Ain : ANNUAL REPORT 2021

Making Headway

The results of steady efforts are starting to emerge

ANNUAL REPORT 2021

For the year ended April 30, 2021

PROFILE

AIN Group operates a dispensing pharmacy business, which is the leader in the Japanese market by sales, and a cosmetic and drug store business centered on AINZ & TULPE stores, which are mainly located in the Tokyo metropolitan area and other urban markets.

In the dispensing pharmacy business, we aim to build a dominant position in the market while playing a key role in local healthcare infrastructure. In the cosmetic and drug store business, we are working to reinforce brand power by actively opening AINZ & TULPE stores in prime locations in urban and semi-urban markets.

The AIN Group aims to help create a sustainable society by tackling and solving social issues through its business activities. Preparations for the Group's next phase of growth are moving forward, and the results are already starting to emerge.

In December 2020, we defined the Group's materiality and value creation story. By reinforcing sustainability management, we aim to continue improving the health and happiness of our customers by supporting their vitality and beauty through our business activities.

MESSAGE FROM THE PRESIDENT

Making Headway

The results of steady efforts are starting to emerge

Thank you for your continued support of the AIN Group. We hope you are all keeping safe and well amid the continuing impact from the COVID-19 pandemic.

Like many other countries around the world, Japan had a tough year in 2020, with the pandemic having a broad impact on the economy, including a drop in consumer spending. However, with the steady rollout

Net sales by segment

Cosmetic and Drug Store Business ¥19,419 million (6.5%)

Other Businesses

¥14,791 million (5.0%)

Fiscal 2021

Consolidated

Net Sales

¥297,305 million

Dispensing Pharmacy Business ¥263,095 million (88.5%)

of Japan's vaccination program since February 2021, we expect fiscal 2022 to be a year when the economy gradually stabilizes, even though COVID-19 will remain part of all our lives.

Through its business activities, the AIN Group will work to tackle issues faced by society and press ahead with preparations for the next leap forward, drawing on all the Group's resources.

Kiichi Ohtani

President

and Representative Director

Fiscal 2021 review

Signs of recovery after a tough year amid the pandemic

CONTENTS

For fiscal 2021, ended April 30, 2021, the AIN Group reported net sales of ¥297,305 million, up 1.6% year on year, operating income of ¥10,932 million, down 32.0%, and

1 MESSAGE FROM THE PRESIDENT

6 AIN GROUP'S VALUE CREATION 6 Value Creation Process

8 Providing Social Value through Our Business (CSV)

8 Characteristics of Japan's Dispensing Pharmacy Sector

10 Growth Strategy: Dispensing Pharmacy Business

16 Growth Strategy: Cosmetic and Drug Store Business

20 Human Resources Strategy

22 BASIS OF VALUE CREATION 22 Strengthening ESG

26 Corporate Governance

28 Risk Management

30 Board of Directors and Corporate Auditors

32 BASIC INFORMATION/DATA

32 11-year Financial Summary and ESG Data

34 Management's Discussion and Analysis of Financial Condition and Results of Operations

36 Consolidated Financial Statements

36 Consolidated Balance Sheet

38 Consolidated Statement of Income

38 Consolidated Statement of Comprehensive Income

39 Consolidated Statement of Changes in Net Assets

40 Consolidated Statement of Cash Flows

41 Notes to Consolidated Financial Statements

67 Independent Auditor's Report

72 Investor Information

profit attributable to owners of parent of ¥6,697 million, down 27.0%.

Performance was weak in the dispensing pharmacy business, which saw operating income slump roughly 30% year on year in the first quarter due to the COVID-19 pandemic. However, with the number of prescriptions steadily returning to normal levels, we forecast a gradual recovery in the business.

The cosmetic and drug store business was hit hard by voluntary restrictions on store opening hours and other measures to control the pandemic. In response, the business expanded its lineup of AINZ & TULPE products that help people live with the new realities of the pandemic, improved store layouts to make them as welcoming as possible for customers and launched proactive measures such as expanding e-commerce channels.

FORWARD-LOOKING STATEMENTS

This annual report contains forecasts and projections concerning the plans, strategies and performance of AIN HOLDINGS INC. and its subsidiaries and affiliates. These forecasts and projections constitute forward-looking statements that are not historical facts, but are based on assumptions and beliefs in accordance with data currently available to management. These forward-looking statements are subject to a number of risks and uncertainties that include, but are not limited to, economic conditions, intense competition in the healthcare industry, demand, foreign exchange rates, tax systems, and laws and regulations. As such, AIN HOLDINGS INC. wishes to caution readers that actual results may differ materially from those projected.

AIN HOLDINGS ANNUAL REPORT 2021 1

MESSAGE FROM THE PRESIDENT

Growth strategy: dispensing pharmacy business

Aiming to increase market share to take on new challenges

Small and midsize pharmacies are holding their ground in the dispensing pharmacy market. Despite being the leading company in the sector, the AIN Group's market share is still only around 3.5%. We therefore see plenty of potential to become the dominant player by increasing market share. We also need to expand market share to help us take on challenges in new areas. For some time, we have been making preparations to respond to various changes in the Group's operating environment.

One of the steps we have taken is to establish a sound financial base. We need funding capabilities and robust finances to execute our key strategy of opening large-scale dispensing pharmacies that can handle advanced medical treatments.

Sound financial structure

-Comparison of financial indexes among major companies operating dispensing pharmacies in Japan

AIN Pharmacy at Okayama University Hospital

I am pleased to say that we have made steady progress in this area. Even during the pandemic, the Group's finances remained stable, which will help us open a clear gap over other companies in terms of business competitiveness and strategy execution after the pandemic subsides. We already have plans to open a large number of dispensing pharmacies through to fiscal 2023 ending April 30, 2023. We will also continue to pursue M&A targets, backed by stricter criteria for investment efficiency. Our goal is

Fiscal 2020		(¥ million)
	AIN HOLDINGS	Average of 2 competitors
Market capitalization	238,781	42,955
Cash on hand in banks	46,321	24,028
Interest-bearing debt	6,422	52,840
Net cash	39,899	(28,812)
Shareholders' equity ratio	57.3%	30.4%
Fiscal 2021		(¥ million)
	AIN HOLDINGS	Average of 2 competitors
Market capitalization	235,318	53,370
Cash on hand in banks	55,271	26,271
Interest-bearing debt	12,099	51,026
Net cash	43,171	(24,756)
Shareholders' equity ratio	56.8%	31.7%

Notes:

1. Market capitalization data are as of July 31, 2020 and July 30, 2021.
2. Interest-bearingdebt = Short- and long-term debts + Corporate bonds
3. Net cash = Cash on hand and in banks - Interest- bearing debt
4. 2 competitors:
   NIHON CHOUZAI Co., Ltd. and Qol Holdings Co., Ltd.

Source:

Compiled by AIN HOLDINGS from the above companies' financial results for fiscal 2020 and fiscal 2021.

to contribute to local healthcare by opening new dispensing pharmacies, including pharmacies on hospital sites, with a focus on larger locations. Our next milestone target is to achieve a market share of 10%.

We have to secure enough pharmacists to support this aggressive expansion program. In fiscal 2021 we hired 613 newly graduated pharmacists, exceeding the 560 recruited in the previous fiscal year. We will also continue to actively train our existing personnel.

AIN Group's initiation ceremony

Market distribution of dispensing pharmacies in Japan

-Comparison of net sales and operating margin among major companies operating dispensing pharmacies in Japan

Operating margin (%)

6.0
5.0
		Qol Holdings		AIN HOLDINGS
4.0
3.0
				NIHON CHOUZAI
2.0

150,000	200,000	250,000	300,000
		Net sales (¥ million)

Notes:

1. Net sales and operating margin are compiled by AIN HOLDINGS based on each company's summary of financial statements for FY 3/21 (AIN HOLDINGS: FY 4/21).
2. Size of circle is proportional to market capitalization as of July 30, 2021.

350,000

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» See page 23 for more details

MESSAGE FROM THE PRESIDENT

Growth strategy: cosmetic and drug store business

Accelerating store openings and offering unique products

The cosmetic and drug store business opened 11 AINZ & TULPE stores in fiscal 2021. Due to the pandemic, many stores in other sectors vacated prime locations in cities across Japan. Seeing this as a rare opportunity, we will aggressively open new stores in these prime locations.

Along with store openings, merchandising is an important strategy in the business. AINZ & TULPE is working to create an even more differentiated lineup of original products focused on health and beauty, targeting consumers who seek both "inner and outer beauty" and "healthy beauty." Using the AINZ & TULPE WEBSTORE, which launched in May 2020, we are improving convenience for customers while also promoting the AINZ & TULPE worldview in conjunction with our physical stores. We also plan to launch exclusive online products this autumn.

AINZ & TULPE WEBSTORE	AINZ & TULPE
	Official app

Other steps we have taken include the acquisition of Shidax i Corporation in March 2020, giving the AIN Group a presence in the hospital canteen and kiosk business. In April 2021, the business opened its first A*STAND-branded retail shop in Tokyo Medical University Hospital. The retail shop sells food, beverages and daily necessities, while also providing a place for patients to take a break and access rehabilitation services and for hospital workers to recharge their batteries. We are now looking at opportunities to roll out the format in office buildings and other locations.

A*STAND-branded retail shop in Tokyo Medical University Hospital

Creating an environment that supports our shared corporate philosophy

The role of companies is changing. ESG and the SDGs are vital to growth as key elements of business management. Diversity is a particularly urgent issue for the AIN Group, as women account for 80% of our workforce, so their empowerment has a direct impact on the Group's growth.

In fiscal 2021, we established the Sustainability Management Department as a specialist organization tasked with implementing initiatives to realize a sustainable society. We also set up a Sustainability Committee in autumn 2020 to oversee sustainability activities across the Group. We have been a strong supporter of diversity

• inclusion for many years, aiming to create a working environment that motivates all our employees. Recently, we have defined the Group's value creation story and materiality, which has helped us to reorganize and clarify our existing sustainability activities. We plan to clearly communicate our approach to external stakeholders to deepen understanding of the AIN Group.
  Reinforcing the Group's management base is a key focus of our medium-term

strategy and the value creation story , and cultivating the next generation of business leaders is part of our efforts to strengthen the management base. For the AIN Group to remain viable well into the future, we have to continue taking on new challenges. As part of that process, we need many executives and employees to have a stake in how we run our business, guided by the shared philosophy of making the AIN Group a stronger, better organization. That's why we are reinforcing systems to train, utilize and evaluate the performance of human resources. Other measures to support the Group's future growth include investing in digital transformation, logistics reforms and branding to support the management base.

Strengthening corporate governance will also be crucial. The Board of Directors will draw on diverse views and opinions by actively engaging with outside directors and outside corporate auditors, while also further stepping up the disclosure of information to all investors and employees.

Fiscal 2021 was a year that underscored the AIN Group's resilience. The Group was able to absorb the impact of the COVID-19 pandemic and generate stable profits. The last year also reinforced my belief that the Group has immense growth potential.

As the leader in the industry, we will continue to invest heavily in our business without forgetting our desire to seek out and take on new challenges. I hope we can count on your continued support and trust as we strive to meet your expectations.

July 29, 2021

Kiichi Ohtani

President and Representative Director

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AIN HOLDINGS ANNUAL REPORT 2021 5

AIN GROUP'S VALUE CREATION

Value Creation Process

The AIN Group is dedicated to improving the health and happiness of its customers. That commitment is enshrined in our Group Statement, which guides all our business activities.

Harnessing the competitive advantages and high-quality management resources built up since the Company was founded, we aim to create social value through our business activities and contribute to an affluent, sustainable society and increase the Group's value while carefully responding to the various risks in our operating environment.

Dedicated to improving the health	and happiness of our customers

Input

Output

Management capital

• Diverse, first-class human resources
• Accumulated dispensing know-how and technical capabilities
• Distinctive merchandise lineup
• Store development capabilities
• Strong customer base
• Sound financial structure

Create social value		Carefully
through business	X	respond to
activities	diverse risks

• See page 10-19

Business model

Enhance quality of

product and

services

Financial factors

Sales

¥297,305 million

Operating income

¥10,932 million

Net income

¥6,697 million

ROA

3.4%

ROE

5.9%

Total shareholder return ratio

56.8%

Outcomes

Materiality initiatives

		» See page 22-24
1.	Contribute to local healthcare
2.	Provide beauty and happiness
3.	Safety, peace of mind and trust

Our

vision

Defining materiality

• See page 22

Train and

utilize

human

resources

Anticipate and flexibly respond to change

Management foundation

Personnel strategy » See page 20-21

Corporate governance » See page 26-28

Non-financial factors » See page 32-33

Environment

CO2 emissions related to operation of pharmacies

10,747 t-CO2

Social
Number of primary	Full-time employee
care pharmacists	turnover rate
1,655	5.2%
Generic drug	Average monthly
dispensing ratio	overtime per
84.3%	employee
	3.9 hours
Female manager ratio
32.6%
Governance
Ratio of independent	Ratio of female
outside directors on	directors on Board
Board of Directors	of Directors
33%	25%

4.	Protect the environment and
	reduce environmental impact
5. Ensure sound management base
6.	Cooperate with local
	communities and businesses

Related SDGs

Appraisal by and communication with customers, business partners, communities

Appraisal by stock market

Improve level of external appraisal

etc.

Aim to be

1. company that people welcome to their

communities

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