Raising Our Game
ANNUAL REPORT 2017
For the year ended April 30, 2017

Key Features of AIN HOLDINGSHistory of Growth

The Leader in Japan’s Dispensing Pharmacy Sector» See pages 6-13 for more details

Focus
Focusing on

dispensing pharmacies
located near hospitals

Quality

Remain competitive
after sector
restructuring

Scale

Other businesses

Market capitalization (right scale)

150,000

150,000

100,000

100,000

50,00050,0000

2008/4

2009/4

2010/4

2011/4

2012/42013/4

2014/4

2015/4

2016/42017/4

1 M&A(18 stores)

2 M&As(91 stores)

1 M&A(3 stores)—(3 stores)

6 M&As(35 stores)

9 M&As(28 stores)

11 M&As(38 stores)

13 M&As(26 stores)

15 M&As(119 stores)

23 M&As(110 stores)

38 M&As(182 stores)

Revisions
to medical
expenses+0.17%+0.52%+0.46%+0.22%+0.17%-5.20%-5.75%-6.0%-2.65%-7.77%—Comparison of financial indexes among major companies operating dispensing pharmacies in Japan
Fiscal 2016

Focus
Targeting
Establish uniqueretail formats

Developing

Increasing

original brands,
creating a distinctive
product lineup

brand visibility
by opening storesin prime urban locations

Create a highly
profitable business(¥ million)AIN
HOLDINGS

Average of
3 competitors

Market capitalization

224,80760,368Cash on hand in banks

22,647

18,428Interest-bearing debt

22,410» See pages 14-17 for more details

Brand

Drug prices

Sound Financial Structure

Transforming the Drug and Cosmetic Store Business
into the Group’s Second Earnings Pillar

Original0

2007/4

Dispensing fees

young female shoppers(¥ million)
250,000
200,000

M&A
deals

the pharmacy
network

the quality ofdispensing pharmacies
and pharmacists

Drug and cosmetic store business

200,000

Become the dominant
player in the sector

ExpandingRaising

Dispensing pharmacy businessNet sales(¥ million)
250,000

Net cash
Shareholders’ equity ratio

Fiscal 2017(¥ million)AIN
HOLDINGS

Average of
3 competitors

Market capitalization

252,075

64,212

Cash on hand in banks

29,775

15,401

34,452

Interest-bearing debt

27,402

46,819236(16,024)

Net cash

2,371(31,418)

38.1%

30.0%

Shareholders’ equity ratio

38.4%

28.1%

Notes:
1. Market capitalization data are as of July 29, 2016 and July 31, 2017.
2. Interest-bearing debt = Short- and long-term debts + Corporate bond (excluding Lease obligations)
3. Net cash = Cash on hand and in banks – Interest-bearing debt
4. 3 competitors: NIHON CHOUZAI Co., Ltd., SOGO MEDICAL CO., LTD., Qol Co., Ltd.
Source:		Compiled by AIN HOLDINGS from the above companies’ financial results for fiscal 2016.

Contents
1
Net Sales by Segment

Scale of Business—Our store network

Other Businesses¥4,925 million
2.0%

1,118 stores nationwide
Dispensing pharmacy: 1,066
Drug and cosmetic store: 52(As of end-fiscal 2017)

Drug and Cosmetic
Store Business¥21,383 million
8.6%
Fiscal 2017
Consolidated
Net Sales¥248,110 million

Hokkaido 122

Tohoku 143
Chugoku, Shikoku
Kyushu, Okinawa
137
Dispensing Pharmacy
Business¥221,801 million
89.4%

Message from the President

6

Hokuriku
Tokai, Kinki
260

Kanto, Koshinetsu 456

Branches
Major group companies

Growth Strategy
6 Dispensing Pharmacy Business			 6 Main Characteristics of the Market
			 8 Pursuing of Top-line Growth			 10 Responding to Changes in Business Environment
			 12 Committed to Quality Improvement
14 Drug and Cosmetic Store Business			 14 Creating New Retail Formats
			 16 Building Brand Power
18 Corporate Governance
20 Board of Directors and Corporate Auditors

22		Financial Section
		22 Management’s Discussion and Analysis
			 of Financial Condition and Results of Operations
		22 11-year Financial Summary		26 Consolidated Balance Sheet
28 Consolidated Statement of Income
28 Consolidated Statement of Comprehensive Income
29 Consolidated Statement of Changes in Net Assets
30 Consolidated Statement of Cash Flows
31 Notes to Consolidated Financial Statements
56 Independent Auditor’s Report
57 Investor Information

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.

AIN HOLDINGS ANNUAL REPORT 20171

Message from the PresidentT wo businesses are supporting
the Group’s stable growthSome investors ask me why AIN HOLDINGS operates two businesses – dispensing pharmacies and drug
and cosmetic stores. The reasons are twofold: our presence in other fields enhances the diversity of ourbusiness portfolio, and we believe it is important to explore promising opportunities in different fields
to support the Group’s sustained growth.
In the dispensing pharmacy business, the AIN Group is the leading player in Japan, but like any
company in the dispensing pharmacy sector, we are exposed to the impact of revisions to dispensing
fees and drug prices, which in principle are revised once every two years in line with government policy.

Number of AIN Group dispensing
pharmacies rises past 1,000.
Drug and cosmetic store businessstarting to build brand power.

We therefore need multiple growth drivers to support long-term growth and generate stable earnings
on a Groupwide basis.
Steady growth in the dispensing pharmacy business has given us the scope to take on new
challenges with our drug and cosmetic store business, but dispensing pharmacies remain our corebusiness. Over the medium and long term, we expect the dispensing pharmacy business to continue
to account for roughly 90% of Group earnings. We are aiming to make the drug and cosmetic store
business profitable by the fiscal year ending April 30, 2019. By lifting the operating margin to 10%,we aim to transform the drug and cosmetic store business into a second key source of earnings.

Kiichi Otani
President andRepresentative Director

Continuing to grow our business to meet society’s expectations
Japan’s dispensing pharmacy market is worth ¥7.9 trillion, but it is projected to reach ¥10 trillion in themedium to long term. The ratio of prescriptions filled outside hospitals (the non-hospital dispensing ratio)
now exceeds 71% and dispensing pharmacies are being called on to play a greater role in the provision

Given current conditions in Japan’s dispensing pharmacy sector
the key to growth lies in the pursuit of business scale. From that perspective, fiscal 2017, endedof local healthcare. On the other hand, the dispensing pharmacy sector is poised for a major realignment.

April 30, 2017, marked a major milestone for the AIN Group. The number of dispensing pharmacies

excellent opportunity for a new phase of growth. Until now, we have achieved sustained growth byin our network reached 1,066 (as of April 30, 2017), reinforcing our position as the largest company

improving the quality of services and pursuing business scale. During that process, attracting and training

in the sector.

personnel has become one of the Group’s strengths, feeding into a positive cycle of service quality» See pages 6-7 for more details , we believe

For fiscal 2017, we reported net sales of ¥248,110 million, up 5.6% year on year, operating incomeof ¥14,563 million, down 0.4%, and profit attributable to owners of parent of ¥7,949 million, up 0.4%.

Some companies in the sector will probably fall by the wayside, but we view sector realignment as an

improvement and rising earnings. Our operating environment is likely to become even more challenging,but that will be the ideal opportunity to prove our business strategy is on the right track.

Although sales rose year on year, they fell short of our start-of-year target. In the dispensing pharmacy

In Hokkaido, the AIN Group’s original market, conditions were not necessarily conducive to businessbusiness, we projected sales of roughly ¥15 billion from individual drugs, but volumes were half the

expansion, including from the standpoint of attracting pharmacists. We therefore adopted an M&Alevel of our assumption. There was also a large impact on sales from drug price revisions. In the drug

strategy to grow our business and increase earnings. Ultimately, that has proven to be the bestand cosmetic store business, sales were affected by delays to the opening of ainz & tulpe stores and by

approach. We plan to continue actively using M&A deals to drive growth in our business. With M&A

weak sales growth in the AYURA brand and online channels.

deals, we carefully narrow down acquisition targets based on the size of sales and by negotiating a fair

However, we made good progress on reinforcing our business base to support sustained growth.

price in line with changing conditions in the sector. After rigorous due diligence, dispensing pharmacies

In the dispensing pharmacy business, income from technical fees, an indicator of the strength ofthat become part of the AIN Group are rapidly integrated into our network and systems, helping themdispensing pharmacies, exceeded our target three months ahead of schedule, highlighting how weto make a positive contribution to earnings as soon as possible. That process is another one of ourhave reinforced frontline operations. We expect profits to grow steadily in fiscal 2018, ending April

strengths as a Group.

30, 2018, when there are no scheduled revisions to dispensing fees and drug prices. In the drug and

We are channeling business resources into opening dispensing pharmacies located near hospitals.

cosmetic store business, we established a foothold to build our brands, opening ainz & tulpe stores inThose pharmacies offer greater convenience for patients due to their close links with local hospitals

retail facilities and in street-front locations, such as ainz & tulpe GINZA NAMIKIDORI, with a particularand accessibility, making them ideal centers for the provision of local healthcare. Profitability is also

focus on the Tokyo metropolitan area.

higher than at pharmacies in other locations. » See pages 8-9 for more details We plan to expand our
network of dispensing pharmacies located near hospitals while closing locations with poor profitability» See pages 17 for more details

to create a leaner chain of pharmacies.

2 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 20173

Message from the President

 roviding full support to pharmacistsPand upgrading pharmacy operations
Pharmacists are the lifeblood of our dispensing pharmacy business. From the earliest days of theCompany, we have consistently focused on hiring and training pharmacists as a matter of priority. In
the fiscal year ended April 30, 2017, we hired 307 pharmacists, or roughly 10% of all newly graduatedpharmacists recruited in the sector. Approximately 4,500 pharmacists now work for the AIN Group. Our
hiring record and approach to recruitment is highly regarded by university and college students, which
has a significant positive knock-on effect in recruiting and training the next generation of pharmacists.
The government is promoting its vision for patient-focused dispensing pharmacies. In May 2017, toaddress new demands on the sector arising from that policy, we integrated our personnel recruitment,
training and management systems, which had been separate until that point. The government’s vision

brands to lift the proprietary brand sales ratio.
As part of those efforts, we overhauled our organization in May 2017 to create a more
effective product branding process. The result is a new Design and Sales Promotion Division thatbrings together all aspects of brand building into a single team under my direct supervision. I willhead up the team as it sets out and works toward clear objectives.
The AIN Group contains a large number of people who have studied pharmacology, so ourdrug and cosmetic store business is in a relatively strong position when it comes to productingredients and functionality. We are also working to win and retain the trust of customers by
reducing the ratio of part-time staff in our stores and by ensuring well-trained employees carefullycommunicate product efficacy and functions to customers. That approach sits at the heart of ourstrategy. Just like our dispensing pharmacy business, our employees hold the key to growth in the
drug and cosmetic store business.

calls for dispensing pharmacies with primary care functions and advanced pharmaceutical management
capabilities. In response, we are implementing a range of initiatives to enhance the skills of ourpharmacists, including teaming up with university hospitals and social medical corporations to develop
and implement sophisticated healthcare simulation training programs. We are also recruiting local
pharmacy staff in each area and increasing the number of regular employees on our main career track
who can be assigned to posts nationwide, ensuring the optimal use of human resources.
In the AIN Group, a large number of our regular employees, myself included, are qualified as
pharmacists. In conjunction with efforts to improve pharmacy chain operations, we are continuing to
implement our pharmacy-led project aimed at increasing operational efficiency at existing pharmacies,
which encourages frontline pharmacists to identify areas for improvement at each pharmacy, backed by
support from head office. The project has helped us optimize inventories and find efficiencies in otherareas, making a significant contribution to earnings.
The pharmacy-led project has also been successful in encouraging frontline pharmacists to think
for themselves, which partly reflects my own background as a pharmacist, allowing me to oversee theproject from the standpoint of frontline staff. One of the most important jobs of senior management is
to create a working environment that motivates employees. Our goal at AIN HOLDINGS is to make sure,first and foremost, that employees are happy working for us. We have built a reputation as a Company
that looks after its employees by providing maternity and childcare leave and an extensive package ofother benefits, resulting in a low employee turnover rate and stable business operations.

Creating Systems and Products to Build Brand PowerThe drug and cosmetic store business is narrowing its target customer group to women in their
20s and 30s and accelerating efforts to establish new retail formats. By creating completely new
formats, our strategy is to avoid the impact of price competition and the narrowing quality gap in
the retail market. We continue to focus on building brands
and opening stores in carefully selected prime locations. For
example, in November 2016, we opened a new standalone
store in Tokyo’s Ginza shopping district to target both local
demand and inbound demand from overseas visitors.
We also need to launch hit products that help build
our brands. In autumn 2017, we plan to release a new
beauty serum marketed under our AYURA brand, andwe will recruit personnel to lead the development of new
products in apparel accessories. Our goal is to grow thestrong-performing LIPS and HIPS range and other original

4 AIN HOLDINGS ANNUAL REPORT 2017T
 aking the Group to a new level,
backed by our strong financial position
On the financial side, we are focusing on operating income, ordinary income and the balance
sheet. In particular, we are keeping a close eye on the Group’s debt ratio. Learning from past issues
with cash flow, we now put great emphasis on ensuring the Group has a stable financial position.
Compared with peers, the AIN Group has very healthy finances with no net debt, making it easy for
us to secure funding for M&A deals or other moves if needed. However, based on the current sizeand pace of our M&A strategy, we intend to fund acquisitions using cash flow alone. If we do takeon more debt, we plan to maintain the shareholders’ equity ratio at 40%. Our aim is to ensure ourfinancial position matches our position as the leading company in the dispensing pharmacy sector.
In the fiscal year ended April 30, 2017, we raised the full-year dividend to ¥50 per share, anincrease of ¥10 from the previous fiscal year. We have set a dividend payout ratio of 20%, as weare currently putting priority on investing in growth, such as opening new pharmacies and stores.
We are aggressively acquiring other companies because we view current conditions in the sector
as a good opportunity to go on the offensive. As a result, goodwill amortization costs are rising
but not at a pace that undermines our financial position. We want to reward shareholders fortheir support by increasing the share price. We continue to target ROE of 15%. The Group’s net
assets are also growing, so we want to increase earnings at an even faster pace. Our goal is togenerate consolidated net sales of more than ¥300 billion as soon as possible, leading to a higher
operating margin.
Business expansion has enhanced the Group’s ability to generate earnings. At the same time,
our employees are growing as individuals and developing their skills, setting the stage for an
exciting new phase in the company’s development as we take on new challenges. Going forward,
we plan to extend our network of dispensing pharmacies to all areas of Japan to play a key role inall the local communities we serve. In the drug and cosmetic store business, we will expand newretail formats and build ainz & tulpe into a powerful brand.
I hope we can count on your understanding and support as we roll out this strategy over the
medium and long term.
July 31, 2017

Kiichi Otani
President and Representative Director

AIN HOLDINGS ANNUAL REPORT 20175

Growth Strategy

Dispensing Pharmacy Business

Q:
Q

Main Characteristics of the Market

What are the main characteristics of Japan’s dispensing pharmacy market?

A:
A 	The dispensing pharmacy sector is closely regulated

but is one of Japan’s few growth markets.
It is about to enter a period of consolidation.

Market growth(¥ trillion)

Non-hospital dispensing ratio

Ratio of elderly people
71.7%

55.8%

8
6

2
0

80

7.9

4.7

60

27.3％

20.8%

11.5%
11.0%

30.3%

40
20

0.47
1989 1990

1995

2000

2006

2010

2015 20162006-2015:
annualized growth of 5.8%

Quality

(%)

80.0%

10

4

Focus

Dispensing pharmacy market value

12

2025

2016 onwards:
annualized growth of 3.0–5.0%(April to
March year)

0

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

Scale

Dispensing pharmacy company
market share(Fiscal 2017)

Top 5 major companies*
9.8%

Breakdown of the market
By size of dispensing pharmacy group(Number of pharmacies)
500 or more: 6.4%

Top 50major companies
25.2%
Others74.8%

No response
given: 1.7%¥360 million or more: 6.2%

200-499: 3.0%
100-199: 3.2%

1: 27.6%

20-49: 9.4%

¥10 trillion*Top 5 major companies:	
AIN HOLDINGS INC., NIHON CHOUZAI Co., Ltd.,KRAFT Inc., Qol Co., Ltd., WELCIA HOLDINGS CO., LTD.
Source: AIN HOLDINGS estimates, based on data fromDRUG Magazine (July 1,2017) and FY2016
dispensing fee statistics released by the
Ministry of Health, Labour and Welfare.

¥300-359 millon: 3.6%

No response
given: 1.9%

¥0-59million:
16.4%¥240-299 million:
6.4%

50-99: 3.6%

¥180-239 million:
14.3%

10-19: 8.8%

Dispensing pharmacy
market value
in 2025

By annual sales per dispensing pharmacy

2-9: 36.2%¥60-119
million:28.1%¥120-179 million:
22.9%

Note: AIN HOLDINGS estimates based on data from a random survey conducted by the Ministry of Health, Labour andWelfare in August 2016 (1,000 dispensing pharmacies surveyed, 46.7% response rate).
Source: Report on Creating Dispensing Pharmacies for Patients, Ministry of Health, Labour and Welfare, March 31, 2017

(Estimate)

The dispensing pharmacy sector is one of only a few
markets in Japan with prospects for growth over the
medium to long term. However, companies operate under anumber of restrictions, as the government determines drug
prices and dispensing fees through adjustments once every
two years*.
* Drug prices and dispensing fees are revised regularly, usually once every two
years. However, the operating environment is likely to become even morechallenging due to government plans for three successive years of revisions:
April 2018 (regular revision), October 2019 (adjustments related to an increase in
consumption tax) and April 2020 (regular revision).

Japan’s dispensing pharmacy market has developed inunique ways, supported by factors such as the government’s
efforts to promote non-hospital dispensing services under apolicy launched in 1994. We expect the market to continue
expanding, driven by Japan’s super aging society, the ongoingshift to non-hospital dispensing services and the launch of
new drugs. National healthcare policy is focused on disease
prevention, but as society ages and medical treatments
become more advanced, we are seeing a clear increase inhealthcare costs per person. Also, hospitals still fill around

6 AIN HOLDINGS ANNUAL REPORT 201730% of prescriptions, which equates to around ¥2 trillion inprescription value. More prescriptions are likely to be filled
outside hospitals as the government works to curb national
medical expenses. The dispensing pharmacy market in Japanwas worth roughly ¥7.9 trillion in fiscal 2015, but we expect
those underlying trends to spur sustained annual growth of 3
to 5%, putting the market on track to reach ¥10 trillion overthe medium term.
The dispensing pharmacy sector is fragmented, withthe top five companies accounting for only around
10% of the market, including the AIN Group’s leading
share of roughly 3%. As of March 31, 2016, there wereapproximately 58,000 pharmacies in Japan, but most arerun by small-scale family businesses. We believe the sector
is about to enter a major phase of consolidation, with thesevere shortage of pharmacists, tough new requirementson dispensing pharmacies and other changes in theoperating environment spurring M&A deals or forcing
smaller companies out of business. As more hospitals
are rebuilt and relocated, we also see scope for further

growth in dispensing pharmacies located near hospitals,
an area where we are targeting management resources.
That offers the AIN Groupsignificant potential to increase market share.
Meanwhile, the government is changing the directionof its social insurance policy as part of wider efforts tocurb the continued rise in national medical expenses. As
part of those changes, it has adjusted the reimbursement
point system for dispensing fees to encourage growth
in primary care dispensing pharmacies, which are being
given a greater role to play in local healthcare provision.
» See pages 8-9 for more details

dispensing ratio, and on whether they can build operating
structures that are resilient to declines in earnings caused
by factors such as lower generic drug price margins.
» See pages 10-11 for more details

After implementing strategies that anticipated thesedevelopments in our operating environment, we view
current conditions in the sector as a business opportunity.

» See pages 10-11 for more details T h e g o v e r n m e n t i s a l s oactively promoting wider use of generic drugs. As of
February 28, 2017, generic drugs accounted for an averageof 68.5% of all prescriptions in Japan. The government
aims to increase that ratio to 80.0% by September 2020 byawarding dispensing pharmacies additional reimbursement
points (premiums) for generic drug dispensing. The futureof dispensing pharmacies will partly depend on their ability
to contribute to this policy by increasing the generic drug

AIN HOLDINGS ANNUAL REPORT 20177

Growth Strategy

Dispensing Pharmacy Business

Q:
Q

Pursuing of Top-line Growth

Why does the AIN Group focus on dispensing pharmacies located near hospitals?

Differences between Japan and the USA:A 	Pharmacies near hospitals are more convenient for patientsand generate higher margins than other types of pharmacies.

Advantages of dispensing pharmacies located near hospitals

Japan

US

For patients

For dispensing pharmacies

Medical insurance(patient cost)

Universal healthcare(10-30%)Private health insurance(depends on contract
terms)

Freedom toselect hospitals /pharmacies

No restrictions

Affiliated service
providersConvenient
Regular visitors to hospitals, such as
the elderly and patients with chronic
disorders, tend to use dispensing
pharmacies near hospitals because of
the convenience

High margins
Margins tend to be high due to alarge, steady volume of prescriptions
and a large number of complex
prescriptions

Non-hospital
dispensing ratio

70%

100%

Well stocked
Drugs usually in stock

Efficient inventory management
Close links with local hospitals enableefficient inventory management

Safe and reassuring
Regular information sharing withlocal hospitals mitigates risk related
to inappropriate combinations ofprescribed drugs and dispensing
errors, supporting a high level ofsafety and peace of mind for patients.

Increase in specialization
Higher volume of prescriptions thandrugstores with dispensing pharmacy
functions, giving pharmacists
more experience and greater
specialization.

Drug prescriptions Refills ×
Mail order ×

Refills
Mail order

Drug prices

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

Comparison of earnings model
Dispensing pharmacies located near hospitals

Drug stores with dispensing pharmacy functions(payout period: four years)(¥ million)(payout period: seven years)(¥ million)

134.6

150

150

48.8

100

100

5.9

50
0

About 99%

In simple terms, the outlook for our dispensing pharmacy
business depends on how well it can adjust to changes ingovernment policy. Our ability to adapt relies on two key
factors: the location of our pharmacies and pharmacist
recruitment » See pages 12-13 for more details . About 99%
of our dispensing pharmacies are located near hospitals,
the result of a conscious strategy to select and channel
management resources into those locations. Our approachreflects realities in Japan’s social environment and systems
that make dispensing pharmacies located near hospitals thebest option for patients, and for the AIN Group.
Conditions in Japan’s dispensing pharmacy sector arevery different to those in the US and other countries due
to contrasting social environments and systems. Japan
has a system of universal healthcare. The system does not
restrict treatment or drug dispensing to certain hospitals or
pharmacies based on the type of medical insurance held by
patients or other criteria, allowing them to choose when
and where they want their illness or injury to be treated.

0

-36.9

Dispensing
pharmacies locatednear hospitals
in the Group

-50
-100

30.1

50

-50

-58.4
1

2
Out

3
In

4

5

6

Net cash

7

8

9

10

Elapsed
years

-100

1

2
Out

3

0

-16.2

-27.8

-31.0

4

In

5

6

Net cash

7

8

9

10

Elapsedyears

AIN Pharmacy EBETSU

Japan also has three main types of dispensing pharmacy:
pharmacies located near hospitals, pharmacies not locatednear hospitals and drug stores with dispensing pharmacy
functions. Patients are free to choose any type of pharmacy,
but in urban markets in Japan, where cars are not usedwidely for daily errands, most patients tend to visit
dispensing pharmacies located near hospitals immediately
after their visit to the doctor. That reflects the significant
benefits for patients who use those pharmacies and a senseof familiarity, because local hospitals dispensed drugs topatients before the non-hospital dispensing system wasintroduced. We expect this format to remain popular overthe medium and long term, as many pharmacies near
hospitals satisfy the government’s conditions for primarycare dispensing pharmacies, » See pages 10-11 for more details
rather than drugstores with dispensing pharmacy functions.
Dispensing pharmacies near hospitals also offer
significant merits for our business, such as much higher
average prescription prices and prescription volumes thanother types of pharmacy, supporting higher margins. Other
merits include close links with local hospitals, helping
pharmacies manage onsite drug inventories more efficiently.
Pharmacists also gain experience and improve theirskills, as they have to handle a high volume of complex
prescriptions. By focusing on dispensing pharmacies locatednear hospitals, we can fully leverage our competitive
advantages as a Group that recruits large numbers of skilledpharmacists and operates a nationwide pharmacy chain.
Over the medium and long term, we will continue tochannel management resources into dispensing pharmacies
located near hospitals through new pharmacy openings
and M&A deals, as we believe they are the best format todevelop our dispensing pharmacy business. We will also
continue to focus on developing medical malls, aiming toopen them near stations and other urban areas with highcustomer traffic.

AIN Pharmacy Fujisawa SST

AIN Pharmacy NEWoMan SHINJUKU

8 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 20179

Growth Strategy

Factors that affect dispensing pharmacy profitability

What factors affect profitability in the dispensing pharmacy sector?

Dispensing pharmacy earning model

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

A:
A 	The ability to respond to challenges in the operating environment,such as continuous revisions to dispensing fees and drug prices anda shortage of trained pharmacists, has a large impact on profitability.

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

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

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

Q:
Q

Responding to Changes in Business Environment

Dispensing fees*2 Sales from drugs

Dispensing Pharmacy Business

SG&A expenses

Operating income

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

Decrease earnings

Government policies

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

The changing role of dispensing pharmacies
In the past

Impact of drug price and dispensing fee revisions on profits(%)

Fiscal year with revision

From now on

Trends in Dispensing Fees

(criteria for primary caredispensing pharmacies)
Guidance for drug usage

Fiscal year
Fiscal year after revision Fiscal year with revision after revision

Integrated management of drug usage
and other treatments

60Pre-avoid activities
Management of leftover medicines

40

Primary careservices receive
more reimbursement
points24-hour support

20
0
-20
-40

151Q

2Q 3Q

4Q

161Q 2Q

3Q

4Q

171Q 2Q

3Q

4Q

182Q 4Q

Earnings=

Note:Graph shows year-on-yearchange in operating income
from fiscal 2015 to fiscal 2018.
For fiscal 2018, comparison isbased on our operating income
forecasts for 1H and 2H.

Drug pricemargins

Focused on dispensing drug

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+

Technical fees

(Estimate)(Estimate)

Revisions to dispensing fees and drug prices, usually
implemented once every two years, lead to lower drug
prices and tighter standards for dispensing fees. To remaincompetitive in the face of those changes, we need a strategy
that mitigates the impact of revisions to both drug prices anddispensing fees. Profits in the dispensing pharmacy businesstend to decline temporarily in the fiscal year when the review
is carried out, followed by a large recovery in earnings in
the following fiscal year when there are no changes to drug
prices or dispensing fees. The entire dispensing pharmacy
sector is at the mercy of this cycle. However, profits are
increasingly under pressure at dispensing pharmacies thatcannot respond to those changes.
Profits at dispensing pharmacies are derived from two
main sources: drug price margins and dispensing fees.
The drug price margin is dictated by price negotiations
with drug wholesalers. Under current conditions in the
sector, companies will struggle to increase sales per
pharmacy due to continuous revisions to drug prices andlimited prospects for significant growth in the number of

10 AIN HOLDINGS ANNUAL REPORT 2017

patients using dispensing pharmacies located near hospitals.
That is why we need to expand our business through M&A
deals and other means. The AIN Group sources original
drugs from major wholesalers, but in the case of genericdrugs, we negotiate prices and procure products directlyfrom manufacturers through our own dedicated genericdrug wholesaler, WHOLESALE STARS Co., Ltd. (WSS). We
established WSS in 2006, when the government started
actively promoting wider use of generic drugs. We procure
more generic drugs than any other company in Japan andRoles and merits of WSS

AIN
Group
dispensing
pharmacies

Monitors andmanages total
generic drug usage
across the Group
Links with Group’s
dispensing pharmacies
Selects
preferred
generic drugs

Maintains genericdrug pricemargins

WSS

Generic drug procurement
Negotiates withand buys directlyfrom genericdrug makers

Generic
drug
makerswe have narrowed down our suppliers to only a few firms,
further strengthening our buying power. That helps us
secure large drug price margins for generic drugs, which isone of the AIN Group’s competitive advantages.
With dispensing fees, the government is using revisions
as a tool to push through its vision for a new role fordispensing pharmacies, aiming to address issues such
as Japan’s aging society and rising national medical
expenses. Those revisions are having a large impact on ouroperations. Dispensing fee revisions since April 2014 clearlyreflect the government’s policy of favoring dispensing
pharmacies that can help curb national medical expenses
and support community-based healthcare. Criteria for
securing additional reimbursement points were adjusted inline with that policy. Dispensing pharmacies now have tooffer higher quality services, such as management of left
over prescription medicines, patient health management,cooperation with local healthcare providers, 24-hour
dispensing services and home-based healthcare, in addition
to their traditional role of drug dispensing.

Dispensing fees are gradually being revised so that only
dispensing pharmacies that provide these services will beable to generate profits. Conditions for companies in the
sector are therefore likely to become even more challenging
as it becomes harder to secure technical fees. Against thatbackdrop, the ability to attract pharmacists and provide
high-quality training will create a gap in competitivenessbetween companies in the sector.
To respond t o t he im pa ct o f re vis io n s , w e a reencouraging pharmacists at each pharmacy to identify areas
for improvement in frontline operations. By taking on-board
their ideas, we are optimizing inventories, enhancing theworking environment for pharmacists and improving staff
retention rates as part of sustained efforts to boost earnings
and increase corporate value.

AIN HOLDINGS ANNUAL REPORT 201711

Growth Strategy

Q:
Q

Committed to Quality Improvement

What is the AIN Group doing to stay competitive in the dispensing pharmacy business?

giving us the ability to respond to any change in our operating
environment.

(times)
6.0

220

5.50

200

5.0

180
160

4.0

140
120

182

100
80

2.0

60
40

32

20
0

3.0

2008/4

New store openings

2009/4

2010/4

2011/4

Pharmacies acquired through M&A deals

2012/42013/4

2014/4

2015/4

2016/42017/4

EV/EBITDA multiples

A:A 	We are expanding the business and raising operational quality,

New store openings, pharmacies acquired through M&A deals and EV/EBITDA multiples

Number of pharmacies

Dispensing Pharmacy Business

1.0
0

EV/EBITDA multiples

Notes: 1. EV/EBITDA multiples = EV (M&A: acquisition price) / EBITDA (Operating income + Depreciation and amortization)
2. From fiscal 2011, number of pharmacies includes pharmacies that were subsequently closed.

Number of new pharmacist graduates hired
Increase in number of pharmacists hired(persons)
600
500
400

8.8
7.0

7.0

No new graduatesfrom pharmacy
college courses

New graduates from six-year pharmacy college courses (new curriculum)

(%)
12

11.7
9.5
8.0

7.5
5.7

7.0

10

8.0
307

350

6

300

4

200

Company’s share of
new pharmacists thatjoined dispensing
pharmacies after
graduation2017 AIN Group’s initiation ceremony

9.5%

0

174

160

2006/4 2007/4 2008/4 2009/4 2010/4 2011/4 2012/4 2013/4 2014/4 2015/4 2016/4 2017/4 2018/4(plan)
Pharmacists
General positions
Company's share of new pharmacists that joined dispensing pharmacies after graduation

20(As of Apr. 2017)

We anticipate a further increase in M&A activity as
conditions in the dispensing pharmacy sector become
tougher. The AIN Group has been actively opening new
pharmacies and using M&A to expand its dispensing
pharmacy network for some time. That track record, alongwith the trust we have built up as the leading company
in the sector, as well as our strong financial position andhigh-quality training programs for pharmacists, means weare often given first refusal on a large number of potential
M&A deals. Using those opportunities, we plan to further
step up M&A activity to accelerate business expansion,
while taking into account investment efficiency.
We will also extend our competitive lead in the sector byrecruiting large numbers of high-quality pharmacists andby raising the quality of pharmacy operations. To ensure
our dispensing pharmacies fulfill their role as primary carepharmacies supporting the provision of local healthcare
services, our pharmacists need to have more expertiseand experience and better communication skills. We alsoneed to hire more pharmacists to deliver the higher level

12 AIN HOLDINGS ANNUAL REPORT 2017100

8of service provision. Japan is currently facing a shortage ofpharmacists, making it hard for dispensing pharmacies tosecure the staff they need. This problem is particularly acutefor small and medium-size companies. However, thanks to
our track record in the sector and growing awareness of
our high-quality training system, we have been able to hire
enough staff. Our pharmacists undergo an extensive andsustained training program tailored to the current stage intheir careers. They also have opportunities to build up theirexperience because the AIN Group has many dispensing
pharmacies that handle a large number of complex
prescriptions. In this way, we can attract large numbers ofhigh-quality pharmacists, allowing us to contribute to thegovernment’s policy of community healthcare while also
boosting profits by securing more reimbursement points.
The entire sector is facing headwinds, but we expect
tougher conditions in the operating environment to triggera wave of restructuring. Sector restructuring will be amajor growth driver for our business, and we are ready tocapitalize on any opportunity that arises.

A Message fromManaging Director

Miya Oishi
Managing Director andSenior General Manager,
Operations Department

Our pharmacy-led project to improve efficiency andservices is also enhancing the skills of our staff
When we launched our dispensing pharmacy business, ouraim was to become the industry standard in Japan. That is
why we focused on developing systemized manual-based
dispensing pharmacy operations. However, as our focus onsafety intensified and the business expanded, the number ofoperational manuals increased. That led to longer wait times forpatients, resulting in lower-quality services.
To address that issue, we launched a pharmacy-led projectin 2012 to radically overhaul dispensing pharmacy operations.
We asked our pharmacy staff to explore ways of improving
efficiency and providing the best-possible services to patientsby identifying, acting on and then revisiting the most important
aspects of pharmacy operations, while also ensuring compliancewith all laws and regulations.
Efficiency gains in operations naturally feed through to
improvements in profitability, but the “Think, Act and Think
Again” cycle is also accelerating the personal growth anddevelopment of our dispensing pharmacy staff, translating into
improvements that go beyond what we could achieve by simply
following operational manuals.
The main job of dispensing pharmacists is to deal withpatients. They have to decide the best course of action throughtheir interactions with those patients. That it is an integral
part of a pharmacist’s job, but it is also one way that patients,
the government and other stakeholders assess the quality ofservices we provide to the local community.
The government is calling on the dispensing pharmacy sector
to raise the level of service provision. Through our pharmacyled project, we are working to raise the quality of dispensing
pharmacist activities and provide services to patients nationwide
as a key part of Japan’s healthcare infrastructure.

AIN HOLDINGS ANNUAL REPORT 201713

Growth Strategy

Drug and Cosmetic Store Business

Q:
Q

Creating New Retail Formats

How are the AIN Group’s new retail formats different to those of other companies?

Comparison of ainz & tulpe and general drugstores:
product mix and target
ainz & tulpe
General drugstore
3.6%
ainz
&
tulpe
Generaldrugstore
5.4%

A:A 	Our stores stand out in the market by targeting female customers

4.6% 2.9%

with a unique lineup of original products.

14.6%
13.1%

15.1%
14.9%
27.6% 27.0%
28.5%

76.5%

Focus

79.6%

Beauty products
Foods
and
health foods
Beautyproducts
Foods and health foods

Original

29.4% 27.8%
29.7%

Drugs and sanitary products
Daily
Drugsnecessities
and sanitary products
Daily necessities

Source: Monthly Report on the Current Survey of Commerce (May 2017),
Ministry of Economy, Trade and Industry

Brand

LIPS and HIPS

Beauty products
sales ratio

79.6%
ainz & tulpe Colette Mare SAKURAGICHO

The AIN Group started actively rolling out new retail formats
in fiscal 2016. We stepped up our store opening programwith two new flagship ainz & tulpe stores: SHINJUKUHIGASHIGUCHI (Shinjuku, Tokyo; retail space: 1,290m 2)
and Le trois (Sapporo, Hokkaido; retail space: 1,490m2).
After clearly setting out our strategic direction, we are now
channeling management resources into urban ainz & tulpe
drug and cosmetics stores and rapidly developing newretail formats. Over the last few years, we have also exited
suburban store locations, where a narrowing quality gap in
retailing has put pressure on margins.
The main target of our new retail format strategy is
women in their 20s and 30s with a strong curiosity in thelatest trends. We are also aiming to use our product lineup
to stand out in the market. Our goal is to create a uniquerange of merchandise with high margins by creating original
brands that eventually account for a high ratio of store
sales. Conventional drugstores in Japan typically sell a mixof pharmaceuticals, food and daily necessities at discounted

LIPS and HIPS ROOM

prices, but at ainz & tulpe, cosmetics account for over
70% of products on sale, with accessories and otherbeauty products making up the remainder. In other words,
ainz & tulpe is not competing directly with drugstores. To
encourage female customers to spend one or two hours inour stores, we are expanding our range of beauty supplies
and accessories to complement the existing cosmetics
lineup. Another strength of our retail formats is that wehave better access to tenant opportunities in fashion retailmalls and department stores than conventional drugstores.
To coincide with the roll out of the retail formats, welaunched a new original cosmetics brand called LIPS andHIPS and a new beauty supply brand called cocodecica. We
also acquired the AYURA cosmetics brand. We continue
to develop new products in all three brands, leading tochanges in the product mix that are lifting the gross margin.
Demand for LIPS and HIPS products is especially strong. In
response, we started sales of branded lounge outfits andopened a standalone LIPS and HIPS store in fiscal 2017.

Going forward, we plan to leverage the expertise andexperience of our pharmacists to develop highly functional
products to increase the number of product categories soldunder our original brands. Our goal is to rapidly expand the
product lineup, build powerful brands and create popular
hit products to lift the gross margin and attract even more
shoppers to our drug and cosmetic stores. In the fiscal year
ended April 30, 2017, we sold 1,600 SKUs (Stock Keeping
Units) of our new brands, accounting for 6.7% of sales
in the drug and cosmetic store business. Our goal is toincrease the gross margin further by raising the visibility of
our original brands and growing sales.

LIPS and HIPS sales area in ainz & tulpe Colette Mare SAKURAGICHO

cocodecica

AYURA

14 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201715

Growth Strategy

Drug and Cosmetic Store Business

Q:
Q

Building Brand PowerStore opening program focused on the Tokyo metropolitan and Sapporo areas[Tokyo metropolitan area]

What is the AIN Group doing to stay competitive in the drug and cosmetic store business?

ainz & tulpe OMIYA MARUI
ainz & tulpe KAWAGUCHI CASTY
ainz & tulpe TOKOROZAWA STATION

ainz & tulpe IKEBUKURO SEIBU

Ikebukuroainz & tulpe frente
MINAMIOSAWA
ainz & tulpe CHOFU

A:A 	We are opening stores in prime locations in urban markets

and reinforcing our brands.

ainz & tulpe KITASENJU MARUI
opened in December 2016

1

Shinjuku

ainz & tulpe MARUI KINSICHO
ainz & tulpe TOKYOEKI
Tokyo
ainz & tulpe HARAJUKU QUEST
ainz & tulpe GINZA NAMIKIDORILIPS and HIPS TOKYU PLAZA
opened in November 2016
OMOTESANDO HARAJUKUShibuya3
opened in April 2017ainz & tulpe SHIBUYA CENTER-GAI
ainz & tulpe JIYUGAOKA

ainz & tulpe SHINJUKU HIGASIGUCHI
1

ainz & tulpe KEIO DEPARTMENT STORESHINJUKU opened in March 2017ainz & tulpe YOKOHAMA PORTA
ainz & tulpe MARUI CITY YOKOHAMA
ainz & tulpe YOKOHAMA JOINUS
opened April 20172

Yokohama
2ainz & tulpe Colette Mare SAKURAGICHO
opened in December 2016

[Sapporo area]

3ainz & tulpe MARRONNIER GATE GINZANAMIKIDORI opened in March 20175ainz & tulpe CHIKAGAI7LIPS and HIPS SHINSAPPORO sunpiazza
opened in November 2016ainz & tulpe ASABU
ainz & tulpe HIGASHI KUYAKUSHOMAE
ainz & tulpe Ario SAPPORO

4

Sapporo4

ainz & tulpe ODORI BISSE

ainz & tulpe SAPPORO paseo
ainz & tulpe
MIYANOSAWAEKI
ainz & tulpe KOTONI
ainz & tulpe
maruyama classStore ratio located inTokyo and Sapporo
areas

71.2%

ainz & tulpe GINZA NAMIKIDORIThe SHINJUKU HIGASHIGUCHI store boosted the visibilityof our ainz & tulpe brand in one stroke. We have sincereceived a large number of requests to open new stores inurban retail facilities, station shopping centers and otherprime locations, as ainz & tulpe is now seen as attractive
brand for young shoppers. That has given us more power
in rent negotiations with property owners, which alongwith strong demand for our original brands, is supporting
an improvement in the gross margin. In the fiscal year
ended April 30, 2017, we focused on the Sapporo andTokyo metropolitan areas, opening nine new stores in thosemarkets, including the ainz & tulpe MARRONNIER GATEGINZA store (Ginza, Tokyo; retail space: 400m2). We now
operate a total of 52 stores in our drug and cosmetic store
business.

16 AIN HOLDINGS ANNUAL REPORT 2017

Store opening
in FY 2018 (Plan)

Odori
5

ainz & tulpe
SHINSAPPORO duo

6ainz & tulpe
POLE TOWN

Shin-Sapporo
7

Susukinoainz & tulpe SUSUKIO LAFILER

6ainz & tulpe Le trois

ainz & tulpe TSUKISAMU CHUO

: Stores opend in FY 2017

6stores

We will continue to open new stores in prime locations
in Tokyo to raise brand visibility, while also creating new
original products and retail areas to build a distinct positionin the market that does not put us in direct competition
with other retailers or cosmetics companies. By steadily
increasing sales through our ainz & tulpe stores, we expect
leading makers of cosmetics brands to request retail spacein our stores.
We are aiming to make the drug and cosmetic storesbusiness profitable in the fiscal year ending April 30,
2019. Looking further ahead, we plan to continue actively
developing the business to grow it into a second key sourceof earnings for the Group. We plan to roll out new formats
and raise brand visibility so that in the long term our ainz
& tulpe retail format and original brands are recognizedin their own right. Everyone in the business is pushingthemselves to achieve those objectives.

A Message from
Division Manager

Kaori Ishikawa
Division Manager,
Drug and Cosmetic StoreOperations Division

Our product development strategy for proprietary
merchandise brands
We started developing proprietary brands in the fiscal year
ended April 2015. Our initial plan was to create new brands tocoincide with the opening of our Le trois beauty retail complex
in September 2015, but we made rapid progress and launched
the brands two months early in July 2015.
One of the brands, LIPS and HIPS, has seen a steady
improvement in visibility over the last two years. The next step isto create highly functional LIPS and HIPS products that are also
a hit with customers. We plan to use those products to further
raise brand visibility, helping to drive growth in sales volume forother LIPS and HIPS product lines and proprietary brands.

As a company that operates a chain of dispensing
pharmacies, functionality is very important to us. The value ofour proprietary brands is derived from the input of AIN Group
pharmacists, who ensure our products use only high-grade
ingredients and demonstrate clear efficacy.
To help us accelerate in-house development, we are hiring
people who have experience in product development at
manufacturing companies. Going forward, we plan to step up
efforts to create products that customers really want by bringing
full-time store staff onto our product development teams to use
their direct feedback from customers. We will also train humanresources to reinforce in-house development capabilities.
My mission is to increase the gross margin in the drug
and cosmetic store business and rapidly put the business on a
profitable footing.
I will not be able to achieve my mission if focus only
on developing new original brands. Brand development isimportant, but we also need to tackle other areas, such as
raising the visibility of the ainz & tulpe brand in order toreinforce our negotiating position in product procurement anddevelop collaborative relationships with external brands.

AIN HOLDINGS ANNUAL REPORT 201717

Corporate Governance(As of July 28, 2017)

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

Corporate Auditor System

Chairman of the Board

Kiichi Otani

Number of directors

9 (including 3 outside directors)

Number of corporate auditors

3 (including 2 outside corporate auditors)

Board of Directors meetings in fiscal 2017

Number of meetings: 12
Examples of resolutions: Annual budget, issues related to new businesses, store openings

OUTSIDE DIRECTORS AND OUTSIDE CORPORATE
AUDITORSThe Board of Directors is comprised of nine members, including
three outside directors. Two of the Company’s three corporate
auditors are outside corporate auditors. There are no conflictsof interest between the Company and its outside directors andoutside corporate auditors. The outside directors and outside
corporate auditors have a number of functions and roles tofulfill 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 business execution
and providing input at meetings of the Board of Directors froma 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. Three 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 Mori

Outside Director attendance at Board of Directors meetings: 97%
Outside Corporate Auditor attendanceat Board of Directors meetings:

100%

Board of Corporate Auditor meetingsin fiscal 2017

Number of meetings: 12
Examples of resolutions: Audit policy, audit plans and business division audits

Management meetings in fiscal 201752

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 and Shigeki Kimura and outside corporate
auditor Osamu Muramatsu have all been designated as independent officers inaccordance with the provisions of the Tokyo Stock Exchange.

Systems to strengthen and promote Group management

Group management meetings (weekly)

Accounting auditor

ERNST & YOUNG SHINNIHON LLC

Yasuyuki Hamada
General Meeting of Shareholders
Appointment

Appointment

Board ofCorporate Auditors

Board of Directors
Outside Directors
Appointment

Appointment

Audit
Appointment

Representative
Directors

Executive Officers

Compliance
Committee

Board ofManaging Directors

Management
Meeting

Store Development Division

Guidance
Group Companies

18 AIN HOLDINGS ANNUAL REPORT 2017

Accounting Auditors
Audit

ReportingBusiness execution

Cooperation

Reporting

ReportingOperating Management
Division

Appointment

Audit
Operational Support
Division
ReportingInternal Audit Office

Shigeki Kimura

Mr. Mori 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 by monitoring businessexecution, drawing on his extensive knowledge
and experience as the manager of a major
trading company. Mr. Mori is judged to be ahighly 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. 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 by monitoringbusiness execution. Although Mr. Hamada has
no experience of business management, he isable to draw on his specialist knowledge andexperience as an academic, particularly in thefield 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 thepast. However, he is judged to be a sufficiently
independent appointment, as the purpose of the
donations was limited and they were not directly
related to Mr. Hamada’s research activities.
Mr. Kimura 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 by monitoringbusiness execution, drawing on his specialist
knowledge and experience from working in
the accounting department of a major retailer.
Mr. Sato works for Seven-Eleven Japan Co.,
Ltd., which has a business relationship andlease contracts with the Company. However,
he is judged to be a sufficiently independent
appointment, as the interdependence of SevenEleven Japan Co., Ltd. And the Company is low
due to a minimal level of business between thetwo companies. He has no special interest in
the Company.

Reasons for selection of outside corporate auditors

Akira Ibayashi

Akira Ibayashi was appointed as an
outside corporate auditor to contribute toimprovements in sound and efficient business
management, drawing on his specialistk n o w l e d g e f ro m w o r k i n g a t f i n a n c i a linstitutions and his experience in business
management.

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

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 2017 is as follows:
Item

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

Total
remuneration(¥ million)

Remuneration by type(¥ million)
Basic
Bonus
remuneration

Numberof eligible
individuals

181

152

28

7

6

6

–

1

19

19

–

5

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 2017 are as follows:(¥ thousand)

The Company
Consolidated
subsidiaries
Total

Compensation paid foraudit certification activities

Compensation paid for *non-audit activities

36,200

–

7,500

–

43,700–AIN HOLDINGS ANNUAL REPORT 201719

Board of Directors and Corporate Auditors(As of July 28, 2017)*Figures in brackets show the number of AIN HOLDINGS shares held as of April 30, 2016.

BOARD OF DIRECTORS

Kiichi Otani

Toshihide Mizushima

Ko Mori

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

Representative Senior Managing Director
In charge of business operations and business support(27,600 shares)

Director Outside(- shares)

July 1980

President and Representative Directorof Otani Corporation (now AINHOLDINGS INC.)
November 1981 Director of newly established Daiichi
Medical Testing Laboratories Co., Ltd.
(Asahikawa, now AIN HOLDINGS INC.)
July 1983
President and Representative Directorof Daiichi Medical Testing Laboratories
Co., Ltd.
May 1985
Managing Director of the Company
May 1988
President and Representative Director(current post)
June 2009
Director of Seven Health Care Co., Ltd.

April 1982
April 1986

Joined SSP Co., Ltd.
Joined Otani Corporation (now AINHOLDINGS INC.)
July 2000
Director
February 2001 General Manager of Drug andCosmetic Store Business
May 2003
Managing Director
June 2009
President and Representative Directorof Seven Health Care Co., Ltd.
May 2012
Senior Managing Director of theCompany, Director of Seven Bi no
Garden Co., Ltd. (former Seven HealthCare Co., Ltd.)
November 2015 Senior Managing Director andRepresentative Director of theCompany (current post)

April 1971
April 2002
April 2004
June 2006
June 2007
July 2012

Koichi Kawamura
Independent

Joined Marubeni Corporation
Executive Officer and General Mangerof Chemicals Division
Managing Executive Officer
Representative Director and Senior
Managing Executive Officer, Materials
Division
President and Representative Directorof Marubeni Safenet Co., Ltd.
Director of the Company (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 AINHOLDINGS INC.)
Auditor
General Manager of Administrative
Department
Corporate Auditor (current post)

Masahito Sakurai

Miya Oishi

Yasuyuki Hamada

Akira Ibayashi

Representative Senior Managing Director(1,000 shares)

Managing Director
Senior General Manager, Operations Department(1,000 shares)

Director Outside(2,000 shares)

Corporate Auditor Outside(- shares)

April 1972

Joined Ministry of Health and Welfare(now Ministry of Health, Labour andWelfare)April 1987
Head of Administration Section, Fundfor Drug ADR Relief
July 1996
Head of Air Protection Section, Japan
Environment Agency
July 1998
Head of Regional Medical Affairs Office
for Tokai Hokuriku
January 2001 Retired from Ministry of Health and Welfare
February 2001 Commissioner of All-Japan Federation of
National Health Insurance Organizations
October 2008 Joined the Company
July 2009
Senior Managing Director
November 2015 Senior Managing Director andRepresentative Director (current post)

Independent

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
Director of AIN MEDICAL SYSTEMS
INC. (now AIN HOLDINGS INC.)
February 2012 President and Representative Directorof same company
July 2012
Director of the Company
July 2014
Managing Director (current post)
November 2015 President and Representative Directorof AIN PHARMACIEZ INC. (current post)

Professor of Faculty of Economics,
Hokkaido University
April 1997
Special Assistant for the president ofsame university
April 2003
Professor of Advanced Scientific
Research Center, Hokkaido University(concurrent post)
April 2010
President of Sapporo International
University
Emeritus Professor of Hokkaido
University
April 2014
President and Charman of Dohto
University
December 2014 President of Hamanasu Foundation(current post)
July 2015
Outside Director of the Company(current post)

April 1963
June 2001

Shoichi Shudo

Rieko Kimei

Shigeki Kimura

Osamu Muramatsu

Representative Senior Managing Director
In charge of development(10,400 shares)

Director
Head of Personnel Department(6,000 shares)

Director Outside(- shares)

Corporate Auditor Outside(- shares)

April 1978

April 1986
Joined The Daiei, Inc.
December 1995 Joined Daiichi Medical Testing
Laboratories Co., Ltd. (now AINHOLDINGS INC.)
May 2003
General Manager of Drugand Cosmetic Store Business,
Merchandising Business
May 2004
General Manager of Personnel
Department
August 2009 Executive Officer
July 2014
Director (current post)
July 2016
President and Representative Director of
AYURA LABORATORIES INC. (current post)

Joined Sapporo Medical Testing
Laboratories Co., Ltd.
March 1982
Joined Daiichi Medical Testing
Laboratories Co., Ltd. (Asahikawa, now
AIN HOLDINGS INC.)
May 1993
Head of Corporate Planning Division
July 2000
Director
May 2003
Managing Director
May 2004
General Manager of Dispensing
Pharmacy Business
May 2012
Senior Managing Director
November 2015 Senior Managing Director andRepresentative Director (current post)

20 AIN HOLDINGS ANNUAL REPORT 2017

CORPORATE AUDITORS

April 1991

March 1986
March 2014

Independent

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

June 2003
July 2012

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

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

Independent

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

AIN HOLDINGS ANNUAL REPORT 201721

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 thedispensing pharmacy business that includes preparing and dispensing
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.
Under drug price revisions in April 2016, the average drug
price was reduced by 5.57%. Including special reductions forhigh-cost drugs, the average drug price was cut by 7.77%. Also,
under dispensing fee revisions, the role of pharmacies located near
hospitals was reevaluated, but in order to realize patient-focused
non-hospital dispensing services, pharmacists and dispensing
pharmacies are now being required to play a primary care role inhealthcare provision.
The gap in performance is widening between companies in
the industry, which are struggling with changes to their profit
structures resulting from revisions to dispensing fees. However,the Group regards these changes in the operating environment asa perfect opportunity to push ahead with its strategy of further
increasing profitability.
*	Dispensing fees comprise pharmaceutical management fees and technical feesfor pharmacists.

BUSINESS OVERVIEW FOR THE FISCAL YEARUNDER REVIEW
During the fiscal year ended April 30, 2017, consumer spending
in the Japanese economy picked up overall against a backdropof improving employment conditions, and corporate earnings
improved amid an upturn in production and capital investment.
In this economic environment, the AIN HOLDINGS Group (theGroup) worked to expand its business and increase earnings.
Specifically, the Group opened new dispensing pharmacies andused M&A to expand the business. It also developed its urban drug
and cosmetic store business.
For the fiscal year under review, net sales rose 5.6% year on
year to ¥248,110 million, operating income decreased 0.4% to¥14,563 million, ordinary income decline 0.5% to ¥15,080 million
and profit attributable to owners of the parent increased 0.4%
year on year to ¥7,949 million.
As of the end of the fiscal year, the number of stores in theGroup totaled 1,118, a net increase of 185 stores from the end of
the previous fiscal year.

BUSINESS RESULTS BY SEGMENT
Dispensing Pharmacy BusinessIn drug price and dispensing fee revisions in April 2016, the roleof pharmacies located near hospitals was reevaluated, but inorder to realize patient-focused non-hospital dispensing services,

pharmacists and dispensing pharmacies are now being required toplay a key role at the heart of local communities.
To ensure our pharmacists and dispensing pharmacies fulfill theirrole at the heart of local communities, the Group continues to build
links with local healthcare service providers, mainly in the area ofhome-based dispensing, step up the integration and continuous
management of drug information using patient medication
notebooks and other means, 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 307 new pharmacist graduates
joining the Group in April 2017. The Group is also upgrading
pharmacist training programs to enhance their capabilities so thatthey can fill their role as pharmacists at the heart of the community.
In business development, the Group pushed ahead withbusiness expansion by opening new dispensing pharmacies andusing M&A deals.
In December 2016, AOI Pharmacy Corporation (Sendai-shi, Miyagi
Prefecture), which operates a total of 115 dispensing pharmacies
across Japan, became a subsidiary of the Group. As a result, the Groupnow operates a network of more than 1,000 dispensing pharmacies inJapan’s 47 prefectures. The Group intends to use the acquisition of thecompany to further strengthen its network of dispensing pharmacies
to support local healthcare provision.
During the fiscal year under review, the Group opened 209
dispensing pharmacies, including pharmacies acquired from AOI
Pharmacy Corporation and other M&A deals, and closed 24,
resulting in a total of 1,066. As a result, the dispensing pharmacy
business reported sales of ¥221,801 million, up 5.1% year on year,
and segment income of ¥19,110 million, down 0.6% year on year.
Drug and Cosmetic Store BusinessIn the drug and cosmetic store business, the market environment
remained challenging due to a narrowing competitive gap between

companies in the sector and the emergence of new competitorsfrom sector consolidation and realignment that also extends toother business sectors.
Against this backdrop, the Group continued to open ainz &tulpe urban drug stores and worked to make stores more appealing
by refurbishing existing stores and strengthening merchandise
lineups, particularly drug and cosmetics products.
We also actively developed proprietary merchandise brands suchas LIPS and HIPS and cocodecica, leading to an increase in profit
margins.
For the fiscal year under review, the drug and cosmetic store
business reported an increase in sales of 2.4% year on yearto ¥21,383 million. However, segment loss was ¥866 million,
compared with segment loss of ¥459 million a year earlier.
During the fiscal year under review, the Group opened ainz &tulpe Colette Mare SAKURAGICHO-B1 (Naka Ward, Yokohama),
ainz & tulpe GINZA NAMIKIDORI (Chuo Ward, Tokyo), ainz & tulpe
KITASENJU MARUI (Adachi Ward, Tokyo), ainz & tulpe Colette
Mare SAKURAGICHO (Naka Ward, Yokohama), ainz & tulpe
MARRONNIER GATE GINZA (Chuo Ward, Tokyo), ainz & tulpe KEIO
DEPARTMENT STORE SHINJUKU (Shinjuku Ward, Tokyo) and ainz
& tulpe YOKOHAMA JOINUS (Nishi Ward, Yokohama), as well as
LIPS and HIPS Style Store SHINSAPPORO Sunpiazza (Atsubetsu
Ward, Sapporo) and LIPS and HIPS TOKYU PLAZA OMOTESANDOHARAJUKU (Shibuya Ward, Tokyo), which mainly sells original
brands. Nine stores were also closed, resulting in a total of 52
cosmetic and drugs stores at the end of the fiscal year.
Other Businesses
Net sales from other businesses rose 67.0% year on year to ¥4,925
million and segment loss was ¥1,496 million compared with theloss of ¥1,142 million a year earlier.

11-YEAR FINANCIAL SUMMARY
For the year:
Net sales
Selling, general and administrative expenses
Operating income
Profit attributable to owners of parent
Capital expenditures*1
Depreciation and amortization *1
At the end of the year:
Equity capital*2
Total net assets
Total assets
Number of shares outstanding (shares)
Number of employees (persons)
Number of stores: Dispensing pharmacy business
Number of stores: Drug and cosmetic store business
Per share information (¥):
Net income*3
Net assets*3
Cash dividends*3
Stock information (based on the closing price as of April 30) (¥):
Stock price
Ratios (%):
Operating margin
Return on sales *4
Return on assets (ROA) *5
Return on equity (ROE) *6
Shareholders’ equity ratio

22 AIN HOLDINGS ANNUAL REPORT 2017(¥ million)

2007/4

2008/4

2009/4

2010/4

2011/4

2012/42013/4

2014/4

2015/4

2016/42017/481,307
7,970
2,888
1,010
1,620
773

106,231
9,203
4,444
1,615
1,914
968

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

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

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

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

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

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

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

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

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

10,71011,326
49,84911,320,000
1,947
247
43

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

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

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

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

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

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

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

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

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

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

44.67
473.089.0

71.18
529.8910.0

85.37
626.2715.0

114.04760.4020.0

127.83923.7322.5

153.67
1,056.89
25.0

159.181,201.71
30.0

165.04
1,328.43
30.0

195.45
1,511.57
30.0

249.691,679.69
40.0

250.71
1,895.63
50.0

1,500

1,490

1,481

2,920

3,115

4,290

4,765

4,495

4,245

5,340

7,720

3.6
1.2
2.2
9.6
21.5

4.2
1.5
3.0
14.2
20.9

4.6
1.8
3.6
15.1
25.9

5.2
2.5
4.9
16.7
32.5

6.3
3.0
5.5
15.4
38.3

7.2
3.4
6.0
15.5
39.2

6.3
3.3
5.6
14.1
40.0

5.9
3.1
5.3
13.1
41.5

6.1
3.3
5.8
13.8
42.0

6.2
3.4
6.2
15.6
38.1

5.9
3.2
5.4
14.0
38.4

Note:
Amounts of less than one million yen wererounded down.
*1: The amounts of capital expendituresand depreciation and amortization prior
to the fiscal year ended April 30, 2007
are on a non-consolidated basis.
*2: Equity capital =Total net assets – Non-controllinginterests*3: The Company conducted a 2-for-1 stock
split of common shares with an effective
date of October 1, 2014. Net income
per share, net assets per share and cash
dividends per share have been adjusted
retroactively to reflect the impactof the stock split.
*4: Return on sales =Profit attributable to owners of parent /Net sales × 100*5: Return on assets =Profit attributable to owners of parent /Total assets(yearly average) × 100*6: Return on equity =Profit attributable to owners of parent /Equity capital(yearly average) × 100

AIN HOLDINGS ANNUAL REPORT 201723

Financial Section

FINANCIAL POSITION
The balance of total assets at the end of the fiscal year underreview increased by ¥16,435 million to ¥156,323 million.
This mainly reflected increases in cash on hand and in banks
and increases in property, plant and equipment such as land,buildings and structures, and goodwill due to the Group’s businessexpansion through new store openings and M&A.
Consolidated current assets at the end of the fiscal year underreview increased by ¥8,827 million to ¥65,420 million comparedto ¥56,593 million at the end of the previous fiscal year. This
mainly reflected cash on hand and in banks of ¥29,775 million, an
increase of ¥7,127million compared with the previous fiscal year
and inventories of ¥11,668 million, an increase of ¥683 million due
to business expansion.
Fixed assets at the end of the fiscal year under review increasedby ¥7,607 million to ¥90,902 million compared to ¥83,294
million at the end of the previous fiscal year. This was mainly due
to an increase in fixed assets related to investment in new storesand expansion in the asset base at consolidated subsidiaries that
became part of the Group through M&A deals. Property, plant andequipment, mainly buildings and structures, increased by ¥310
million to ¥28,464 million, while goodwill rose ¥7,602 million to¥40,939 million.
Liabilities increased by ¥9,580 million to ¥96,144 million,
compared with ¥86,563 million at the end of the previous fiscal
year. This is primarily due to an increase in short-term loans of¥7,596 million (up ¥1,906 million year on year) and an increase inlong-term debt of ¥ 18,254 million (up ¥34 million year on year).
The balance of current liabilities increased by ¥6,210 million
from the previous year-end balance of ¥66,744 million to ¥72,955
million, and the balance of long-term liabilities increased by ¥3,370
million from the previous year-end balance of ¥19,818 million to¥23,188 million.
Net assets increased by ¥6,854 million to ¥60,178 million
compared to ¥53,324 million at the end of the previous fiscal
year. As a result of the above factors, the shareholders’ equity
ratio increased 0.3 percentage points to 38.4%, compared with38.1% at the end of the previous fiscal year. ROA decreased 0.8
percentage points to 5.4%, while ROE decreased 1.6 percentage
points to 14.0%.

CASH FLOWSIn the fiscal year under review, cash and cash equivalents (“cash”)
increased ¥7,342 million (33.5%) year on year to ¥29,234 million.
This reflected operating cash flow generated by dispensing
pharmacy and drug and cosmetic store businesses, which was
mainly used to actively invest in new store openings and M&A.
Some cash was also retained to provide constant access to a certain
level of funds.
Cash flows from each category and their relevant factors are as
follows:
Cash Flows from Operating Activities
Net cash provided by operating activities was ¥18,409 million, adecrease of 13.8% year on year.
The main items that were positive for cash flow were profit
before income taxes of ¥14,307 million, as well as depreciation
and amortization of ¥3,687 million, amortization of goodwill of¥3,654 million, and a decrease in accounts receivable of ¥5,369
million related to business expansion through new store openings
and M&A. The main items that were negative for cash flow wasincome taxes paid of ¥7,695 million.
Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥11,183 million, adecrease of 46.4% year on year.
This mainly reflected payments of ¥2,415 million for purchasesof property, plant and equipment related to the opening of new
urban drug stores and dispensing pharmacies, and ¥9,697 million
for purchases of subsidiaries’ shares resulting in obtaining controls
related to shares acquired in 40 companies through M&A deals.
Cash Flows from Financing Activities
Net cash provided by financing activities decreased 94.2% year on
year to ¥116 million.
This was mainly attributable to net repayments from shortterm debts of ¥391 million and net long-term debt procurement of¥2,512 million. Cash dividends paid of ¥1,268 million also had anegative impact on cash flows from financing activities.

BUSINESS AND OTHER RISKSBASIC POLICIES FOR PROFIT DISTRIBUTION
The Company considers the return of profits to shareholders as
an important management issue. Our basic policy is to repay ourinvestors proportionate to the profit we make, and to maintainthese payments at stable levels.
Internal reserves are held to strengthen the corporate structure
and in preparation for new store openings and future developmentof the business. We will make effective use of these funds togenerate profits to be returned to shareholders in the future.
The Company’s basic policy is to pay dividends from retained
earnings once per year at the end of the fiscal year.
For the fiscal year under review, the Company paid a dividend
from retained earnings of ¥50 per share, compared with theprevious fiscal year’s ordinary dividend of ¥40.
In view of our profit forecasts, plans for investment and otherfactors, we intend to pay an ordinary dividend from retained
earnings of ¥50 per share in the fiscal year ending April 30, 2018.

24 AIN HOLDINGS ANNUAL REPORT 2017

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 dispensing pharmacy business under various permits,
licenses, registrations and notifications including those set
forth by the Law for Ensuring the Quality, Efficacy, and Safetyof Pharmaceuticals and Medical Devices (the Pharmaceuticaland Medical Device Law), the Health Insurance Law, and thePharmacists Law, under the supervision of the Ministry of Health,Labour and Welfare, and of prefectural health and welfare
departments.
The drugstore business in our drug and cosmetic 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 thesale of OTC drugs online. Factors such as the entry into the market
of firms from other industries as a result of a continuing trend
in the future to deregulate drug sales may affect the Group’s
performance.
2. Details of business
The Group’s dispensing pharmacy business operates a chain of
dispensing pharmacies.
As the dispensing pharmacy business accounted for 89.4% of
net sales in the fiscal year under review, we plan to continue themulti-store operation mainly based on dispensing pharmacies.
Accordingly, the Group’s operating results may be affected by the
success or failure of the store opening policies including M&A andby trends in store openings by competitors in the same industry.
Furthermore, sales of dispensing pharmacies significantly dependon the medical institutions that write prescriptions. Therefore,
uncertainties such as the issuance of non-hospital prescriptions by
the medical institutions or suspension/discontinuation of operations
thereof may affect the Group’s performance. In addition, due toseasonal outbreaks of influenza and other conditions, the numberof prescriptions filled may be affected by seasonal trends.
3. Industry trends
The revenues in our dispensing pharmacy business come frompharmacy operations involving the dispensing and supplying ofdrugs based on prescriptions. The drug prices and dispensing fees
are set by the Ministry of Health, Labour and Welfare. As a way
to contract medical expenses, both medical treatment fees anddrug prices are being revised incrementally. In the future as well,changes in profit structure resulting from factors such as revisions
in the medical treatment fee system could continue to affect theGroup’s performance and financial position.
4. Securing qualified staff
Dispensing pharmacies and drugstores (Stores for Category 1
Drugs) are required by the Pharmaceutical and Medical Device
Law to have a pharmacist on site; the Pharmacists Law stipulates
that the 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 to secure 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
from all aspects.

b. Protection of personal data
We possess patient data in the dispensing pharmacy business,
including medical histories and prescription information, and we
possess personal data in the drug and cosmetic store businessobtained from the ainz & tulpe Point Card and Tulpe Mobile Club.
The Group takes all possible steps to protect personal data
through personal information protection systems and the rigorous
enforcement of rules on the handling of such information. Also,
key subsidiary AIN PHARMACIEZ INC. has acquired Privacy Markaccreditation in the healthcare, 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 loss of society’s confidence in
the Group.
6. Risk in business strategy
The Group has promoted the expansion of the business scaleof dispensing pharmacies through actively promoting new store
openings and M&A.
Our basic policies regarding M&A strategy require us to carefully
examine target companies and determine the amount to be paid
for acquisitions thereof in order to stably secure a profitability levelthat exceeds the amortization of goodwill to be incurred. If matters
do not go as planned, however, we may incur losses on valuationof shares in subsidiaries and impairment losses on goodwill, which
may have an adverse impact on the Group’s operating results andfinancial position.
7. Interest rate risks
In the Group’s promotion of business expansion based on actively
promoting new store openings and M&A, costs for ordinary
store openings are covered by internal funds within the range of
operating cash flow, while in large-scale M&A, costs are sometimes
financed by borrowings from financial institutions.
In order to ensure flexible access to funds to support these
activities, the Group maintains a certain level of liquidity on its
balance sheet. As of the end of the fiscal year under review, cashon hand and in banks totaled ¥29,475 million, compared with a
total balance of short- and long-term debt of ¥25,851 million.
We focus on the possibility of return on investment and seek
to reduce interest-bearing debt through efficient investment in
implementing M&A deals. However, if the Group fails to secure
an adequate return on its M&A investment, or due to interest rate
fluctuations associated with conditions in financial markets, theGroup’s financial position and operating results including interest
payable may be affected.
8. Impact of consumption tax
Under Japan’s Consumption Tax Act, dispensing sales in thedispensing pharmacy business related to social insurance medical
examinations are exempt from consumption tax. However, thebusiness is required to pay consumption tax on pharmaceutical andother products that it procures.
As a result, consumption tax borne by the Group is booked
under cost of sales in the dispensing pharmacy business.
In the past, when consumption tax was introduced anddispensing fees were revised, the government took into accountthe higher rate of consumption tax when it set drug prices.
However, future revisions to the rate of consumption tax may not
be reflected in drug prices, which could have an impact on theGroup’s operating results.

AIN HOLDINGS ANNUAL REPORT 201725

AIN HOLDINGS INC.
AIN HOLDINGS INC.
CONSOLIDATEDBALANCE SHEETCONSOLIDATED BALANCE SHEETAS OF APRIL 30, 2017

ASSETSASSETSAS OF APRIL 30, 2017

Millions of yen
2017
2016

Thousands ofThousands of
U.S. dollars
U.S. dollars
Millionsofyen(Note 1(1))(Note 1(1))
2017
2016
2017NET ASSETSLIABILITIES AND NET ASSETS
2017
LIABILITIES AND

Current assets:
Current assets:
Cash2 onbanks (Notes
and 4)Cash on hand and in banks (Notes
andhand4) and¥ in
29,775¥ 222,647
Notes
andaccounts
receivable(Note
4)
Notes and accounts receivable (Note 4)
9,990
12,385
Other accounts receivable
Other accounts receivable
9,402
5,983
Inventories (Note 3)11,668
Inventories (Note 3)
10,984
Deferred tax assets (Note 10) Deferred tax assets (Note1,166 10)
1,149
Short-term loans
Short-term loans632
639
Other current assets 2,829
Other current assets
2,806
Allowance for doubtful accountsAllowance for doubtful accounts(44)(3)
Total current assets
Total current assets
65,42056,593¥ $ 29,775
267,544 ¥
9,990
89,765
9,402
84,481
11,668104,843
1,166
10,477
632
5,678
2,829
25,420(44)(395)
65,420587,833

Property,
Property, plant and equipment (Note6): plant and equipment (Note 6):
Buildings
and structures,
Buildings and structures, net
15,365net
14,694
Land
Land
9,958
9,537
Construction in progress
Construction in progress
316
813
Other property,
plant2,823
and equipment,3,108
net
Other property, plant and equipment,
net
Total property, plantand equipment
Total property, plant and equipment
28,46428,15315,365138,062
9,958
89,477
316
2,839
2,823
25,36628,464
255,764

Investments and other assets: Investments and other assets:
securities2,435(Notes 4 and 5)2,677
Investment securities (Notes 4 Investment
and 5)
Deferredtax
assets(Note
Deferred tax assets (Note 10)
2,167 10)
2,038
Net
definedbenefitasset
Net defined benefit asset (Note 9)22(Note 9)174
Long-term loans
Long-term loans
1,194
1,801
Deposits and guarantees
Deposits and guarantees
10,443
10,013
Goodwill
Goodwill
40,93933,337
assetsOther intangible fixed assets Other intangible fixed2,170
2,248
Other investments andother assets 4,086
Other investments and other assets
3,378
accounts
Allowance for doubtful accountsAllowance for doubtful(312)(1,237)
Total
investments
andTotal investments and other assets
62,438other assets
55,141
Total assets ¥ 156,323
Total assets¥ 139,888

See accompanying notes.

26 AIN HOLDINGS ANNUAL REPORT 2017

Current liabilities:
Current liabilities:
22,647$
267,544
Accounts payable (Note 4)
Accounts payable (Note 4)
12,38589,765
Short-term debt (Notes 4 and 7)Short-term debt (Notes 4 and 7)
5,983
84,481
Accrued income taxes
Accrued income
taxes
10,984
104,843
Deposits received
Deposits received
1,149
10,477
Allowance for bonuses to employees
Allowance for bonuses to employees
639
5,678
Allowance for bonuses to directors
Allowance for bonuses to directors
2,806
25,420Reserve for reward
obligations Reserve for reward obligations
(3)
(395)
Provision for sales returns
Provisionfor sales
returns
56,593587,833
Othercurrent liabilities
Other current liabilities
Total
current liabilities
Total current liabilities
14,694
138,062
Long-term liabilities:
Long-term liabilities:
9,537
89,477Long-term debt (Notes 4 and 7)Long-term debt (Notes 4 and 7)
813
2,839
Lease obligations
Lease obligations
3,108
25,366Net
Net defined benefit
liability (Note9) defined benefit liability (Note 9)28,153
255,764
Other
long-term liabilities
Other long-term liabilities
Totallong-term liabilities
Total long-term liabilities¥

Millions of yen
2017
2016

Thousands of
U.S. dollars(NoteMillions
1(1)) of yen
2017
2016
2017

Thousands of
U.S. dollars(Note 1(1))
201739,325
7,596
2,898
14,223
1,903
16
410
14
6,566
72,95539,987
5,690
4,448
10,112
1,633
13
390
15
4,452
66,744¥ $ 39,325
353,356 ¥
7,596
68,254
2,898
26,04014,223
127,801
1,903
17,099
16143
410
3,684
14125
6,566
58,99972,955655,539

39,987
5,690
4,448
10,112
1,633
13
390
15
4,452
66,744$

14,854
1,198
2,228
1,537
19,81818,254
164,021
958
8,608
2,331
20,945
1,644
14,772
23,188208,356

14,854
1,198
2,228
1,537
19,81818,254
958
2,331
1,644
23,188

¥

2,435
2,677
21,879Net Assets: (Note 11)21,879Net Assets: (Note
11)
2,167
2,038
19,471
Shareholders’ equity
19,471
Shareholders’ equity
22197
174
197
Common stock (Note 14)
8,682
8,682
Common stock (Note 14)
78,012
8,682
8,682
1,194
1,801Authorized - 10,728- 44,000,000
shares in 2017 and 2016
10,72844,000,000 sharesAuthorized
in 2017 and2016
10,443
10,013Issued - 31,888,212
93,835 shares in 2017
Issued- 31,888,212
shares in 2017 and 2016
93,835and2016
40,93933,337
367,858
Capitalsurplus
6,367
6,367
367,858
Capital surplus
6,367
6,367
57,2102,170
2,248
19,498Retainedearnings
45,286
38,605
19,498Retained earnings
45,286
38,605406,918
3,378
4,086
stock180,595(180,644
sharesin 2017 and 180,595
2016)
(419)
(419)
30,353
Treasury stock30,353(180,644 sharesTreasury
in 2017 andsharesin 2016)(419) shares in(419)(3,764)(312)(1,237)Total shareholders’(2,803) equity
Total shareholders’ equity
59,91853,237(2,803)59,91853,237538,395
62,43855,141
561,038
Accumulated
561,038
Accumulated othercomprehensive
income: other comprehensive income:¥ $156,323¥
139,888
$
1,404,645
Unrealized
holding gains (losses) on securities 86
86772
(63)
1,404,645
Unrealized holding gains (losses) on securities(63)
Remeasurmentsofdefinedbenefit
plans
101
84
Remeasurments of defined benefit plans
101
84
907
Total
accumulated
othercomprehensive
income187
21
Total accumulated other comprehensive income
1,680
187
21
Non-controlling interests
73655
65
Non-controlling interests
73
65
Total net assets
60,17853,324
Total net assets
60,17853,324
540,731¥ $156,323
Total liabilities and net assets Total liabilities and net assets¥ 156,323¥ 139,888
1,404,645 ¥ 139,888

353,356
68,254
26,040127,801
17,099
143
3,684
125
58,999655,539

164,021
8,608
20,945
14,772
208,356

78,012
57,210406,918(3,764)
538,395
772
907
1,680
655
540,731$ 1,404,645

See accompanying notes.

AIN HOLDINGS ANNUAL REPORT 201727

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF INCOME

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETSYEAR ENDED APRIL 30, 2017

YEAR ENDED APRIL 30, 2017

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

264Profit before income taxes
Income taxes (Note 10):
Current
DeferredProfitProfit attributable to non-controlling interests
Profit attributable to owners of parent

Millions of yen
2017
2016
248,110¥ 234,843
206,017
196,308
42,092
38,53527,52923,915
14,563
14,619
108
63
44
193
149
62

¥

94
143
72
186
189
63
157

-

Thousands ofsharesThousands of
U.S. dollars(Note 1(1))
2017$ 2,229,400
1,851,172
378,219
247,362
130,856
970
566
395
1,734
1,338
557
-

2,372

Balance at April 30, 2015
Profit attributable to owners of parent
Cash dividends paid
Acquisition of treasury stock
Purchase of shares of consolidated subsidiaries
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2016
Profit attributable to owners of parent
Cash dividends paid
Acquisition of treasury stock
Net change in items other than those in shareholders’ equity
Net changes during the year
Balance at April 30, 2017

31,888-

Capital surplus

8,682

7,872

8,682

¥

8,682

-

¥

Common stock

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

(1,505)(1,505)
6,367
6,367

Retainedearnings

Treasury stock

31,639

7,917

¥

(951)
6,965
38,605
7,949(1,268)6,681
45,286

¥

(419)
(419)
(0)
(0)
(419)

47,776¥$78,012$78,012-$

57,210$57,210-$$346,886
71,426(11,393)
60,032406,918

¥

(75)
160
160
84
16
16
101

¥

151

(130)
(130)
21
166
166
187

¥

Non-controllinginterests

¥

¥

118

(52)
(52)
65
7
7
73

Total net assets¥

48,046

7,917

(951)
(1,505)(182)
5,278
53,324

7,949(1,268)

¥

(0)
173
6,854
60,178

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

Accumulated other comprehensive income (loss)

Retainedearnings

Capital surplus

¥

(290)
(290)
(63)
149
149
86

Total accumulated
othercomprehensive
income (loss)

Remeasurmentsof defined
benefit plans

227

7,917

(951)
(1,505)
5,460
53,237
7,949(1,268)(0)
6,680
59,918

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

Treasury stock$$(3,764)(0)(0)(3,764)

Unrealized
holding gains(losses) on
securities

Total
shareholders’equity$$478,362
71,426(11,393)(0)60,023538,395

$

$

(566)
1,338
1,338
772

Total accumulated
othercomprehensive
income (loss)

Remeasurmentsof defined
benefit plans

$

754

$

143
143
907

-

$

188

$

1,491
1,491
1,680

-

Non-controllinginterests

$

584

$

62
62
655

-

Total net assets$$

479,144
71,426(11,393)(0)
1,554
61,586
540,731

See accompanying notes.

-

63
(143)
(67)
(89)
(488)
(453)
(216)
252
(255)
14,307566(1,284)(602)(799)(4,384)(4,070)(1,940)2,264(2,291)
128,556

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

6,698
(710)
5,987
7,961
44
7,917

54,272
2,785
57,05871,48862
71,426$31,888-

Common stock

Total
shareholders’equityShareholders' equity

68
58
13
(96)
(78)
(87)
(282)
(409)
(856)
94
(669)
13,949¥31,888Millions of yen

Shareholders' equity

Number ofshares ofcommon stock-

AIN HOLDINGS INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
YEAR ENDED APRIL 30, 2017

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

Millions of yen
2017
¥
7,956

Millions of yen
2016
¥
7,961

Thousands of
U.S. dollars(Note 1(1))
2017$
71,488

149
16
166
8,122

(290)
160
(130)
7,831

1,338
143
1,491
72,980

8,115

7,786

72,9177

44

62

See accompanying notes.
28 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201729

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

YEAR ENDED APRIL 30, 2017

Cash flows from operating activities:
Profit before income taxes
Depreciation and amortization
Amortization of goodwill
Impairment losses on fixed assets(Decrease) increase in allowance for doubtful accounts
Increase in net defined benefit liability
Increase in allowance for bonuses to employees
Interest and dividend income
Interest expenses
Gains on investments in partnerships(Gains) loss on sales of investment securities
Gain on bargain purchase
Losses on disposal and sales of fixed assets
Decrease in accounts receivable
Bad debts expenses
Decrease in inventories
Decrease (increase) in other assets
Increase in other accounts receivable(Decrease) increase in accounts payable
Increase in other liabilities
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Proceeds from sales of investment securities
Purchases of subsidiaries' shares resulting in obtaining controls
Payments for loans receivable
Proceeds from collections of loans receivable
Payments for purchase of intangible fixed assets
Decrase (increase) in other investments
Proceeds from withdrawal of time deposits
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Net repayments from short-term debts
Proceeds from long-term debts
Repayments of long-term debts
Repayments of lease obligations
Payments from changes in ownership interests in subsidiaries
that do not result in change in scope of consolidation
Cash dividends paid
Net cash provided by financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of the year (Note 2)
See accompanying notes.

YEARS ENDED APRIL 30, 2017 AND 2016

Millions of yen
2017
2016

Thousands of
U.S. dollars(Note 1(1))
2017¥ 14,307
3,687
3,654
453
(15)
233
197
(108)
143
(52)
(263)
477
5,369
216
449
2,536
(2,820)(4,340)
2,007
26,135112(143)(7,695)
18,409¥ 13,949
3,259
2,938
856
565
164
104
(94)
96
(143)
0
(58)
384
236
495
(194)
(600)
3,031
940
25,93293(94)(4,579)21,352$ 128,556
33,12932,833
4,070
(134)
2,093
1,770
(970)
1,284
(467)
(2,363)
4,286
48,243
1,940
4,034
22,787(25,339)(38,997)
18,033234,836
1,006(1,284)(69,143)
165,414(2,415)513
869(9,697)(349)
448(1,032)
13
534(68)(11,183)(7,407)709
260(10,954)(960)
74(2,509)
(298)
223
(13)
(20,877)(21,700)
4,609
7,808
(87,132)(3,135)
4,025(9,273)
116
4,798
(611)
(100,485)(391)
11,729(9,217)(735)-(2,085)
12,987(5,619)(710)(1,591)(3,513)
105,391(82,819)(6,604)-(1,268)
116

(951)
2,028

(11,393)
1,042

7,342
21,892¥ 29,234

2,503
19,389¥ 21,892

65,971
196,711$ 262,683

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, 2017, which was ¥111.29 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 87 and 61
subsidiaries as of April 30, 2017 and 2016, 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. and MEDIWEL Corp. close its accounts on April
30. The account closing date for 11 consolidated subsidiaries in the dispensing pharmacy business isthe end of January. The account closing dates for 11 consolidated subsidiaries in the dispensing
pharmacy business are the end of February. The account closing date of other consolidated
subsidiaries is the end of March 31. Financial statements as of these respective closing dates are usedin preparing the consolidated financial statements. However, necessary adjustments are made toimportant transactions that occur between these subsidiaries’ account closing dates and the accountclosing 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(hereafter, "held-to-maturity debt securities"), (c) other securities that are not classified in any of theabove categories (hereafter, "available-for-sale securities").

30 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201731

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

Allowance for bonus to 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.

(5) Inventories(11) Reserve for reward obligations

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.

In terms of the estimated redeemable amount of the purchase points given in the parent company’s
Drug and Cosmetic Store Business, the Company sets a reserve based on actual redemptions in thepast.

(6) Depreciation and amortization(12) Provision for sales returns

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:

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.

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
construction in progress and store facilities is the disposal value from which costs of disposal are
deducted.
(8) 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.
(9) 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.

32 AIN HOLDINGS ANNUAL REPORT 2017(10) Bonuses to directors(13) 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.
(14) 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.
(15) 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.
(16) Consumption taxes
The Company and its consolidated subsidiaries are accounted for using the tax excluded method.
With regard to consumption taxes and other taxes that are not subject to deduction, the related
expenses are reported in the fiscal year in which they are incurred.
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

AIN HOLDINGS ANNUAL REPORT 201733

and current liabilities.
(17) Recoverability of deferred tax assets
The Company and its consolidated subsidiaries have applied “Revised Implementation Guidance on
Recoverability of Deferred Tax Assets” (ASBJ Guidance No. 26 revised on March 28, 2016) from the
beginning of the fiscal year ended April 30, 2017.

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(18) Reclassification and restatement
Certain prior year amounts have been reclassified to conform to the current year presentation.
These reclassifications and restatement had no impact on previously reported results of operations.

2. Cash and cash equivalents(1) Reconciliations of cash on hand and in banks shown in the consolidated balance sheet and cash
and cash equivalents shown in the consolidated statement of cash flows as of and for the years
ended April 30, 2017 and 2016 are as follows:

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

Thousands of
U.S. dollars
2017$
267,544

Millions of yen
2017
2016
¥ 29,775¥ 22,647(540)¥ 29,234(755)¥ 21,892$(4,852)
262,683(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, 2017 and 2016 due to the acquisition of shares(i) Acquisition of shares of 38 companies in the dispensing pharmacy business and one othercompany for the year ended April 30, 2017
The following is the summary of assets acquired and liabilities assumed through the acquisitionof shares of the companies relating acquisition cost and net disbursement.

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

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

Thousands of
U.S. dollars
2017$
81,04024,862
98,544(74,867)(30,074)
99,505(1,377)(12,373)

¥

9,697

$

87,132(ii) Acquisition of shares of 24 companies in the dispensing pharmacy business and four othercompanies for the year ended April 30, 2016
The following is the summary of assets acquired and liabilities assumed through the acquisitionof shares of the companies relating acquisition cost and net disbursement.

Millions of yen
2016¥
11,344
3,315
9,190(8,155)(1,668)14,026(3,071)¥

10,954

3. Inventories
Inventories at April 30, 2017 and 2016 consisted of the following:

Merchandise
Supplies

Millions of yen
2017
2016
¥ 11,402¥ 10,661
266
323¥ 11,668¥ 10,984

Thousands of
U.S. dollars
2017$
102,453
2,390$
104,843

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 drug and cosmetic 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 drugstores.
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 eight years from the date ofborrowing, 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 also

34 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201735

collected in a short period, no particular risk management is employed.
Securities held to maturity are based on the Company’s Marketable Securities Investment
Standards. Such investments are based on careful decisions, following internal screenings ofinvestees and investment amounts. Furthermore, such investments are monitored regularly,
determining the investee’s financial status throughout the investment period to quickly determine
and minimize potential repayment difficulties.
The Company manages default risk on lease deposits and guarantee deposits through the credit
control upon making contract periods and regular credit screening.
Management of market risk (the risk of exchange and interest rate fluctuations)
The Company and its consolidated subsidiaries raise funds mainly through long-term debt. With
regard to investment securities, the Company and its consolidated subsidiaries regularly check thefinancial conditions of the issuers of unlisted securities. The Company and its consolidated
subsidiaries review on an ongoing basis the status of their holdings of listed securities, taking into
consideration market conditions and their relationships with the issuing companies.
Management of liquidity risk associated with fund procurement (the risk of being unable to execute
payments when due)
To manage liquidity risk, the Company and its consolidated subsidiaries create cash flow plans
based on annual capital expenditures forecasts. These plans are updated each month, based onrevised operating performance and forecast figures. To ensure the Company’s ability to respondflexibly to sudden demands for funding in relation to M&A activities, the Company maintains acertain level of liquidity, including through issuance of new shares.
(2) Fair values of financial instruments
Carrying values and fair values of the financial instruments on the consolidated balance sheet at April
30, 2017 and 2016 are summarized in the following table:
AssetsThousands ofMillions of yen
U.S. dollars
2017
2016
2017
Carrying value
Cash on hand and in banks¥ 29,775¥ 22,647$
267,544
Notes and accounts receivable
9,990
12,38589,765
Other accounts receivable
9,402
5,983
84,481
Investment securities
1,542
1,408
13,855
Deposits and guarantees
10,386
9,956
93,323
Total
61,09652,382548,980
Fair value
Cash on hand and in banks
29,77522,647
267,544
Notes and accounts receivable
9,990
12,38589,765
Other accounts receivable
9,402
5,983
84,481
Investment securities
1,545
1,438
13,882
Deposits and guarantees
10,353
9,970
93,027
Total
61,06652,425548,710Difference
Cash on hand and in banks
Notes and accounts receivable
Other accounts receivable
Investment securities
229
17
Deposits and guarantees
(32)
14
(287)
Total
¥
(30)
¥
43
$
(269)

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
2017
2016

Thousands of
U.S. dollars
2017

39,325$¥39,987353,356

7,596
14,223
18,254
79,400

5,690
10,112
14,85470,644

68,254
127,801
164,021713,451

39,32539,987353,356

7,606
14,223
18,28879,444

5,696
10,112
14,89470,691

68,343
127,801
164,327
713,846

-

-

-

9
34
43

6
40
47

80
305
386

¥

$

Method of calculating the fair value of financial instruments and matters related to available-for-salesecurities and derivative transactions:
Assets:(a) Cash on hand and in banks, notes and accounts receivable, and other accounts receivable
As these instruments are settled in the short term, their carrying value approximates fair value.
(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.
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 ¥892 million ($8,015 thousand)and ¥1,268 million as of April 30, 2017 and 2016, respectively, are not readily determinable.

36 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201737

5. Securities

The redemption schedule for monetary claims and securities with maturity dates as of April 30,
2017 and 2016 are summarized as follows:(1) The following tables summarize acquisition costs, carrying values and differences of securities withavailable fair values as of April 30, 2017 and 2016:

Millions of yen

1 year or
less

Cash on hand and in banks
Notes and accounts receivable¥

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

¥

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

Other securities:
More than
10 years

29,295 ¥
9,990
9,402

-

¥

- ¥
-

-

179
2,086
50,953 ¥10
3,735
3,745 ¥

2,518
2,518 ¥

2,102
2,102

1 year or
less

Cash on hand and in banks
Notes and accounts receivable

2017
More
More
than 1than 5year but
years butless thanless than
5 years
10 yearsThousands of
U.S. dollars
2017
More
More
than 1than 5year but
years butless thanless than
5 years
10 yearsMore than
10 years$ 263,231 $
89,76584,481

-

$

- $
-

-

1,608
18,743$ 457,839 $

89
33,56033,650 $22,62522,625 $18,887
18,887

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
2017
2016
¥

¥

367
-

¥

147
-

Thousands of
U.S. dollars
2017
$

3,297
-

17
384

29
177

152
3,450

562
-

223
-

5,049
-

26
588

35
259

233
5,283

195
-

75
-

1,752
-

9
204

5
81

80
1,833

¥

$

Millions of yen

1 year or
less

Cash on hand and in banks
Notes and accounts receivable¥

Other accounts receivable

Investment securities
Debt securities
Deposits received
Total

38 AIN HOLDINGS ANNUAL REPORT 2017

¥

2016
More
More
than 1than 5year but
years butless thanless than
5 years
10 yearsMore than
10 years

21,687 ¥12,385
5,983

-

¥

- ¥
-

-

179
1,671
41,907 ¥39
3,511
3,551 ¥

100
2,751
2,851 ¥

2,078
2,078

AIN HOLDINGS ANNUAL REPORT 201739

6. Leases
Other securities:

The following pro forma amounts represent the acquisition costs, accumulated depreciation,
impairment losses and net balance of leased assets as of April 30, 2017 and 2016, which would havebeen reflected in the consolidated balance sheets if finance lease accounting had been applied to thefinance leases currently accounted for as operating leases as allowed under Japanese GAAP.

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
2017

Millions of yen
2017
2016
¥

412
189

¥

¥

605
319

$

3,702
1,698

411
19
1,034

379
19
1,324

3,693
170
9,291

333
189

431
319

2,992
1,698

411
19
954

379
19
1,149

3,693
170
8,572

(79)
-

(174)
-

(709)
-

(0)
(80)

(0)
(174)

(0)
(718)

¥

$

Acquisition cost
Buildings
Other fixed assets
Intangible fixed assets
Total
Accumulated depreciation
Buildings
Other fixed assets
Intangible fixed assets
Total
Impairment losses
Buildings
Other fixed assets
Intangible fixed assets
Total
Net balance
Buildings
Other fixed assets
Intangible fixed assets
Total

Equity securities included stocks of non-consolidated subsidiaries and affiliates of ¥115 million($1,033 thousand) and ¥114 million at April 30, 2017 and 2016, 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, 2017 and 2016:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Total sales ofother securities sold
¥
869
¥
0
$
7,808
Related gains
264
2,372
Related losses
108(3) The following table summarizes impairment losses on other securities in the years ended April 30,
2017 and 2016:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Other securities with fair value
Other securities without fair value

40 AIN HOLDINGS ANNUAL REPORT 2017

¥

-

¥

0

$

-

Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
¥

¥

-

¥

68
68

$

-

-

64
64

-

-

-

-

-

4
4

-

¥

$

Future minimum lease payments as of April 30, 2017 and 2016 for finance leases currently accounted
for as operating leases are summarized as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Due within one year
Due after one year
Total

¥
¥

-

¥
¥

11
1
12

$
$

-

The following table summarizes details of lease expenses, reversal of impairment losses for leased
assets, depreciation, interest expense and impairment losses, if they had been capitalized:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Lease expense
Reversal of impairment losses forleased assets
Depreciation
Interest expense
Impairment losses

¥

1
0
0
-

¥

13
3
3
-

$

8
0
0
-

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

AIN HOLDINGS ANNUAL REPORT 201741

Remaining lease expenses for non-cancellable operating lease transactions are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Due within one year
Due after one year
Total

¥

1,508
9,955
11,463¥¥

1,293
10,244
11,538¥$13,55089,450103,001$

7. Short-term debt and long-term debt
Short-term debt and long-term debt at April 30, 2017 and 2016 consisted of the following:Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Short-term bank loans with aweighted-average interest rate of
0.6%
Current portion of long-term debt
with a weighted-average interest rateof 0.3%Current portion of lease obligation
with a weighted-average interest rateof 1.1%Long-term debt (2018-2034) with aweighted-average interest rate of
0.3%
Lease obligation (2018-2022) with aweighted-average interest rate of
1.2%
Total

¥

151

¥

$

1,356

7,445

5,612

66,897

594

668

5,337

18,254¥77958
27,403

14,854¥

1,198
22,410

164,021$8,608
246,230At April 30, 2017 and 2016, the carrying amounts of assets pledged as collateral for long-term debt are
as follows:
Assets pledged as collateral:Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Buildings
Land
Investment securities
Total

¥
¥

5
5

¥
¥

56
23
5
85

8. Sales, disposal and impairment of fixed assets(1) Gains and losses on sales of fixed assets for the years ended April 30, 2017 and 2016 are as
follows:
Gains on sales of fixed assets:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Buildings and structures
Land
Other property, plant andequipment
Total

¥

¥

Losses on sales of fixed assets:

Buildings and structures
Land
Construction in progress
Other property, plant andequipment
Other intangible fixed assets
Total

2
1
8
11

¥

17
4
1
24

¥

¥

¥

21
4
10
3
39

¥

¥

$

$

17
8
71
98

Thousands of
U.S. dollars
2017

Millions of yen
2017
2016

Thousands of
U.S. dollars
2017

Millions of yen
2017
2016

42 AIN HOLDINGS ANNUAL REPORT 2017

$

44
44

The aggregate annual maturities of lease obligations at April 30, 2017 are as follows:
Thousands ofYear ending April 30,
Millions of yen
U.S. dollars
2018
¥
594
$
5,337
2019
426
3,827
2020
298
2,677
2021
159
1,428
2022
63
566

0
107
1
9
119

$

$

188
35
89
26
350

(2) Losses on disposal of fixed assets for the years ended April 30, 2017 and 2016 are as follows:

Liabilities corresponding to collateral:

Accounts payable
Long-term debt
Total

$

The aggregate annual maturities of long-term debt at April 30, 2017 are as follows:
Thousands ofYear ending April 30,
Millions of yen
U.S. dollars
2018
¥
7,445
$
66,8972019
6,721
60,391
2020
5,220
46,9042021
3,704
33,2822022
1,902
17,090

¥
¥

1
1

¥
¥

0
39
40

$
$

8
8

Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
Buildings and structures
Construction in progress
Other property, plant andequipment
Goodwill
Other intangible fixed assets
Deposits and guarantees
Other investments and otherassets
Disposal cost
Total

¥

¥

155
-

¥

192
6

$

1,392
-

23
158
6
67

14
2
42

206
1,419
53
602

3
34
449

5
25
290

26
305
4,034

¥

$

AIN HOLDINGS ANNUAL REPORT 201743

(3) For the years ended April 30, 2017 and 2016, the Company recognized impairment losses for thefollowing property groups:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Property group
Description of assets
StoresStore facilities
¥
453
¥
641
$
4,070
Real estateLand
47
Stores and real estateStore facilities and land
167
Total
¥
453
¥
856
$
4,070

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

Balance as of May 1, 2015
Service costs
Interest cost on retirement benefit obligation
Actuarial gains incurred
Pension and severance payments
Increases due to a newly consolidated
subsidiary
Other
Balance as of April 30, 2016

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

Thousands of
U.S. dollars
2017$
20,666
3,046
62
(835)
(1,015)
188$
22,122Millions of yen
2016
¥
1,724
282
11
(101)
(85)

¥

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

Balance as of May 1, 2016Retirement benefit expenses
Business owner’s contribution
Pension and severance payments
Increases due to a newly consolidated
subsidiary
Other
Balance as of April 30, 2017

Thousands of
U.S. dollars
2017
$
4,717
1,338
(161)
(637)

5
64
655

44
575
5,885

¥

$

Millions of yen
2016
¥
392
135
(27)
(71)
96
¥
525

Balance as of May 1, 2015
Retirement benefit expenses
Business owner’s contribution
Pension and severance payments
Other
Balance as of April 30, 2016

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

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

469
(0)
2,300

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

Millions of yen
2017
2016
¥
1,190
¥
969
(952)
(895)
237
73
2,071
1,981
2,309
2,331
(22)
¥

2,309

Thousands of
U.S. dollars
2017$
10,692(8,554)2,129
18,609

2,054
2,228
(174)
¥

2,054

20,747
20,945(197)$

20,747(2) Reconciliation of the beginning and the ending balance of plan assets (excluding the amount of thesimplified method)

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

Balance as of May 1, 2015
Expected return on plan assets
7,26Actuarial losses incurredBusiness owner’s contribution
Pension and severance payments
Increases due to a newly consolidated
subsidiary
Balance as of April 30, 201644 AIN HOLDINGS ANNUAL REPORT 2017

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

Thousands of
U.S. dollars
2017
$
6,936
44
(143)
763
(341)
$
7,260

Millions of yen
2016
¥
493
6
(32)
102
(11)
¥

213
772
AIN HOLDINGS ANNUAL REPORT 201745

(5) Retirement benefit expenses for the years ended April 30, 2017 and 2016 comprised the following:

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

Thousands of
U.S. dollars
2017
$
3,046

Millions of yen
2017
2016
¥
339
¥
282

¥

7
(5)
28
(34)

11
(6)
69
(34)

62
(44)
251
(305)

149
-

135
3

1,338
-

484

¥

461

$

4,348

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

Unrecognized actuarial gains
Total

Millions of yen
2017
2016
¥
(77)
¥
(72)
¥
(77)
¥
(72)

Thousands of
U.S. dollars
2017
$
(691)
$
(691)

Millions of yen
2017
2016
¥
(48)
¥
(82)
(16)
89
¥
(64)
¥
6

Thousands of
U.S. dollars
2017
$
(431)
(143)
$
(575)

(b) Accumulated

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

2017

7%
4%
47%
42%
100%

2016

7%
4%
63%
26%
100%

10. Income taxes
The aggregate statutory income tax rates used for calculation of deferred income tax assets andliabilities for the years ended April 30, 2017 and 2016 were 30.6% and 31.7%, 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, 2017and 2016:
Statutory tax rate
Non-deductible expenses
Per capita inhabitant tax
Amortization of goodwill
Valuation allowance
Tax credits on tax system to expand
incomeTax credits on tax system forpromoting equipments andinvestment to improve productivity
Different tax rates applied toconsolidated subsidiaries
Other
Effective tax rates

2017
30.6%
1.0
0.7
6.6
0.4

2016
31.7%
0.5
1.0
5.4
0.5

(1.0)

(0.5)

(0.1)

(0.5)

3.9
2.4
44.4%

3.9
0.9
42.9%

(2) Significant components of deferred tax assets and liabilities as of April 30, 2017 and 2016 are as
follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Deferred tax assets:
Impairment losses
¥
330
¥
291
$
2,965
Excess of depreciation
485
442
4,357
Excess of allowance for bonuses
596
510
5,355
Excess of reserve for rewards obligation
140
133
1,257
Net defined benefit liabilities
741
558
6,658
Other
1,690
1,773
15,185Sub-total deferred tax assets
3,985
3,708
35,807
Valuation allowance
442
383
3,971
Total deferred tax assets
3,542
3,324
31,826
Deferred tax liabilities:
Capitalized removal costs
(160)
(131)
(1,437)Net unrealized holding gains on securities
(37)
(0)
(332)
Other
(347)
(125)
(3,117)
Total deferred tax liabilities
(545)
(257)
(4,897)
Net deferred tax assets
¥
2,997
¥
3,067
$
26,929(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, 2017 and 2016
are principally as follows:
2017
2016
Weighted average discount rate
Weighted average expected rate of
return on plan assets
Expected rates of salary increase

46 AIN HOLDINGS ANNUAL REPORT 2017

0.64%

0.46%

0.75%
1.00%-4.24%

0.75%
1.00%-4.24%

AIN HOLDINGS ANNUAL REPORT 201747

11. Net assets

15. Segment information

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.

(1) Overview of reporting segments

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.

12. Commitment
The Company entered into overdraft agreements with 19 and 17 banks as of April 30, 2017 and 2016,
respectively, to finance working capital requirements. The outstanding balances of such overdrafts asof April 30, 2017 and 2016 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2016
2017
Total overdraft available¥ 23,950¥ 23,870$
215,203
Amount utilized
32
38
287
Outstanding balance¥ 23,918¥ 23,832$
214,915

13. Contingencies
The Company has contingent liabilities for the claims for lease deposits and guarantee deposits paid toowners of shops, due to their transfers to third parties. Such contingent liabilities amounted to ¥742
million ($6,667 thousand) and ¥811 million as of April 30, 2017 and 2016, respectively.

14. Amounts per share
Net assets per share at April 30, 2017 and 2016 and basic and diluted earnings per share for the years
then ended are as follows:
Yen
U.S. dollars
2017
2016
2017
Net assets per share¥ 1,895.63¥ 1,679.69$
17.03
Basic earnings per share
250.71
249.692.25
Diluted earnings per share
Cash dividends per share attributable to the year
50
40
0.44

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 Drug and Cosmetic 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 Drug and Cosmetic Store Business primarily includes the urban and suburban drug stores andcosmetic specialty 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, Drug and Cosmetic
Store and Other.
(2) Methods of calculating sales, income (loss), assets and other items by reporting segment
Methods of accounting for reported business segments are in principle the same as those indicatedin Note 1 “Summary of Significant Accounting Policies.” Income or loss of reporting segments are
based on ordinary income. Income or loss between segments and transfer amounts are based onmarket prices.
(3) Information on sales, income (loss), assets and other items by reporting segment as of and for theyears ended April 30, 2017 and 2016 is summarized as follows:
Millions of yen
2017
Sales
Sales to third parties
Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assets¥Dispensing

Drug andpharmacy

cosmetic store

221,801
221,801¥

Other

21,383
21,383

¥

Total

4,925
379
5,305

Adjustments¥

248,110379
248,489¥

Consolidated

- ¥
(379)
(379)

248,110248,110¥

19,110148,765¥(866)
10,118 ¥(1,496)
11,054 ¥16,747
169,937¥(1,666)(13,614) ¥15,080156,323

¥

2,299

¥

357

400

3,058

¥

201

3,260

¥

¥

¥

3,625

-

29

3,654

-

3,654

368

85

-

453

-

453

2,620

907

381

3,908

26

3,934

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.

48 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201749

Amortization of goodwill and unamortized balances by reporting segment as of and for the years endedApril 30, 2017 and 2016 are summarized as follows:
Thousands of U.S. dollars
2017
Sales
Sales to third parties
Intersegment sales
Total sales
Segment income(loss)
Segment assets
Other
Depreciation andamortization
Amortization of
goodwill
Impairment losses
Increase of tangible
and intangible
assetsDispensing

Drug andpharmacy

cosmetic store$ 1,993,000
1,993,000
171,713$ 1,336,732$

20,657$$$32,572
3,306

Other

192,137
192,137$(7,781)
90,915 $

3,207$

23,542

Total

44,253
3,405
47,668$ 2,229,400
3,405
2,232,806

3,594

$

260
-

8,149

Adjustments(13,442)
150,480
99,326 $ 1,526,974

763

Millions of yen
201727,477$$$- $ 2,229,400(3,405)(3,405)2,229,400

1,806

$

-

35,11529,292

233

35,349

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¥¥¥Drug andpharmacy

cosmetic store

211,009
211,009
19,219139,120

2,070

¥

¥

¥

Other

20,884
20,884¥(459)
7,384 ¥

262¥¥

(1,142)9,882 ¥

376¥

Drug andpharmacy

cosmetic store

3,625
40,719

¥

Other

-

¥

Adjustments

29
220

¥

Consolidated

-

¥

3,654
40,939Thousands of U.S. dollars
2017
Amortization of goodwill
Unamortized balances of goodwill

Dispensing

Drug andpharmacy

cosmetic store$

32,572365,881

$

Other

-

$

Adjustments

260
1,976

$

Consolidated-$

32,833367,858

Millions of yen
2016
Amortization of goodwill
Unamortized balances of goodwill

Dispensing

Drug andpharmacy

cosmetic store

¥

2,921
33,111

¥

Other

-

¥

Adjustments

16
226

¥

Consolidated

-

¥

2,938
33,337

16. Comprehensive income

Total

2,949
350
3,299

Dispensing¥

32,833
4,070

Millions of yen
2016
Dispensing

Amortization of goodwill
Unamortized balances of goodwill(14,969)
135,501(122,329) $ 1,404,645

32,833
4,070

3,423

Consolidated

Adjustments

234,843350
235,193
17,617
156,387

2,710

¥

¥

¥

Consolidated

- ¥
(350)
(350)

234,843234,843(2,459)(16,499) ¥15,158139,888

171

¥

2,881

2,921

-

16

2,938

-

2,938

520

151

-

672

184

856

5,607

1,108

3,353

10,068322

10,390Each component of other comprehensive income (loss) for the years ended April 30, 2017 and 2016
was the following:

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

Thousands of
U.S. dollars
2017

Millions of yen
2017
2016
¥

¥

480

¥

(428)

$

4,313

(263)
217
(67)

0
(427)
137

(2,363)
1,949
(602)

149

(290)

1,338

77

72

691

(6)
70
(54)
16
166

34
107
52
160
(130)

(53)
628
(485)
143
1,491

¥

$

17. Business combinations
For the year ended April 30, 2017
Business combination through acquisition(1) Business combinations(a) Name of the acquired company and its business
Name of acquired company - AOI Pharmacy Corporation
Content of business - Operating dispensing pharmacies(b) Main reasons for the business combination
Through an aggressive launch strategy combining new openings and M&A activity, AOI Pharmacy
Corporation (“AOI Pharmacy”) has developed a groupwide network of 115 dispensing pharmacies
throughout Japan, where it contributes to the healthcare of individual communities. Through internal

50 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201751

training and study sessions, the company is working to reinforce its functionality as “primary carepharmacists and pharmacies.” In this and its initiatives to enhance patient services, AOI Pharmacy
shares our business policy in many respects.
By welcoming AOI Pharmacy to the AIN HOLDINGS Group (“the Group”), our dispensing
pharmacies now number more than 1,000. We aim to expand our pharmacy network still further, andat the same time, by combining our mutual business experience and enhancing patient services, we
intend to enhance the corporate value of the Group by providing a nationwide regional healthcare
infrastructure.
(c) Date of the business combination
December 26, 2016(d) Legal form of the business combination
Acquisition of shares for cash consideration(e) Name of the entity after the business combination
No changes were made to the name of AOI Pharmacy Corporation

An absorption-type split, with the Company as the Splitting Company and Ain Company Split
Preparation Co., Ltd., a 100% subsidiary of the Company, as the Split Preparation Company(iv) Name of the entity after the business combination
AIN PHARMACIEZ INC.
(v) Background of and objective of the business combination
In the dispensing pharmacy business, the AIN HOLDINGS Group is accelerating its businessdevelopment through new store launches and M&A activity. In addition, the Group is enhancing its
drugstore function through “family pharmacies” and expanding the scale of its urban drugstores. To
achieve further growth, the Group has decided to transition to a holding company system in order toclarify authority and responsibility of Group company in each segment, to promote management
autonomy and to bolster corporate competitiveness as a group. In addition, separating groupmanagement and administration from business execution, we intend to enhance corporate
governance, and we believe the holding company structure is best suited to realizing continual
increases in corporate value in this manner.

(f) Share of voting rights acquired
100%(b) Outline of accounting method used
In accordance with "Accounting Standard for Business Combinations" and " Guidance on
Accounting Standard for Business Combinations and Accounting Standard for Business
Divestitures, we treated the merger as a transaction under common control.

(g) Main grounds for determining the acquiring company
The Company acquired shares in AOI Pharmacy Corporation for cash consideration.

(2) Business combination through acquisition(a) Business combinations(2) Period of operations of the acquired company included in the consolidated financial statements
From October 1, 2016 to March 31, 2017(i) Name of the acquired company and its business
Name of acquired company - NP HOLDINGS Co., Ltd.
Content of business - Group management and real estate leasing business(3) Acquisition cost and consideration of the acquired business
Cash consideration for acquisition¥5,210 million ($46,814 thousand)Cost of acquisition¥5,210 million ($46,814 thousand)(4) Major acquisition-related costs
Advisory fees

¥171 million ($1,536 thousand)(5) Amount of goodwill generated, its sources, and its amortization method and term(a) Amount of goodwill generated¥6,271 million ($56,348 thousand)(b) Sources of goodwill
Goodwill is the cost amount paid over the fair value of asset acquired and liabilities assumed andrecoverable through the future operation by utilizing the AIN HOLDINGS Group’s management
resources and economies of scale.
(c) Goodwill amortization method and term
Straight-line method over 15 years(6) Amounts of assets and liabilities acquired on the date of the business combination
Current assets¥5,444 million ($48,917 thousand)Fixed assets¥1,623 million ($14,583 thousand)Total assets¥7,068 million ($63,509 thousand)Current liabilities¥5,111 million ($45,925 thousand)Fixed liabilities¥3,018 million ($27,118 thousand)Total liabilities¥8,130 million ($73,052 thousand)For the year ended April 30, 2016
(1) Transaction under common control(a) Overview of transaction(i) Names and details of businesses subject to the business combination
All business units with the exception of the Company’s Group management(ii) Date of the business combination
November 1, 2015(iii) Legal form of the business combination

52 AIN HOLDINGS ANNUAL REPORT 2017(ii) Main reasons for the business combination
Nishinihon Pharmacy Co., Ltd., and Setouchi Pharmacy Co., Ltd., subsidiaries of NP HOLDINGS
Co., Ltd., operate 41 dispensing pharmacies centered on Kagawa Prefecture, solidly dominatingthat region.
In addition to internal workshops and study sessions, departmental meetings are held regularly
for each specialized department. The company’s business policies have many points in common
with those of AIN HOLDINGS INC., such as contributing to regional healthcare through “dispensing
pharmacies at the heart of local communities” and expanding patient services.
We welcome the NP HOLDINGS Group, Shikoku’s leading dispensing pharmacy chain, into the
AIN HOLDINGS Group. The addition enables us to strengthen our operations in the Shikoku region,
where we have few pharmacies, as well as promoting the development of more pharmacies in theregion than before. By also combining our mutual business expertise and enhancing patient
services, we expect to augment the corporate value of the Group.
(iii) Date of the business combination
November 2, 2015(iv) Legal form of the business combination
Acquisition of shares for cash consideration(v) Name of the entity after the business combination
No changes were made to the name of NP HOLDINGS Co., Ltd.
(vi) Share of voting rights acquired
100%(vii) Main grounds for determining the acquiring company
The Company acquired shares in NP HOLDINGS Co., Ltd. for cash consideration.
(b) Period of operations of the acquired company included in the consolidated financial statements
From October 1, 2015 to March 31, 2016(c) Acquisition cost and consideration of the acquired business
Cash consideration for acquisition¥5,400 million
Cost of acquisition¥5,400 million(d) Major acquisition-related costs
Advisory fees¥201 million

AIN HOLDINGS ANNUAL REPORT 201753

(e) Amount of goodwill generated, its sources, and its amortization method and term(i) Amount of goodwill generated¥3,356 million(ii) Sources of goodwill
Goodwill is the cost amount paid over the fair value of asset acquired and liabilities assumed andrecoverable through the future operation by utilizing the AIN HOLDINGS Group’s management
resources and economies of scale.
(iii) Goodwill amortization method and term
Straight-line method over 15 years(f) Amounts of assets and liabilities acquired on the date of the business combination
Current assets¥3,038 million
Fixed assets¥973 million
Total assets¥4,011 million
Current liabilities¥1,609 million
Fixed liabilities¥358 million
Total liabilities¥1,968 million

18. Quarterly Information(1) Quarterly net sales for the year ended April 30, 2017 are as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2017
Three months ended July 31, 2016¥
57,819$519,534
Six months ended October 31, 2016
116,844
1,049,905
Nine months ended January 31, 2017
182,100
1,636,265
Twelve months ended April 30, 2017248,1102,229,400(2) Quarterly income before income taxes and non-controlling interests for the year ended April 30,
2017 is as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2017
Three months ended July 31, 2016
¥
2,482
$
22,302Six months ended October 31, 2016
5,298
47,605
Nine months ended January 31, 2017
9,896
88,920Twelve months ended April 30, 2017
14,307
128,556(3) Quarterly profit attributable to owners of parent for the year ended April 30, 2017 is as follows:
Thousands ofMillions of yen
U.S. dollars
2017
2017
Three months ended July 31, 2016
¥
1,371
$
12,319Six months ended October 31, 2016
2,855
25,653Nine months ended January 31, 2017
5,438
48,863
Twelve months ended April 30, 2017
7,949
71,426(4) Quarterly earnings per share for the year ended April 30, 2017 is as follows:
Yen
U.S. dollars
2017
2017
Three months ended July 31, 2016
¥
43.25
$
0.38
Six months ended October 31, 2016
90.07
0.80
Nine months ended January 31, 2017171.53
1.54
Twelve months ended April 30, 2017250.71
2.25(5) Quarterly earnings per share for each accounting period of the year ended April 30, 2017 is asfollows:
Yen
U.S. dollars
2017
2017
Three months ended July 31, 2016
¥
43.25
$
0.38
Three months ended October 31, 2016
46.82
0.42
Three months ended January 31, 2017
81.46
0.73
Three months ended April 30, 2017
79.18
0.71

54 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201755

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¥8,682 million

Fiscal Year
May 1 to April 30 of the following year

Number of Employees
Consolidated: 6,469
Non-consolidated: 142

Ordinary General Meeting of
Shareholders
July

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

Date of Record
April 30
(The Company will announce otherdates as and when required.)(Fiscal 2017)(Fiscal 2017)

Number of Shares Outstanding
31,888,212 shares(including treasury stock)* The Company conducted a 2-for-1 stock splitof common shares with an effective date ofOctober 1, 2014.

Number of Shareholders
3,450

Major Shareholders		

(As of April 30, 2017)

Shareholders

Number ofshares held
(thousandshares)Shareholding
ratio (%)

Kiichi Otani

3,238

10.16

Seven & i Holdings Co., Ltd.

2,480

7.78

Retirement Benefit Trust managed
by Mizuho Trust & Banking Co., Ltd.
(Marubeni Corporation account)*2;
Trust & Custody Services Bank, Ltd. as a Trustee of Retrust

1,594

5.00

The Hokkaido Bank, Ltd.

1,472

4.62

JPMC OPPENHEIMER JASDEC LENDING ACCOUNT

1,163

3.65

North Pacific Bank, LTD.

1,085

3.40

Japan Trustee Services Bank, Ltd. (Trust Account)

1,016

3.19

ML PRO SEGREGATION ACCOUNT

945

2.97

MSIP CLIENT SECURITIES

846

2.66

GOLDMAN SACHS INTERNATIONAL

842

2.64

Notes: 1. The figure excludes 180,644 shares of the treasury stock owned by the Company.
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) are related to trust services.

56 AIN HOLDINGS ANNUAL REPORT 2017

AIN HOLDINGS ANNUAL REPORT 201757