Alfresa : Medium- to Long-Term Vision

Medium- to Long-Term Strategy

The Alfresa Group's Medium- to Long-Term Vision

To further increase the corporate value of the Alfresa Group, we formulated our business strategy and financial and capital strategies in the Alfresa Group's Medium- to Long-Term Vision ahead of the three-year22-24Mid-term Management Plan and up to the fiscal year ending March 31, 2033.

The Road Map to Achieving Our Long-Term Vision

Overview of the Alfresa Group's Medium- to Long-Term Vision

In May of 2022, we announced our three-year22-24Mid-term Management Plan. We also created the Medium- to Long- Term Vision to more clearly communicate our growth story and our aspirations for corporate value improvement. To achieve the goals set forth in the plan, we have outlined the

Taking into account the balance between owners' equity derived relative to profit to achieve the target ROE of 8.0% and financial soundness that should be maintained as a company supporting social infrastructure, we have set our target for the owners' equity ratio in the low- to mid-30% range.

At the top of the Alfresa Group's sustainability management (long-term strategy) is its corporate principles, which serve as the foundation of its business. Underpinning that is the Group's Basic Sustainability Policy, which is based on the Group's principles. Our aspirations have been formulated on this basis.

The Alfresa Group's Medium- to Long-Term Vision is positioned within its aspiration, "We aim to become a Healthcare Consortium that provides products and services in every health-related field." This vision is an extension of our 22-24Mid-term Management Plan, which we announced last year.

We have formulated strategies for realizing the targets outlined by the Alfresa Group's Medium- to Long-Term Vision: a business strategy, financial and capital strategies, and a strategy for non-financial indicators (ESG issues).

The business strategy calls on us to secure profit growth by enhancing the profitability of core businesses and expanding the revenue of growth and new businesses to stimulate higher profits. The financial and capital strategies, mean- while, target a dividend on equity (DOE) ratio of 2.4% or higher, which we seek to increase gradually following the period of the 22-24Mid-term Management Plan. These strategies also set the goal of acquiring treasury stock amounting to a historic high of ¥35.0 billion in fiscal 2023, and then continuing to acquire treasury stock flexibly in subsequent years.

Finally, the ESG strategy urges us to reduce CO2 emissions and promote the efficient use of energy (environmental), invest actively in human resources (social), and promote thorough compliance (governance).

road map going forward as shown in the figures below.

Our targets are to achieve net sales and operating income of ¥4.0 trillion and ¥70.0 billion or more, respectively, by the fiscal year ending March 31, 2033. To do so, we will strengthen core businesses, cultivate growth businesses, and develop new businesses. We have established target figures by reinforcing the revenue structure of our underlying ethical pharmaceuticals business, using an assumed profit margin for our growth businesses, and taking into account the future business plans of our new businesses. Given the current business environment, while these targets will not be easy to achieve, we do not believe they are unrealistically high. We believe they are challenging yet attainable goals, and we will actively strive to realize them.

We intend to achieve ROE that exceeds the cost of capital by increasing the operating income margin and improving total asset turnover, making steady increases each fiscal year and reaching 8.0% by the fiscal year ending March 31, 2033.

In the fiscal year ending March 31, 2024, we anticipate DOE of 2.8%, reflecting a ¥10.0 dividend to commemorate the 20th anniversary of our founding. We also plan to spend ¥35.0 billion to acquire treasury stock. During the period of the current plan, we aim to bring the total shareholder return ratio to 100%. After that, we will increase DOE gradually. We will continue to acquire treasury stock in a flexible manner when the timing is appropriate, taking into consideration the overall balance among an optimal capital structure, capital efficiency, dividends, and investments.

In drawing up a 10-year plan for total investment in core, growth, and new businesses, our calculations considered assumptions for specific businesses and scale of certain Group companies. During the three years of 22-24Mid-term Management Plan, we plan to invest a total of ¥120.0 billion, followed by an additional ¥320.0 billion in the eight years from 2025.

Improve corporate value over the medium to long term by pursuing the Healthcare

Consortium and improving capital efficiency by controlling the balance sheet

We feel our target owners' equity ratio should be set in conjunction with the level of return and the scale of equity.

Medium- to Long-Term Main Goals (Up to the Fiscal Year Ending March 31, 2033)

Net Sales	¥4.0 trillion
Operating Income	¥70.0 billion or higher
ROE	8.0% or higher

Period of the 22-24Mid-term Management Plan

		Fiscal year ending
Fiscal year ended	Fiscal year ending	March 31, 2025
March 31, 2023	March 31, 2024 plan	22-24Mid-term Management

The Alfresa Group's Medium- to Long-Term Vision

Medium- to long-term goals

(fiscal year ending

Business Strategy

Financial and Capital Strategy

Plan (announced in May 2022)

March 31, 2033)

Secure profit growth by enhancing the profitability of core businesses and expanding the revenue of growth and new businesses to encourage higher profits

1. Core businesses:	Become a leading wholesaler and the choice of
	suppliers and customers alike
2. Growth businesses:	Expand medical goods (medical devices, diagnostic
	reagents, nutritional foods, etc.); Promote self-
	prevention products* in the Self-Medication Products
	Wholesaling Business; Expand consignment and
	promote development of pharmaceuticals for new
	businesses in the Manufacturing Business
3. New businesses:	Promote business related to regenerative medicine
	products; Promote activities to connect people using
	digital tools; Promote entry into treatment-adjacent
	businesses

Achieve dividend on equity (DOE) of 2.4% or higher (increase gradually following the period of the 22-24Mid-term Management Plan)

Acquire treasury stock amounting to ¥35.0 billion in fiscal 2023, then continue to acquire flexibly in subsequent years

1. Achieve capital efficiency and work as a social infrastructure company to establish a stable financial base, and establish an optimal medium- to long long-term capital structure (owners' equity ratio in the low to mid 30% range)
2. Realize optimal cash allocation to facilitate the sustainable improvement of corporate value by making a balanced consideration of continued invest- ment, optimizing capital structure, and providing stable shareholder returns
3. Increase DOE gradually, with an emphasis on sustainable and stable increases to dividends
   Acquire treasury stock in a flexible manner with a view toward optimizing capital structure

Net sales	¥2,696.0 billion	¥2,740.0 billion
Operating	¥30.1 billion	¥32.0 billion
income
Operating	1.1%	1.2%
income margin
ROE	5.4%	-
Owners' equity	36.4%	-
ratio

¥2,700.0 billion or higher

¥40.5 billion

1.5%

Achieve ROE that exceeds the cost of

capital by increasing the operating income margin and improving total asset turnover (increase gradually every fiscal year)

-

¥4.0 trillion

¥70.0 billion or higher

Increase gradually

8.0% or higher

Low-mid 30% range

	Non-Financial (ESG) Strategy
Environmental	Social	Governance
Reduce CO2 emissions and promote
Invest actively in human capital	Promote thorough compliance
efficient use of energy

* Self-prevention (SP) products: Products that help individuals prevent or protect themselves from illness

DOE	2.4%	2.8%
Acquisition of		Commemorative dividend (¥10.0)
-	¥35.0 billion
treasury stock
Total investment
amount

2.4% or higher

Three-year cumulative total

shareholder return ratio of 100%

Three-year cumulative

total ¥120.0 billion

Increase gradually

Continue acquisition in a

flexible manner

Cumulative total (fiscal 2025 to fiscal 2032): ¥320.0 billion

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Alfresa Group Integrated Report 2023

Alfresa Group Integrated Report 2023

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Medium- to Long-Term Strategy

The Alfresa Group's Medium- to Long-Term Vision

Business Strategy: Expand and Transform the Business Portfolio

With regard to the dispensing center business, further	dispensing center business. We will develop dispensing
deregulation in the dispensing and delivery center industry	center functions in the dominant areas of our subsidiary,
would be desirable for us as a wholesaler developing a total	APOCREAT Corporation, and contribute by providing the func-

We will strive to create value by enhancing and expanding our total supply chain services, as well as enlarging and transforming our business portfolio. By leveraging the strengths of each segment and utilizing the Alfresa Group's supply chain in a comprehensive manner, we will create new value that goes beyond individual segments.

growth businesses as the wholesaling of medical and self- prevention (SP) products, and develop new businesses.

During the period of the Alfresa Group's Medium- to Long- Term Vision, we aim to leverage our strengths in the Ethical Pharmaceuticals Wholesaling Business to boost our domestic market share to 27.5%. We also seek to increase sales from

supply chain, since it would allow us to engage in the

tions we have built thus far to our pharmacy customers.

Financial and Capital Strategies: Optimal Capital Structure over the Medium to Long Term

The 22-24Mid-term Management Plan calls on us to strengthen core businesses, such as the Ethical Pharmaceuticals Wholesaling Business, cultivate such

core businesses from ¥2,450.0 billion to ¥3.0 trillion, raise sales via growth businesses from ¥250.0 billion to ¥850.0 bil- lion, and generate ¥150.0 billion in sales from new businesses.

We will manage the balance sheet to create an optimal capital structure over the medium to long term that places equal emphasis on capital efficiency and stability. We have identi-

We have decided to maintain on-hand liquidity at current levels, given the Company's social mission of ensuring a reliable supply of pharmaceuticals. At the same time, we will

Business Strategy: Expansions and Reforms to the Business Portfolio (Net Sales)

Note: Including inorganic growth

22-24Mid-term Management Plan

The Alfresa Group's Medium- to Long-Term Vision

fied ROE and owners' equity ratio targets for an optimal capital structure and clearly communicated our cash flow allocation strategy during the 22-24Mid-term Management Plan period. By doing so, we aim to improve capital efficiency

continue our efforts to reduce cross-shareholdings. In doing so, we will maintain dialogue with our investees and quantitatively assess the benefits and risks associated with each investment in relation to the cost of capital. We will also make

Growth

Existing Businesses

Growth businesses (approx. ¥250.0 billion)

• Medical goods

New Businesses

New businesses (-)

• Regenerative medicine supply chain

(Cell Resources Corporation)

Growth

Existing Businesses

Growth businesses (¥850.0 billion)

• Medical goods

(medical devices, diagnostic reagents, nutritional foods, etc.)

• Self-preventionproducts
• New channels

New Businesses

New businesses (¥150.0 billion)

• Regenerative medicine supply chain

• Health technology, data-driven

business

• Treatment-adjacent business

by moving closer to the stated optimal capital structure, rather than by focusing on one-time shareholder returns. Thus, we will manage the balance sheet with an awareness of improving capital efficiency.

qualitative assessments on the long-term significance of holding these investments.

While considering debt-based funding, we will curtail the accumulation of net assets, aiming for ROE of 8.0% or more.

(medical devices, diagnostic reagents, nutritional foods, etc.)

• Self-prevention products

• New channels

(Self-Medication Products Wholesaling Business)

Core businesses (approx. ¥2,450.0 billion)

• Health technology, data-driven business

(GEKKA WORKS Co., Ltd., and coordination with health technology companies)

(Self-Medication Products Wholesaling Business)

• Consigned manufacturing of pharmaceuticals (formulations with high pharmaco- logical activity)
• Newly developed pharmaceuticals
• Post-marketingsurveillance, etc.

Core businesses (¥3,000.0 billion)

(beauty, animal-related)

• Dispensing center business, etc.

Controlling the balance sheet toward an optimal capital structure with capital efficiency and stability

Results for Fiscal Year	Target Balance Sheet
Ended March 31, 2023

Enhancement

• Ethical Pharmaceuticals Wholesaling Business (23.4% of the Japanese market)
• Self-MedicationProducts Wholesaling Business
• Manufacturing Business
• Dispensing pharmacy business

Enhancement	• Ethical Pharmaceuticals	Streamline delivery, implement
Wholesaling Business	digital transformation, etc.
(27.5% of the Japanese market)	• Self-Medication Products
Expand share of territory	Wholesaling Business
and suppliers	• Manufacturing Business

		External	Consider incurring debt to
		procure funds while
		Borrowing
Maintain current level	On-Hand Liquidity	remaining mindful of
of on-hand liquidity			financial soundness

Fiscal year ended March 31, 2023

(actual results)

Net Sales	¥2,696.0 billion
Operating Income	¥30.1 billion
ROE	5.4%

Expand specialty	• Dispensing pharmacy
pharmaceuticals	business

	Fiscal year ending March 31, 2033
Enhance and Expand Total Supply Chain Services	(target results)
¥4.0 trillion
	¥70.0 billion or higher
	8.0% or higher

On-Hand Liquidity
Approx. ¥160.1
billion
Cross-Shareholdings	Total Liabilities
¥56.1 billion
¥851.5 billion

Cross-Shareholdings

Decrease

Total Assets

Liabilities

Control

In total supply chain services, we will reliably, safely, and sincerely distribute ethical pharmaceuticals, medical products, self-prevention (SP) products, and regenerative medicines, performing consigned manufacturing of pharmaceuticals including formulations with high pharmacological activity and

In the supply chain for regenerative medicines, we will support pharmaceutical companies involved in drug discovery by providing and banking master cells. As well as ensuring a stable supply of regenerative medicines, our objective is to offer comprehensive services, spanning manufacturing, stor-

Total Assets	Total Net Assets
¥1,339.8 billion	¥488.3 billion

Acquire treasury stock in a flexible manner to control the owners' equity ratio while maintaining financial soundness (criteria: external credit rating of A+)

Net Assets

Gradually increase DOE and acquire treasury stock in a flexible manner in anticipation of an optimal capital structure

clinical trials being handled on a consignment basis in Japan. We will engage in contract manufacturing from R&D-based companies in Japan and overseas, bioventures, and other manufacturers. Furthermore, we will engage in post-marketing surveillance, health technology, and data-driven businesses.

We will continue to provide social value to patients, health- care professionals, and manufacturers by covering everything from pharmaceutical development to manufacturing, distri- bution, sales, post-market surveillance, and digital business.

age, transportation, and data management.

We are considering a number of ways to monetize the health technology and data-driven businesses, thereby contributing to the profitability of existing businesses. Said ways include selling health technology products and charging fees for services or the secondary use of data.

We will take advantage of our distribution function and expertise in the Ethical Pharmaceuticals Wholesaling Business to provide value in the beauty and animal-related domain.

Owners' Equity Ratio	36.4%
ROE	5.4%

Owners' Equity Ratio	Low-mid 30% range
ROE	8.0% or higher

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Alfresa Group Integrated Report 2023

Alfresa Group Integrated Report 2023

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