Pharmarise Holdings Corporation Q4 FY2025 earnings call

Overall Financial Results

• Total consolidated revenue hit a new all-time high of 63.508 billion yen, an increase of 9.041 billion yen (16.5% YoY), driven by the acquisitions of GOOD AID in January 2024 and next PH in December 2024. • Operating profit declined to 293 million yen YoY, and the company reported a net loss of 367 million yen, largely due to 184 million yen in special losses from unprofitable store closures, which management frames as a bottom for a planned V-shaped recovery. • All cash flow categories (operating, investing, financing) were negative YoY: investing cash flow was negative due to active M&A activity, while financing cash flow was negative due to prior period refinancing for debt cost reduction. EBITDA only declined ~300 million yen YoY, outperforming the operating profit decline. • Q4 2025 saw improving sales and profit trends after a Q3 bottom driven by temporary acquisition-related upfront costs, with improvements from improved technical fee pricing and faster-than-expected operational efficiency gains at next PH.

Response to 2024 Dispensing Fee Revision

• Unit technical fees recovered to pre-300+ store chain fee cut levels (March 2024 levels) by the end of the period, driven by faster-than-planned progress on facility standard compliance. Q4 2025 prescription value rose 118 yen YoY to 9,965 yen, with technical fees accounting for 26.4% of total prescription value (up 0.4pp YoY), fully recovering the fee cut impact. • Total technical fee revenue for the full year came in 450 million yen above original plan, driven by growth in base dispensing fees, generic drug dispensing surcharges (from next PH store additions and rank upgrades), and medical DX system promotion surcharges from the April 2024 score revision.

New Medium-Term Management Plan (Reiwa 8 – Reiwa 10 / 2025 – 2028)

• Previous medium-term plan focused on aggressive M&A, growing the group to over 400 pharmacy locations, but faced headwinds from the new 300+ store fee cut and changing procurement conditions. The new 3-year plan is positioned as a consolidation period to convert scale growth from M&A into profit quality, preparing for the next phase of larger growth. • Quantitative target for FY2028 (Reiwa 10 May): 70.0 billion yen revenue, 1.6 billion yen operating profit, 0.7 billion yen net profit, and 4.5% ROIC. All targets are based on organic growth of the existing base (no M&A assumed) and are considered highly achievable. • Pharmacy Business Growth Strategies: • Strengthen family pharmacist functions: Expand the low-penetration family pharmacist program (the company's current 10% penetration is above the industry average of 4%) to improve patient outcomes, contribute to national healthcare cost reduction, and increase access to higher fee surcharges. • Continue patient-centric pharmacy operations: Expand OTC product offerings and QOL-focused product recommendations, and actively host community-centered "Cafe Nya-Marise" events (run in partnership with local governments, open to all, offering health consultations and community gathering) to build local trust. • Drive growth in prescription volumes: Strengthen outreach to nearby secondary medical providers, home visiting physicians, and elderly care facilities, and use digital tools to grow prescription volumes and improve patient follow-up. • Group-Wide Growth Strategies: • Advance M&A capabilities: Leverage accumulated M&A experience from the prior plan, restructure post-merger integration (PMI) processes to improve forecasting of when acquired stores will reach company standard profitability, and build capabilities to handle larger M&A for the next growth phase. • Restructure non-pharmacy existing businesses: Focus on maximizing existing resource utilization rather than new diversification, and pursue revenue stability while exploring synergy with the core pharmacy business. • Advance sustainable growth (sustainability): The company already has a sustainability committee, identified 5 core material issues, endorsed the TCFD recommendations, and set KPIs for material issues. The new plan adds monthly progress reporting from all business units to the sustainability committee to track and disclose progress. • Long-term phase positioning: The prior plan was a "seeding phase" focused on growth via M&A; the new plan is a "harvest phase" to capture consolidation benefits as profit; the next medium-term plan will be a "growth phase" targeting scaled growth to 80.0 billion yen in revenue.

1. Pharmacy Business: Segment revenue increased 8.446 billion yen year-over-year to 52.68 billion yen (representing 82.9% of total consolidated revenue), a 19.1% increase driven primarily by store count growth from M&A. Prescriptions filled rose 850,746 units (19.2% YoY), with average prescription value largely flat. The segment missed the revenue plan by 1.013 billion yen due to lower-than-expected prescription volumes. Segment profit declined 518 million yen YoY, coming in 69 million yen above plan. Profit declines were driven by lower dispensing fees for chains over 300 stores, higher personnel costs, increased procurement costs, and higher goodwill amortization. The acquired next PH (formerly Kanichi Shogroup) delivered 90 million yen in operating profit over its first 4 months of ownership, outperforming plan significantly.
2. Product Retail Business: Segment revenue increased 413 million yen YoY to 8.673 billion yen (13.6% of total consolidated revenue), a 5% increase. The convenience store sub-segment grew 473 million yen (10% YoY) driven by new store openings, while the drugstore sub-segment declined 92 million yen (3% YoY) due to store closures. Overall segment revenue missed plan by 43 million yen (-0.5% vs plan), nearly on target. Segment operating profit missed plan by 41 million yen due to higher procurement costs for drugstores, with the deviation from plan narrowing in Q4.
3. Other Businesses: Total revenue increased 180 million yen YoY, missing plan by 167 million yen. The shortfall was driven by delayed system development orders in the pharmaceutical IT solutions segment. Medical data storage and management hit plan, while the medical mall business missed plan by 26 million yen due to higher utility, personnel, and maintenance costs.

• FY2026 (Reiwa 8 May) Full Year Guidance: • Revenue: 66.795 billion yen, +5.2% YoY, driven by full-year contribution from 2024 acquisitions. • Operating profit: 1.123 billion yen, +282.2% YoY, driven by full-year acquisition contribution, administrative efficiency from centralized back-office integration of acquired companies, and profit improvement at acquired stores from sharing Pharmarise operating know-how. • Ordinary profit: 941 million yen, +587.3% YoY. • Net income attributable to parent shareholders: 266 million yen, returning to net profit after the FY2025 net loss. • New medium-term plan guidance (3-year target for FY2028): 70.0 billion yen revenue, 1.6 billion yen operating profit, 700 million yen net income, 4.5% ROIC, all based on organic growth of the existing base with no M&A assumed.

• Lower-than-expected prescription volumes at newly acquired pharmacy locations created a revenue miss for the core pharmacy segment in FY2025. • The introduction of lower dispensing fees for pharmacy chains over 300 locations created significant downward pressure on core pharmacy segment profit in FY2025. • Volatile procurement conditions increased drug procurement costs, pressuring segment margins across business lines. • Labor shortages for medical administrative staff, particularly in urban areas, create operational pressure as higher wage growth in other industries increases turnover risk. • Delayed system development orders in the pharmaceutical IT solutions (other business segment) created a material revenue and profit miss in FY2025.

Q: What is driving the expected return to net profit in FY2026? / A: The main driver is an expected ~800 million yen improvement in operating profit, from 293 million yen in FY2025 to 1.1 billion yen in FY2026, which lifts overall profitability back to black. ~200 million yen of the improvement comes from full-year contribution from next PH, which only contributed 4 months of profit in FY2025. Another ~200 million yen comes from stabilization and improvement at GOOD AID, which underperformed expectations in FY2025 but is now seeing full involvement from Pharmarise staff. The remaining ~400 million yen comes from existing business, with improved technical fees offsetting drug price cuts and growing prescription volumes. Goodwill amortization costs from M&A are fully incorporated into this forecast, with overall profit still expected to be positive after these costs.

Q: How is Pharmarise addressing widespread medical administrative staff shortages? / A: Shortages are severe, especially in urban areas, as rising wages in other industries and the increasing complexity of medical administrative work have pushed workers to less demanding roles. To address this, Pharmarise rebranded medical administrative staff as "MCS (Medical Care Staff)" several years ago, redefining their role to include supporting pharmacists with patient-focused tasks beyond just basic data entry, which has made the role more attractive to new hires. The company has also strengthened new graduate hiring for MCS roles, growing new graduate intake for the position significantly in recent years. Operationally, the company is rolling out remote prescription entry systems, where understaffed stores can have entry done remotely by centralized staff across the group, reducing the burden on local teams.