Financial and Capital Strategies / IT and DX Strategies
Financial and Capital Strategies
Seiichi Kishida
Representative Director &
Executive Vice President,
Assistant to the President,
General Affairs,
Financial Planning,
Corporate Communication,
Compliance &
Risk Management
Alfresa Holdings Corporation
Aiming to Achieve a PBR of More Than 1 by Increasing Capital Efficiency and Stepping up Growth Investments and Shareholder Returns
Since 2020, the Company's stock price has been consistently trading below a price-to-book ratio (PBR) of 1. The Board of Directors is strongly aware that this is an issue. Against this backdrop, the Tokyo Stock Exchange (TSE) published a statement on January 30, 2023, outlining "points for discussion when reviewing market classification" and "the TSE's future response based on the points for discussion." This was followed by a March 31 notice on "measures toward achieving management conscious of capital costs and stock price." The TSE strongly encourages companies that consistently have a PBR below 1 to engage in efforts to improve long-term corporate value, including by "accurately understanding the cost of capital and capital profitability, discussing the situation and evaluating stock prices, and disclosing policies, specific initia- tives, and progress towards improvement." The TSE also called for "a management approach that considers capital costs and capital profitability based on the balance sheet" and "appropri- ate allocation of management resources through investments in research and development, human capital, and facilities, and reassessment of the business portfolio."
Based on these factors, in free-form discussions by the Board of Directors and the Corporate Governance Committee, we conducted a comprehensive and constructive deliberation after recognizing the current situation and identifying issues regarding capital costs and market valuation. This discussion culminated in our announcement of the Alfresa Group's Medium- to Long-Term Vision.
The financial and capital strategies outlined in the Alfresa Group's Medium- to Long-Term Vision identify improving capital efficiency and pursuing growth investments and shareholder returns as important themes. In terms of improving capital efficiency, our goal is to achieve a return on equity (ROE) of 8.0% or higher, exceeding the cost of
capital, which represents the expected rate of return for investors. In setting our targets, we recognize our current analysis shows that our ROE generally exceeds our cost of capital (calculated using the capital asset pricing model* as a reference). However, we also take into consideration that some investors may have more demanding views, and we believe this to be a proper target for our group.
We aim to expand profits through aggressive investments to improve ROE. At the same time, we will strengthen control of the balance sheet, enhancing capital efficiency and financial soundness to build an optimal capital structure for the medium to long term. While we have previously pursued the goals of sound financial health, aggressive growth invest- ments, improved capital efficiency, and enhanced shareholder returns, the vision more proactively sets targets for ROE and the owners' equity ratio as a part of the optimal capital structure, and we will implement balance sheet controls to manage the owners' equity ratio. We aim to maintain the current level of on-hand liquidity, reduce cross-share- holdings, and consider incurring debt to cover any shortfalls in operating cash flow. Additionally, we strive to gradually improve the dividend on equity (DOE) and implement share buybacks flexibly. Along with these initiatives, we will continue to actively engage with investors and conduct ongoing evaluations of our efforts and achievements to further enhance market valuation, aiming for a sustained PBR of 1 or higher.
- Capital asset pricing model: A model that calculates the expected rate of return from the risk-free rate, risk premium, and the risk that an individual stock carries
Planning Aggressive Investments in Growth
During the fiscal year ended March 31, 2023, which was the first year of the 22-24Mid-term Management Plan, we spent ¥23.8 billion on business continuity investments. These investments included enhancing our logistics capabilities, including the Tsukuba Distribution Center, and strengthening our sales offices by constructing office facilities at each operating com- pany. We also invested ¥5.1 billion in the establishment of two companies. One, Cell Resources Corporation, aims to provide a stable supply of regenerative medicines through cell extraction, processing, and manufacturing. The second, GEKKA WORKS Co., Ltd., will promote medical cooperation on a regional basis. As part of this investment, we finalized a licensing agreement with K Pharma, Inc., for domestic development and sales rights of a treatment for amyotrophic lateral sclerosis (ALS). Furthermore, we invested ¥2.3 billion in systems and DX invest- ments. As we have earmarked ¥120.0 billion in total investment during the three years of the plan, our first-year investment levels were in line with our targets.
The Alfresa Group's Medium- to Long-Term Vision calls for a total investment of ¥320.0 billion in the eight years beyond the 22-24Mid-term Management Plan. Of this amount, ¥30.0 billion will go toward capital investment and other business continuity investments, ¥250.0 to M&A and investments in new business domains, and ¥40.0 billion for systems and DX
Alfresa Group Integrated Report 2023 | 43 |
Financial and Capital Strategies / IT and DX Strategies
Financial and Capital Strategies
investments. As most of our large capital investment will be concluded during the period of the 22-24Mid-term
actively promote the realization of specific investment and M&A opportunities.
Cash Allocation under the 22-24Mid-term Management Plan
Management Plan, business continuity investments will decrease in the eight years from fiscal 2025 to fiscal 2032. Instead, we aim to channel most of our investment into the core, growth, and new businesses that will expand profits. In the Ethical Pharmaceuticals Wholesaling Business, these include investments in regional companies, as well as investments in the medical sector and related areas, with a focus on potential inorganic growth through mergers and acquisitions. We will
As for the investment plan in the Alfresa Group's Medium- to Long-Term Vision, we have formulated a 10-year plan for the core, growth, and new businesses, taking into account and quantifying specific assumptions on the scale of businesses and companies. We will disclose specific investments in a timely and appropriate manner once they have been determined.
Utilization of debt:
Consider incurring debt to procure funds while remaining mindful of financial soundness
Reduction of cross-shareholdings:
Reduce cross-shareholdings to
less than 10.0% of net assets by the fiscal year ending March 31, 2025
Capital
Utilization of debt
Reduction of
cross-shareholdings
Allocation
Business
continuity investments / growth
investments
¥120.0 billion
Business continuity investments / growth investments:
Active investment toward the sustainable improvement of corporate value
Shareholder returns:
Three-year cumulative total return ratio of 100% Dividends:
DOE 2.4% or higher
Commemorative annual dividend of ¥10.0 for the fiscal year ending March 31, 2024
Investments under the 22-24Mid-term Management Plan and the Alfresa Group's Medium- to Long-Term Vision
Cash flows from
operating activities
Shareholder
returns
¥72.0 billion
(20th anniversary)
Acquisition of treasury stock:
Implementation of the Company's largest-ever acquisition of treasury stock
Investment Plan under the 22-24Mid-term Management Plan
22-24Mid-term Management Plan | Fiscal year ended | Fiscal years ending |
Fiscal years ending
March 31,
(of which, ¥35.0 billion is for the acquisition of treasury stock)
Acquisition of a maximum of 21 million shares (equivalent to 10.4% of the total number of issued shares, excluding treasury stock)*
(three-year cumulative total) | March 31, | March 31, | |
2023 (results) | 2024 to 2025 (difference) | ||
Business continuity invest- | ¥70.0 billion | ¥23.8 billion | ¥46.2 billion |
ments (capital investment) | |||
M&As and investments | ¥40.0 billion | ¥5.1 billion | ¥34.9 billion |
in new business domains | |||
2026 to 2033 (plan)
¥30.0 billion
¥250.0 billion
- For details, please refer to the news release on our website titled "Notice regarding Determination of Matters Concerning Share Buyback," published on Alfresa Holdings Corporation's website on May 15, 2023.
We aim to spend ¥120.0 billion in business continuity and growth investments, with plans for a 100% cumulative total shareholder
return ratio over three years through cash flows from operating activities and sales of assets, with consideration given to utilizing debt.
System investments, | ¥10.0 billion | ¥2.3 billion | ¥7.7 billion |
DX investments | |||
Total | ¥120.0 billion | ¥31.2 billion | ¥88.8 billion |
¥40.0 billion
¥320.0 billion
Reducing Cross-Shareholdings
Over the past four years, the Alfresa Group has actively engaged in dialogue with its investee companies, seeking their under- standing, as it has significantly reduced its cross-shareholdings.
capital. Additionally, we will perform qualitative evaluations to assess the medium- to long-term significance of the holdings and report to the Board of Directors on further reductions.
We plan to invest ¥120.0 billion over the course of the 22-24Mid-term Management Plan. To promote further growth,
we will invest ¥320.0 billion under the Alfresa Group's Medium- to Long-Term Vision.
Cash Allocation under the 22-24Mid-term Management Plan
The Group's basic policy on cross-shareholdings is only to hold shares when they serve important purposes in maintaining and developing favorable business transactions and collaborations, or in creating new business opportunities related to becoming a Healthcare Consortium. We aim to reduce our holdings of shares that do not serve important purposes. Going forward, we
As of March 31, 2023, the balance of cross-shareholdings was ¥56.1 billion, as disclosed in securities filings, a reduction to 11.5% of net assets. In the fiscal year ended March 31, 2023, we continued stepping up our efforts to reduce cross-shareholdings. We will continue with this initiative, aiming to have cross-shareholdings account for less than 10.0% of net assets by the final
Under the Alfresa Group's Medium- to Long-Term Vision, the Company plans to introduce balance sheet controls with a view to achieving an optimal capital structure that balances capital efficiency and stability. Specifically, we aim to uphold
primary source of funds for investment and shareholder returns, followed by the sale of cross-shareholdings and other assets, and then debt. The main sources of operating cash flows will be core businesses, centered on the Ethical
will continue our dialogue with investee companies. For each, we will quantifiably evaluate whether the benefits and risks associated with the holdings justify the associated cost of
year of the 22-24Mid-term Management Plan and accelerating the rate of reduction of the medium to long term.
an external credit rating of A+, maintain financial soundness, and keep the owners' equity ratio in the low to mid 30% range. Looking at cash allocation under the 22-24Mid-term Management Plan, we considered a 100% cumulative total shareholder return ratio over three years. We also considered the sources of funds needed to invest in business continuity and growth that will enable us to sustainably improve corporate value. Cash flows from operating activities will be our
Pharmaceuticals Wholesaling Business, and growth busi- nesses, such as medical goods and self-prevention products. Another major source of financing will be the cash flows we generate from selling assets, such as by winding down cross- shareholdings. If cash from these sources falls short of our financing needs, we will consider taking out debt. During the period of the 22-24Mid-term Management Plan, we intend to steadily allocate cash to achieve this optimal capital structure.
Reduction of Cross-Shareholdings | |||||
19.6% | 18.3% | ||||
To achieve by the fiscal year | |||||
ending March 31, 2025: | |||||
12.0% | Reduce cross-shareholdings to | ||||
11.5% | less than 10.0% of net assets | Reduce further over the | |||
93.1 | medium to long term | Balance by the end of the fiscal | |||
89.8 | following the plan | year (¥ billion) | |||
56.4 | 56.1 | Percentage of net assets that | |||
are cross-shareholdings (%) | |||||
(Based on the securities report) |
Fiscal year | Fiscal year | Fiscal year | Fiscal year | Fiscal year |
ended March | ended March | ended March | ended March | ending March |
31, 2020 | 31, 2021 | 31, 2022 | 31, 2023 | 31, 2025 |
Reduce cross-shareholdings to less than 10.0% of net assets over the period of the 22-24Mid-term Management Plan
44 | Alfresa Group Integrated Report 2023 | Alfresa Group Integrated Report 2023 | 45 |
Financial and Capital Strategies / IT and DX Strategies
Financial and Capital Strategies
Enhancing Shareholder Returns
We consider the return of profits to shareholders a management priority. During the period of the 22-24Mid-term Management Plan, our policy is to target dividends from surplus funds equivalent to DOE of 2.4% or more. For the fiscal year ended March 31, 2023, we increased the annual dividend by ¥3.0 year on year, to ¥57.0 per share, marking the 19th consecutive year of dividend hikes since the Company's founding.
In line with the policy espoused in the Alfresa Group's Medium- to Long-Term Vision, to achieve a 100% cumulative total shareholder return ratio over the three years of the 22-24Mid-term Management Plan, for the fiscal year ending March 31, 2024, we plan to award an annual dividend of ¥69.0 per share, equivalent to DOE of 2.8%. Even after the term of the 22-24Mid-term Management Plan, we intend to raise DOE in stages, emphasizing sustainable and stable dividend levels, while also comprehensively taking into consideration the earnings situation and investment plans.
We have announced plans to buy back up to 21 million shares of the Company, for a total acquisition value of up to ¥35.0 billion-thelargest-scale buyback to date-between May 16, 2023, and March 22, 2024. In line with our efforts to create an optimal capital structure, we will continue to buy back our own shares strategically and flexibly, taking into account factors such as capital efficiency, cash on hand, investment plans, and stock price levels. As it aims for further growth, the Group will strive to meet the expectations of its shareholders. We kindly ask for your continued understanding and support.
Dividends per Share / DOE (Results and Outlook)
(¥) | (%) | |||||||||||
80 | 2.8 | 3.0 | ||||||||||
70 | 2.3 | |||||||||||
10 | ||||||||||||
60 | ||||||||||||
2.0 | ||||||||||||
2.4 | ||||||||||||
50 | 2.0 | |||||||||||
6 | ||||||||||||
40 | ||||||||||||
30 | 29 | 54 | 57 | 59 | 1.0 | |||||||
42 | 50 | 53 | ||||||||||
20 | ||||||||||||
36 | 39 | |||||||||||
30 | 33 | |||||||||||
26 | ||||||||||||
10 | ||||||||||||
0 | 0 |
year | ended | year | ended | ended | ended | year | ended | ended | ended | ended | ended | year | ended | ending (plan) | |||||||||||||||||||||
2014 | 2015 year | 2016 year | 2017 | 2018 year | 2019 year | 2020year | 2021 year | 2022 | 2023 | ||||||||||||||||||||||||||
Fiscal | 31, | Fiscal | 31, | 31, | 31, | Fiscal | 31, | 31, | 31, | 31, | 31, | 31, | year | 2024 | |||||||||||||||||||||
Fiscal | Fiscal | Fiscal | Fiscal | Fiscal | Fiscal | Fiscal | 31, | ||||||||||||||||||||||||||||
March | March | March | March | March | March | March | March | March | MarchFiscal | ||||||||||||||||||||||||||
March |
Dividends per share (¥) Commemorative dividends (¥)
DOE (%, right-hand scale)
Dividends up for 19 consecutive years, since the
Company's founding
Commemorative annual dividend of ¥10.0 celebrating the 20th anniversary planned for the fiscal year ending March 31, 2024
Increase DOE gradually, with an emphasis on sustainable and stable increases to dividends
Results and Forecast for Acquisition of Treasury Stock
(¥ billion) | ||||
40 | ||||
35.0 | ||||
30 | ||||
20 | ||||
15.0 | 13.0 | 15.0 | ||
10 | ||||
0 | 13-15Mid-term | 16-18Mid-term | 19-21Mid-term | 22-24Mid-term |
Management Plan | Management Plan | Management Plan Management Plan (planned) |
Acquire treasury stock amounting to ¥35.0 billion
in the fiscal year ending March 31, 2024- the largest in Company history (planned)
Acquire treasury stock in a flexible manner
with a view toward optimizing capital structure (owners' equity ratio in the low to mid 30% range)
46 Alfresa Group Integrated Report 2023
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Alfresa Holdings Corporation published this content on 24 October 2023 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 24 October 2023 08:19:34 UTC.