VITAL KSK HOLDINGS,INC. Q2 FY2026 earnings call

Core Business (Pharmaceutical Wholesale) Initiatives

• Productivity improvement: Partnered with Hitachi to digitize pharmaceutical delivery operations, launched the pilot at the Osaka branch in September 2025, and will roll out to all 32 branches by spring 2026. Launched the new cloud-based inventory management system "POWERS Neo" with an integrated dispensing audit app to reduce human error and streamline on-site work.
• Talent enablement: Expanded the women's health solutions team, launched in Osaka, now expanded to Kyoto, Hyogo, and the Sendai area via group-wide synergy sharing to serve obstetrics and gynecology clients.
• Quality improvement: The new Isehara logistics center, which meets both GDP for distribution and GMP for manufacturing standards, is on track to launch in June 2026 and will support 3PL business expansion. Began national rollout of "Okusuri Aun", a care coordination service for IBD patients co-developed with Tohoku University Hospital, expanding beyond regional roots to a national offering aligned with the 2035 long-term vision.

Other Segment Strategic Initiatives

• Pharmacy Business: A project team has been formed to merge 6 connected and non-connected pharmacy businesses into one entity during the Mid-Term Management Plan 2027 period to improve productivity. Four new/relocated store openings are planned for 2026, all with stable patient bases from existing local healthcare providers.
• Animal Health Pharmaceutical Wholesale Business: Maximizing synergy between Arrow Medical (focused on the Kanto region) and Agro Japan (focused on Tohoku/Hokkaido) by combining their complementary product portfolios of medical devices and pharmaceuticals. Launched human-grade quality pet food manufacturing and sales in October 2025.
• New Pharmaceutical Business (Unapproved Drug Introduction Support): Launched Medleap Pharma in September 2025, led by a former global pharma executive with extensive new drug development experience. Received PMDA approval for a Phase II exploratory trial of ferric maltol for pulmonary arterial hypertension (PAH), a drug repurposing effort targeting a first-in-world indication for this condition, with 26 planned trial subjects.

Corporate Governance and IR Improvements

• Held an online investor briefing that drew 4,000 individual participants, and is addressing feedback to improve operating margin transparency, clarify KPIs, and expand shareholder return programs. To lift persistent sub-1x PBR, the company has raised DOE to 3.0%+, increased the annual dividend from 45 yen to 68 yen, and aims to improve ROE and PER via both existing business profitability improvement and growth investment in new pharmaceutical initiatives.

1. Pharmaceutical Wholesale Segment: Revenue reached 281.967 billion yen, 100.9% of the previous year's same period. Gross profit was 19.819 billion yen (99.1% YoY), operating profit was 2.08 billion yen (76.4% YoY), contributing 93.9% of total consolidated revenue. Growth was driven by increased sales of new drug addition products, originator drugs, generic drugs, and shingles vaccine, partially offset by decreases in long-listed products due to drug price revisions and COVID-related products. 2. Pharmacy Segment: Revenue reached 9.87 billion yen (101.5% YoY), operating profit was 0.135 billion yen (141.3% YoY), contributing 3.3% of total consolidated revenue. Despite a 1.9% YoY decrease in prescription volume, growth was driven by higher technical and drug fees from active work on person-centered dispensing fee claims and increased demand for high-value drugs at hospital-front locations. 3. Animal Health Pharmaceutical Wholesale Segment: Revenue reached 6.178 billion yen (109.4% YoY), operating profit was 0.108 billion yen (75.1% YoY), contributing 2.1% of total consolidated revenue. Revenue growth came from the consolidation of Arrow Medical, but integration costs led to a profit decline. 4. Care Rental and Other Segment: Revenue reached 2.217 billion yen (102.4% YoY), operating loss expanded by 34 million yen to 0.122 billion yen, contributing 0.7% of total consolidated revenue. Higher selling, general and administrative costs after the acquisition of Kyowa Transport and internal business restructuring led to expanded losses.

• Management revised full-year FY2026 guidance due to lower-than-expected sales in Kinki urban areas, higher-than-planned R&D spending for the new pharmaceutical business, and larger-than-expected non-operating gains from the CareNet TOB. Key revisions:
  • Full-year revenue revised downward from 620.0 billion yen to 604.0 billion yen (a 16.0 billion yen cut)
  • Core operating profit (before R&D deduction) revised downward from 6.0 billion yen to 5.1 billion yen (a 0.9 billion yen cut)
  • R&D expenditure revised upward from 0.9 billion yen to 1.2 billion yen (a 0.3 billion yen increase)
  • Operating profit revised downward from 5.1 billion yen to 3.9 billion yen (a 1.2 billion yen cut)
  • Ordinary profit revised upward from 6.0 billion yen to 7.7 billion yen (a 1.7 billion yen increase)
  • Net income revised upward from 7.2 billion yen to 7.4 billion yen (a 0.2 billion yen increase)
  • Adjusted ROE before R&D deduction rose 0.3pp to 7.9%, while headline ROE is maintained at 6.8%, and the annual dividend of 68 yen per share is maintained.

• Local competitive pressure: Competitive bidding in core Kinki urban areas led to an 11% YoY sales decline for the core wholesale business, and no sufficient recovery is expected in the second half of the fiscal year, leading to a downward full-year revenue revision.
• Cost pressure: Rising raw material purchasing costs, higher personnel costs, and fuel/commodity inflation increased selling, general and administrative costs for the core wholesale business, pressuring margins.
• Integration risk: Recent acquisitions (Arrow Medical, Kyowa Transport) led to near-term cost increases that outpaced gross profit growth, resulting in lower profit in acquired segments in the first half.
• New drug development risk: The new pharmaceutical business is in early-stage clinical development, with uncertainty around trial outcomes and regulatory approval for the novel PAH indication.
• Valuation risk: The company's PBR has remained below 1x for an extended period, requiring sustained profitability improvement and shareholder returns to correct valuation.

Q: Will the DX initiative for pharmaceutical delivery be expanded to other group companies after the pilot at KSK Osaka branch? / A: Management will first complete rollout to all KSK branches within the current fiscal year after monitoring pilot performance. Once results and customer feedback from the KSK rollout are collected, expansion to the group's other wholesale subsidiary Vital Net will be evaluated. This stepwise approach ensures the solution is refined before wider group deployment.

Q: How will the new Isehara logistics center be utilized after it launches in 2026? / A: The center is progressing according to plan, and the company is already negotiating new 3PL contracts with multiple additional pharmaceutical firms beyond existing clients. Unlike standard 3PL centers, it is designed to support partial pharmaceutical manufacturing processes such as packaging to meet detailed client needs. It will also be fully utilized to support the group's own new pharmaceutical business to enable efficient, high-quality distribution.

Q: What are the prospects for the new PAH drug candidate ferric maltol, and where will the trial be conducted? / A: A prior exploratory clinical trial (ORION-PH study) has already been completed and published in a leading European journal. Ferric maltol is an iron preparation that enables long-term administration, which has been challenging for existing treatments, and leading Japanese PAH experts have high expectations for Japan-originated clinical evidence from this trial. The trial will be conducted primarily at specialized centers across Japan, led by university hospitals that treat large volumes of PAH patients.

Q: What is the current progress and business outlook for the "Okusuri Aun" care coordination service? / A: The early rollout in Miyagi prefecture has received very positive feedback from specialist physicians, pharmacists, and patients. While the initial focus is on IBD, the company has already received multiple requests from medical providers to expand the service to other disease areas. Management believes the service fills an unmet gap in care coordination between patients, pharmacists, and physicians, and expects strong progress from the new national rollout.