Alfresa Holdings Corporation Q4 FY2025 earnings call

• 2022-2024 Mid-Term Management Plan (Previous MTP) Review • Revenue significantly exceeded the plan target, while profit targets were not met. Total planned investment of 96 billion yen was completed, and total shareholder payout ratio hit 100% over the 3-year period. • Aggressively reduced cross-held policy stock holdings per the plan. • Strengthened shareholder returns: maintained a 2.4% or higher DOE (dividend on equity), achieved 21 consecutive years of dividend increases since the company's founding, and repurchased 46 billion yen of own shares. • Strengthened competitiveness of core base businesses through targeted initiatives, and allocated strategic capital to growth and new businesses.

• Recent Operational Highlights • Core Wholesale Business: Announced a merger between Alfresa Co., Ltd. and Miyazaki Onsendo Shoten, established a Pharmaceutical Sales Strategy Committee, and obtained ISO 9001 certification. • Self-Medication Wholesale: Alfresa Healthcare relocated and launched the Kyushu Logistics Center in Mifune, Kumamoto Prefecture. • New Healthtech & Medical Peripheral Initiatives: Partnered with Ascent Robotics on digital twin technology to improve medical operational efficiency and care quality; co-founded MY MEDICA with Yamato Holdings to provide online medical services for transportation worker employees; Alfresa Healthcare entered a capital and business alliance with Willbase to advance the Alfresa Healthcare Solution (AHS) business. • Regenerative Medicine Supply Chain: Celliseeds established a new Haneda PDC facility, entered a partnership with Innocell and began collaboration with Minaris. • ESG & Sustainability: Partnered with Yamato Autoworks to accelerate CO2 emission reductions; TS Alfresa and Alfresa are testing drone pharmaceutical delivery to address regional community challenges; achieved multiple certifications for diversity and inclusion progress.

• 2025-2027 New Mid-Term Management Plan (New MTP, Vision 2032 Stage 2) • Plan theme: Vision2032 Stage2 ～Opening the Future with Group Synergy • 5 core group management policies: 1) Leverage full group capabilities to advance and expand Total Supply Chain Service (TSCS); 2) Make strategic investments in growth and new businesses; 3) Further strengthen competitiveness of base businesses; 4) Enforce strict cost control; 5) Advance sustainability-focused management. • Segment strategic priorities:

  • Medical Pharmaceuticals Wholesale: Expand business opportunities for TSCS via maximizing medical sales force (MS) coverage, strengthening the national distribution network, building a solution-focused revenue base, upgrading logistics capabilities with automation and digital tools, and unifying group human capital strategies.
  • Self-Medication Wholesale: Improve logistics productivity via robotics and modern material handling; focus on SP products, new channels, and data-driven sales; build a new flexible supply chain management model.
  • Pharmaceutical Manufacturing: Rebuild the business portfolio to stabilize operations; expand contract manufacturing and drug pipelines via construction of a new manufacturing building at the Gunma plant; develop new bio-pharmaceutical analytical contract services via Alfresa Fine Chemical.
  • Dispensing Pharmacy Business: Become a trusted community-based pharmacy; strengthen pre-dispensing medication guidance, deepen dominant regional clustering to support local healthcare, and enter the nursing care business via operating large-scale residential paid nursing homes to meet growing demand.
  • Regenerative Medicine (new separate segment): Core business is master cell manufacturing, storage, and CMO/CDMO development; build a full domestic one-stop regenerative medicine supply chain via internal development and partnership to secure early orders and revenue growth. • Financial targets for 2027 fiscal year: 3.33 trillion yen in consolidated revenue, 43.5 billion yen in operating profit, 7% average 3-year ROE, 1.2 trillion yen total 3-year investment. Maintained progressive dividend policy, raised target DOE to 2.5% or higher (up 0.1pp from prior MTP). • Capital allocation priority: First use operating cash flow, then proceeds from asset sales (including policy stocks), then leverage debt to fund investment and shareholder returns. • Sustainability: 8 new key sustainability issues identified; focuses on environmental conservation, human capital management, compliance/risk management, IT governance, and corporate governance reform (transition to audit and supervisory committee structure, higher outside and female director ratios, revised executive compensation, pending shareholder approval).

1. Medical Pharmaceuticals Wholesale Business: Revenue of 2.64 trillion yen, a 3.9% year-over-year increase; contributed 89.15% of total consolidated revenue. Gross profit of 159.9 billion yen, with gross margin improving 0.1pp to 6.06%. Selling, general and administrative (SG&A) expenses rose 7.3% to 126.8 billion yen. Operating profit was 33 billion yen, nearly flat year-over-year, with operating margin falling 0.05pp to 1.25%. By category, new drug innovation-addition products and patented products combined for an 80.4% revenue share, up 3.6pp year-over-year; long-listed products account for 8.6% and generic drugs account for 11.0%, both down from the prior year.
2. Self-Medication Wholesale Business: Revenue of 265.7 billion yen, a 1.1% year-over-year increase; contributed 8.97% of total consolidated revenue. Gross profit of 27 billion yen, with gross margin improving 0.02pp to 10.19%. SG&A expenses rose 0.3% to 24.1 billion yen, with SG&A ratio falling 0.07pp to 9.08%. Operating profit was 2.9 billion yen, a 10% year-over-year increase, with operating margin rising 0.09pp to 1.11%.
3. Pharmaceutical Manufacturing Business: Revenue of 54 billion yen, a 2.5% year-over-year increase; contributed 1.82% of total consolidated revenue. Gross profit fell 7.8% to 13.2 billion yen. SG&A expenses fell 4.2% to 11.9 billion yen. Operating profit was 1.2 billion yen.
4. Dispensing Pharmacy Related Business (formerly Medical Related Business): Revenue of 37 billion yen, a 1.0% year-over-year increase; contributed 1.25% of total consolidated revenue. Gross profit fell 0.7% to 13.6 billion yen. SG&A expenses rose 0.2% to 13 billion yen. Operating profit was 0.5 billion yen.

• 2026 March Fiscal Year (Fiscal 2026) Consolidated Guidance: Expects a 4.9% year-over-year revenue increase, with gross margin of 7.1%, and forecasts revenue growth with declining profit, driven by rising personnel, logistics, and depreciation costs. Annual dividend per share is planned at 68 yen, a 5 yen increase from the prior year.
• Segment-level Fiscal 2026 Guidance: • Medical Pharmaceuticals Wholesale: Expects 2.776 trillion yen in revenue (5.1% year-over-year growth, outpacing market growth), 33.6 billion yen in operating profit (forecast revenue growth with rising profit). • Self-Medication Wholesale: Expects 275 billion yen in revenue (3.5% year-over-year growth, outpacing market growth), 2.6 billion yen in operating profit (forecast revenue growth with declining profit, due to rising logistics costs). • Pharmaceutical Manufacturing: Expects 53.2 billion yen in revenue, 1 billion yen in operating profit (forecast declining revenue and profit, due to negative drug price revision impacts and higher investment in pipeline expansion). • Dispensing Pharmacy Related Business: Expects 37.1 billion yen in revenue, 0.7 billion yen in operating profit (17.3% year-over-year profit growth, forecast revenue growth with rising profit from expanded patient services). • The new Regenerative Medicine segment will focus on building infrastructure, winning future orders, and preparing for long-term revenue growth, with no explicit near-term profit guidance provided.
• 2025-2027 Mid-Term Plan Long-Term Guidance: Maintains a focus on steady profit expansion, with explicit upward revision to the DOE target from 2.4% to 2.5% or higher, and sets clear 2027 fiscal year targets for revenue, operating profit, and ROE.

• Rising macro costs: Persistent price inflation, and ongoing increases in personnel and logistics costs have pressured SG&A expenses and compressed operating margins across business segments.
• Regulatory headwinds: Regular Japanese drug price revisions create consistent downward pressure on revenue and margins for pharmaceutical wholesale and manufacturing businesses.
• Industry competition: Intensifying market competition in the self-medication wholesale segment driven by changing market conditions, and ongoing competitive pressure in all core wholesale businesses.
• New business execution risk: Building out new growth areas including regenerative medicine, healthtech, and regenerative supply chain requires heavy upfront investment with uncertain near-term revenue and profit returns.
• Environmental and operational risk: The company faces ongoing requirements to reduce carbon emissions and adapt to climate change, while maintaining business continuity plans for natural disasters and other supply chain disruptions.

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