Alfresa : Integrated Report 2023≪All pages, single page≫

Alfresa Group

Integrated Report 2023

Fiscal Year Ended March 31, 2023

Table of Contents

The Alfresa Group's Value Creation

1. To Our Stakeholders
2. Values and Vision

4 The Pharmaceuticals Distribution Industry and the Functions Required of a Pharmaceuticals Wholesaler

6 Business Domains and Business Models

8 Progress in Value Creation and the Strengths We Have Cultivated

1. Prospects for Further Value Creation Message from the President

1. Message from the President

Medium- to Long-Term Strategy

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

22 Progress on Important Sustainability Issues and the 22-24Mid-term Management Plan

26 Performance Highlights and Future Outlook

Business Strategy

28 Ethical Pharmaceuticals Wholesaling Business

32 Self-Medication Products Wholesaling Business

1. Manufacturing Business

1. Medical-RelatedBusiness

1. Other New Businesses, Overseas Business

1. Total Supply Chain Services

Financial and Capital Strategies /

IT and DX Strategies

1. Financial and Capital Strategies

1. Furthering IT and DX

Non-Financial Strategy

50 The Alfresa Group's Social Mission

1. Contributions to Regional Communities
2. Contributing to Regional Healthcare
3. Human Resource Strategy

61 Environmental Initiatives

66 Initiatives to Reduce Environmental Impact

Governance

1. Roundtable Discussion with Outside Directors

1. Corporate Governance

1. Management Team

1. Engagement with Shareholders and Investors
2. Compliance and Risk Management

Data Section

1. 11-YearFinancial Summary

1. Analysis of Financial Status

1. Consolidated Financial Statements

96 Consolidated Balance Sheets

1. Consolidated Statements of Income and Comprehensive Income
2. Consolidated Statements of Changes in Net Assets
3. Consolidated Statements of Cash Flows 102 Corporate Profile
   103 Stock Information

Editorial Policy

This integrated report was edited while referring to the following guidelines and disclosure standards:

• International Financial Reporting Standards (IFRS) Foundation's Integrated Reporting Framework and SASB Standards
• Ministry of Economy, Trade and Industry's Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation
• Global Reporting Initiative Standards
  For additional ESG information, please visit the Company's website.

Corporate Governance

https://alfresa.com/eng/csr/esg/governance/corporategovernance/

Sustainability

https://www.alfresa.com/eng/csr/

ESG Data https://www.alfresa.com/eng/csr/report/

Scope Covered:

Alfresa Holdings Corporation	Self-Medication Products Wholesaling
Ethical Pharmaceuticals Wholesaling	Business
• Alfresa Healthcare Corporation
Business	Manufacturing Business
• Alfresa Corporation
• Shikoku Alfresa Corporation	• Alfresa Pharma Corporation
• TS Alfresa Corporation	• QINGDAO NESCO MEDICAL CO., LTD.
• Meisho Co., Ltd.	• Alfresa Fine Chemical Corporation
• RYUYAKU CO., LTD.	Medical-Related Business
• Tohoku Alfresa Corporation
• Alfresa Medical Service Corporation	• APOCREAT Corporation
• Alfresa Shinohara Chemicals Corporation	Information system business for the
• A⋅L plus Co., Ltd.
	Alfresa Group
	• Alfresa System Corporation

Period Covered

April 1, 2022, to March 31, 2023

Production Process

The Alfresa Group utilizes the integrated report while engaging in dialogues with investors to elicit their opinions. In addition, the Group distributes the integrated report to all Group employees and collects their opinions and impressions. The outcomes of these engagements are reflected in the planning and production of the following year's integrated report in a bid to continuously improve its content.

The content of the integrated report is communicated to directors and members of the Audit & Supervisory Board and published with the approval of the officer in charge of corporate communication.

Reflect opinions of investors, employees,

and other stakeholders

Plan and produce the report

Report to directors, receive approval from the officer in charge, and then publish

Utilize the report when engaging with investors and employees

To Our Stakeholders

Aiming to Realize a Healthcare Consortium

September 29, 2023 marks Alfresa Holdings Corporation's 20th anniversary of establishment. In 2003, AZWELL Inc. and Fukujin Co., Ltd., conducted a share transfer that established Alfresa Holdings. The Company, whose main focuses were the Ethical Pharmaceuticals Wholesaling Business and the Manufacturing Business, has grown through targeted nationwide development of the wholesaling business. Later, the Company restructured the Self-Medication Products Wholesaling Business, reinforced the Manufacturing Business, expanded the dispensing pharmacy business, spun off the SPD business to a wholly owned subsidiary, and entered the research reagent wholesaling business, molding itself into today's Alfresa Group. I would like to take this opportunity to thank all of the people who have supported the Group's growth to date.

The Group's operating environment is changing rapidly, affected by such factors as an aging population, a shrinking workforce, rising social insurance costs, technological innovation and digitalization, and Japan's nationwide implementation of the Community-Based Integrated Care System.

In this report, we look beyond the 22-24Mid-term Management Plan. We focus on the Company's direction leading up to the fiscal year ended March 31, 2023, as outlined in the Alfresa Group's Medium- to Long-Term Vision, to introduce comprehensively from a variety of perspectives the activities aimed at realizing Our Vision as outlined in our corporate principles: "We aim to become a Healthcare Consortium that provides products and services in every health-related field."

We look forward to demonstrating the ongoing progress of the Alfresa Group to our stakeholders.

Alfresa Group Integrated Report 2023

1

The Alfresa Group's Value Creation

Values and Vision

The Alfresa Group is committed to working to address the eight Important Sustainability Issues that were identified in accordance with the Group's principles and Basic Sustainability Policy. The 22-24Mid-term Management Plan, which goes through the fiscal year ending March 31, 2025, and the Alfresa Group's Medium- to Long-Term Vision, which continues to the fiscal year ending March 31, 2033, are milestones along the path to the Group's goal of becoming a "Healthcare Consortium that provides products and services in every health-related field."

The Alfresa Group's Principles

Our Philosophy

We create and deliver a fresh life for all.

Our Vision

We aim to become a Healthcare Consortium that provides products and

services in every health-related field.

Our Promises

Reliability Safety Sincerity

• We always provide reliable products and services and strive to enhance customer satisfaction.
• We respect individual characteristics and personalities and strive to maintain and improve a pleasant working environment.
• We raise corporate value as a corporate group operating in the health-related industry.
• We conduct proper trade under fair and free competition.
• We strive to proactively engage with society by providing appropriate information in a timely manner.
• We contribute to local communities through our business operations.
• We strive to protect the global environment.

Note: Healthcare Consortium is a registered trademark owned by the Alfresa Group in Japan.

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The Alfresa Group's Basic Sustainability Policy

The Alfresa	The Alfresa	The Alfresa
Group's
Group's Human	Group's
Environmental
Rights Policy	Diversity Policy
Policy

Corporate	The Alfresa
Group
Governance
Compliance
Guidelines
Guidelines

Important Sustainability Issues

1. Improvement of quality of products and services
2. Value creation and innovation
3. Environmental protection
4. Contribution to local communities
5. Active participation of human resources
6. Compliance
7. Risk management
8. Corporate governance

The Alfresa Group's Aspiration (Long-Term Goals)

Become a Healthcare Consortium that provides products and

services in every health-related field

Medium- to Long- Term Vision

Improve corporate value over the medium to long term by becoming a Healthcare

Consortium and improving capital efficiency through balance sheet controls

22-24Mid-term Management Plan

Leap into the Future

"An Evolving Healthcare Consortium"

1.Enhancement of business models and creation of new value

2.Contribution to local health and treatments through united Group efforts

3.Contribution toward a sustainable society through initiatives to protect the environment

4.Promotion of a human resource strategy focused on diversity

5.Cultivation of a corporate culture with compliance as its highest priority

Alfresa Group Integrated Report 2023

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The Alfresa Group's Value Creation

The Pharmaceuticals Distribution Industry and the Functions Required of a Pharmaceuticals Wholesaler

The Alfresa Group has built a robust distribution network for ethical pharmaceuticals that it refers to as a capillary-type distribution network. By enhancing functionality to keep pace with medical advances and changes in the social environment, we will continue to ensure a stable supply of needed pharmaceuticals when and where they are required.

Japan's Demographics and

Social Security Costs

Japan's social insurance system depends fairly heavily on public fund- ing, while keeping a definitive relationship between the benefits from and payments into the social insurance system. In recent years, this dependency on public funding has increased markedly, as the number of later- stage elderly people receiving health- care and nursing benefits has grown. The government is, therefore, trying to curtail the increase in expenditures related to social insurance relative to the growth in the number of elderly people. The cost of pharmaceuticals is being reviewed, and a more efficient and high-quality healthcare provision system is being created.

Framework for

Pharmaceuticals

Distribution in Japan

Pharmaceuticals include ethical pharmaceuticals that are prescribed by doctors and used in accordance with their instructions, and over-the-counter (OTC) pharmaceuticals that consumers can buy at drugstores and other places. Approximately 96% of pharmaceuticals handled by pharmaceuticals wholesalers are ethical pharmaceuticals, and nearly all of these ethical pharmaceuticals (except some generic drugs) are procured from manufacturers by pharmaceuticals wholesalers, who deliver them to medical institutions. Pharmaceuticals wholesalers distribute the majority of OTC pharmaceuticals to drugstores, etc.

Pharmaceuticals wholesalers play a key role in the distribution of pharmaceuticals in Japan.

Source: The Federation of Japan Pharmaceutical Wholesalers Association's Guide for Fiscal 2023

NHI Drug Price Standard

System and Actual

Market Prices

Through the National Health Insurance (NHI) Drug Price Standard system, the national government sets official drug prices and lists the drugs that are covered by the NHI system. Medication charges that arise when medical institutions bill for medical fees or when dispensing pharmacies bill dispensing fees are calculated based on NHI drug prices. Starting in April 2021, NHI drug price revisions became annual revisions in practice with the introduction of interim-year revisions. These revisions are designed to reflect actual market prices (wholesale prices) into official drug prices in a timely fashion, thereby closing the gap between official and market prices.

Universally Required Functions

Ensuring the Timely Delivery

of Pharmaceuticals Where

They Are Needed

Whether in normal times or during disasters or pandemics, the supply of lifesaving pharmaceuticals must never be interrupted. Systems must be established to provide a stable supply of pharmaceuticals to medical institutions and other healthcare facilities nationwide.

Strictly Controlling the Quality of Pharmaceuticals

Given that pharmaceuticals are lifesaving products, strict quality control must be maintained throughout the distribution pro- cess. Compliance with PIC/S GDP,*1 the international standard for the appropriate distribution of pharma- ceuticals, requires strict temperature management within specific ranges, regardless of the season.

*1 PIC/S GDP: International guidelines that define appropriate methods to ensure the integrity of pharmaceutical products during the distribution process

Connecting Pharmaceutical

Companies and Medical

Institutions

Pharmaceuticals wholesalers play various roles to safely and sincerely deliver lifesaving pharmaceuticals from the companies that produce them to medical institu- tions. These roles include proposing efficacious and safe pharmaceuticals that match patients' needs, utilizing nationwide sales and distribution net- works, and providing information to pharmaceutical companies and medical institutions.

Selling Based on the Value of Pharmaceuticals

Actual market prices of pharmaceuticals need to be promptly reflected in official drug prices. To eliminate disparities between the two, the valuable pharmaceuticals that companies have developed need to be individually priced and sold at appropriate prices.

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NHI drug price

The official price of ethical pharmaceuticals decided by the national government

Wholesale price (market price)

The price of pharmaceuticals sold by pharmaceuticals wholesalers to medical institutions

Wholesale procurement cost

The price that pharmaceuticals wholesalers pay to procure pharmaceuticals from manufacturers

Structure of Profits at

Ethical Pharmaceuticals

Wholesalers

Profits at ethical pharmaceuticals wholesalers are derived from the primary trade price spread between the wholesale price and wholesale procurement cost, rebates*2 and allowances*3 that manufacturers pay to wholesalers, and information provision fees, etc.*4 Negative primary trade price spread*5 continues at ethical pharmaceuticals wholesalers.

*2 Rebates: Discounts and refunds based on transaction volume, payment conditions for purchases, and delivery methods, etc.

*3 Allowances: Rewards for sales marketing activities

*4 Information provision fees, etc.: Fees for providing

information about sales records, product recall fees, and post-marketing survey fees

*5 Negative primary trade price spread: Where the wholesale price is lower than the wholesale procurement cost

Industry-Specific Business

Practices and the

Guidelines*6

In 2018, the government drew up guidelines (revised in January 2022) for the purpose of accelerating initiatives to improve distribution and address issues in the distribution of ethical pharma- ceuticals, striving to eliminate the negative primary trade price spread, ending the practice of deliveries prior to price agreements,*7 and promoting unit price-based transactions.*8 Related parties to the guidelines have been following them accordingly.

*6 The guidelines: Guidelines for the Improvement of Commercial Transaction Practices of Ethical Drugs for Manufacturers, Wholesalers, and Medical Institutions / Pharmacies published by the Ministry of Health, Labour and Welfare

*7 The practice of deliveries prior to price agreements: Transactions where products are delivered to medical institutions, etc., prior to agreements on wholesale prices

*8 Unit price-based transactions: Transactions with wholesale prices set for individual pharmaceuticals to end the practice of bundled transactions, where discounts are negotiated on the total price of several pharmaceuticals

Functions That Will Be Required by Pharmaceuticals Wholesalers in the Future

Responding to New Modalities

Recent years have seen advances in the practical application of pharmaceuticals for various new modalities, such as nucleic acid medicine, cell therapy, and gene therapy. In addition to therapeutic drugs, we have seen advances in diagnostics to determine hereditary tendencies in disease risk and highly specialized personalized medicine, requiring a wide variety of pharmaceuticals that are produced in small lots.

Connecting the Medical Practitioners Who Attend Patients

Efforts are underway in various regions to develop the Community-Based Integrated Care System, which provides comprehensive services in health- care, caregiving, and lifestyle support. This system aims to help individuals to continue living in familiar communities, maintaining their own unique lifestyles, even if they require long-term care. This approach requires coordination among and collaboration of various medical practitio- ners, including hospitals, clinics, pharmacies, and professionals in the caregiving and related fields, to create a supportive community network.

Increasing Patient Access to Healthcare

With the advancement of the Community-Based Integrated Care System and the digitalization of healthcare, we anticipate greater demand for pharmaceutical deliveries to patients' homes. Additionally, the development of therapeutic drugs for rare diseases is progressing, prompting the need for support to connect patients who previously had no effective treatment options to appropriate therapies.

Alfresa Group Integrated Report 2023

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The Alfresa Group's Value Creation

Business Domains and Business Models

Medical products, starting with the pharmaceuticals that are prescribed at hospitals and distributed at dispensing phar- macies, play a vital role in maintaining people's health and lives. Centered on the Ethical Pharmaceuticals Wholesaling Business, the Alfresa Group is engaged in a range of business fields, including the manufacture and wholesale of pharmaceuticals and other products to the operation of dispensing pharmacies. The Group works as one to support the pharmaceutical supply chains that are part of Japan's social infrastructure. By expanding and transforming our business portfolio, we aim to become a Healthcare Consortium capable of providing products and services in a host of health- related areas.

Suppliers

Approx. 1,680

manufacturers

Manufacturing contracts

Procurement

Procurement

Procurement

Pharmaceutical companies, etc.

Information

Number of distribution bases 217

Investors and shareholders

Investments

Manufacturing Business

Procurement

Ethical Pharmaceuticals Wholesaling Business

Procurement

Self-Medication Products Wholesaling Business

Products Products

Medical-Related Business

Business Development

Overseas Business Development

Development of Information Systems for Customer and Supplier Support

6 Alfresa Group Integrated Report 2023

Net Sales	1.8%
¥2,696.0 billion	9.1%
Operating Income
¥30.1 billion	88.8%

1.3%	1.4%
Net sales	7.0%
composition
ratio
	89.5%

1.1%

Operating

income

composition

ratio

Ethical Pharmaceuticals

Wholesaling Business 

Self-Medication Products

Wholesaling Business 

Manufacturing Business

Medical-Related Business

Number of "our people" 14,117(consolidated)*1

Customers

Shareholder returns, etc.

Manufactures and markets active pharmaceutical ingredients (APIs), pharmaceuticals, diagnostic reagents, medical devices, and other products, and undertakes consigned manufacturing of pharmaceuticals

Provides ethical pharmaceuticals and other products, including diagnostic reagents and medical devices and materials, and provides services to hospitals, clinics, dispensing pharmacies, and other customers

Provides OTC drugs, health foods, supplements, and other products to drugstores and pharmacies

Provides a range of services to patients via the dispensing pharmacy business and other businesses

In addition to collaborating with business segments within the Group, by working with various companies, we aim to promote business related to regenerative medicine products, support the Community-Based Integrated Care System with digital technol- ogy, and foster initiatives to develop data-driven businesses.

Develops our business mainly in Asia through our own initiatives as well as partnerships with overseas companies

Develops and promotes shared use of information systems for the Group, aiming to improve the efficiency, sophistication, and standardization of pharmaceuticals distribution

Pharmaceutical information

providers

Medical representatives (MRs)

SPD*2 business

Pharmaceuticals sales force

Marketing specialists (MSs)

2,970 persons

Products

Delivery specialists

Sales assistants (SAs)

2,097 persons

Dispensing pharmacists

911 persons

Service

Information

Approx.

200,000

locations

Medical institutions (hospitals, clinics, etc.)

Dispensing phar-

macies, drug- stores, nursing care facilities, etc.

Dispensing

Patients

Fresh life for all.

*1 Includes part-time and temporary employees (2,345 = Average number of workers per year) (As of March 31, 2023) *2 Supply, processing, and distribution (SPD): Contract logistics within hospitals

Alfresa Group Integrated Report 2023

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The Alfresa Group's Value Creation

Progress in Value Creation and the Strengths We Have Cultivated

At the outset, the Alfresa Group had two businesses: the Ethical Pharmaceuticals Wholesaling Business and Manufacturing Business. To take our Ethical Pharmaceuticals Wholesaling Business nationwide, we grew through consolidations and mergers. Later, the Company restructured the Self-Medication Products Wholesaling Business, reinforced the Manufacturing Business, expanded the dispensing pharmacy business, spun off the SPD business to a wholly owned sub- sidiary, and expanded its network in the diagnostic reagent wholesaling business, molding itself into today's Alfresa Group.

Overview of the Parent Organizations

Prior to the Group's Foundation (Partial)

1918

Yokoi Pharmacy

1948						Operating income
					¥12.4 billion
Showa Pharmaceuticals (Aichi Prefecture)
AZWELL Inc.
	2003
1952			Alfresa Holdings	¥1,066.5 billion
			Corporation
Nippon Shoji Kaisha, Ltd. (Osaka Prefecture)	established
1920
Nakashima Shigeru Shoten
1964					Net sales
Fukujin Co., Ltd.
(Tokyo Prefecture)	Sales / Operating Income

Development of the Self-Medication Products Wholesaling Business an Manufacturing Business based on the Ethical Pharmaceuticals Wholesaling

1938	2004.3	2005.3	2006.3	2007.3	2008.3	2009.3	2010.3	2011.3
Fukujin Pharmacy

History of the Alfresa Group

Until September 2003

Formation of the Pharmaceuticals Wholesaling Distribution System

As products that play an essential role in human life, pharmaceutical products need to be delivered on time where needed. Most pharmaceuticals wholesaling compa- nies, therefore, started out as sales agencies for designated ethical pharmaceuticals manufacturers, and over many years they have built close relationships in every area to form a distribution network for ethical pharmaceuticals wholesaling.

September 2003

Establishment of Alfresa Holdings Corporation

Alfresa Holdings Corporation was established as the joint holding company of Fukujin Co., Ltd., based in the Kanto region, and AZWELL Inc., based in the Tokai and Kansai regions, marking the start of its journey as a next-generation group of pharmaceuticals wholesaling companies that contribute to human health by providing the products and services their customers need under the vision of becoming a Healthcare Consortium.

Strengths We Have

Cultivated in the

Ethical

Pharmaceuticals

Wholesaling

Business

A Highly Functional Logistics Infrastructure

The Alfresa Group sources products totaling around 350,000 stock-keeping units (SKUs) from approximately 1,000 companies in the ethical pharmaceutical wholesaling business. We have 16 logistics centers located across Japan's most populous prefectures. We also have four urban pharmaceutical centers in areas with high concentrations of medical institutions. This nationwide network enables us to supply safe, secure, high-quality pharmaceuticals to medical institutions across Japan at all times.

• Steady supply system with 209 distribution bases across Japan
• • 16 large-scale distribution centers across Japan
  • 4 urban pharmaceutical centers across Japan
  • 9 facilities for the management
    and storage of regenerative medicine products across Japan
• 2 regenerative medicine distribution stations located in the east and west parts of Japan, respectively

• Figures for Ethical Pharmaceutical Wholesale Business

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