net sales of ¥275,596 million, up 2.7% year

We entered the dispensing pharmacy sector in 1993. That relatively late entry to the market

on year, operating income of ¥16,067 million, down 18.1%, and profit attributable to owners ofmeans we have only six pharmacies located near major university hospitals. However, because

parent of ¥9,029 million, down 14.6%.

pharmacies can now be located on hospital sites, that lack of prime locations near university

The dispensing pharmacy business was hit hard by new standards for technical fees and otherhospitals is now becoming an advantage. That is because we can strategically open pharmacies

criteria following drug price and dispensing fee revisions in April 2018. Combined with cuts

at hospitals without worrying about competing against existing AIN Pharmacies near the sameto drug prices, the impact was greater than under previous revisions, leading to a particularly

hospital. In the fiscal year under review, we won a number of bids to open onsite pharmacies,

challenging earnings environment for the business. However, the AIN Group was less affected

mainly at leading university hospitals across Japan.

than competitors, and our financial position remains healthy. That relatively solid performance

We are well-placed to expand our network of onsite pharmacies by leveraging our powerfulunderscores the success of our growth strategy – pursuing scale and enhancing the capabilities ofcompetitive advantages to appeal to hospital operators. AIN Group has two key advantages overdispensing pharmacies.
The cosmetic and drug store business is now consistently profitable thanks to growing awarenesscompetitors.
Human resources: The AIN Group has a large number of highly skilled pharmacists capableof our new ainz & tulpe store formats and strategies to build a unique position in the market. Ourof understanding and dealing with the advanced level of healthcare provided by major

store network continues to grow steadily. In April 2019, we returned to the Kansai market with

university hospitals. In the fiscal year under review, we recruited 257 pharmacists, missing our

the opening of two new stores. We are now working towards the targets in our medium-termtarget. However, we are switching to a new recruitment strategy that focuses on showcasing

management plan: net sales of ¥45,000 million and an operating margin of 7% in fiscal 2022,

the Group’s strengths, such as our success in winning bids for onsite pharmacies. That new

ending April 30, 2022.

strategy is already yielding results, with the number of students applying for pharmacist
positions more than doubling year on year. In fiscal 2020, we expect to hire more than 400
newly graduated pharmacists. » See pages 16-17 for more details
Sound financial position: When hospitals put out bids for onsite pharmacies, they arelooking for companies that can sustainably operate the pharmacy for a long period. That’s

AIN Group’s growth strategy

because the contracts are long term, running to nearly 20 years. In March 2019, Japan Credit
Market environmentand characteristics

Rating Agency, Ltd. (JCR) upgraded its credit rating for AIN HOLDINGS from A- (Positive) to A

AIN Group’s growth strategy(Stable), underscoring our sound financial position.

Business strategy【Dispensing Pharmacy Business】(See pages 10-17)Top-line growth

Sound financial structure—Comparison of financial indexes among major companies
operating dispensing pharmacies in JapanScale

A fragmented market
Regular dispensing fee
and drug price revisions

Create patient-focused
dispensing pharmacies

Flexible

Growing role of dispensing
pharmacies

Continue to increase
number and qualityof pharmacists

Createsocial value

Quality

Fiscal 2018

Market capitalization
Cash on hand in banks
Interest-bearing debt
Net cash
Shareholders’ equity ratio

More opportunities for womenin the workplace

Deploy unique retail
formats that standout in the market

Original

Urbanization
Narrowing quality gap
in drug store sector

Establishing theainz & tulpe brand

Brand

Recruit and train personnel

2 AIN HOLDINGS ANNUAL REPORT 2019

Createeconomic value

AIN
HOLDINGS
282,859
63,77919,30344,476
52.7%

Fiscal 2019Market capitalization
Cash on hand in banks
Interest-bearing debt
Net cash
Shareholders’ equity ratio

7.0(¥ million)

Average of
3 competitors
59,386
20,94042,811(21,871)31.3%【Cosmetic and Drug Store Business】(See pages 18-21)

Market distribution of dispensing pharmacies in Japan—Comparison of net sales and operating margin among major
companies operating dispensing pharmacies in Japan(¥ million)AIN
HOLDINGS
211,860
48,091
12,27735,814
54.9%

Average of
3 competitors
55,842
20,284
43,594(23,310)32.3%

Notes:
1. Market capitalization data are as of July 31, 2018 and July 31, 2019.
2. Interest-bearing debt =Short- and long-term debts + Corporate bonds
3. Net cash = Cash on hand and in banks – Interest-bearing debt
4. 3 competitors: NIHON CHOUZAI Co., Ltd., SOGO MEDICAL HOLDINGS CO., LTD.,
Qol HOLDINGS Co., Ltd.
Source:		Compiled by AIN HOLDINGS from the above companies’ financial results forfiscal 2018 and fiscal 2019.

6.0

5.0

Operating margin (%)

A growth market

AIN HOLDINGSQol HOLDINGS

4.0

SOGO MEDICAL HOLDINGS

3.0

NIHON CHOUZAI

2.0

1.0

MEDICAL SYSTEM NETWORK

0.0
050,000100,000

150,000

200,000

250,000

300,000

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 3/19 (AIN HOLDINGS: FY 4/19) .
2. Size of circle is proportional to market capitalization as of July 31, 2019.

AIN HOLDINGS ANNUAL REPORT 20193

Message from the President

Pharmacies located on hospital sites fit with the government’s vision for patient-focused
dispensing pharmacies, and they can also keep up with advances in healthcare. We will therefore
continue to open pharmacies with a sense of urgency and fulfill our responsibility as a provider of	AIN Group’s dispensing pharmacy network

1,132 pharmacies

Hokkaido 104

local healthcare services as the leading company in the sector.
The sector is likely to be deregulated further in order to reduce healthcare costs and ensure
the quality of local healthcare provision. That could involve innovations such as online drug
guidance services and digital prescriptions. As the sector leader, we are actively trialing these new
approaches to prepare for future changes in dispensing pharmacy operations.

Koshinetsu 113
Tohoku 171

Hokuriku 25

Kanto 366

Chugoku/Shikoku 92
Tokai 86

Overcoming challenges by expanding the businessand upgrading our capabilities

Kinki 133

The dispensing pharmacy business faces fluctuations in earnings due to regular revisions to

Kyushu/Okinawa 42

dispensing fees and drug prices. Those revisions are also making it increasingly harder to generate
profits. However, we aim to overcome those challenges by continuing to expand our business and

AIN Pharmacy HIGASHIWASHINOMIYA(As of End-Fiscal 2019)by upgrading the capabilities of our dispensing pharmacies and the skills of our pharmacists.
We plan to use our human resources more effectively, such as redeploying pharmacists todifferent locations, as well as build a leaner pharmacy network by exiting from inefficient sites.

Tapping into that interest, we plan to open stores at a pace of more than 10 each year.

We will also continue to cut costs to make dispensing pharmacy operations more efficient, aiming

In fiscal 2020 we plan to launch an online site focused on providing support for customers

to ensure each pharmacy is profitable on a standalone basis. One example of the measures we are

who visit our physical stores. Our goal is to attract more customers by combining the advantages

implementing is our unique pharmacy-led project. Under the project, which is yielding concreteof physical and online shopping, such as making it easy for customers to buy products that were

results, each pharmacy works to reduce inventories and increase efficiency by improving workflow

sold-out in store via the online channel.

and other areas of store operations.
In addition to new pharmacy openings, we will also aggressively expand the business through
M&A, while carefully conducting due diligence on each deal. In the fiscal year under review, 134dispensing pharmacies became part of the AIN Group. The next round of dispensing revisions

Reinforcing the Group’s business base – restructuring and branding

could raise the bar even higher for dispensing pharmacies, but that should also spur sector
restructuring, opening up more opportunities for M&A deals.

We are currently implementing a major restructuring program to rebuild the Group’s businessbase. Our goal is create a corporate group that can increase its social value and economic value
regardless of changes in the operating environment.

Cosmetic and drug store business consistently profitable
due to new store formats

One focus of the reforms is IT strategy. Guided by the Information Technology Division, which
was established in July 2018, we are overhauling business flow and logistics.
In September 2018, we set up new logistics centers for the cosmetic and drug store business

4 AIN HOLDINGS ANNUAL REPORT 2019

Our new ainz & tulpe formats feature completely redesigned retail spaces that encouragein the Kanto area and Hokkaido to upgrade our logistics infrastructure. We are using the facilities,

women customers to stay and browse for an hour. Since the launch of the new formats, we havealong with a newly created proprietary automated ordering system and store area-based orderconsciously created a beauty product lineup targeting young women. That approach has helped

and delivery system, to further improve efficiency in store operations.

us stand out from the crowd of existing drug stores. Another strength of the business is that

Given that the Group is likely to become even larger in the future, we will integrate separate IT

frontline operations – ainz & tulpe stores – are the driving force behind changes in the productsystems used by the dispensing pharmacy business, cosmetic and drug store business, accounting,lineup, ensuring merchandise continues to evolve. That keeps shoppers interested and coming

human resources, online sales and other departments to promote information sharing. An

back, leading to an increase in repeat customers and average spend per customer.

integrated system will also help us deal with security and efficiency issues.

We continue to improve store operations by sharing popular products and ideas across theAnother area we are focusing on in the reforms is strengthening the Group brand. Pharmacies

ainz & tulpe chain, leading to the establishment of new retail styles. Compared with when we

acquired through M&A deals are being rebranded as AIN Pharmacies and the dispensing pharmacy

launched the new formats, it now takes less time for stores to become profitable. Our latest

business has launched a nationwide TV advertising campaign for the first time. We want all ourstores tend to see a steep rise in profits in the second year of operation. The growing power ofstakeholders, including hospitals, to get a clearer picture of who we are as a company, and theour brand means we now receive a lot of requests to open ainz & tulpe stores in retail facilities.

advertisings should also help us attract new pharmacists.

AIN HOLDINGS ANNUAL REPORT 20195

Message from the President

The Group is currently working to implement the whole restructuring program, which we hope
to complete in the medium term, but that will not be end of our efforts, as the issues we are

Meeting stakeholder expectations through growth

tackling will remain important.
Our dispensing pharmacy business and cosmetic and drug store business both help people

AIN HOLDINGS stands at a major turning point.

lead healthy and full lives on a daily basis. That means our business activities must be highly

To overcome current challenges, continue growing and generating value as a corporatetransparent and anchored by a firm emphasis on compliance. That is why we are strengthening

group, we have positioned the next three to five years as a period for proactive structural

governance, including systemic improvements such as new nomination and remuneration

reforms. During that period, we will aggressively execute our strategies.
In our core dispensing

committees established in May 2019.

pharmacy business, the market
in Japan is already worth
approximately ¥8 trillion. We

A motivated workforce leads to value for stakeholders

forecast further expansion to¥10 trillion, making it one of

The AIN Group Statement starts out with a commitment to ensuring, first and foremost, thatJapan’s few growth markets. The

employees are happy working for us. That thinking has underpinned our approach since the firstJapanese government is pushingdays of the Company – in other words, satisfied employees are vital to our business. By doing

ahead with deregulation, whichthat, I know we can provide value to customers, investors and other stakeholders. That is why

will lead to far-reaching changes

our Group Statement goes on to say that the AIN Group is dedicated to improving the health andin the market. We see that as an

happiness of its customers.

opportunity for further growth

To ensure our employees are satisfied, we are investing heavily to improve working conditions,and we intend to build on our strengths to take advantage. Meanwhile, advances in technology

such as adjusting the salary structure, including an increase in base pay, and improving welfare

are forcing hospitals, drug companies, and now dispensing pharmacy operators like the AIN

benefits. We are also actively encouraging women to take a more active role in the Group, asGroup, to make changes to the way they do business. We will need to upgrade the capabilities

female employees account for around 80% of our workforce. Since March 2018, AIN PHARMACIEZ

of our dispensing pharmacies and pharmacists to address advances in medical care and support

INC., one of the Group’s core subsidiaries, has received the highest “Eruboshi” certification*

aging communities, aiming to fulfill our role as a key part of local healthcare infrastructure.

in recognition of its efforts to support women’s participation and career advancement in the

In the retail sector, which includes drug stores, the gap in quality between companies isworkplace, highlighting how we are working to empower female employees. AIN PHARMACIEZ has

narrowing, making it harder to create physical stores that attract consumers. Against that

also received “Kurumin” certification since 2015 from the Minister of Health, Labour and Welfare,backdrop, we will continue to expand our chain of new format stores under the ainz & tulpe

recognizing its efforts to support parenting and childcare with systems that help female employees

brand to stand out in the market and help our customers lead beautiful, richer lives.

return to the workplace after giving birth and raising children.

Investors are attracted to the AIN Group because of its growth potential. The Group has
continued to grow in a changing environment through its own efforts, but we still see plenty of*Companies receive certification if they meet certain requirements for male and female ratios in recruitment and managerial positions in orderto create workplaces that allow women to achieve their full potential.

scope for further growth. We will continue to invest in growth to increase corporate value andmeet the expectations of our investors.
Going forward, we will work to pay a stable dividend, based on a dividend payout ratio targetof 20%.
I hope we can count on your continued support and understanding for many years head.

KPIs related to social activities
Fiscal 2017

Fiscal 2018

Fiscal 2019

31.5%

30.9%

31.2%

Directors

16.7%

18.2%

21.6%

Executive officers

29.4%

31.3%

29.2%

Women in management positions*2

Maternity leave (persons)

292

361

342

Childcare leave (persons)

417

420

503

Reduced working hours for childcare (persons)

420

501

686

Employees rehired at mandatory retirement age

-

-

91.7%

Non-Japanese employees (persons)

-

-

117

July 31, 2019

Kiichi Otani
President and Representative Director

Notes:
1. Data are as of April 30, 2019
2. Management positions: section leaders and higher management grades in head office divisions, pharmacy managers and store managers

6 AIN HOLDINGS ANNUAL REPORT 2019

AIN HOLDINGS ANNUAL REPORT 20197

AIN Group’s History

Since it was founded, the AIN Group has flexibly adapted its business while consistently staying ahead of changes
in the operating environment. That approach helped us become Japan’s leading dispensing pharmacy company bysales in 2003 and has also supported 19 consecutive years of sales growth since fiscal 2001.
Going forward, we aim to leverage the strengths of our dispensing pharmacy business and cosmetic and drug
store business to address issues faced by society and provide value to all stakeholders.
In this section, we look at the Group’s key turning points and earnings trends.

Dispensing pharmacy business
Cosmetic and drug store business
Group

1993

1994

RebrandedStartedall dispensing
dispensing
pharmacies underpharmacy
the AIN Pharmacy brandbusiness;
Daiichi Pharmacy
opened

1981

2002

2006

2011

2016

2019

Acquired Imagawa
Pharmacies, making
AIN the leading
dispensing pharmacy
company by sales

Established WHOLESALE STARS Co., Ltd.
(pharmaceutical wholesaler focused on
generic drugs)

Developed patient
medication
notebook app for
smartphone users

Dispensing
pharmacy network
reaches 1,000 sites

OpenedAIN Pharmacy TODAI(onsite pharmacy)

Established
ASAHIKAWA DAIICHIMEDICAL TESTINGLABORATORIES INC.

1969
Company
founded as
DAIICHI MEDICALTESTINGLABORATORIES INC.
(outsourced clinicaltesting business)

1980

1994

1998

1999

2005

2008

2009

Listed on
the JASDAQ
marketSold clinicaltesting business;
Changed company
name toAIN PHARMACIEZ

Formed capital andbusiness alliance with
Marubeni Corporation

Net sales
exceed¥50 billion

Formed capitaland businessalliance with
Seven & i Holdings
Co., Ltd.

Relisted on
Listing moved
the second
to the firstsection ofsection of
the Tokyo Stock the Tokyo Stock
Exchange
Exchange

EstablishedOTANI INC.

2010

2013

2015

2016

2017

Head officerelocated to
new building

Changedcompany name toAIN HOLDINGS andadopted holding
company structure

Net sales
exceed¥200 billion

Increased
capital throughpublic offering andprivate placement

Net sales exceed¥100 billion

1980

1996

2002

2003

2015

2019

Starteddrug store business；
Opened first store,
OTANI DRUG

Rebranded all drug
stores under
the ainz brandOpened firstainz & tulpe store

Started rolling out
the ainz & tulpe
brand nationwide

Acquired shares in
AYURA LABORATORIES Inc.,making it a subsidiary;First real move into
new retail formats by opening
ainz & tulpe SHINJUKU HIGASHIGUCHI
and Le trois

Opened 2 storesin Kansai

Number of stores

1,186
933
Net sales

275,596234,843

Ordinary income

Net sales (¥ million)
Ordinary income (¥ million)
Number of stores

237

34

16,63715,158401

106,231

57,091

4,315

3,080
5,292
383

1993
8 AIN HOLDINGS ANNUAL REPORT 2019

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

(FY)

AIN HOLDINGS ANNUAL REPORT 20199

Growth Strategy: Dispensing Pharmacy BusinessBusiness characteristics

Fundamental structural changes underway> Dispensing pharmacy earnings model

The AIN Group is the leader in Japan’s dispensing pharmacy sector, based on sales, the quality of pharmacies, earnings andto play a greater role in healthcare, revisions to standards for calculating dispensing fees, and a shortage of qualified
pharmacists. The sector is also entering a period of full-blown restructuring spurred by deregulation.
In this section, we look at the key characteristics of Japan’s dispensing pharmacy market and how it differs to the US market.

Factors that affect dispensing pharmacy profitability

Dispensing pharmacy market value(¥ trillion)

Non-hospital dispensing ratio

12

74.0%

80

7.67

57.2%

10.00
60

8

5.1

6
4
2
0

30.3%

28.1%

21.5%

11.5%
11.0%

20

1989 1990

1995

2000

2007

2010

2018

2007-2017:
annualized growthof 4.1%2025

2018 onwards:
annualized growthof 3.0–5.0%(April to 0
March year)	Dispensing pharmacy company
market share	 Market structure—Breakdown by company size

Top 50major companies
Dispensing pharmacy
market value
27.9%(¥ trillion)

Non-hospital dispensing ratio

Others12

63.8％
9 or74.0%
fewer pharmacies

72.1%

10

57.2%

Ratio of elderly people

Small and medium size
pharmacies
account
80.0%
for more than 60%of the market

8

80

60

*Top 5 major companies:	
Notes:1. 	The above figure dose not include1.7% of no response.
AIN HOLDINGS5.1
INC., NIHON CHOUZAI Co., Ltd.,
2. 	AIN HOLDINGS estimates based on data from a random
6
KRAFT Inc., Qol HOLDINGS Co., Ltd.,
30.3%Labour and 40
survey28.1%conducted by the Ministry of Health,
WELCIA HOLDINGS CO., LTD.
Welfare in August 2016 (1,000 dispensing pharmacies
21.5%
4
Source: AIN HOLDINGS estimates, based on data fromsurveyed, 46.7% response rate).
20
DRUG Magazine (July 1, 2019) and FY2018
2
Source: Report on Creating Dispensing Pharmacies fordispensing fee statistics released by thePatients, Ministry of Health, Labour and Welfare, March
Ministry2007
of Health,Labour and Welfare.
02008 2009 2010 2011 2012 2013 2014 2015 2016 201731,
20182019 2020 2007 2007 2007 2007 2025 (April to020172018 onwards:
annualized growth of 3.0–5.0%

2007-2017:
annualized growth of 4.1%

March year)

US
Private health insurance (depends on contract terms)

Freedom to select hospitals / pharmacies

No restrictions

Affiliated service providers

74.0% (As of Mar. 2018)100%

Drug prescriptions

Refills ×

Refills

Drug prices

Set by the government (Revised regularly)

Mail order ×Market price

Mail order

Dispensing fee revisions (criteria
for additional reimbursement points)• Looser ........................................

Intelligent fees

Technical fees(includes premiums forgeneric drug dispensing)

Head office costs• Consolidation and streamlining ....
• Uncontrolled increase ..................

SG&A expenses

Operating income

Increase earnings
Government
policies• Tighter ........................................

• Higher quality (secure premiums) .
• Lower quality ..............................

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 intelligent fees and technical fees for pharmacists.
These fees are added depending on the services at pharmacies.

Japan has four main types of dispensing
pharmacy: pharmacies located near hospitals,
pharmacies on hospital sites, pharmacies
not located near hospitals, and drug storeswith dispensing pharmacy functions. People
are free to choose any type of dispensing
Drug priceto
revisions
pharmacy
fill their prescription, regardless• Case by case ............................
of their health insurance status. However,dispensing
pharmacies located close to
Drug procurement................
• Low cost,
hospitals
are high
thevolume
most
popular in Japanese• High cost, low volume ................
cities, which are less dependent on cars,
Scale (numberof prescriptions
meaningthey
are more convenient forand pharmacies)......................................
patients,
particularly
those who have to• Increase• Decrease .....................................
visit hospital
regularly, such as the elderly
and patients with chronic illnesses. Many
pharmacies
hospitals
Dispensing nearfee revisions(criteria or on hospital sites
additional reimbursement points)
also forsatisfy
the government’s conditions for• Looser ........................................
• Tighterprimarycare........................................
dispensing pharmacies, making
themHiring
theandmost
popularwith patients.
training
pharmacists

Onsite pharmacies
Dispensing pharmacies separated from hospitals by fencesor other barriers to prevent direct entry from hospitals

BeforeHospital
Inventory management• Optimized inventories ..................
• Excess inventories .......................

Dispensing pharmacy earning model

Pharmacy

Total store sales*1
Purchasing cost of drugs Entry/exit

Public road

Drug price margin
Intelligent fees

Store operation costs+ Store labor costs

Head office costs

Barriers removed
to improve• Consolidation and streamlining ....
SG&A
expensesconvenience for patients• Uncontrolled
increase ..................
Pharmacies now permitted to be located on thesame premises
as hospitals

Technical fees(includes premiums forgeneric drug dispensing)

Hospital

Hospitalpremises

After• Higher quality (secure premiums) .
• Lower quality ..............................

Entry/exit

Productivity at pharmacies• Improvement:
lower personnel costs .................
• Deterioration:higher personnel costs ................

Entry/exit

The following cases are still not permitted:

Operating income

Increase earnings

Hospital

Government policies

Pharmacy

Pharmacy

Entry/exit

Entry/exit Entry/exit

Public road

Decrease earnings

Management capabilities

Entry/exit

Pharmacy

Japan
Universal healthcare (10-30%)

Non-hospital dispensing pharmacies• Decrease .....................................

• Deterioration:higher personnel costs ................

Store operation costs+ Store labor costs

Hospital> Differences between Japan and the US

10 AIN HOLDINGS ANNUAL REPORT 2019

(%)

10.00

7.67

Drug price margin> Dispensing pharmacies by type

6.4％
500 or more pharmacies
9.8％
50-499 pharmacies
18.2％
10-49 pharmacies

Top 5 major companies*
11.7%

and pharmacies)• Increase ......................................

Hiring and training pharmacists

Source: AIN HOLDINGS estimates, based on data from the Japan Pharmaceutical Association, dispensing costtrends 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.

Productivity at pharmacies• Improvement:
lower personnel costs .................

Purchasing cost of drugs

Scale (number of prescriptions

40

0.47

(Fiscal 2019)

Medical insurance (patient cost)

(%)

80.0%

10

> A fragmented market
Japan’s dispensing pharmacy sector isfragmented, with the top five companies
accounting for only around 10% of the market,
including the Group’s leading share of about
3%. Approximately 30% of pharmacies inJapan are run by individuals. As the shortageof pharmacists becomes more acute and small
operators struggle to keep up with regulatorychanges, we expect the pace of M&A activity
and business closures to accelerate in the
sector. However, the Group’s ability to respondto those changes means there is significant
scope to increase market share.

Ratio of elderly people

Inventory management• Optimized inventories ..................
• Excess inventories .......................

Total store sales*1

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 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¥7.7 trillion as of March 31, 2018, but weestimate the market is on track to reach ¥10trillion.

• Low cost, high volume ................
• High cost, low volume ................

Dispensing fees*2 Sales from drugs> A growth market

Dispensing pharmacy earning model

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

Drug procurement

Market growth

The government is revising dispensing feesin a way that only pharmacies capable ofproviding these services will be able togenerate profits.

need to provide higher quality services, suchas the management of left over medicines,
cooperation with healthcare providers andsupport for patient health management.

Gross profit

However, barriers to entry are high because the sector faces various risks, such as government policy calling on pharmacies

Sales from drugs

and number of pharmacies and pharmacists to appropriately address changes in the operating environment » See pages 14-16 .
The dispensing pharmacy market is one of only a few in Japan with prospects for growth over the medium to long term.

Dispensing pharmacies are being asked toplay a greater role in healthcare provision in
response to Japan’s super-aging society andrising healthcare expenses. Pharmacies now

Dispensing fees*2other metrics. We are targeting sustained growth by expanding our business » See pages 12-13 and by increasing the quality

Entry/exit

Public road

Public road

Located inside
the same building

Connected bya private road or passage

AIN HOLDINGS ANNUAL REPORT 201911

Growth Strategy: Dispensing Pharmacy Business
AIN Pharmacy ASAHIKAWAIDAI> ScaleExpanding the Business

Prefecture, April 2020), as well as other locations. Goingforward, we see the potential to open 10 onsite pharmacies
each year.
M&A deals are also an important part of our growthstrategy. Amid drastic changes in the operating environment,
pharmacy operators that are unable to leverage economies
of scale will face a difficult future. We therefore anticipate anincrease in M&A activity across the sector. We will continue
to actively pursue M&A deals, while retaining our emphasis
on investment efficiency, and use both pharmacy openings
and M&A to grow the Group’s top line.

Highest prescription volume
in the domestic market

22,566thousands

AIN Pharmacy Okayama University Hospital(Scheduled to open in April 2020)(fiscal 2019)12 AIN HOLDINGS ANNUAL REPORT 2019higher quality services » See page 13 . However, there are
only a few companies in the sector capable of consistently
meeting the standards for opening onsite pharmacies. That is
because companies have to meet strict criteria from hospitals
showing that they can sustain operations, such as keeping
pharmacies open 24 hours throughout the year, securing
large numbers of highly skilled pharmacists, and maintaining
a sound financial position.
AIN HOLDINGS is one of those companies, which
is helping the Group steadily win contracts for onsite
pharmacies. In fiscal 2019, we opened onsite pharmacies
in a number of new locations, including the University ofTokyo Hospital (Tokyo, April 2019) and Asahikawa Medical
University Hospital (Hokkaido, December 2018). In fiscal
2020, we are planning to open onsite pharmacies at
Dokkyo Medical University Hospital (Tochigi Prefecture, April2020), Okayama University Hospital (Okayama Prefecture,
April 2020) and Tokushima University Hospital (Tokushima

AIN Pharmacy Dokkyo Medical University Hospital(Scheduled to open in April 2020)

AIN Pharmacy Tokushima University Hospital(Scheduled to open in April 2020)

Merits of onsite pharmacies
For patients

For pharmacies

Convenient

For hospitals

High sales per pharmacy

Profitable

Closest to hospital, making them very convenient High sales per pharmacy due to large volume ofprescriptions and complex prescriptions
Well stocked

Optimized inventories

Drugs usually in stock

Safe and reassuring

Opportunity to leverage and improvespecialist capabilities

Access to high-quality healthcare services,such as advanced healthcare and lower risk ofprescription errors

More opportunities to leverage and improvespecialist skills of pharmacists, such as prepare
complex prescriptions, provide home-based
dispensing and deal with advanced healthcare
treatments(times)
6.0

4.88

5.0

200

23

150

4.0
3.0

100

134

50

2.0
1.0

0

(54)

0

(50)
(100)

15/4

16/4

17/4

Number of pharmacies opened (organic growth)
Number of pharmacies acquired through M&A
Number of pharmacies closed and sold

18/4

Higher quality of local healthcare services
through advanced healthcare and support for
hospitalization
Lower risks
Close links with adjacent dispensing pharmacies
help hospitals rapidly identify drug treatment
side-effects and minimize risk of prescription
errors	Changes to AIN Group’s M&A criteria

Number of pharmacies and EV/EBITDA multiples(stores)
250

Receive rental income from onsite pharmacies
Higher-quality healthcare services

Detailed understanding of prescription trends
at adjacent hospital enables efficient inventory
management

19/4
EV/EBITDA

EV/EBITDA multiples» See page 10 . In Japan, health insurance does not restrict
hospital choice or medication. Also, patients generally
have to make frequent visits to hospital because repeat
prescriptions are not permitted. Given those conditions,
onsite pharmacies are likely to be seen as the ultimate
primary care dispensing pharmacies, not just because they
are convenient for patients and fit the government’s vision
for patient-focused dispensing pharmacies, but because they
can also keep up with further advances in healthcare.
New onsite pharmacies are likely to lead to a dramatic
drop in the number of prescriptions filled by existing
pharmacies located near hospitals. However, the risk to ourbusiness from onsite pharmacies is limited, because as arelatively late entrant to the market, the AIN Group has only

six pharmacies located near university hospitals. Instead, weview onsite pharmacies as a major opportunity to increase
market share.
There is strong demand for onsite pharmacies from
hospitals. By attracting dispensing pharmacies to theirpremises, hospitals receive rental income from the pharmacy
operator, while also creating closer links with the pharmacy,
which reduces the risk of dispensing errors and otherissues and deepens cooperation in areas such as advanced
healthcare provision. Onsite pharmacies give companies
like AIN HOLDINGS the chance to leverage competitive
advantages such as the specialist skills of their pharmacists.
Sales per pharmacy are also higher due to increased
prescription volumes and more complex prescriptions.
Advantages for patients include greater convenience andNumber of pharmacies

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’s
operating environment and healthcare system, which havemade dispensing pharmacies located near hospitals thebest option for patients and our business. For example,
pharmacies on prime sites near hospitals are much more
profitable than those in other locations.
However, the dispensing pharmacy market in Japanis starting to see some dynamic structural changes. Onechange came in October 2016, when regulations preventing
dispensing pharmacies from opening on hospital sites werelifted. Hospitals, particularly university hospitals, are now
actively seeking dispensing pharmacies to locate on theirpremises.
Japan’s dispensing pharmacy market has some uniquecharacteristics. The role of pharmacies and their earnings
structure differ to pharmacies in the US and other countries

M&A criteria(Before)M&A criteria(From Fiscal 2018)

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 201913

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
pointsPrescription checks
Management of leftover medicines
Cooperation and information
sharing with medical institutions> Flexible

Adapting to Changes

Focused on dispensing drugs

Support for home-based healthcare
and nursing care

Guidance for drug usage

Promote generic drugs

Dispensing drugs

Dispensing drugs

Conventional
dispensing services
receive lessreimbursement points

Share of generic drugs

80.1%

AIN Group’s initiatives for primary care dispensing pharmacies(As of April 2019)

Tracing reports (monthly cases)

Prescription checks (monthly cases)（No. of cases）

14 AIN HOLDINGS ANNUAL REPORT 2019

4,009

24,11025,0004,000

20,0003,000
15,0002,000

11,176

10,000
1,000

447

0

Apr.
17

5,000

Jul.

Oct.

Jan.
18

Apr.

Jul.

Oct.

Jan.
19

0

Apr.

Apr. Jul. Oct. Jan. Apr. Jul. Oct. Jan. Apr. Jul. Oct. Jan. Apr.
16
17
18
19

Tracing reports: Dispensing pharmacies receive additional reimbursement points for providing
documents about patient prescription medicines and treatment regimes if that
information is requested by medical institutions or if pharmacists approve the releaseof that information, provided patients give their consent.
Data source: All pharmacies

Data source: All pharmacies

Home-based
dispensing (monthly cases)of cases）（No.

Generic drug dispensing (monthly cases)
92.3

20,0004,000

15,371

15,000
3,000

(%)

(%)

1004,009

85

80

60

10,000
2,000
40

31.0

1,000
5,000

3,690

447

20

0

Apr. Jul. Oct. Jan. Apr. Jul. Oct. Jan. Apr. Jul. Oct. Jan. Apr.
16Apr.16
17 Apr.
17 Oct.
18 Apr.
18 Oct.
18 Apr.
18 19 0 19
Oct. 16
Apr. 17
Oct. 17
Apr. Oct.
Tracing Reports: Dispensing
pharmacies
receivefor providing
14
15
16 additional
17 reimbursement
18 points19
0

documents about patient prescription medicines and treatment regimes if that
information is requested by medical institutions or if pharmacists approve the releaseNo. of home-based
dispensing
casespatients give their consent.
of that information,
provided
DataRatio
source:pharmaciesproviding home-based dispensingofAllpharmacies

Data source: 930 pharmacies, excluding recently acquired pharmacies through M&A and cases
involving delivery of medicines only as of April 2019

Share of generic drugs to total prescriptions

5,000（No. of cases）

Prescription checks: Dispensing pharmacies receive additional reimbursement points for providing
prescription checks to the health insurance doctor who wrote the prescription toprevent unintended double medication and pharmaceutical interactions.

(points)

19.2

18.9

20

18.2
18

80

Average generic drug reimbursement points» See pages 16-17 . The project was launched to improvethe efficiency of dispensing pharmacy operations based on
input from pharmacists at each location. As the project has

30,0005,000

Ratio of pharmacies providing
home-based dispensing

traditional role of drug dispensing » See page 15 . In orderto deliver those services, our pharmacists need to improvetheir specialist skills and communicate more closely withpatients and medical institutions.
We aim to convert all our dispensing pharmacies to theprimary care format, which offers an excellent opportunity
to leverage our competitive advantages, such as the highlevel of specialization achieved by the AIN Group over
the years. Those efforts to create primary care dispensing
pharmacies will also help us meet the rigorous criteria for
opening onsite pharmacies.
To improve the quality of dispensing pharmacies, we areconducting a range of internal training programs, as well as
implementing our pharmacy-led project to raise standards

been rolled out across the Group, we have seen efficiency
gains and an increase in the time pharmacists spend
communicating with patients and medical institutions, aswell as improvements in the way pharmacists think andact in frontline situations. That has enhanced our ability toadapt to changes in the operating environment, including
revisions to dispensing fees.
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, we
use our generic drug wholesaling subsidiary WHOLESALESTARS Co., Ltd. (WSS) to negotiate prices and procure
generic drugs directly from manufacturers. We alreadypurchase more generic drugs than any other company
in Japan and we have narrowed down our suppliers tojust a few firms, further strengthening our buying power.
WSS is one of our competitive advantages, because thesubsidiary supports the Group’s profits while also helping
the government achieve its policy goals.
The AIN Group is actively implementing measures
to support the government’s goal of creating advanced
healthcare services. For example, in June 2018 we started
providing Japan’s first online drug guidance services, andin March 2019 we joined a project trialing digital drugprescriptions. Going forward, we will continue to explore
ways of creating new dispensing pharmacies to support
advances in healthcare and communities with aging
populations. We will also implement our IT strategy torebuild the Group’s IT infrastructure and increase earnings
by improving the quality of dispensing pharmacies throughfurther efficiency gains.

No. of home-based dispensing cases

Since the Company was established, we have consistently
raised the standards of our pharmacies and pharmacists,
recognizing the importance of dispensing pharmacies inlocal healthcare infrastructure.
The government is calling for more primary carepharmacies that can support local healthcare provision,
which means dispensing pharmacies and pharmacists needto play an even greater role. Also, each regular revision
to dispensing fees is making it harder for dispensing
pharmacies to generate profits.
To fulfill their primary care role, dispensing pharmacies
have to offer higher quality services, such as promoting
generic drugs, managing left over prescription medicines,
managing patient health, working with local healthcare
providers, providing 24-hour dispensing services andsupporting home-based healthcare, in addition to their（No. of cases）

80.1%
15.8
Number of prescription checks that resulted in additional reimbursement points
16
77.4% 77.2%
Data source: All14.7
pharmacies
75

74.4%

70

70.3%

65

Apr.
16

14

12

Apr.
17

Mar.
18

Apr.
18

Apr.
19

10

Share of generic drugs to total prescriptions*1
Average generic drug reimbursement points*2
Data source: *1: All pharmacies*2: Three main Group companies (AIN PHARMACIEZ, Asahi Pharmacy, DAICHIKU)AIN HOLDINGS ANNUAL REPORT 201915

Growth Strategy: Dispensing Pharmacy Business
Number of new pharmacist graduates hired(persons)
800

11.7

700
600

Key outcomes from pharmacy-led projects
(%)
12

8.0

400

500
400

8
6

257

300

Responsive todispensing
fee revisions

4

200

400

277

100
0

Pharmacy-led project

10

8.0

8.0

15/4

16/4

17/4

18/4

19/4

2
0

20/4
(plan)

Higher quality
pharmacies andpharmacists

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

Issues clarified

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

Training programs for pharmacists> Quality

Improving Pharmacist Standards
and Increasing Headcount

Join company

Number ofprimary care pharmacists

1,420

Basic training

Employeeetiquette
training

16 AIN HOLDINGS ANNUAL REPORT 2019Year 2

Year 3

Year 4

Year 5

Year 6

Year 7

Year 8Year 9Year 10OJT
1st Year

2nd Year

3rd Year

4th Year

5th Year

7th Year

10th Year

Learning support content(As of April 30, 2019)

After joining the AIN Group, pharmacists have access toa range of training programs tailored to their career stage.
We also run a number of unique initiatives to improve themotivation and skills of our pharmacists. One initiative
is our pharmacy-led project, launched in autumn 2012.
Under this Groupwide project, pharmacists draw on theirown frontline experience to further improve efficiency,
profitability and service provision at our dispensing
pharmacies. The pharmacy-led project has reduced patient
wait times, as well as lifted profitability through inventory
optimization and other measures. But the project has
also clarified other issues at dispensing pharmacies anddelivered clear improvements, helping to change thinking
among frontline personnel and boost motivation, leading
to a lower level of staff turnover. Moreover, in April 2019,
we upgraded our personnel systems, which included pay
increases and better employee welfare benefits. Our aim isto support the Group’s recruitment efforts with measuresthat further increase employee motivation and improveflexibility in the workplace.
The dispensing pharmacy sector is about to enter aphase of restructuring triggered by changes in the operating
environment. However, sector restructuring offers major
growth opportunities for the AIN Group. Going forward,
we will continue to expand the dispensing pharmacy
business, improve the quality of our dispensing pharmacies
and pharmacists and continue generating value to satisfy
the expectations of investors and all our other stakeholders.

Pharmacist
training

Follow-up training

OJT instructor training

Leadership training

Dispensing pharmacies and companies that struggle torecruit enough pharmacists and improve their skills are likely
to fall by the wayside. The AIN Group is no exception. Morethan ever, we need to secure pharmacists and enhancetheir capabilities to support business expansion and fulfill
the new role envisioned for dispensing pharmacies.
AIN HOLDINGS has consistently focused on hiring
and training pharmacists since it was established. Our
approach to 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 continued business expansion, including
our move into onsite pharmacies, which will require large
teams of highly skilled pharmacists. Competition for
acquiring pharmacists is also likely to become tougher inthe sector.
To address those challenges, we are stepping up
recruitment activities to draw attention to the AIN Group’s
competitive advantages, including our ability to keep up withrecent trends in the sector such as the government’s vision
for patient-focused dispensing pharmacies and advancesin healthcare. The president of AIN HOLDINGS and othersenior managers are now closely involved in the Group’s
recruitment efforts, not just the personnel department.

Year 1New employee training

Nationwide employee training
Supervising pharmacist training, new pharmacy manager training

Inventory optimization

Notes:
1. Inventory value is as of the end of April
each year.
Actual total inventory value
Academic conferences, specialist qualifications
2. Inventory value shown left is largely
Estimated inventory value
unrelated to the value of inventories
Advanced pharmaceutical management
study(products) shown on the balance sheet,Sales
ofgroupdispensing pharmacy businessas the balance sheet includes inventoriesof pharmacies
at the end of monthfrom Group companies with different
Hospital Number
pharmacist
training
fiscal year-ends.
3.
Estimatedinventory value is a pro rata
Overseas
training
238,645（+73.8%）
calculation using inventory value and thenumberofpharmacies as of end-April
1,021（+89.4%）
2013.
137,291
15,828 (+89.4%)
4. Number of pharmacies and inventory
value as of end-April 2013 is for four
Optimized
539
main Group companies: AIN
inventory value
PHARMACIEZ, AIN MEDIO, DAICHIKU
Asahi Chozai.
of pharmacies
fee structuresand 7,986
tougherevaluationandcriteria
forNumberdispensing
8,356(-4.4%)and inventory value as of end-April 2018
is forthe
all companies
in the AIN Group.topharmacies have been introduced bygovernment
Management training

Specialist training

A Message from
the Managing Director

encourage them to adapt to those changes. Meanwhile,
13/4changing
18/4 and maturing healthcare sector andJapan’sderegulation could offer even more opportunities forMiya Oishi
Join company
Year 1
Year 2
Year 3
Year 4
Year 5
Year 6 Year 7
Year 10
Managing Director in charge ofpharmacists. We expect the government’s vision for patientNew employee training
Dispensing Pharmacy Operating
Employeefocused dispensing pharmacies to expand the role andPharmacis
Management
OJT
etiquette
Basic training
training
training
responsibilities of pharmacists.
6th started
7th
Fulfilling the role set outFollow-up
in the training
government’s
for 3rd Year Anticipating
those
implementing
1st Year vision
2nd Year
4th Year
5thYear changes, we
10th Year a
Year Yearpatient-focused dispensing pharmacies Learning support content
pharmacy-led project in 2012 to radically overhaul dispensing
Staff at AIN pharmacies strive to provide personalized, friendly
pharmacy operations. We asked our pharmacy staff to explore
OJT instructor training
servicesto eachpatient that comes through the door. Thatways of improving efficiency and providing the best-possible
Leadershiptraining
National employee training
means they regularly have to prove their skills and qualities
services to patients by identifying, acting on and then revisiting
Supervising pharmacist training, new pharmacy manager training
as pharmacists. The AIN Group is made up of individuals who
the most
important aspects of pharmacy operations, while
Management
training
always want to do their best and build lasting relationships
also ensuring
compliancewith all laws and regulations.
Academic
meetings,
specialist qualifications
with patients as the last medical professional
theyinteract
With onsite pharmacies now permitted, hospitals and local
trainingwith Specialist
each day.
On any given day, our pharmacists
have management
communities
Advancedmight
pharmaceutical
study groupare looking to pharmacies to play an even greater
to use advanced pharmaceutical management skills, offerrole
inareas such as advanced pharmaceutical management,
Hospital pharmacist training
patient-focused services and provide health advice.
cooperation with hospital pharmaceutical departments
Hospital pharmacist training
Overseas training
In recent years, we have seen changes in the health ofand 24-hour services throughout the year. To meet thoseJapanese people, progress in how drugs are evaluated andexpectations, the AIN Group will use the pharmacy-led project
developed, and shifts in public thinking about healthcare.
to increase the quality of pharmacist activities and provide
On top of that, pharmacists in Japan are being asked toservices to patients nationwide as a key part of Japan’s
play a different role in healthcare provision. New intelligent
healthcare infrastructure.

AIN HOLDINGS ANNUAL REPORT 201917

Growth Strategy: Cosmetic and Drug Store Businessainz & tulpe bono SAGAMIONO	Comparison of ainz & tulpe and general drug stores:
product mix
ainz & tulpe *1	
Differences between ainz & tulpe and other retail formats

General drug stores *

2

10.8%

26.5%

Beauty products
Foods and health foods

Young women

Families,
overseas visitors

High-income
earners,
includingoverseas visitors

Merchandise Beauty products
account for over
80% of lineup

Daily necessities
and food
account for
more than 80%
of lineup

Brand products
only

Pricing

NormalDiscount

Premium

Sales areas• Customers canpersonally try
various beauty
products in store• Designed toencouragebrowsing for anhour• Brands sold• Small retailthrough own
areas, clutteredboutiquedisplays
stores, reducing
accessibility for
shoppers

15.1%

26.6%
82.9%

Drug stores

Customerbase

4.2% 2.1%

31.8%
Drugs and sanitary products
Daily necessities*1 Data is for the fiscal year ended April 2019
*2 Source: Monthly Report on the Current Survey of Commerce (May 2019),
Ministry of Economy, Trade and Industry> Original

Deploying Unique Retail Formats

	Store operations that foster uniquenessBeauty products
account for82.9%

of salesThe management division decides which new products to launch, but each store has the authority to decide how to display them. Thatallows stores to rapidly implement all aspects of merchandise and display design and select trending items to focus on store displays,
while taking into account conditions such as the store’s location and its customer segments.
Management division

The cosmetic and drug store business is the AIN Group’s
other core business. We have operated a drug store
business since the Company was established, but wechanged our strategic approach a few years ago in response
to a narrowing quality gap and falling margins in the retailsector. In April 2015 we started rolling out new retail
formats under the ainz & tulpe brand. In the last few years,
we have exited suburban locations and rapidly switched to
new retail formats, with new store openings focused onhighly convenient locations in urban markets.
Our first real move into new retail formats came in
July 2015, when we opened the ainz & tulpe SHINJUKUHIGASHIGUCHI (Shinjuku, Tokyo; retail space: roughly
1,290m2). The large flagship store significantly raised thevisibility of the ainz & tulpe brand among young women.
The store is also recognized as a trend-setter in cosmetics
and fashions, thanks partly to its dominant position in termsof sales volume. We are now making final adjustments tothe style of our innovative retail formats.
The main target of our new retail formats is women in theirlate-20s and 30s with a strong interest and curiosity in the latest
trends. We have one simple concept – create stores where
women customers would be happy to browse for an hour.
To achieve that, we have given stores plenty of freedom
to make their own decisions on merchandise lineups andstore operations. Beauty products such as cosmetics andaccessories account for more than 80% of our lineup.
We are also expanding our range of lounge wear andbeauty supplies and developing original brands. We havelaunched an original cosmetics brand called LIPS and HIPS
and a beauty supply brand called cocodecica. We havealso turned round the AYURA cosmetics brand, which
was acquired from Shiseido Company, Limited. We are

expanding the range of products under each brand, helping
to lift the gross margin. Manufacturers have welcomed ouremphasis on providing value rather than selling products
at low prices. With their support, we are expanding ourlineup of exclusive ainz & tulpe versions of national brandproducts, which is another way we can stand out in theretail market. Going forward, we plan to work more closelywith manufacturers to develop tie-in products, as well as
our own in-house products.
Another strength we have in the cosmetic and drug
store business is the ability to rapidly introduce new
products, thanks to the considerable discretion given toeach store. That freedom of movement allows stores toadjust merchandise lineups and change retail displays on a
weekly basis to keep customers interested and to put more
focus on trending items. That operational flexibility drives
sales growth and helps stores remain highly profitable.
Approaches that are successful at individual stores are
immediately rolled out to other stores in the ainz & tulpe
chain. We avoid competing directly with conventional
drug stores, which typically sell a mix of drugs, food anddaily necessities at discounted prices. Our unique retail
formats are also different to traditional department stores.
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.
Going forward, we aim to tap into the expertise andexperience of the many pharmacists in the AIN Group to
develop health and beauty products and new product ideas
with the kind of functionality that appeals to our customers. We
will also create flagship products with dominant brand positions.

Decides which
new products to launchStoresManagers at each store hold merchandise meetings once or
twice a week to gather data on popular items and sales trends
at their stores and across the ainz & tulpe chain. Each store
rapidly implements all aspects of merchandising and display
design using information gained from the meetings, taking
into account the store’s location and its customer segments.

Preliminary
research into
popular items

Merchandise
meetings

Create stores where womencustomers would be happy
to browse for an hour

Changemerchandiseand displays
once or twicea weekLIPS and HIPS Clenz Series

LIPS and HIPS

18 AIN HOLDINGS ANNUAL REPORT 2019

Department
storesainz & tulpe

ainz & tulpe SHIBUYA KOEN DORIAYURA

AIN HOLDINGS ANNUAL REPORT 201919

Growth Strategy: Cosmetic and Drug Store Businessainz & tulpe ABENO Hoop

	Expansion of ainz & tulpe
FY12/4

14/4

13/4

15/4

16/4

Flagship store in metropolitan area

17/4

18/4

19/4

20/4

21/4

22/4

First store opened in flagshipdepartment store building

ainz & tulpe
SHINJUKU HIGASHIGUCHIainz & tulpe
KEIO DEPARTMENT STORE SHINJUKU(Opened in July 2015)(Opened in March 2017)

Resumed store openings in Kansai

ainz & tulpe ABENO Hoopainz & tulpe UMEDA HEP FIVE
(Opened in April 2019)

Returned to
the Kansai market

In fiscal 2019, ended April 30, 2019, the cosmetic anddrug store business reported sales of ¥25,210 million, up
4.5%, and segment income of ¥972 million, up 48.0%
year on year. That was supported by a strong performanceat existing stores and a more rapid move into profitability
at new stores. The power of the ainz & tulpe brand has
grown significantly and our business model is now capableof reliably generating profits.
Since 2015, we have opened a string of large flagshipstores in prime locations in the metropolitan area, including
Shinjuku and Ginza in central Tokyo. In fiscal 2019 we
opened seven stores in major cities, including a return to
the Kansai market, where we opened two stores. We closed
one suburban store, taking the total number of ainz & tulpe
stores to 54. Property developers have been taking a closeinterest in the formats, because they can attract young
shoppers and are easily adapted to different types of tenant
locations, illustrated by the success of compact stores likeainz & tulpe KEIO DEPARTMENT STORE SHINJUKU (Shinjuku,
Tokyo; retail space: roughly 260m 2). We have received
numerous requests to open new stores in urban retailfacilities, station retail spaces and other prime locations.
Given that demand, we plan to continue opening stores at
a steady pace, including in the Kansai area.
We are upgrading logistics infrastructure in the cosmetic

20 AIN HOLDINGS ANNUAL REPORT 2019with two new stores:

and drug store business as part of the Group’s broader IT
and logistics reforms. Specifically, we have opened two
proprietary logistics centers, one in the Kanto area and theother in Hokkaido. We have also linked logistics with a newautomated ordering system and a store area-based orderand delivery system to further improve efficiency in store
operations. On the other hand, we are rebuilding our online
retail presence. Our new website, which we plan to launch
during fiscal 2020, is designed to work s eamlessly with ourphysical ainz & tulpe stores and an ainz & tulpe app.
Going forward, we will continue to open new flagshipstores in prime locations and refurbish existing stores tocreate fun retail experiences for our customers. We aim tostrengthen and raise the visibility of the ainz & tulpe brand,so that in the long term our ainz & tulpe retail formats andbrand are recognized as one and the same.
In the cosmetic and drug store business, we are targeting
sales of ¥45,000 million and an operating margin of 7%
in fiscal 2022, ending April 30, 2022. We will continue toaggressively develop the business and create unique retailareas as part of our strategy of avoiding direct competition
with existing retail stores and cosmetics manufacturers. By
improving profitability, we aim to transform the cosmetic
and drug store business into the AIN Group’s medium- tolong-term growth driver.

45,00037.8

40,000ainz & tulpe ABENO Hoopainz & tulpe UMEDA HEP FIVE（%）

(Opened in September 2015)

50,000

42.0%

38.4

50

40

31.6
30,00020,00025,210Net sales30

20

15,30010,000028,500

3.6
12/4

13/4

Operating margin

14/4

15/4

16/4

17/4

18/4

19/4

4.5
20/4
(plan)

7.0%
21/4(plan)

22/4(plan)

10

Operating margin / Gross profit margin

Establishing the ainz & tulpe Brand
to Drive Growth

Le trois（¥ million）

Net sales> Brand

Total beauty retail building0

Gross profit margin

A Message fromthe Executive Officer

Kaori Ishikawa
Executive Officer,
Division Manager of Cosmetic
and Drug Store Operating Management

Creating stores where women customers are happy tobrowse for an hour
Our ainz & tulpe stores are designed around a simple concept– create retail spaces where women customers would be
happy to browse for an hour. Based on that concept, we
aim to stand apart from rival drug store chains by taking
a different approach to conventional retail trends andleveraging our unique store operations, which are tailored tothe characteristics of each location.
We are also responding to much faster changes in
consumer needs, which are being driven by rapid growth in
the use of social media, particularly among young women.
To ensure our customers keep coming back, we work to stay
on top of the latest trends, source products from emerging

manufacturers and create in-store displays that are frequently
updated with new merchandise. Thanks to that merchandising
approach, ainz & tulpe is now recognized as a chain of
specialist cosmetics stores that always stocks the latest
trend-setting products. As that reputation has become morewidespread, we have been able to attract more customers, aswell as improve our negotiating position with manufacturers
in product purchasing. That in turn has supported higher salesof original brands – a key factor behind the move into profit in
the cosmetic and drug store business.
Building on strong momentum at our stores in Sapporo andthe Tokyo metropolitan area, we returned to the Kansai market
in fiscal 2019 with the opening of two new stores. In fiscal
2020, we aim to open more stores in major urban markets,
including Kyoto and Nagoya. Along with the expansion of ourphysical store network, we plan to launch a new online site infiscal 2020 to meet all the needs of consumers.
We aim to grow the cosmetic and drug store businessfurther by aggressively opening new stores in major cities
nationwide and by continuing to develop national brand tie-in
products and expand our range of original products.

AIN HOLDINGS ANNUAL REPORT 201921

Corporate Governance(As of July 30, 2019)

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.

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
100%
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*
51
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, Noriko Endo and Junro Ito and outside
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 LLCOUTSIDE 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

Ko MoriYasuyuki
Hamada*Data is for the fiscal year ended April 2019.

Corporate governance structure
General Meeting of Shareholders
Appointment / Dismissal

Appointment/ Dismissal

Board of Directors
Outside Directors
Appointment

Appointment

Suggestion

Appointment

Appointment / Dismissal
Nomination and Remuneration
Committees

Compliance
Committee

Accounting Auditors

Audit

Audit

Representative
Directors

NorikoEndo

Cooperation

ReportingBusiness execution

Executive Officers
Board ofManaging Directors

Appointment / Dismissal

Board ofCorporate Auditors

Management
Meeting

ReportingInternal Audit Office

Reporting
Audit
Store Development
Division

Dispensing Pharmacy
Operating Management
Division

Cosmetic and Drug StoreOperating Management
Division

Guidance

Operational Support
Division

ReportingGroup Companies

22 AIN HOLDINGS ANNUAL REPORT 2019

Information Technology
Division

Audit

Junro Ito

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.
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.
Mr. Junro Ito 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 knowledgeof environmental, social and corporate governance (ESG)
issues and his experience leading group companies as the
director of a major retailer. The major retailer is one of theCompany’s major shareholders, but it’s holding is less than
10%. In addition, one of the Company’s subsidiaries hasa leasing contract with the major retailer, but the level ofmutual dependence is judged to be low as the value ofthe contract is negligible. There are no other affiliations
that raise questions about Mr. Ito’s independence from theCompany’s senior management team. Mr. Ito is judged tohave no conflicts of interest with ordinary shareholders andhas 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 2019 is as follows:
Item

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

Total
remuneration(¥ million)

Remuneration by type(¥ million)
Basic
Bonus
remuneration

Numberof eligible
individuals

174

146

28

6

7

7

0

1

Outside directors

15

15

–

3

Outside corporate
auditors

11

11

–

2

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 2019 are as follows:(¥ million)
Compensation paid foraudit certification activities

The Company
Consolidated
subsidiaries
Total

Compensation paid for
non-audit activities

39

–

7

–

46

–

AIN HOLDINGS ANNUAL REPORT 201923

Board of Directors and Corporate Auditors(As of July 30, 2019)*Figures in brackets show the number of AIN HOLDINGS shares held as of April 30, 2019.

BOARD OF DIRECTORSCORPORATE AUDITORS

Kiichi Otani

Miya Oishi

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

Managing Director
In charge of Dispensing Pharmacy Operating Management(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)

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
Representative Senior Managing Director(current post)

Shoichi Shudo
Representative Senior Managing Director
In charge of Store Development(9,500 shares)
April 1978
March 1982
May 1993
July 2000
May 2003
May 2004
May 2012
November 2015

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
Division Manager of Dispensing Pharmacy
Business
Senior Managing Director
Representative Senior Managing Director in
charge of store development (current post)

September 1990 Joined KYOEIDO Co., Ltd.
July 1993
Director of DAICHIKU Co., Ltd.
(current post)
July 2008
Representative Director of same company
April 2011
Vice President and Representative Directorof AIN MEDICAL SYSTEMS INC. (now AINHOLDINGS INC.)
February 2012 President and Representative Director ofsame company
July 2012
Director of the Company
July 2014
Managing Director (current post)
November 2015 President and Representative Director of
AIN PHARMACIEZ INC. (current post)
May 2019
In charge of Dispensing Pharmacy Operating
Management (current post)

July 2000
February 2001
May 2003
May 2012
November 2015
July 201824 AIN HOLDINGS ANNUAL REPORT 2019

Joined SSP Co., Ltd.
Joined Otani Corporation (now AINHOLDINGS INC.)
Director
Division Manager of Cosmetic and DrugStore Business
Managing Director
Senior Managing Director
Representative Senior Managing Director(current post)
In charge of operating management,
operational support and information
technology (current post)

April 2004
June 2006
June 2007
July 2012

May 2003
May 2004
August 2009
July 2014
July 2016
July 2018

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

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.
Outside Director of the Company(current post)

Director Outside(2,000 shares)
April 1997

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)
In charge of Personnel Department(current post)

Independent

Yasuyuki Hamada

Director
In charge of Personnel Department(6,000 shares)

Toshihide Mizushima

April 1982
April 1986

April 1971
April 2002

April 1991

April 1986
December 1995

Koichi Kawamura

Director Outside(- shares)

Rieko Kimei

July 2018

Representative Senior Managing Director
In charge of Operating Management,
Operational Support and Information Technology(27,600 shares)

Ko Mori

April 2003
April 2010
April 2014
December 2014
July 2015

Independent

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)

Noriko Endo
Director Outside(- shares)

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)
June 2019
Outside Director of Hankyu Hanshin
Holdings, Inc. (current post)
Outside Director of VLC HOLDINGS CO., LTD.
(current post)

Corporate Auditor (full-time)(5,000 shares)
October 1985
July 1997
May 2003
July 2012

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

Akira Ibayashi
Corporate Auditor Outside(- shares)
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)
April 1972
June 1994
June 1996
October 2007
August 2011
June 2012
July 2016
August 2018

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)
Chairman of Executive Partners Inc.
(current post)

Junro Ito
Masato Sakai
Director
Division Manager of Store Development(7,400 shares)
April 1995
January 1999
May 2004
May 2006
July 2011
June 2014
December 2016
July 2018
May 2019

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)
Division Manager of Store Development(current post)

Director Outside(- shares)

Independent

August 1990
May 2009

Joined Seven-Eleven Japan Co., Ltd.
Director of Seven and i Holdings Co., Ltd.
(current post)
Executive Officer, Senior Officer, Corporate
Development Division,
Seven and i Holdings Co., Ltd.
April 2011
Senior Officer, CSR Management Division,
Seven and i Holdings Co., Ltd.
May 2016
Given responsibility for all Group companiesof Seven and i Holdings Co., Ltd.
July 2016
Senior Officer, Affiliate Company Division
Seven and i Holdings Co., Ltd.
December 2016 Managing Executive Officer, General
Manager, Corporate Development Division,
Seven and i Holdings Co., Ltd.
March 2018
Director, Ito-Yokado Co., Ltd. (current post)
July 2019
Outside Director of the Company(current post)

AIN HOLDINGS ANNUAL REPORT 201925

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 anddispensing drugs based on prescriptions. Drug prices and dispensing
fees* are stipulated by the Ministry of Health, Labour and 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 between companies in the sector is
likely to widen due to developments in the operating environment
amid deregulation and changes to systems such as dispensing fee

reimbursements. However, the Group regards these changes in
the operating environment as a perfect opportunity to push ahead
with its strategy of further increasing profitability.

For the fiscal year under review, net sales rose 2.7% year on
year to ¥275,596 million, operating income decreased 18.1%
to ¥16,067 million, ordinary income declined 17.3% to ¥16,637
million and profit attributable to owners of parent decreased
14.6% year on year to ¥9,029 million.
As of the end of the fiscal year, the number of stores in theGroup totaled 1,186, a net increase of 109 stores from the end of
the previous fiscal year.

*	Dispensing fees comprise intelligent fees and technical fees for pharmacists.

BUSINESS RESULTS BY SEGMENT

BUSINESS OVERVIEW FOR THE FISCAL YEARUNDER REVIEW
During the fiscal year ended April 30, 2019, 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 Group worked to expand its
business and increase earnings. Specifically, the Group opened new
dispensing pharmacies and used M&A to expand the business. It
also further developed its cosmetic and drug store business.
In addition, as part of promoting work style reforms, the Grouphas decided to implement a new system that allows employees toselect their prescribed working hours. The new system, which will
come into effect from April 2020, is designed to create working
environments better suited to the lifestyles of each employee.
Going forward, the Group will continue to put in place systems
that promote work style reforms in line with the increasingly diverse
lifestyles and values of employees, not limited to their parenting
and nursing care commitments.

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 257 new pharmacist graduates
joining the Group in April 2019. 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 continued to overhaul
dispensing pharmacy operations and push ahead with businessexpansion by opening new dispensing pharmacies and using M&A
deals, including making two companies subsidiaries of the Group,
KOM MEDICAL INC. (Sanjo, Niigata Prefecture) and TSUCHIYAYAKUHIN INC. (Nagano, Nagano Prefecture).

During the fiscal year under review, the dispensing pharmacy
business reported sales of ¥245,003 million, up 2.7% year on year,
and segment income of ¥18,331 million, down 19.1%.
During the same period, the Group opened 157 new dispensing
pharmacies, including those acquired through M&A deals, andclosed 54 pharmacies, resulting in a total of 1,132.
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 that backdrop, the Group continued to open ainz &tulpe cosmetic and drug stores in the Tokyo metropolitan area andresumed its store opening program in the Kansai area. In addition,
the Group worked to make stores more appealing by refurbishingexisting stores and strengthening merchandise lineups, particularly
cosmetic and drug products. As a result, sales from existing storesincreased year on year, while sales from stores opened in theprevious fiscal year made a significant contribution to overall sales
in the segment. Earnings also improved, supported by active efforts
to develop LIPS and HIPS, cocodecica and other original brands andby an overhaul of procurement activities in the previous year.
As a result, for the fiscal year under review, the cosmetic anddrug store business reported sales and profit growth with sales
rising 4.5% year on year to ¥25,210 million and segment income
increasing 48.0% to ¥972 million.
During the same period, the Group opened ainz & tulpe stores:ainz & tulpe HIGASHI IKEBUKURO (Toshima Ward, Tokyo), ainz
& tulpe olinas KINSHICHO (Sumida Ward, Tokyo), ainz & tulpe
SHIBUYA KOEN DORI (Shibuya Ward, Tokyo) , ainz & tulpe SOKA

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: Cosmetic and drug store business
Per share information (¥):
Earings*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 2019(¥ million)

2009/4

2010/4

2011/4

2012/42013/4

2014/4

2015/4

2016/42017/42018/4

2019/4

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
10,567
5,311
3,596

275,596
29,295
16,067
9,029
9,919
3,903

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
183,380
35,427,524
6,498
1,029
48

103,855
103,922
189,02135,427,484
7,662
1,132
54

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

254.872,931.48
55.0

1,481

2,920

3,115

4,290

4,765

4,495

4,245

5,340

7,720

7,300

8,840

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

5.8
3.3
4.8
9.0
54.9

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. Earnings
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 201927

Financial Section

VARIE (Soka, Saitama Prefecture), ainz & tulpe FUCHU FORIS (Fuchu,
Tokyo), ainz & tulpe ABENO Hoop (Abeno Ward, Osaka) and ainz
& tulpe UMEDA HEP FIVE (Kita Ward, Osaka) and closed one store,
resulting in a total of 54 cosmetic and drug stores at the end of the
fiscal year.
Other Businesses
Net sales from other businesses decreased 4.3% year on year to¥5,382 million and segment loss was ¥165 million compared withthe loss of ¥1,164 million a year earlier.

FINANCIAL POSITION
The balance of total assets at the end of the fiscal year increasedby ¥5,641 million from the end of the previous fiscal year to¥189,021 million. That mainly reflected a decline in cash on
hand and in banks due to the repayment of loans and income
taxes paid, which outweighed an increase in fixed assets such as
inventories, land and buildings, as well as goodwill, due to newstore openings and M&A.
Current assets at the end of the fiscal year under review totaled¥85,446 million, a decrease of ¥9,111 million from ¥94,557 million
at the end of the previous fiscal year. This mainly reflected a decline
in cash on hand and in banks of ¥15,688 million to ¥48,091 million.
Fixed assets at the end of the fiscal year under review totaled¥103,515 million, an increase of ¥14,797 million from ¥88,718
million at the end of the previous fiscal year. This was mainly due
to investment in new stores and an increase in fixed assets andgoodwill related to consolidated subsidiaries that became part of
the Group through M&A deals.
The balance of current liabilities at the end of the fiscal year
under review was ¥73,744 million, an increase of ¥3,794 million
from ¥69,950 million at the end of the previous fiscal year, while
the balance of long-term liabilities was ¥11,355 million, down
¥5,341 million from ¥16,696 million a year earlier.
As a result, the balance of total liabilities was ¥85,099 million,a decline of ¥1,547 million from ¥86,646 million at the end of theprevious fiscal year.
The balance of net assets at the end of the fiscal year underreview was ¥103,922 million, an increase of ¥7,189 million from¥96,733 million at the end of the previous fiscal year. As a result,the shareholders’ equity ratio increased 2.2 percentage points to
54.9%, compared with 52.7% at the end of the previous fiscal
year. ROA declined 1.4 percentage points to 4.8% and ROE
dropped 4.5 percentage points to 9.0%.

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 full-year
dividend of ¥55 per share, an increase of ¥5 per share from theprevious fiscal year.

28 AIN HOLDINGS ANNUAL REPORT 2019

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, 2020.

CASH FLOWSIn the fiscal year under review, cash and cash equivalents (“cash”)
decreased ¥15,737 million year on year to ¥47,495 million. This
reflected operating cash flow generated by dispensing pharmacy
and cosmetic and drug store businesses, which was mainly used toactively invest in new store openings and M&A.
Some cash was also retained to provide constant access to acertain 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 ¥14,788 million,
compared with net cash provided of ¥21,656 million in the previous
fiscal year.
The main items that were positive for cash flow were income
before income taxes of ¥15,624 million, as well as depreciation
and amortization of ¥3,903 million and amortization of goodwillof ¥4,183 million related to business expansion through new store
openings and M&A.
The main item negative for cash flow was income taxes paid of¥9,341 million.
Cash Flows from Investing Activities
Net cash used in investing activities was ¥19,985 million, comparedwith net cash used of ¥5,281 million in the previous fiscal year.
This mainly reflected payments of ¥13,246 million forpurchases of shares in subsidiaries due to changes in the scope of
consolidation related to shares acquired in 12 companies throughM&A deals, ¥3,761 million for purchases of property, plant andequipment related to the opening of new cosmetic and drug storesand dispensing pharmacies, and ¥4,469 million for payments ofleasehold and guarantee deposits.
Cash Flows from Financing Activities
Net cash used in financing activities was ¥10,681 million, comparedwith net cash provided of ¥17,623 million in the previous fiscal year.
The main cash outflows were net repayment of ¥8,369 million
from short-term and long-term debt repayment and proceeds, and¥1,771 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 Pharmaceutical andMedical Device Law), the Health Insurance Law, and the Pharmacists

Law, under the supervision of the Ministry of Health, Labour andWelfare, 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 sale of OTC drugs online. Factors such as the entry into
the market of companies from other industries as a result of acontinuing 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 and bytrends 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 tocontract medical expenses, both medical treatment fees and drug
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 the Group’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 havea severely damaging effect on society’s confidence in the Group,
and we place the highest priority on measures to avoid the risk fromall 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 throughpersonal information protection systems and the rigorous enforcementof rules on the handling of such information. Also, key subsidiary AIN
PHARMACIEZ INC. has acquired Privacy Mark accreditation in thehealthcare, medical and social service fields. However, we believe it
is possible that any accidental or illegal leakage of personal data
may not only affect the Group’s performance but also lead to a lossof 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 ¥48,091 million, compared with a
total balance of short- and long-term debt of ¥11,556 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 thepast, when consumption tax was introduced and dispensing fees
were revised, the government took into account the 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 the Group’s operating results.

AIN HOLDINGS ANNUAL REPORT 201929

AIN HOLDINGS INC.
AIN HOLDINGS INC.
CONSOLIDATED BALANCE SHEETCONSOLIDATED BALANCE SHEETAS OF APRIL 30, 2019ASSETSASSETSAS OF APRIL 30, 2019

Millions of yen
2019
2018

Current assets:
Current assets:
Cash on hand and in banks (Notes
Cash2 onandhand4) and¥ 48,091
in banks (Notes¥ 63,779
2 and 4)
Notes and accounts receivable Notes(Note 4)and accounts
12,771
receivable (Note10,466
4)
Other accounts receivable
Other accounts receivable
8,438
7,751
Inventories (Note 3)Inventories (Note 3)
12,898
9,580
Short-term loans
Short-term loans
236
641
Other current assets
Other current assets3,012
2,470
Allowance for doubtful accountsAllowance for doubtful accounts
(2)
(131)
Total current assets
Total current assets
85,446
94,557

Thousands ofThousands of
U.S. dollars
U.S. dollars(Note Millions
1(1)) of yen(Note 1(1))
2019
2019
2018
LIABILITIES AND
2019NET ASSETSLIABILITIES AND NET ASSETS

Current liabilities:
Current liabilities:¥$ 48,091
430,614 ¥ 63,779
Accounts$payable
430,614(Note 4)
Accounts payable (Note 4)¥ 44,794
12,771
114,353
10,466
Short-term debt
114,353(Notes 4 and 7)Short-term debt (Notes 4 and 7)
5,571
8,438
75,555
7,751
Accrued income
75,555taxes
Accrued income taxes
3,261
12,898
115,4909,580
Deposits received
115,490
Deposits received
12,737
236
2,113
641
Allowance for bonuses
2,113 to employees
Allowance for bonuses to employees
2,139
3,012
26,9692,470
Allowance for bonuses
26,969 to directors
Allowance for bonuses to directors
17(2)(17)(131)
Reserve for reward(17)obligations Reserve for reward obligations
450
85,446765,096
94,557
Provision for sales
765,096
returns
Provision for sales returns
Other current liabilities
Other current liabilities
4,772
Total current liabilities
Total current liabilities
73,744

Property, plant and equipment (NoteProperty,6): plant and equipment (Note 6):
Buildings and structures, net Buildings and structures,
16,352 net
14,934LandLand
10,394
10,041
Construction in progress
Construction in progress
283
118
Other property, plant and equipment,
Other property,
net
plant
3,155
and equipment,
2,759
net
Total property, plant and equipment
Total property, plant
30,186and equipment
27,853

16,352
146,418
10,394
93,069
283
2,534
3,155
28,25030,186
270,290

Investments and other assets: Investments and other assets:
Investment securities (Notes 4 andInvestment
5)
securities
1,795(Notes 4 and 5)
2,375
Deferred tax assets (Note 10) Deferred tax assets4,284(Note 10)
3,772
Net defined benefit asset (Note Net9) defined benefit asset
15 (Note 9)9Long-term loans
Long-term loans 1,351
789
Deposits and guarantees
Deposits and guarantees
15,133
11,339Goodwill
Goodwill
45,24938,011Other intangible fixed assets Other intangible fixed
2,327
assets2,121
Other investments and other assets
Other investments and4,853
other assets2,985
Allowance for doubtful accountsAllowance for doubtful(1,683)
accounts(540)
Total investments and other assets
Total investments
73,328and other assets
60,864

1,795
16,072
4,284
38,35915134
1,351
12,097
15,133
135,50345,249405,166
2,327
20,836
4,853
43,454(1,683)(15,069)
73,328656,590

Deferred Assets:
Share issuance cost
Total deferred assets
Total assets

Deferred Assets:
Share issuance cost 59
Total deferred assets59
Total assets ¥ 189,021

See accompanying notes.

See accompanying notes.

30 AIN HOLDINGS ANNUAL REPORT 2019103
103
¥ 183,380

Millions of yen
2018
2019

14,934Long-term liabilities:
146,418
Long-term liabilities:
10,041Long-term debt93,069(Notes 4 and 7)Long-term debt (Notes 4 and 7)
118
Lease obligations
2,534
Lease obligations
2,759
Net defined benefit
28,250liability (NoteNet9) defined benefit liability (Note 9)27,853
Other long-term
270,290
liabilities
Other long-term liabilities
Total long-term liabilities
Total long-term liabilities

5,985
401
2,977
1,989
11,355¥ 38,728
6,717
4,947
12,675
1,911
16
420
6
4,525
69,95011,511
632
2,625
1,927
16,696

2,375
16,072
Net Assets: (Note11)
Net Assets: (Note 11)
3,772
Shareholders’ equity
38,359
Shareholders’ equity
Common9
stock (Note134 13)
Common stock (Note 13)
21,894
21,894
789Authorized - 12,097
44,000,000 sharesAuthorized
in 2019 and- 44,000,000
2018
shares in 2019 and 201811,339Issued - 35,428,212
135,503 shares in 2019
Issuedand- 35,428,212
2018
shares in 2019 and 2018
20,50038,011
Capital surplus
405,166
Capital surplus
20,5002,121
Retained earnings
20,836
Retained earnings
61,52654,2682,985
Treasury stock43,454(728 shares in 2019
Treasuryand 688stock
shares(728 sharesin 2018)
in 2019 and 688 shares(2) in 2018) (1)(540)
Total shareholders’(15,069) equity
Total shareholders’ equity
103,920
96,66260,864
Accumulated other656,590
comprehensive
Accumulated
income: other comprehensive income:Unrealized holding (losses) gains
Unrealized
on securities
holding (losses) gains on securities(6)84Remeasurments of defined benefit
Remeasurments
plans
of defined benefit plans
(59)
(50)
Total accumulated other comprehensive
Total accumulated(loss) income
other comprehensive (loss)(65) income
3459528
Non-controlling103
interests
528
Non-controlling interests
67
36
59528
103
Total net assets528
Total net assets
103,922
96,733¥$189,021
1,692,523 ¥ 183,380Total liabilities$ 1,692,523
and net assets Total liabilities and net assets¥ 189,021¥ 183,380

Thousands of
U.S. dollars(Note Millions
1(1)) of yen
2019
2018
2019

Thousands of
U.S. dollars(Note 1(1))
2019¥$ 44,794
401,092 ¥ 38,728
5,571
49,8836,717
3,261
29,1994,947
12,737
114,049
12,675
2,139
19,152
1,911
17152
16
450
4,029
420
- 6
4,772
42,7294,525
73,744660,315
69,950$401,092
49,88329,199114,049
19,152
152
4,029
42,729660,315-

5,985
53,590
401
3,590
2,977
26,656
1,989
17,80911,355
101,674

11,511
632
2,625
1,927
16,69653,5903,590
26,656
17,809101,674

196,042
21,894

21,894

196,042

183,560
20,50061,526550,913(2)(17)
103,920
930,515

20,50054,268(1)
96,662

183,560
550,913(17)
930,515(6)(53)
84
(528)
(59)
(50)
(582)
(65)
34
67599
36
103,922930,533
96,733¥$189,021
1,692,523 ¥ 183,380

(53)
(528)
(582)
599
930,533$ 1,692,523

AIN HOLDINGS ANNUAL REPORT 201931

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETSAIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME

YEAR ENDED APRIL 30, 2019YEAR ENDED APRIL 30, 2019

Net sales (Note 14)
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
Gain on sales of investments in capitalInterest 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
Loss on valuation of investments in capital
Other, net¥

Profit before income taxes
Income taxes (Note 10):
Current
DeferredProfitProfit (loss) attributable to non-controlling interests
Profit attributable to owners of parent¥

Millions of yen
2019
2018
275,596¥ 268,385
230,233
220,392
45,36347,99329,29528,37016,067
19,622Thousands of
U.S. dollars(Note 1(1))
2019$ 2,467,729
2,061,541
406,187
262,311
143,866

109
17
38
274
158
68
38
7
312
23
550
(125)
(71)
(95)
(24)
(695)
(766)
(265)
(442)
15,624

101
136
61
181
201
70
76
8
59
31

(117)
(71)
(88)
(200)
(624)
(1,175)
(127)
(440)
148
(1,770)17,852

976
152
340
2,453
1,414
608
340
62
2,793
205
4,924
(1,119)
(635)
(850)
(214)
(6,223)(6,858)(2,372)(3,957)
139,899

6,794
(230)
6,564
9,060
30
9,029

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

60,834(2,059)58,775
81,124268
80,847¥$AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

Thousands ofsharesMillions of yen
Shareholders' equity

Number ofshares ofcommon 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
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, 2019

31,8883,540

3,540
35,42835,428

Common stock¥-

13,212
21,894¥Comprehensive income attributable toowners of parent
Comprehensive income (loss) attributable tonon-controlling interests¥

21,894¥-

6,367
13,212921
14,13320,500¥20,500¥45,286¥

10,567(1,585)
8,982
54,2689,029(1,771)
7,257
61,526-

Total
shareholders’equityTreasury stock

-

¥

(419)
(0)
418
417
(1)
(0)
(0)
(2)

¥

¥

¥

59,91826,424
10,567(1,585)(0)
1,339
36,744
96,662
9,029(1,771)(0)
7,257
103,920

Millions of yen

Accumulated other comprehensive income (loss)

Remeasurmentsof defined
benefit plans

Unrealized
holding gains(losses) on
securities

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
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, 2019

¥

¥

86

(1)
(1)
84
(91)
(91)
(6)

¥

¥

101

(152)
(152)
(50)
(8)
(8)
(59)

Total accumulated
othercomprehensive
income (loss)

¥

187

(153)
(153)
34
(99)
(99)
(65)

¥

Non-controllinginterests

¥

73

(37)
(37)
36
30
30
67

¥

Total net assets¥¥

60,17826,424
10,567(1,585)
(0)
1,339
(190)
36,55496,733
9,029(1,771)
(0)
(68)
7,188
103,922

Thousands of U.S. dollars (Note 1(1))
Shareholders' equity

Common stock

Balance at April 30, 2018
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, 2019$

196,042$

196,042-

Retainedearnings

Capital surplus$

183,560$

183,560-$

485,924
80,847(15,857)
64,980550,913$

Total
shareholders’equityTreasury stock

$

(8)
(0)
(0)
(17)

$

$

$

865,526
80,847(15,857)(0)64,980930,515

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

Accumulated other comprehensive income (loss)

YEAR ENDED APRIL 30, 2019

ProfitOther comprehensive income:Unrealized holding losses on securities
Remeasurements of defined benefit plans, net of tax
Total other comprehensive loss
Total comprehensive income

8,682
13,212Retainedearnings

Capital surplus

Millions of yen
2019
2018
9,060
¥
10,530Thousands of
U.S. dollars(Note 1(1))
2019$
81,124

Balance at April 30, 2018
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, 2019

See accompanying notes.

(91)
(8)
(99)
8,960

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

(814)
(71)
(886)
80,2298,929

10,413

79,951

30

(37)

268

Remeasurmentsof defined
benefit plans

Unrealized
holding gains(losses) on
securities

$

$

752

(814)
(814)
(53)

$

$

(447)
(71)
(71)
(528)

Total accumulated
othercomprehensive
income (loss)

$

$

304

(886)
(886)
(582)

Non-controllinginterests

$

322

$

268
268
599

-

Total net assets$$

866,162
80,847(15,857)(0)(608)
64,362
930,533

See accompanying notes.
32 AIN HOLDINGS ANNUAL REPORT 2019

AIN HOLDINGS ANNUAL REPORT 201933

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

YEAR ENDED APRIL 30, 2019

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

YEARS ENDED APRIL 30, 2019 AND 2018

Thousands of
U.S. dollars(Note 1(1))
2019Millions of yen
2019
2018
¥ 15,624
3,903
4,183
149
766

¥ 17,852
3,596
3,937
1,175
440

-

$ 139,899
34,94837,455
1,334
6,858

(550)
(155)
186
(312)
152
(109)
125
(17)
179
656
843
(2,054)
335
(407)
1,685
(1,038)24,146109(125)(9,341)
14,788

313
157
(59)
0
(101)
117
(135)
548
(25)
2,278
64
1,685
(1,076)(3,611)
27,157104(117)(5,487)21,656(4,924)(1,387)
1,665(2,793)
1,361
(976)
1,119
(152)
1,602
5,873
7,548
(18,391)
2,999(3,644)15,087(9,294)
216,207976(1,119)(83,640)
132,414

Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of subsidiaries' shares resulting in obtaining controls
Payments for loans receivable
Proceeds from collections of loans receivable
Proceeds from collections of investments in capital
Payments for purchase of intangible fixed assets
Payments of leasehold and guarantee deposits
Proceeds from refund of leasehold and guarantee deposits
Increase in other investments
Proceeds from withdrawal of time deposits
Other, net
Net cash used in investing activities(3,761)
783(13,246)
(118)
626
850
(1,228)(4,469)
808
(820)
616
(27)
(19,985)(3,134)421(1,310)
(404)
482
1
(574)
(1,369)
718
(217)
152
(46)
(5,281)(33,676)
7,011(118,606)(1,056)
5,605
7,611(10,995)(40,016)
7,234(7,342)5,515(241)(178,948)

Cash flows from financing activities:
Net repayments from short-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 (used) provided by financing activities(1,599)(6,771)(539)(1,771)
0(10,681)(119)(7,656)(646)
26,292
1,339(1,585)(0)
17,623(14,317)(60,628)(4,826)(15,857)
0(95,639)

Net (decrease) increase in cash and cash equivalents(15,878)
Cash and cash equivalents at beginning of year
63,233
Increase in cash and cash equivalents resulting from merger with unconsolidated subsidiaries
140
Cash and cash equivalents at end of the year (Note 2)¥ 47,495

33,99829,234(142,174)
566,198
1,253$ 425,277

See accompanying notes.

¥ 63,233--

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, 2019, which was ¥111.68 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 68 and 73
subsidiaries as of April 30, 2019 and 2018, 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. and Hiro Corporation Ltd. close its accounts on April 30. The account closing date for sevenconsolidated subsidiaries in the dispensing pharmacy business is the end of January. The accountclosing dates for seven 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 June and September, respectively. The account closing date of otherconsolidated subsidiaries is the end of March 31. Financial statements as of these respective closing
dates are used in preparing the consolidated financial statements. However, necessary adjustments
are made to important transactions that occur between these subsidiaries’ account closing dates andthe 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 2019

AIN HOLDINGS ANNUAL REPORT 201935

(hereafter, "held-to-maturity debt securities"), (c) other securities that are not classified in any of theabove categories (hereafter, "available-for-sale securities").
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.
(5) Inventories
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 value of
assets 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 1.5% and 1.4% for
the year ended April 30, 2019 and 2018, respectively.
(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.
(10) Bonuses to employees
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.
(11) Bonuses to directors
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.
(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.

36 AIN HOLDINGS ANNUAL REPORT 2019

AIN HOLDINGS ANNUAL REPORT 201937

(17) Consumption taxes

2. Cash and cash equivalents

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.

(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, 2019 and 2018 are as follows:

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) Unapplied accounting standards
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.
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.
(19) Reclassification and restatement
Partial Amendments to Accounting Standard for Tax Effect Accounting
The Company and its consolidated subsidiaries have adopted “Partial Amendments of AccountingStandard for Tax Effect Accounting” (ASBJ Statement No. 28, February 16, 2018) (the “Partial
Amendments”) from the begging of the fiscal year ended April 30, 2019. As such, deferred tax assets
and deferred tax liabilities are included within investments and other assets and long-term liabilities,
respectively, and related income tax disclosures have been expanded.
As a result, the total of ¥1,611 million of deferred tax assets in current assets and ¥55 million of othercurrent liabilities in current liabilities, and ¥229 million of other current liabilities in current liabilities
previously presented in consolidated balance sheet as of April 30, 2018 have been reclassified andincluded with in ¥3,772 million of deferred tax assets in investments and other assets and ¥1,927
million of other long-term liabilities in long-term liabilities, respectively.
Also, “Note 10 Income Taxes” in the Notes to the consolidated financial statements has been expandedin accordance with Note 8 and Note 9 of Interpretive Notes to Accounting for Tax Effect Accounting.
However, comparative information for the year ended April 30, 2018 has not been disclosed in Note 10
in accordance with the transitional provisions set forth in Article 7 of the Partial Amendments.

38 AIN HOLDINGS ANNUAL REPORT 2019

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

Millions of yen
2019
2018
¥ 48,091¥ 63,779

Thousands of
U.S. dollars
2019$
430,614(595)¥ 47,495$(546)¥ 63,233(5,327)425,277(2) The following table summarizes assets acquired and liabilities assumed through the acquisition ofshares of the companies relating acquisition cost and net disbursement:(a) Major breakdown of assets and liabilities of companies newly included in the consolidated
financial statements for the years ended April 30, 2019 and 2018 due to the acquisition of shares(i) Acquisition of shares of 12 companies in the dispensing pharmacy business for the year endedApril 30, 2019
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

Millions of yen
2019
¥
9,799
3,553
11,568(7,127)(1,760)16,033Thousands of
U.S. dollars
2019$
87,741
31,814
103,581(63,816)(15,759)
143,561(2,786)(24,946)¥

13,246$

118,606(ii) Acquisition of shares of seven companies in the dispensing pharmacy business 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)
(49)
(298)
¥

1,310

AIN HOLDINGS ANNUAL REPORT 201939

3. Inventories
Inventories at April 30, 2019 and 2018 consisted of the following:

Merchandise
Supplies

Millions of yen
2019
2018
¥ 12,673
¥
9,372
225
208
¥ 12,898¥
9,580

Thousands of
U.S. dollars
2019$
113,476
2,014$
115,490

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.
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 16 years from the accountclosing date, at the longest.
(c) Policies and systems for risk management
Management of credit risk (the risk that a business partner will default on its business transactions)
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.

40 AIN HOLDINGS ANNUAL REPORT 2019

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.
(2) Fair values of financial instruments
Carrying values and fair values of the financial instruments on the consolidated balance sheet at April
30, 2019 and 2018 are summarized in the following table:
AssetsThousands ofMillions of yen
U.S. dollars
2019
2018
2019
Carrying value
Cash on hand and in banks¥ 48,091¥ 63,779$
430,614
Notes and accounts receivable
12,771
10,466
114,353
Other accounts receivable
8,438
7,751
75,555Investment securities
1,074
1,521
9,616
Deposits and guarantees
15,07911,282135,019
Total
85,454
94,800765,168
Fair value
Cash on hand and in banks
48,091
63,779430,614
Notes and accounts receivable
12,771
10,466
114,353
Other accounts receivable
8,438
7,751
75,555Investment securities
1,080
1,524
9,670
Deposits and guarantees
15,047
11,211
134,733
Total
85,42994,732764,944
Difference
Cash on hand and in banks
Notes and accounts receivable
Other accounts receivable
Investment securities
63
53
Deposits and guarantees
(31)
(70)
(277)
Total
¥
(25)
¥
(67)
$
(223)
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
2019
2018

Thousands of
U.S. dollars
2019

44,794$¥38,728401,092

5,571
12,737
5,985
69,0896,717
12,675
11,511
69,63349,883
114,049
53,590618,633

44,79438,728401,092

5,570
12,737
5,974
69,077

6,717
12,675
11,486
69,60849,874
114,049
53,492
618,526

-

-

-

(0)
(11)
(11)

(0)
(24)
(24)

(0)
(98)
(98)

¥

$

AIN HOLDINGS ANNUAL REPORT 201941

Method of calculating the fair value of financial instruments and matters related to available-for-salesecurities and derivative transactions:

The redemption schedule for monetary claims and securities with maturity dates as of April 30,
2019 and 2018 are summarized as follows:

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.
(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.
(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.

Millions of yen
Due inone yearor less
Cash on hand and in banks
Notes and accounts receivable

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

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 ¥720 million ($6,446 thousand)and ¥854 million as of April 30, 2019 and 2018, respectively, are not readily determinable.

¥¥

47,28912,771
8,438
155
2,433
71,086Due inone yearor less
Cash on hand and in banks
Notes and accounts receivable

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total$ 423,433
114,353
75,555
1,387
21,785$ 636,515

2019
Due after
Due after
one yearfive years
throughthroughfive years ten years
¥

¥

4,235
4,235

¥

¥

- ¥
-

-

2,557
2,557 ¥

5,907
5,907

Thousands of
U.S. dollars
2019
Due after
Due after
one yearfive years
throughthroughfive years ten years$$

37,92037,920$$Due after
ten years

Due after
ten years- $--22,89522,895 $52,892
52,892Millions of yen
Due inone yearor less
Cash on hand and in banks
Notes and accounts receivable¥

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

42 AIN HOLDINGS ANNUAL REPORT 2019¥63,24010,466
7,751
155
2,134
83,7472018
Due after
Due after
one yearfive years
throughthroughfive years ten years
¥

¥

5
4,444
4,449

¥

¥

Due after
ten years
- ¥
-

-

2,470
2,470 ¥

2,289
2,289

AIN HOLDINGS ANNUAL REPORT 201943

5. Securities(1) The following tables summarize acquisition costs, carrying values and differences of securities withavailable fair values as of April 30, 2019 and 2018:
Other securities:
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
2019
2018
¥

¥

147
-

¥

369
-

Thousands of
U.S. dollars
2019
$

1,316
-

1
149

9
378

8
1,334

355
-

589
-

3,178
-

1
357

13
603

8
3,196

207
-

219
-

1,853
-

0
207

4
224

0
1,853

¥

$

Other securities:
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
2019

Millions of yen
2019
2018
¥

692
155

¥

¥

396
160

$

6,196
1,387

70
15
934

451
9
1,018

626
134
8,363

476
155

297
160

4,262
1,387

70
14
717

451
9
918

626
125
6,420

(216)
-

(99)
-

(1,934)
-

(0)
(216)

(0)
(99)

(0)
(1,934)¥$

Stocks of non-consolidated subsidiaries and affiliates were ¥50 million ($447 thousand) and ¥162
million at April 30, 2019 and 2018, respectively.
(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, 2019 and 2018:
Thousands ofMillions of yen
U.S. dollars
2019
2018
2019
Total sales ofother securities sold
¥
21
¥
84
$
188
Related gains
7
8
62
Related losses
8571(3) The following table summarizes impairment losses on other securities in the years ended April 30,
2019 and 2018:
Thousands ofMillions of yen
U.S. dollars
2019
2018
2019
Other securities with fair value
Other securities without fair value

44 AIN HOLDINGS ANNUAL REPORT 2019

¥

177
2

¥

1
0

$

1,584
17

AIN HOLDINGS ANNUAL REPORT 201945

6. Leases

8. Sales, disposal and impairment of fixed assets

Remaining lease expenses for non-cancellable operating lease transactions are as follows:
Thousands ofMillions of yen
U.S. dollars
2019
2018
2019

(1) Gains and losses on sales of fixed assets for the years ended April 30, 2019 and 2018 are as
follows:
Gains on sales of fixed assets:
Thousands ofMillions of yen
U.S. dollars
2019
2018
2019

Due within one year
Due after one year
Total

¥

1,957
14,18016,138

¥

¥

1,502
8,463
9,966

¥

$

17,523
126,969
144,502$

7. Short-term debt and long-term debt
Short-term debt and long-term debt at April 30, 2019 and 2018 consisted of the following:Thousands ofMillions of yen
U.S. dollars
2019
2018
2019
Short-term bank loans with aweighted-average interest rate of
0.4%
Current portion of long-term debt
with a weighted-average interest rateof 0.2%Current portion of lease obligation
with a weighted-average interest rateof 1.1%Long-term debt (2020-2034) with aweighted-average interest rate of
0.3%
Lease obligation (2020-2023) with aweighted-average interest rate of
0.8%
Total

¥

20

¥

5,550

¥

56

$

6,661

49,695

318

443

2,847

5,985

11,51153,590401
12,277¥632
19,304$

The aggregate annual maturities of long-term debt at April 30, 2019 are as follows:
Thousands ofYear ending April 30,
Millions of yen
U.S. dollars
2020
¥
5,550
$
49,6952021
3,671
32,8702022
1,597
14,299
2023
535
4,790
2024
53
474
The aggregate annual maturities of lease obligations at April 30, 2019 are as follows:
Thousands ofYear ending April 30,
Millions of yen
U.S. dollars
2020
¥
318
$
2,847
2021
291
2,605
2022
90
805
2023
14
125
2024
5
44

46 AIN HOLDINGS ANNUAL REPORT 2019

179

3,590
109,930

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

¥

¥

16
2

5
0
¥

Losses on sales of fixed assets:

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

28
3

38

14
41
0
1
76

¥

60
190

¥

55
50

5
8
11
¥

0
277

44
0
$

$

3
0
¥

250
26

340

Thousands of
U.S. dollars
2019

Millions of yen
2019
2018
¥

$

42
153

537
1,701
44
71
98

$

0
2,480

(2) Losses on disposal of fixed assets for the years ended April 30, 2019 and 2018 are as follows:
Thousands of
U.S. dollars
2019

Millions of yen
2019
2018
Buildings and structures
Other property, plant andequipment
Goodwill
Other intangible fixed assets
Deposits and guarantees
Other investments and otherassets
Disposal cost
Total

¥

¥

167

¥

242

$

1,495

12
102
79
18

46
11
48
84

107
913
707
161

22
15
417

25
13
471

196
134
3,733

¥

$

AIN HOLDINGS ANNUAL REPORT 201947

(3) For the years ended April 30, 2019 and 2018, the Company recognized impairment losses for thefollowing assets groups:
Thousands ofMillions of yen
U.S. dollars
2019
2018
2019
Description of assets
Land
¥
39
¥
107
$
349
Buildings and structures
451
695
4,038
Goodwill
185
297
1,656
Other
90
75
805
Total
¥
766
¥
1,175
$
6,858

Millions of yen
2018
¥
808
6
8
96
(59)
¥
859

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

(3) Reconciliation of the beginning and the ending balance of liabilities of the simplified method

9. Retirement benefits
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, 2018
Service costs
Interest cost on retirement benefit obligation
Actuarial losses incurred
Pension and severance payments
Other
Balance as of April 30, 2019

Millions of yen
2019
¥
2,786
395
11
98
(164)
208
¥
3,336

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

Thousands of
U.S. dollars
2019$24,9463,536
98
877(1,468)
1,862$
29,871

Balance as of May 1, 2018
Expected return on plan assets
Actuarial gains incurredBusiness owner’s contribution
Pension and severance payments
Other
Balance as of April 30, 201948 AIN HOLDINGS ANNUAL REPORT 2019

Thousands of
U.S. dollars
2019
$
6,169
1,719
(71)
(1,862)

157
(124)
697

1,405
(1,110)
6,241

¥

$

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

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

9
(28)
689

¥

(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(2) Reconciliation of the beginning and the ending balance of plan assets (excluding the amount of thesimplified method)
Millions of yen
2019
¥
859
6
70
103
(44)
76
¥
1,072

Balance as of May 1, 2018
Retirement benefit expenses
Business owner’s contribution
Pension and severance payments
Increases due to a newly consolidated
subsidiary
Other
Balance as of April 30, 2019

Millions of yen
2019
¥
689
192
(8)
(208)

Thousands of
U.S. dollars
2019
$
7,691
53
626
922
(393)
680
$
9,598

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
2019
2018
¥
1,376
¥
1,266
(1,140)(1,015)
235
251
2,726
2,364
2,962
2,977
(15)
¥

2,962

Thousands of
U.S. dollars
2019$12,320(10,207)
2,104
24,409

2,616
2,625
(9)
¥

2,616

26,522
26,656(134)$

26,522AIN HOLDINGS ANNUAL REPORT 201949

(5) Retirement benefit expenses for the years ended April 30, 2019 and 2018 comprised the following:

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

Thousands of
U.S. dollars
2019
$
3,536

Millions of yen
2019
2018
¥
395
¥
353
11
(6)
28
(13)
¥

192
607

10
(6)
(10)
(34)
¥

170
483

98
(53)
250
(116)
1,719
5,435

$

(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
Total

Millions of yen
2019
2018
¥
(13)
¥
(34)
0
(104)
¥
(13)
¥
(139)

Thousands of
U.S. dollars
2019
$
(116)
0
$
(116)

Millions of yen
2019
2018
¥
¥
(13)
87
87
¥
87
¥
74

Thousands of
U.S. dollars
2019
$
779
$
779

(b) Accumulated

Unrecognized prior service costs
Unrecognized actuarial gains
Total(7) Plan assets(a) Percentages for major categories within total plan assets are as follows:
Bonds
StocksGeneral accountSeparate account
Other
Total

2019
22%
11%
46%
16%
5%
100%

2018
21%
13%
46%
15%
5%
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, 2019 and 2018
are principally as follows:
2019
2018
Weighted average discount rate
Weighted average expected rate of
return on plan assets
Expected rates of salary increase

50 AIN HOLDINGS ANNUAL REPORT 2019

0.48%

0.61%

0.75%
1.00%-3.68%

0.75%
1.00%-4.24%

10. Income taxes
The aggregate statutory income tax rates used for calculation of deferred income tax assets andliabilities for the years ended April 30, 2019 and 2018 were 30.4% and 30.6%, respectively.
(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, 2019and 2018:
Statutory tax rate
Non-deductible expenses
Per capita inhabitant tax
Amortization of goodwill
Valuation allowance
Tax credits on tax system to expand
incomeDifferent tax rates applied toconsolidated subsidiaries
Other
Effective tax rates

2019
30.4%
1.8
0.6
8.0
(3.8)

2018
30.6%
0.6
0.4
6.3
0.4

(0.0)

(0.0)

4.3
0.7
42.0%

4.8
(2.0)
41.0%

(2) Significant components of deferred tax assets and liabilities as of April 30, 2019 and 2018 are as
follows:
Thousands ofMillions of yen
U.S. dollars
2019
2018
2019
Deferred tax assets:
Impairment losses
¥
407
¥
422
$
3,644
Excess of depreciation
734
582
6,572
Excess of allowance for bonuses
726
648
6,500
Excess of reserve for rewards obligation
153
143
1,369
Net defined benefit liabilities
1,028
901
9,204
Goodwill on transfer of business
479
440
4,289
Asset retirement obligations
352
326
3.151
Income taxes payable
309
463
2,766
Accrued expense
311
289
2,784
Net operating loss carryforwards
871
720
7,799
Allowance for doubtful accounts
524
217
4,691
Other
255
628
2,283
Sub-total deferred tax assets
6,156
5,784
55,121
Valuation allowance on net operating loss
carryforwards(801)(7,172)
Valuation allowance on deductible temporary
differences(846)(7,575)Sub-total Valuation allowance(1,648)(1,586)(14,756)
Total deferred tax assets
4,508
4,197
40,365
Deferred tax liabilities:
Capitalized removal costs
(188)
(178)
(1,683)Net unrealized holding gains on securities
(4)
(37)
(35)
Other accounts receivable
(248)
(423)
(2,220)
Other
(92)
(15)
(823)
Total deferred tax liabilities
(533)
(655)
(4,772)
Net deferred tax assets
¥
3,974
¥
3,542
$
35,583AIN HOLDINGS ANNUAL REPORT 201951

(3) The amounts of net operating loss carryforwards and its deferred tax assets by expiration date as ofApril 30, 2019 are summarized as follows:
Millions of yen
2019
Due
Due
Due
Due
after
after
after
after
Due in
Due
two
three
four
one year
one
after
Total
years
years
years
throughyear
five
throughthrough throughtwoor less
years
three
four
five
years
years
years
years
Net operating loss
carryforwards (a)Valuation allowance
Deferred tax assets

¥

0
(0)
-

Due inone
year
or less

¥

10
(10)
-

Due
after
one
year
through
two
years

¥

17
(17)
-

¥

24
(24)
-

¥

19
(19)
-

Thousands of U.S. dollars
2019
Due
Due
Due after
after
after
two
three
four
years
years
years
throughthrough through
three
four
five
years
years
years

¥

799
(729)
69

Due
after
five
years

¥

12. Commitment
The Company entered into overdraft agreements with 19 and 18 banks as of April 30, 2019 and 2018,
respectively, to finance working capital requirements. The outstanding balances of such overdrafts asof April 30, 2019 and 2018 are as follows:
Thousands ofMillions of yen
U.S. dollars
2019
2018
2019
Total overdraft available¥ 23,400¥ 21,450$
209,527
Amount utilized
20
32
179
Outstanding balance¥ 23,379¥ 21,418$
209,339871

13. Amounts per share

(801)
69

Net assets per share at April 30, 2019 and 2018 and basic and diluted earnings per share for the years
then ended are as follows:
Yen
U.S. dollars
2019
2018
2019
Net assets per share¥ 2,931,48¥ 2,729.44$
26.24
Basic earnings per share
254.87310.082.28
Diluted earnings per share
Cash dividends per share attributable to the year
55
50
0.49

Total

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.

Net operating loss
$
0 $
89
$
152
$
214
$
170
$ 7,154 $ 7,799
carryforwards (a)Valuation allowance
(0)
(89)
(152)
(214)
(170)
(6,257)(7,172)
Deferred tax assets
617
617(a) The amount is determined by multiplying the corresponding net operating loss carryforwards by theeffective statutory tax rate.

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.
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.

52 AIN HOLDINGS ANNUAL REPORT 2019

AIN HOLDINGS ANNUAL REPORT 201953

14. Segment information

Thousands of U.S. dollars
2019(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.

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$ 2,193,794
2,193,794$

225,734
225,734

Other

$

Total

48,191
1,128
49,319$ 2,467,729
1,128
2,468,857

Adjustments$

164,138$ 1,523,728

$

8,703
100,779$(1,477)
171,364
84,804 $ 1,709,321

$

$

$

2,820

$

2,731

$

22,725$28,286

Consolidated- $ 2,467,729(1,128)(1,128)2,467,729(22,385)
148,970(16,789) $ 1,692,523

1,952

$

30,24737,294
3,859

2,990

161
-

37,455
6,858-

37,455
6,858

28,08915,3022,131

45,531

3,250

48,791(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, 2019 and 2018 are summarized as follows:
Millions of yen
2019
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 2019¥

Dispensing

Cosmetic andpharmacy

Drug store

245,003
245,003¥

25,21025,210

Other

¥

Total

5,382
126
5,508

¥

275,596126
275,722

Adjustments¥

Consolidated

- ¥
(126)
(126)

275,596
275,596¥

18,331
170,170¥

972
11,255¥(165)
9,471 ¥

19,138
190,897¥(2,500)(1,875) ¥16,637
189,021

¥

2,538

¥

315

¥

305

3,159

¥

218

3,378

¥

¥

4,165
431

334

18
-

4,183
766

-

4,183
766

3,137

1,709

238

5,085

363

5,449

Millions of yen
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
assets¥Dispensing

Cosmetic andpharmacy

Drug store

238,645
238,645¥

24,117
24,117

Other

¥

Total

5,623
278
5,901

¥

268,385278
268,664

Adjustments¥

Consolidated

- ¥
(278)
(278)

268,385
268,385¥

22,668
155,516

¥

657
9,943

¥

(1,164)
10,016 ¥22,161
175,476¥(2,031)
7,903 ¥

20,129183,380

¥

2,229

¥

334

¥

387

2,951

¥

191

3,143

¥

¥

3,910
803

128

27
243

3,937
1,175

-

3,937
1,175

1,523

931

1,183

3,637

305

3,942

AIN HOLDINGS ANNUAL REPORT 201955

Amortization of goodwill and unamortized balances by reporting segment as of and for the years endedApril 30, 2019 and 2018 are summarized as follows:
Millions of yen
2019
Amortization of goodwill
Unamortized balances of goodwill¥

Dispensing

Cosmetic andpharmacy

Drug store

4,165
45,127

¥

Other

-

¥

Adjustments

18
122

¥

Consolidated

-

¥

4,183
45,249Thousands of U.S. dollars
2019
Amortization of goodwill
Unamortized balances of goodwill$

Dispensing

Cosmetic andpharmacy

Drug store

37,294
404,074

$

Other

-

$

Adjustments

161
1,092

$

Consolidated-$

37,455405,166

Millions of yen
2018
Amortization of goodwill
Unamortized balances of goodwill¥

Dispensing

Cosmetic andpharmacy

Drug store

3,910
37,870

¥

Other

-

¥

Adjustments

27
140

¥

Consolidated

-

¥

3,937
38,011

15. Comprehensive income
Each component of other comprehensive loss for the years ended April 30, 2019 and 2018 was thefollowing:

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

56 AIN HOLDINGS ANNUAL REPORT 2019

Thousands of
U.S. dollars
2019

Millions of yen
2019
2018
¥

¥

(129)

¥

1

$

(1,155)

1
(127)
36
(91)

(2)
(1)
0
(1)

8
(1,137)
322
(814)

(27)

(94)

(241)

14
(13)
4
(8)
(99)

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

125
(116)
35
(71)
(886)

¥

$

16. Quarterly Information(1) Quarterly net sales for the year ended April 30, 2019 are as follows:
Thousands ofMillions of yen
U.S. dollars
2019
2019
Three months ended July 31, 2018¥
65,013$582,136
Six months ended October 31, 2018131,781
1,179,987
Nine months ended January 31, 2019
202,522
1,813,413
Twelve months ended April 30, 2019
275,596
2,467,729(2) Quarterly income before income taxes and non-controlling interests for the year ended April 30,
2019 is as follows:
Thousands ofMillions of yen
U.S. dollars
2019
2019
Three months ended July 31, 2018
¥
3,442
$
30,820Six months ended October 31, 2018
6,668
59,706Nine months ended January 31, 201911,868106,267
Twelve months ended April 30, 201915,624
139,899(3) Quarterly profit attributable to owners of parent for the year ended April 30, 2019 is as follows:
Thousands ofMillions of yen
U.S. dollars
2019
2019
Three months ended July 31, 2018
¥
1,851
$
16,574Six months ended October 31, 2018
3,639
32,584
Nine months ended January 31, 2019
6,781
60,718
Twelve months ended April 30, 2019
9,029
80,847(4) Quarterly earnings per share for the year ended April 30, 2019 is as follows:
Yen
U.S. dollars
2019
2019
Three months ended July 31, 2018
¥
52.27
$
0.46
Six months ended October 31, 2018
102.730.91
Nine months ended January 31, 2019
191.41
1.71
Twelve months ended April 30, 2019254.872.28(5) Quarterly earnings per share for each accounting period of the year ended April 30, 2019 is asfollows:
Yen
U.S. dollars
2019
2019
Three months ended July 31, 2018
¥
52.27
$
0.46
Three months ended October 31, 2018
50.46
0.45
Three months ended January 31, 2019
88.67
0.79
Three months ended April 30, 2019
63.46
0.56

AIN HOLDINGS ANNUAL REPORT 201957

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: 7,662
Non-consolidated: 143

Ordinary General Meeting of
Shareholders
July

Business Lines
Planning, management and operationof the corporate Group, focused ondispensing pharmacy and cosmetic anddrug store operations, 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 2019)(Fiscal 2019)

Number of Shares Outstanding
35,428,212 shares(including treasury stock)
Number of Shareholders
4,024

Major Shareholders		

(As of April 30, 2019)

Shareholders

Number ofshares held
(thousandshares)Shareholding
ratio*1(%)

Kiichi Otani

3,238

9.14

Seven & i Holdings Co., Ltd.

2,750

7.76

GOLDMAN SACHS INTERNATIONAL(Standing agent: Goldman Sachs Japan Co., Ltd.)

1,695

4.79

Retirement Benefit Trust managed
by Mizuho Trust & Banking Co., Ltd.
(Marubeni Corporation account)*2

1,594

4.50

The Hokkaido Bank, Ltd.

1,472

4.15

MSIP CLIENT SECURITIES(Standing agent: Morgan Stanley MUFG Securities Co., Ltd.)

1,325

3.74

Japan Trustee Services Bank, Ltd. (Trust account)*3

1,133

3.20

North Pacific Bank, Ltd.

1,085

3.06

The Master Trust Bank of Japan, Ltd. (Trust account)*

902

2.55

The Norinchukin Bank

600

1.69

3

Notes: 1. Shareholding ratios are calculated excluding 728 treasury shares.
2. 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.
3. All shares held in Japan Trustee Services Bank, Ltd. (Trust Account) and The Master Trust Bank ofJapan, Ltd. (Trust Account) are related to trust services.

58 AIN HOLDINGS ANNUAL REPORT 2019

AIN HOLDINGS ANNUAL REPORT 201959