TSURUHA : Consolidated Financial Results for the Second Quarter of the Fiscal Year Ending May 15, 2017

Consolidated Financial Results for the Second Quarter of the Fiscal Year Ending May 15, 2017 [J-GAAP]

December 19, 2016 Name of listed company: TSURUHA Holdings, Inc. Listed on: Tokyo Stock Exchange, 1st Section

Securities code: 3391 URL: http://www.tsuruha-hd.co.jp Representative: Masashi Horikawa, President and Representative Director

Contact: Naoto Aoki, Chief Financial Officer and Chief Administrative Officer

Investor Relations Officer TEL: [phone]

Scheduled date of filing quarterly financial report: December 28, 2016 Scheduled date to start dividends distribution: January 10, 2017 Supplementary quarterly materials prepared: Yes

Quarterly results information meeting held: Yes (for institutional investors and financial analysts)

(Figures shown are rounded down to the nearest million yen.)

1. Consolidated financial results for the second quarter ended November 15, 2016 (May 16, 2016 - November 15, 2016)

2. Consolidated operating results

   (Percentage figures show changes from the same period in the previous year.)

   Net Sales		Operating Income		Ordinary Income		Net Income Attributable to Owners of the Parent
   Six months ended November 15, 2016	Millions of yen	%	Millions of yen	%	Millions of yen	%	Millions of yen	%
   	289,079	19.4	18,804	30.9	19,713	29.7	13,260	33.3
   Six months ended November 15, 2015	242,144	11.1	14,366	6.9	15,195	8.0	9,951	19.5

   Note: Comprehensive income: Six months ended November 15, 2016: 11,794 million yen (-8.1%)

   Six months ended November 15, 2015: 12,837 million yen (23.6%)

   Net Income per Share	Diluted Net Income per Share
   Six months ended November 15, 2016	Yen	Yen
   	276.95	274.33
   Six months ended November 15, 2015	209.58	207.12

3. Consolidated financial position

4. Total Assets	Net Assets	Equity Ratio	Net Assets per Share
   As of November 15, 2016	Millions of yen	Millions of yen	%	Yen
   	274,102	164,830	58.7	3,352.35
   As of May 15, 2016	293,541	155,290	51.6	3,170.60

   Reference: Equity capital: As of November 15, 2016: 160,851 million yen As of May 15, 2016: 151,568 million yen

5. Dividends

   Annual Dividends (Yen)
   First Quarter-end	Second Quarter-end	Third Quarter-end	Year-end	Annual
   Year ended May 15, 2016	―	44.00	―	64.00	108.00
   Year ending May 15, 2017	―	54.00
   Year ending May 15, 2017 (Forecast)	―	54.00	108.00

   Note: Revisions to the most recently announced dividend forecast during the period: None

6. Consolidated financial forecasts for the year ending May 15, 2017 (May 16, 2016 - May 15, 2017)

7. (Percentage figures show changes from the same period in the previous year.)

   Net Sales		Operating Income		Ordinary Income		Net Income Attributable to Owners of the Parent		Net Income per Share
   Full year	Millions of yen	%	Millions of yen	%	Millions of yen	%	Millions of yen	%	Yen
   	583,000	10.5	37,100	18.4	37,900	16.2	23,460	21.4	490.75

   Note: Revisions to the most recently announced earnings forecasts during the period: None

   Notes

8. Significant changes to subsidiaries during the period (Transfers of specific subsidiaries with changes in the scope of consolidation): None

9. Application of the specific accounting methods for preparing the quarterly consolidated financial statements: None

10. Changes in accounting policies, accounting estimates and restatement of revisions

11. Changes in accounting policies due to revision of accounting standard, etc.: None

12. Changes in accounting policies other than 1): None

13. Changes in accounting estimates: None

14. Restatement of revisions: None

    As of November 15, 2016	48,867,768 shares	As of May 15, 2016	48,690,268 shares
    As of November 15, 2016	886,038 shares	As of May 15, 2016	886,038 shares
    Six months ended November 15, 2016	47,879,951 shares	Six months ended November 15, 2015	47,482,379 shares

15. Number of shares issued and outstanding (common shares)

16. Number of shares issued and outstanding (including treasury shares)

17. Number of treasury shares

18. Average number of shares issued and outstanding in each period (quarterly consolidated cumulative period)

19. • Implementation status of review procedures

      The quarterly review procedure based on the Financial Instruments and Exchange Act does not apply to the quarterly consolidated financial results and the procedure based on this Act was not complete as of the release of these Consolidated Financial Results.

    • Explanation of appropriate use of financial forecasts and other special items

    This document contains projections of performance based on information currently available. Actual performance may differ from these projections due to changes in the economic environment and other uncertainties. Please refer to page 3 of the supplementary materials for further details about the above financial forecasts.

    Contents

20. Qualitative information on quarterly financial results 2

21. Explanation of consolidated financial results 2

22. Explanation of consolidated financial position 2

23. Explanation of consolidated financial forecasts and other forward-looking statements 3

24. Summary (notes) information 3

25. Significant changes to subsidiaries during the period 3

26. Application of the specific accounting methods for preparing the quarterly consolidated financial statements 3

27. Changes in accounting policies, accounting estimates and restatement of revisions 3

28. Additional information 3

29. Quarterly consolidated financial statements 4

31. Quarterly consolidated balance sheets 4

32. Quarterly consolidated statements of income and quarterly consolidated statements of comprehensive income 6

    (Quarterly consolidated statements of income) 6

    (Quarterly consolidated statements of comprehensive income) 7

33. Quarterly consolidated statements of cash flows 8

34. Notes on quarterly consolidated financial statements 10

(Notes on premise of a going concern) 10

(Notes on significant changes in the amount of shareholders' equity) 10

1. Qualitative information on quarterly financial results

2. Explanation of consolidated financial results

   In the first six months of the current fiscal year (May 16, 2016 to November 15, 2016), the Japanese economy showed signs of a moderate recovery. However, consumer sentiment was weak amid uncertainty about the economic outlook, including rising prices caused by the weak yen and the risk of a downturn in overseas economies.

   In the drugstore sector, the operating environment remained challenging, with competition to open stores and reduce prices continuing to intensify and the pace of consolidation and realignment accelerating as companies sought to remain competitive. Against this backdrop, the TSURUHA Group continued to offer a high level of customer service mainly through advice- based sales, and implemented a number of strategic business initiatives. Specifically, in addition to focusing on advice-based sales of high value-added products that meet customer needs, the Group worked to address the shrinking market caused by Japan's aging population and intensifying competition, pushing ahead with store renovations aimed at improving convenience for customers by introducing new product categories such as food. Also, in order to strengthen the competitiveness and value of the Group's private brands, M's one and Medis' one, the Group took a number of steps to boost the quality of the product

   range, such as rolling out new packaging with a more visible, unified brand and updating products.

   In store openings, the Group targeted specific areas for multiple store openings as part of its area dominance store-opening strategy and implemented a scrap and build approach for existing stores. In the second quarter under review, the Group opened 55 new stores and closed 17 existing stores. As a result, the number of directly managed stores totaled 1,705 at the end of the second quarter.

   TSURUHA Group store openings and closures (Number of stores)

   End of previous fiscal year	Store openings	Store closures	Net change	End of current period	Of which dispensing pharmacies
   Hokkaido	358	11	2	9	367	76
   Tohoku	416	13	2	11	427	80
   Kanto, Koshin	390	12	4	8	398	119
   Chubu, Kansai	50	4	1	3	53	12
   Chugoku	263	9	3	6	269	64
   Shikoku	188	3	5	(2)	186	42
   Kyushu	2	3	－	3	5	－
   Total	1,667	55	17	38	1,705	393

   (The figure at the end of the current period excludes 20 overseas stores and two franchise stores.)

   As a result of the above, in the first six months of the current fiscal year, TSURUHA Holdings reported net sales of ¥289,079 million (up 19.4% year on year), operating income of ¥18,804 million (up 30.9%), ordinary income of ¥19,713 million (up 29.7%), and net income attributable to owners of the parent of ¥13,260 million (up 33.3%).

3. Explanation of consolidated financial position (Assets, liabilities and net assets)

   As of the end of the second quarter, assets totaled ¥274,102 million, a decrease of ¥19,438 million compared with the end of the previous fiscal year. This mainly reflected declines in securities and accounts receivable - trade, as the settlement date for the previous fiscal year fell on a non-business day for financial institutions.

   Liabilities totaled ¥109,272 million, a decrease of ¥28,978 million compared with the end of the previous fiscal year. This mainly reflected a decline in accounts payable - trade, as the settlement date for the previous fiscal year fell on a non-business day for financial institutions.

   Net assets totaled ¥164,830 million, an increase of ¥9,539 million compared with the end of the previous fiscal year. As a result, the equity ratio was 58.7%, up 7.1 points from the previous fiscal year-end.

   (Cash flows)

   As of the end of the second quarter, cash and cash equivalents (cash) totaled ¥51,039 million, a decrease of ¥18,277 million compared with the end of the previous fiscal year.

   The Group's cash flow position and factors affecting cash flows during the first six months of the fiscal year were as follows: (Cash flows from operating activities)

   In the first six months, operating activities used net cash of ¥8,198 million, compared with net cash provided of ¥34,900 million in the same period a year earlier. This mainly reflected income before income taxes of ¥19,746 million and cash negative items such as decrease in notes and accounts payable - trade of ¥25,476 million (including an impact of ¥26,953 million because the settlement date for the previous fiscal year fell on a non-business day for financial institutions) and income

   taxes paid of ¥5,576 million, against cash positive items such as decrease in notes and accounts receivable - trade of ¥4,878 million (including an impact of ¥4,683 million because the settlement date for the previous fiscal year fell on a non-business day for financial institutions).

   (Cash flows from investing activities)

   In the first six months, investing activities used net cash of ¥6,939 million, a decline of 5.6% compared with the same period a year earlier. This primarily reflected cash used of ¥3,506 million for payments for guarantee deposits related to new store openings and ¥4,170 million for the purchase of property, plant and equipment.

   (Cash flows from financing activities)

   In the first six months, financing activities used net cash of ¥3,139 million, compared with cash used of ¥2 million in the same period a year earlier. This mainly reflected cash used of ¥3,059 million for cash dividends paid.

4. Explanation of consolidated financial forecasts and other forward-looking statements The full-year financial forecasts announced on June 14, 2016 are unchanged.

5. Summary (notes) information

6. Significant changes to subsidiaries during the period There is no related information.

7. Application of the specific accounting methods for preparing the quarterly consolidated financial statements There is no related information.

8. Changes in accounting policies, accounting estimates and restatement of revisions Changes in accounting policy

   There is no related information.

9. Additional information

   Application of implementation guidance on recoverability of deferred tax assets

   Effective from the first quarter of the current fiscal year, the Company has applied the Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, March 28, 2016).

10. Quarterly consolidated financial statements

11. Quarterly consolidated balance sheets

    (Millions of yen)

    As of May 15, 2016	As of November 15, 2016
    Assets
    Current assets
    Cash and deposits	38,347	44,064
    Accounts receivable－trade	21,046	16,167
    Securities	31,000	7,000
    Merchandise and finished goods	71,343	75,171
    Raw materials and supplies	15	15
    Deferred tax assets	2,514	2,589
    Short-term loans receivable	2	1
    Others	10,721	9,460
    Total current assets	174,991	154,470
    Non-current assets
    Property, plant and equipment
    Buildings and structures, net	19,063	19,752
    Machinery, equipment and vehicles, net	0	0
    Tools, furniture and fixtures, net	7,243	7,994
    Land	7,610	7,911
    Leased assets, net	1,594	1,553
    Construction in progress	82	325
    Total property, plant and equipment	35,595	37,537
    Intangible assets
    Goodwill	17,464	16,287
    Software	392	431
    Telephone subscription right	76	77
    Others	449	447
    Total intangible assets	18,382	17,244
    Investments and other assets
    Investment securities	23,205	21,055
    Long-term loans receivable	24	22
    Deferred tax assets	1,431	1,509
    Guarantee deposits	36,305	38,124
    Others	3,689	4,224
    Allowance for doubtful accounts	(84)	(86)
    Total investments and other assets	64,571	64,850
    Total non-current assets	118,549	119,632
    Total assets	293,541	274,102

    (Millions of yen)

    As of May 15, 2016	As of November 15, 2016
    Liabilities
    Current liabilities
    Accounts payable－trade	91,542	66,065
    Current portion of long-term loans payable	1,206	1,206
    Accounts payable－other	9,332	8,626
    Lease obligations	264	242
    Income taxes payable	6,101	7,089
    Provision for bonuses	3,782	3,507
    Provision for directors' bonuses	400	217
    Provision for point card certificates	1,867	1,938
    Others	4,873	2,686
    Total current liabilities	119,370	91,579
    Non-current liabilities
    Long-term loans payable	5,322	4,719
    Lease obligations	1,917	1,842
    Deferred tax liabilities	6,693	5,974
    Net defined benefit liability	1,050	1,228
    Provision for directors' retirement benefits	6	5
    Asset retirement obligations	1,691	1,745
    Others	2,199	2,177
    Total non-current liabilities	18,880	17,692
    Total liabilities	138,250	109,272
    Net assets
    Shareholders' equity
    Capital stock	8,321	8,734
    Capital surplus	26,373	26,786
    Retained earnings	106,716	116,917
    Treasury shares	(5,311)	(5,311)
    Total shareholders' equity	136,100	147,127
    Accumulated other comprehensive income
    Valuation difference on available-for-sale securities	15,527	13,816
    Remeasurements of defined benefit plans	(60)	(92)
    Total accumulated other comprehensive income	15,467	13,724
    Subscription rights to shares	875	897
    Non-controlling interests	2,846	3,081
    Total net assets	155,290	164,830
    Total liabilities and net assets	293,541	274,102

12. Quarterly consolidated statements of income and quarterly consolidated statements of comprehensive income (Quarterly consolidated statements of income)

    (Millions of yen)

    Six months ended November 15, 2015	Six months ended November 15, 2016
    Net sales	242,144	289,079
    Cost of sales	173,981	206,604
    Gross profit	68,162	82,475
    Selling, general and administrative expenses	53,795	63,671
    Operating income	14,366	18,804
    Non-operating income
    Interest income	65	65
    Dividends income	86	106
    Gain on donation of equipment	449	578
    Rent income	59	77
    Share of profit of entities accounted for using equity method	54	－
    Compensation income	15	128
    Insurance income	7	13
    Others	101	124
    Total non-operating income	839	1,094
    Non-operating expenses
    Interest expenses	7	154
    Early withdrawal penalty	－	27
    Provision of allowance for doubtful accounts	3	1
    Others	0	2
    Total non-operating expenses	10	185
    Ordinary income	15,195	19,713
    Extraordinary income
    Gain on sales of non-current assets	－	1
    Gain on reversal of subscription rights to shares	－	39
    Gain on sales of investment securities	－	0
    Settlement received	－	280
    Gain on step acquisitions	244	－
    Others	－	7
    Total extraordinary income	244	327
    Extraordinary losses
    Loss on retirement of non-current assets	34	27
    Loss on sales of non-current assets	－	0
    Donation for reconstruction	－	180
    Charge for agreed cancellation of lease agreement	－	71
    Others	0	14
    Total extraordinary losses	34	294
    Income before income taxes	15,404	19,746
    Income taxes－current	5,372	6,280
    Income taxes－deferred	80	(98)
    Total income taxes	5,453	6,182
    Income	9,951	13,564
    Net income attributable to non-controlling interests	－	304
    Net income attributable to owners of the parent	9,951	13,260

    (Quarterly consolidated statements of comprehensive income)

    (Millions of yen)

    Six months ended November 15, 2015	Six months ended November 15, 2016
    Income	9,951	13,564
    Other comprehensive income
    Valuation difference on available-for-sale securities	2,877	(1,708)
    Remeasurements of defined benefit plans	8	(61)
    Total other comprehensive income	2,885	(1,769)
    Comprehensive income	12,837	11,794
    (Breakdown of comprehensive income)
    Comprehensive income attributable to owners of the parent	12,837	11,517
    Comprehensive income attributable to non-controlling interests	－
    	277

13. Quarterly consolidated statements of cash flows

    Six months ended November 15, 2015	Six months ended November 15, 2016
    Cash flows from operating activities
    Income before income taxes	15,404	19,746
    Depreciation and amortization	1,797	2,462
    Amortization of goodwill	1,038	1,177
    Increase (decrease) in allowance for doubtful accounts	3	1
    Increase (decrease) in provision for bonuses	129	(275)
    Increase (decrease) in provision for directors' bonuses	(195)	(182)
    Increase (decrease) in net defined benefit liability	(71)	177
    Increase (decrease) in provision for point card certificates	174	70
    Increase (decrease) in provision for directors' retirement benefits	(582)	(0)
    Interest and dividends income	(151)	(172)
    Compensation income	(15)	(128)
    Insurance income	(7)	(13)
    Interest expenses paid on loans and installment interests	7	154
    Gain on donation of equipment	(449)	(578)
    Loss on retirement of non-current assets	34	27
    Loss (gain) on sales of non-current assets	－	(1)
    Loss (gain) on sales of investment securities	－	0
    Gain on reversal of subscription rights to shares	－	(39)
    Share of (profit) loss of entities accounted for using equity method	(54)	－
    Loss (gain) on step acquisitions	(244)	－
    Decrease (increase) in notes and accounts receivable - trade	(5,661)	4,878
    Decrease (increase) in inventories	(1,108)	(3,827)
    Increase (decrease) in notes and accounts payable - trade	28,525	(25,476)
    Increase (decrease) in accrued consumption taxes	(784)	15
    Others	4,116	(759)
    Subtotal	41,905	(2,742)
    Interest and dividends income received	108	131
    Proceeds from insurance income	7	13
    Proceeds from compensation	15	128
    Interest expenses paid	(7)	(154)
    Income taxes paid	(7,128)	(5,576)
    Net cash provided by (used in) operating activities	34,900	(8,198)

    Six months ended November 15, 2015	Six months ended November 15, 2016
    Cash flows from investing activities
    Payments into time deposits	(0)	(0)
    Proceeds from withdrawal of time deposits	－	5
    Purchase of securities	(1,000)	－
    Proceeds from sales of securities	1,000	－
    Purchase of property, plant and equipment	(2,984)	(4,170)
    Proceeds from sales of property, plant and equipment	－	1
    Purchase of software	(26)	(116)
    Purchase of investment securities	(0)	(311)
    Proceeds from sales of investment securities	－	0
    Purchase of shares of subsidiaries resulting in change in scope of consolidation	(2,728)	－
    Payments of loans receivable	(1)	(0)
    Collection of loans receivable	5	2
    Payments for guarantee deposits	(2,489)	(3,506)
    Proceeds from collection of guarantee deposits	885	1,130
    Others	(11)	25
    Net cash provided by (used in) investing activities	(7,352)	(6,939)
    Cash flows from financing activities
    Repayment of short-term loans payable	(269)	－
    Repayments of long-term loans payable	－	(603)
    Repayments of lease obligations	(5)	(141)
    Proceeds from issuance of new shares	255	707
    Proceeds from sales of treasury shares	2,515	－
    Cash dividends paid	(2,499)	(3,059)
    Dividends paid to non-controlling interests	－	(42)
    Net cash provided by (used in) financing activities	(2)	(3,139)
    Net increase (decrease) in cash and cash equivalents	27,544	(18,277)
    Cash and cash equivalents at the beginning of period	29,949	69,317
    Cash and cash equivalents at the end of period	57,494	51,039

14. Notes on quarterly consolidated financial statements (Notes on premise of a going concern)

15. There is no related information.

    (Notes on significant changes in the amount of shareholders' equity) There is no related information.