4350.T

Interim Financial Performance

• The company achieved increased revenue and profit for the first half of the 2026 March fiscal year. Consolidated interim revenue was 63.863 billion yen, up 6.9% year-over-year; operating profit was 1.286 billion yen, up 25.1% year-over-year; ordinary profit was 1.215 billion yen, up 19.1% year-over-year; and net profit attributable to parent shareholders was 452 million yen, up 118.6% year-over-year. All metrics beat internal plan: revenue +4.7%, operating profit +22.5%, ordinary profit +35.1% against plan.
• Consolidated cash flow: Operating cash flow was 259 million yen, investment cash flow was -2.486 billion yen, and financing cash flow was +260 million yen. The large negative shift in investment cash flow from the prior year is because the prior year included 1.5 billion yen in proceeds from the sale of Wisteria Senri Chuo, while the current period returned to normal activity with investments in new store openings and M&A. The lower operating cash flow compared to profit growth is due to reduced receivable securitization in the interim period that increased working capital needs.

New Long-Term Vision: Machino Akari Vision 2035

• This is the company's first 10-year long-term vision, developed to address major external shifts including population aging, government fiscal pressure, and digital technology advancement, by setting a 10-year goal and backcasting to build a strategic roadmap.
• The vision organizes operations into three core growth areas: 1) Medical (B2C): Direct patient-facing businesses including directly operated pharmacies, home care nursing, meal services, and service-oriented senior housing; 2) Medical Support (B2B2C): Pharmacy support via network and digital services to indirectly serve patients; 3) Medical Supply: Upstream generic drug manufacturing and sales, and pharmaceutical logistics. DX and human resource strategy are core enabling foundations for all three areas.
• 10-year quantitative goals: 10 billion yen in operating profit, 15% ROE, expand supported pharmacy locations from 15,000+ (25% of all domestic pharmacies) to 45,000, covering 70-80% of all domestic pharmacies. Shift the profit mix from directly operated pharmacy-focused to a balanced three-pillar structure, with 45% of segment operating profit from Medical Support and 20% from Medical Supply (excluding corporate overhead).
• Area-specific growth strategies:
  • Medical: Expand pharmaceutical expertise to address polypharmacy, grow home healthcare, add health support functions including OTC drugs, health consultation, and self-medication, and build online care and delivery models for underserved rural areas. Plan to open at least 200 new stores over 10 years (20 per year, mostly in clinic malls), raising the clinic mall share of the store portfolio from ~30% to over 50% (around 60%).
  • Medical Support: Expand services beyond the core pharmaceutical network to offer a full suite of support tools accessible to all 60,000 domestic pharmacies.
  • Medical Supply: The highest-priority area for growth, with significant headroom. Felsen Pharma products are currently only used by a small share of network pharmacies; reaching the same penetration as directly operated stores would push segment revenue to 30 billion yen, up from the current 7 billion yen full-year target. Management plans to leverage expected industry consolidation of generic drug manufacturers to expand, with a core goal of improving pharmaceutical supply chain efficiency aligned with the company's founding mission.
• Enabling strategies:
  • DX Strategy: Prioritize improving pharmaceutical care quality (not just operational efficiency), by shifting from point-in-time care during patient visits to continuous care, using patient medication, lab, and history data with AI to deliver comprehensive care. Use digital technology to maintain care access in depopulating rural areas, and pursue efficiency initiatives including outsourced dispensing and labor savings. The company leverages directly operated stores to test new services before rolling them out to network members.
  • Human Resource Strategy: Prioritize hiring and developing staff with hospitality aligned with the "Machino Akari" mission, who can build cross-industry partnerships with wholesalers, manufacturers, and other external partners.
• Cash allocation over the 10-year period: 70 billion yen in total expected operating cash flow, to be allocated as 13 billion yen to shareholder returns, 50 billion yen to growth investment (new stores, M&A, DX), and 7 billion yen to balance sheet strengthening. This will increase annual average shareholder returns from ~370 million yen currently to 1.3 billion yen, with a target payout ratio of 35% (in line with the Tokyo Exchange average) by 2035, up from 27% currently. More specific strategic details will be announced with the 7th mid-term management plan in May next year.

• Full-year 2026 March fiscal year guidance is maintained unchanged from prior projections: full-year revenue of 125.5 billion yen, operating profit of 3.4 billion yen, ordinary profit of 3.2 billion yen, and net profit attributable to parent shareholders of 1.3 billion yen. Management maintains guidance to monitor the uncertain trend of prescription volume more closely.
• Dividend guidance is maintained: planned interim dividend of 6 yen per share, year-end dividend of 6 yen per share, for a full-year total of 12 yen per share, representing a 27% payout ratio.

1. Regional Pharmacy Segment: As of the interim period, the company had 469 directly operated regional pharmacy locations. 17 new confirmed store openings are projected for the full year, slightly below the 25-store annual plan, with 8 additional stores acquired via M&A in Kanto, Hokkaido, and Okinawa. Confirmed medical facility recruitment reached 17, exceeding the 10-location full-year plan. Existing stores saw a 4% higher average prescription value driven by high-value prescriptions, but total prescription volume was down 1.5% year-over-year. Successful fee collection for added services pushed drug fees up 304 yen and technical fees up 115 yen per prescription compared to the prior year. This segment was the main contributor to positive earnings against plan, due to higher-than-projected average prescription prices. 2. Pharmaceutical Network Segment: Membership reached 11,511 locations as of the end of September, an increase of 508 from the prior period end. The full-year target of 1,000 new members for a total of 12,000 locations is on track, and this segment was the top driver of overall profit growth year-over-year. 3. Digital Shift Segment: The LINE-integrated service for prescription submission, medication notebook management, consultation, and online medication guidance had 6,339 installed pharmacy locations, with 1.72 million registered user friends. The full-year end target is 1.87 million registered users, and the segment is on pace to exceed 2 million if current momentum continues. 4. Pharmaceutical Manufacturing and Sales Segment: Joint venture Felsen Pharma (80% owned by the company, 20% by Daito Corporation) sells generic drugs. It had 7,823 client pharmacies as of the interim period, an increase of 2,123 year-over-year, with interim revenue of 3.2 billion yen. The full-year target is 7 billion yen in revenue and 9,000 client locations, which is on track to be met. 5. Pharmaceutical Logistics Segment: MediLogi Net, established last year, had over 3,000 client locations and interim revenue of 2.5 billion yen after 1.5 years of operations.

• New confirmed store openings for regional pharmacies are projected to reach 17, slightly below the full-year annual plan of 25.
• Existing regional pharmacy prescription volume has remained in negative year-over-year trend, down 1.5% for the interim cumulative period, which is a continuing operational challenge.
• Prescription volume trends remain unstable, which is the core reason management maintained full-year guidance rather than raising it despite strong interim results.
• Long-term demographic and industry shifts: Japan's population is declining, with the population aged 85+ projected to grow from 7 million to 10 million over the next decade, increasing demand for home healthcare, long-term care, and dementia care. Local physician numbers are expected to halve in rural areas over 15 years, creating major systemic challenges for maintaining regional healthcare access that the company must adapt to.

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