Ain : Integrated Report 2023

Integrated Report 2023

2022.5 2023.4

AIN GROUP'S APPROACH	AIN GROUP'S VISION

Group Slogan

Holding beautiful will.

Group Statement

We are committed to ensuring our employees are happy and motivated. We want the AIN Group to be a workplace where employees seek

out new challenges to grow and develop, dedicating themselves to improving the health and happiness of customers.

Our goal is to be a leading corporate group that constantly embraces change.

Connecting closely with the thoughts and feelings of all the people we encounter.

A company that can take pride and joy in this statement is what the AIN Group endeavors to be.

Like Audrey Hepburn, who captivated the world as an actress, lived as a mother and an independent woman, and devoted her later years to being a Goodwill Ambassador for the United Nations International Children's Emergency Fund (UNICEF).

We aspire to be a company where each employee holds a beautiful will, supporting people with love and hope.

First, we must be a company that values its employees. And be a rewarding place to work. Only when these requirements are met can we do our best for our customers.

Our management philosophy holds that "putting employees first" is the ultimate form of "putting customers first." This message expresses our strong will to aim and continuously live up to the name and reality of being a leading group for our customers, employees, and all stakeholders.

Aiming to be a company that people welcome to their communities

Society is changing drastically, and people's needs and values are becoming increasingly diverse.

In our business environment, there are various ways in which patients and customers can fulfill their wishes of staying healthy and beautiful.

The AIN Group is dedicated to improving the health and happiness of our customers, which is enshrined in the Group Statement, through its business activities that contributes to people's health and beauty. To consistently strive to attain this goal, we will continue to adjust and respond to the needs of our customers and all our other stakeholders as we aim to be a company that people welcome to their communities.

01

02

AIN GROUP AND LOCAL COMMUNITIES

We at the AIN Group aim to create a society where people can live healthy, beautiful, and happy lives by connecting closely with the thoughts and feelings of each individual. We operate dispensing pharmacy and cosmetic and drug store businesses in a bid to serve as a local infrastructure of such society.

Dispensing pharmacy business (Fiscal 2023 / As of April 30, 2023)

Dispensing pharmacy business

Connecting closely with local communities

It is to connect closely with the lives of each individual

Led by AIN Pharmacy, we operate dispensing pharmacies throughout Japan spanning from Hokkaido to Okinawa. We are actively involved in supporting the health of local residents by strengthening cooperation with local medical institutions and related facilities.

Cosmetic and drug store business

Being closest to the people who want to be beautiful

We operate AINZ & TULPE cosmetic and drug stores with a focus on the Tokyo metropolitan area and other urban cities. We have a wide range of offerings to help customers enjoy a beautiful and healthy life.

Fiscal 2023

Net sales

¥358.7 billion

Composition

Dispensing pharmacy business

89.6%

Cosmetic and drug store business

7.2%

Other businesses

3.2%

		Number of pharmacies that	Number of health support
Number of pharmacies	supports home-based healthcare	pharmacies
1,209		1,152		171
We open dispensing pharmacies in	In order to further contribute to	We actively engage in organizing
locations that are highly convenient	local healthcare, we are proactively	health consultation events and
for patients, and are also focusing	p a r t i c i p a t i n g i n h o m e - b a s e d	participating in local events with the
on coordination with medical	healthcare . We visit patients'	aim of contributing to the health of
institutions.	homes and facilities to support their	local residents.
		prescription medication.

		Number of primary care
Number of pharmacists	pharmacists	Prescription volume
6,331		2,084		25,050thousand
In addition to the active recruitment	We are working to strengthen	We accept prescriptions from
of pharmacists, we provide training	our functions as primary care	medical institutions nationwide, and
programs tailored to various careers	pharmacists and pharmacies in	strive to ensure that patients can
t o d e v e l o p h u m a n re s o u rc e s	order to support a large number of	continue to receive prescription
with a high level of expertise and	patients.	medication with peace of mind.
communication skills.

Cosmetic and drug store business(Fiscal 2023 / As of April 30, 2023)

Number of cosmetic and	Beauty product sales
drug stores	composition	Number of official app users
78		88.2%		1,290 thousand
We are working to open stores in	Unlike general drug stores, we offer	In addition to providing product
highly convenient locations such	mainly beauty products such as	information that ensures high
as the Tokyo metropolitan area and	skincare and makeup, as well as	customer satisfaction and keeps
terminal stations near residential	other items related to beauty and	up with trends, the app also offers
areas so that customers can easily	well-being.	convenient features and benefits
drop by.			such as loyalty points and coupons.

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04

INFORMATION DISCLOSURE SYSTEM / EDITORIAL POLICY / FORWARD-LOOKING STATEMENTS	CONTENTS

Information disclosure system
Financial information	Non-financial information

Integrated Report 2023

We explain our vision, growth strategies, and activities for improving corporate value
over the medium- to long-term
Reports
Annual Securities Report (Japanese only)	Corporate Governance Report
DATA FILE	ESG Data Book

	IR Information	Sustainability
	https://www.ainj.co.jp/corporate/	https://www.ainj.co.jp/corporate/
Website	english/	english/sustainability.html

		General Meeting of Shareholders
Dialogue		Financial results briefing				Stakeholder engagement
		Individual meetings with domestic and
		overseas institutional investors

Editorial policy

The AIN Group implements a variety of initiatives aimed at generating sustainable growth and creating social, environmental, and economic value. Since the fiscal year ended April 30, 2010, we have published an Annual Report in English to strengthen communication with shareholders, investors and other stakeholders through deeper understanding of the Group's specific initiatives and ideas. From 2022, we are publishing an Integrated Report in Japanese and English, which includes expanded information on the Group's materiality, human resources strategy, digital transformation strategy and other initiatives aimed at increasing value over the medium and long term.

In editing this report, we referenced the International Integrated Reporting Framework published by the International Integrated Reporting Council (IIRC)* and the Guidance for Collaborative Value Creation 2.0 formulated by the Ministry of Economy, Trade and Industry (METI). The AIN Group works to actively disseminate information to stakeholders, including regular updates through news releases and other information disclosures on its website.

https://www.ainj.co.jp/corporate/ (Information partially available in English)

*In June 2021, IIRC merged with the Sustainability Accounting Standards Board (SASB) to form the Value Reporting Foundation (VRF). VRF subsequently merged by the International Sustainability Standards Board (ISSB) together with Climate Disclosure Standards Board (CDSB) in June 2022.

Period covered Fiscal year ended April 30, 2023 (May 1, 2022 - April 30, 2023) This report includes the latest information as of the date of publication.

Scope	AIN HOLDINGS INC., 30 subsidiaries and 3 affiliates

Forward-looking Statements

This integrated report contains forecasts and projections concerning the plans, strategies and performance of the Group. These forecasts and projections constitute forward-looking statements that are not historical facts, but are based on assumptions and beliefs in accordance with information 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, etc., demand, tax systems, and laws and regulations. As such, the Group wishes to caution readers that actual results may differ materially from those projected.

Integrated Report

2023

INTRODUCTION

1. AIN Group's Approach
2. AIN Group's Vision
3. AIN Group and Local Communities

05 Information Disclosure System / Editorial Policy / Forward-looking Statements

06 Contents

MESSAGE FROM THE PRESIDENT

07 Message from the President

AIN GROUP'S VALUE CREATION

1. Value Creation History

1. Value Creation Story

1. Materiality

1. Special Feature: Dialogue with Experts

VALUE CREATION STRATEGY

1. Creating Shared Value through Our Business (CSV)

1. Strengthening Management Capital that Supports Value

SUSTAINABILITY

1. Materiality Initiatives (Progress vs. KPIs)

1. Initiatives to Tackle Environmental Issues

1. Initiatives to Tackle Social Issues
2. Corporate Governance

1. Risk Management
2. Internal Control / Compliance
3. Message from Outside Directors

1. Board of Directors and Corporate Auditors

INFORMATION

55 Characteristics of Japan's Pharmacy Sector

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

1. 11-yearFinancial and Non-financial Summary / ESG Data

1. Investor Information
2. External Evaluations

05

06

MESSAGE FROM THE PRESIDENT

Making AIN Pharmacy the infrastructure of local communities Driving the industry as a leading company

in disaster-stricken areas coordinated closely, listened to the needs expressed by patients, and continued to work diligently to supply medicine.

This experience made us strongly aware of the importance of backing up patient medical information with a database and of the information management

OFC contributes significantly to Seven-Eleven Japan's earnings growth, we had long been convinced that the framework of this system will work effectively for the AIN Group as well. In reality, however, it was difficult to achieve, due to factors such as the scale of our business and a lack of employees. In the past, we had

MESSAGE FROM

President and Representative Director

Kiichi Ohtani

The time we strove to be the "de facto standard for dispensing pharmacies"

The AIN Group's vision is to become a company that people welcome to their communities. To this end, we endeavor to serve as the infrastructure of local communities.

The Group opened its first pharmacy in 1993, marking the beginning of our current dispensing pharmacy business. In the 1990s, the separation of medical and dispensary services was rapidly

accelerated by governmental policy, leading to many pharmacies being opened in response to the rapidly increasing number of out-of-hospital drug prescriptions. Against this backdrop, the Group developed its operations to establish a position as the "de facto standard for dispensing pharmacies." At a time when pharmacies were lesser known due to the preconceived notion that medicine is received at the hospital, AIN Pharmacy decided to become the model for dispensing pharmacies. To achieve this, we considered having sufficient business scale to be our top priority and actively worked to develop our business.

However, the environment surrounding dispensing pharmacies has changed drastically over the past 30 years. Along with that, the vision of the Group has also changed.

Two turning points that led to the goal of being a local infrastructure

The collapse of the Group's main bank in 1997 marked a major turning point in the company's history. The vulnerability of our corporate stance, which had prioritized business expansion and was too focused on sales and profit figures, was exposed following our main bank's collapse, causing us to face a major crisis.

We learned from the various struggles at the time that it was important not only to expand our business, but also to focus on fund procurement and financial soundness. Thanks to that experience, we have been able to build a solid business and financial base, and the fruits of that labor are now leading to further growth investments.

Having a sound financial structure has also become an overwhelming strength of the Group today, and it is also benefiting us greatly in terms of building relationships of trust with business partners and securing human resources, creating a further virtuous cycle.

Another turning point was the Great East Japan Earthquake of 2011. This unprecedented earthquake caused great disruption to medical facilities across Japan, and our pharmacies were no exception. In the disaster-stricken areas, medical activities themselves faced difficulty surviving. To contribute to the provision of medical care during this crisis, employees of the Group's headquarters, bases nationwide, and bases

function of pharmacies, leading to the acceleration of the Group's digital transformation. In addition, through recognizing the importance of the role of providing medical care once again, we saw pharmacies as a social foundation, which prompted us to review our vision of the dispensing pharmacy business from being the "de facto standard for dispensing pharmacies" to being the "local infrastructure."

Introduction of digital transformation promotion and FM system as growth strategies

We have set forth digital transformation promotion and the introduction of an FM (field manager) system as strategies geared toward future growth. We believe these two initiatives can produce significant results in maximizing business value and avoiding management risk.

From the experience of the Great East Japan Earthquake mentioned above, we learned that promoting digital transformation is essential to building an operational system that can remain in operation no matter what. In addition to strengthening our management base by bolstering our internal network and revamping our core drug dispensing system, we also introduced online pharmaceutical guidance services and digital drug prescriptions that respond to deregulation, and released our official app, Anytime AIN Pharmacy. Through such moves, we will achieve the government's vision for patient-focused pharmacies that align with governmental policy. We are also undertaking various measures to provide added value to patients, including integrated management of patient data, digital patient medication notebook app, and the introduction of route-based distribution to reinforce logistics. We also have plans to upgrade our accounting system down the road.

As can be seen, the Group's digital transformation promotion is still in its early stages, and we will continue to expand measures going forward.

Our FM system is based on the OFC (operation field counselor) system adopted by Seven-Eleven Japan of Seven and i Holdings, a major retail company in Japan, with which we have a capital and business alliance. While it is well known that the existence of

adopted a block system in which a block consisting of six to seven pharmacies was managed by a single block manager, who also worked as a dispensing pharmacy leader. In addition to managing their own stores, they had to oversee the other stores within the block. This system resulted in a lack of thorough operation management. Under the newly introduced FM system, FMs are now dedicated managers responsible for the management of a small organization. They manage the operations of the pharmacies in their field while coordinating with dispensing pharmacy leaders. While referencing the OFC system, the FM system was introduced in a way that adheres to the Group's own systems and human resources.

Although there were some issues with FMs' lack of experience and disruptions over coordinating with pharmacies, after a year following the introduction of the new system, we were able to perform the functions for which we were originally aiming. Now, we are beginning to see results that can be considered the fruits of these efforts. Furthermore, having selected FMs learn about management in a practical setting also contributes to the training of future management personnel.

In addition to these two strategies, we will step up moves to promote our business expansion growth strategy. In 2022, we acquired all shares of Pharmacy Holdings Co. Ltd. (Hiroshima Prefecture), which mainly operates pharmacies in the Chugoku region, and welcomed its 101 pharmacies into the Group, the largest M&A we have carried out to date. Going forward, we will continue to expand the scale of our business through organic store openings and M&As, and to capitalize on economies of scale.

Expansion of AINZ & TULPE

Another pillar of the Group's business are the comprehensive beauty outlets in the cosmetic and drug store business, AINZ & TULPE. We are actively expanding this business to meet diverse needs and tap into new markets by adopting a one-and-only style that differs from other stores in areas such as product mixes and retail layout design.

The cosmetic and drug store business has a longer history than the dispensing pharmacy business. As pharmacies in urban areas have been turned into

THE PRESIDENT AIN GROUP'S VALUE CREATION VALUE CREATION STRATEGY

SUSTAINABILITY

INFORMATION

07

08

MESSAGE FROM THE PRESIDENT

drug store chains, we have continued to develop our business differently, as comprehensive beauty outlets that create unique encounters and experiences. Together with the changing times, the concept of beauty has become increasingly diverse, and AINZ & TULPE is constantly evolving as well. No one store has the same product mixes or sales area. Our staff members think on their own about how they can create a sales area that matches the characteristics of the surrounding commercial area and the store location. They repeat this practice every day to provide new encounters that go beyond the needs of our customers.

In recent years, our highly original store development efforts have been rated highly, leading to the receipt of many requests to open leased stores. We have been achieving a virtuous cycle in which one achievement leads to another store opening, which leads to the opening of stores in even prime locations.

Also, in March 2022, we established a joint venture with Marubeni Corporation with the aim of opening stores in Asia as a stepping stone to global expansion. At the same time, we opened our first overseas store in Malaysia, where there is a high population ratio of millennials and gen-Z consumers, the main targets of our stores, and demand for cosmetics among young people is rapidly rising due to recent economic growth.

By further refining our strengths in store creation that are unique to the Group and proactively opening stores under favorable conditions, we aim to further expand the scale of our business while reinforcing a structure that can sustain profitability as a business.

Investing in human resources

One of the key factors that underpin the Group's various growth strategies is securing talented human resources.

To promote digital transformation, it is essential for employees to not just have a high level of expertise, but also to have a deep understanding of the Group's goals. As such, over the past few years, we have been working to expand the number of personnel in specialized departments. This year, we hired 40 new employees and assigned temporary workers as appropriate, and now have a team of about 100 people within the Company. In addition, in the FM system, new positions incurred new personnel costs for the 100 FM pharmacists that have gained experience. We were able to create the FM system because we were able to secure human resources as well as the capital that could support investments in these human resources.

The foundation of strategic investments requires human resources to carry them out. We have been able

to secure these human resources because the Group has gained recognition as a leading company in the industry, which is a fact of which we are proud. Backed by the expansion of our business and achievements, the AIN Group has become more widely recognized and financially sound, enabling us to earn trust.

In terms of hiring new graduates, the number of students wanting to join the Group is increasing year by year. I believe this is not just because of the Group's stability, due to its size, but also because of a strong drive to learn many different things from the diversity of this expansion. This new willingness to take on the challenge of expansive learning while standing on a foundation of stability will ensure further growth for the Group.

Meanwhile, rapid scale expansion, including M&As, has spilled over into the challenges of increasingly complex corporate governance and the growing need for diverse work styles. We will strive to anticipate the risks and address these issues at a faster pace than the expanding scale. We are also constantly considering ways to provide a place where employees can fully demonstrate their skills while working closely with diverse personnel with unique backgrounds. As part of these efforts, we started an employee engagement survey in 2022. We are implementing appropriate measures after listening to the needs expressed by each employee and clarifying the actual issues they face. Furthermore, in 2023, we revamped our personnel system to establish evaluation standards and enable diverse work styles. We will continue to make improvements to enable better employees to work more efficiently.

Conveying the thoughts of the president

When it comes to running a company, I believe it is very important that the president's vision and direction resonate with employees. I could even go as far as to say that the growth of a company is determined by how well the president's views are conveyed throughout said company. My strong determination to make AIN Pharmacy the infrastructure of local communities is conveyed to employees, fostering a resonance with them. This resonance transforms into the motivation of frontline employees, and ultimately pushes the entire company toward the achievement of our vision. For this to happen, I keep in mind the importance of maintaining this strong determination myself, engaging in dialogue with employees, and also always being true to my words so that they can see my actions.

To enable future generations of human resources to share the same views, we hold top conferences (meetings where officers and employees can interact) all over Japan, and also provide opportunities for employees to interact with people of their own generation through annual trainings and group meetings. Based on the premise of ongoing concern, we will give form to invisible assets and steadily pass on our legacy to future generations and beyond.

Sustainability management that leads to profit

One of the issues the Group needs to tackle is deepening our sustainability management. In May 2021, to promote sustainability management, we have set key initiatives, KPIs and fiscal 2026 targets in each area of materiality: "Contribute to local healthcare," "Provide beauty and happiness," "Safety, peace of mind and trust," "Protect the environment and reduce environmental impact," "Ensure sound management base," and "Cooperate with local communities and businesses." In April 2022, we endorsed the Task Force on Climate-related Financial Disclosures (TCFD)'s Final Report (TCFD Recommendations) presented internationally. The Group also joined the TCFD Consortium, a group of domestic companies, financial institutions and other bodies that have endorsed and are working to implement the TCFD's recommendations.

However, we recognize that these are just the first steps in implementing sustainability management. Moreover, in Europe and the US, the level of commitment to ESG investments is being scrutinized more heavily than ever. In light of this, we must continue to take concrete actions to ensure that the recognition of sustainability management does not end up being superficial, and that it leads to profit.

I believe this will help us realize the Group's commitment to the value creation story of being dedicated to improving the health and happiness of our customers.

Our stance as a leading company

As Japan's healthcare system undergoes major changes, including the start of online pharmaceutical guidance in 2022 and the operation of the digital drug prescription management service in 2023, the Group is quickly moving forward with measures that adhere to each system. Meanwhile, amid such constant changes

in the business environment, our stance as a leading company is attracting even more attention.

Initiatives for the natural environment are also an issue, and the upper limit on overtime for truck drivers, which comes into effect in April 2024 and will impact logistics, is one of the most pressing challenges. As reducing the number of deliveries to pharmacies is not easy, precise inventory management and store management will be necessary. In addition, we must build cooperation not only within the Group, but also with other pharmacies in the region, to operate more efficiently. The Group will stand at the forefront of the supply chain and industry and will strive to address these issues.

Changes in the system could also have a wide and severe impact on the industry as a whole, such as causing a reduction in drug prices. In the past, drug price revisions have simply acted as negative factors and were generally offset by business expansion. However, from now on, through such changes and deregulation, we will discover what kind of pharmacy is needed, and actively respond to this demand to become a company needed by patients and society, and evolve into a growth company.

The Group's stance on viewing change as an opportunity for growth remains unchanged even amid such large and continuous changes. We see this very moment as an opportunity for growth, and will continue to provide encounters that will make people welcome us to their communities.

Closing remarks

With regard to the arrest and prosecution of former officers of the Group, I would like to express my sincere apologies once again for the great inconvenience and concern we have caused to our customers, business partners, shareholders, our staff and their families, and all those involved in the Group. The Group will take this matter very seriously and address it once a judicial decision has been made at the upcoming trial.

We will continue to endeavor to become a company that is needed again by our stakeholders. We will strive to restore trust as soon as possible by maintaining even more sincerity in our attitude and in our actions, and striving to further advance our business.

MESSAGE FROM THE PRESIDENT AIN GROUP'S VALUE CREATION VALUE CREATION STRATEGY

SUSTAINABILITY

INFORMATION

09

10

AIN GROUP'S VALUE CREATION

Value Creation History

As the environment and values surrounding people's health and beauty continue to change with the times, the AIN Group has continued to expand its business by improving the specialist skills of pharmacists and developing pharmacies in highly convenient locations nationwide. We are constantly striving to provide services that listen to the voices of each patient and customer. Today, we operate a total of more than 1,200 pharmacies nationwide, and our business continues to grow steadily.

Fiscal year ended

April 2023

					Number of		1,209
					pharmacies
	Fiscal year ended		Number of cosmetic	78
	April 2019			and drug stores
Number of	1,132	Number of	14,147
pharmacies
employees
Number of cosmetic	54			Ordinary

MESSAGE FROM THE PRESIDENT

Net sales (¥ billion)

400 Net sales Ordinary profit

350

300

250

200

150

100

50

10.7

Fiscal year ended

April 2003

Number of	148
pharmacies
Number of cosmetic	40
and drug stores
employees	1,359*
Number of

*The number of part-time employees for the fiscal year ended April 2003 is calculated based on an eight-hour per day equivalent.

35.3

26.1 1.3

(0.1)

Fiscal year ended

April 2015

Number of	754
pharmacies
Number of cosmetic	56
and drug stores
employees	7,025
Number of

187.9

129.3 11.6

81.3	8.2
2.8

						and drug stores													prot
																								(¥ billion)
						Number of	10,652
															35
						employees							358.7
																		316.2
															297.3				30
												292.6
						268.3	275.5
			248.1													25
234.8	20.1
																					17.0
15.1	15.0				16.6	16.8				16.0	20
									12.6
																					15
																								10
																								5

AIN GROUP'S VALUE CREATION VALUE CREATION

0

0.4

0

Fiscal 1995

Fiscal 1999

Fiscal 2003

Fiscal 2007

Fiscal 2011

Fiscal 2015

Fiscal 2016 Fiscal 2017 Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Fiscal 2022 Fiscal 2023

Dispensing pharmacy business

Cosmetic and drug store business

AIN Group

STRATEGY

1969-

Went public 14 years after the start of drug store business

Established in 1969 as a company handling contracted clinical testing. In 1980, the Company launched its drug store business, the predecessor of its current business, and went public 14 years later.

1969

Started contracted clinical testing business

1980

Started drug store business

1993

Opened first pharmacy

1994

Listed on JASDAQ market

Unified pharmacy name to AIN Pharmacy

1995

Established Dispensing Pharmacy Business Division

1997-

Secured top position in dispensing pharmacy sector by net sales

Against the backdrop of the financial crisis of 1997, the Company began a review all of its businesses. Business restructuring centered on its pharmacies proved successful, and in 2002, the dispensing pharmacy business achieved the top net sales in the industry.

1998

Transferred the operation of the contracted clinical testing business

2002

Opened first cosmetic and drug store

2004

Transferred the operation of the general drug store outlets to implement a strategic shift to cosmetic and drug stores

2006

Established WHOLESALE STARS Co., Ltd. and started generic pharmaceutical wholesales

2015-

Transitioned to holding company structure

To strengthen its management base for further growth, the Company transitioned to a holding company structure in 2015 and accelerated the business development including the opening of new pharmacies and M&As under the dispensing pharmacy business, which resulted in the total number of pharmacies reaching 1,000.

2015

The Company name changed to AIN HOLDINGS INC., following the transition to a holding company structure

Acquired all shares of AYURA LABORATORIES Inc.

2016

Number of Group pharmacies exceeds 1,000

2018-

Further accelerated digital transformation promotion and went into full swing

The accelerating trend of digitalization across society is also occurring in the healthcare industry. The Group is working to improve convenience for patients and customers as well as operational efficiency through the promotion of digital transformation by actively developing apps.

2018

Carried out first online pharmaceutical guidance in Japan

2019

Released official AINZ & TULPE app

2020

Opened AINZ&TULPE WEBSTORE

2022

Transferred to Prime Market, a new market segment of Tokyo Stock Exchange

Launched the official AIN Pharmacy app, Anytime AIN Pharmacy

Opened first overseas AINZ & TULPE store

SUSTAINABILITY

INFORMATION

2009	2023
	Listed on 2nd Section of Tokyo Stock Exchange			Started supporting digital drug prescriptions
2010
	Reclassified to 1st Section of Tokyo Stock Exchange
	Listed on Main Board of Sapporo Securities Exchange

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AIN GROUP'S VALUE CREATION

Value Creation Story

-Dedicated to improving the health and happiness of our customers-

The AIN Group is dedicated to improving the health and happiness of our customers by supporting their health and beauty through its business activities. The Group has consistently strived to attain this goal, which is enshrined in the Group Statement, by taking a sound and ethical approach in all its corporate activities. Going forward, we will seek to grow in

a sustainable way by adjusting and responding to the needs of our customers and all our other stakeholders, while also practicing sustainability management* that creates social, environmental and economic value.

*A management approach based on the idea that contributing to the sustainable development of society also supports the sustainable development of the company

MESSAGE FROM THE PRESIDENT

	Social issues					Demands of
					society
	Super aging society					Primary care
	Dispensing errors					pharmacist system
	Deregulation /					Next-gen pharmacies
	Systemic revision					through digital
	Outbreak of					transformation
	infectious diseases

Materiality

12

5

3

4

6

Contribute to local healthcare

Provide beauty and happiness

Safety, peace of mind and trust

Protect the environment and reduce environmental impact

Ensure sound management base Cooperate with local communities and businesses

Input

Human capital

Diverse, first-class human resources

Social capital

Strong customer base

Trusted by customers, patients and medical institutions

Financial capital

Sound financial structure

Manufactured capital

Nationwide network of pharmacies Network of AINZ & TULPE stores in prime retail locations

Intellectual capital

Accumulated dispensing know-how

Unique store management expertise in the cosmetic and drug store business Store development capabilities

Natural capital, etc.

Business activities

Create shared value through

business activities

Dispensing pharmacy business

Cosmetic and drug store business

Strengthen management capital

that supports value

Human resources strategy and respect for

human rights

Digital transformation strategy

Financial strategy

Output

Financial factors

	Net sales		ROA
¥358.7 billion	4.2%
	Ordinary profit		ROE
	¥17.0 billion	7.5%
	Profit attributable to		Dividend payout
	owners of parent		ratio
	¥9.2 billion	22.8%

Non-financial factors

1. Environment

	CO2 emissions (GHG) of the Group
	Scope 1	1.1 thousand t-CO2
	Scope 2	18.0 thousand t-CO2
	Scope 3	667.9 thousand t-CO2
S	Social
	Number of			Average		Full-time
	primary care	monthly		employee
	pharmacists	overtime per		turnover
					employee		ratio
2,084			5.2 hours	8.2%
G	Governance
	Ratio of independent		Ratio of female
	outside directors			directors
36.4%			36.4%

*For fiscal 2023 / as of April 30, 2023 Governance data is as of November 30, 2023

Outcome

Aim to be a company that people welcome to their communities

Contribute to a sustainable society

Contribute to the achievement

of SDGs

Co-creation with stakeholders

Sustainably increase

corporate value

Reinforce earnings capabilities

Expand the business

Strengthen management capital and competitive advantages

Evaluation by and communication with customers, business partners, communities

Improve level of stock market appraisal

AIN GROUP'S VALUE CREATION VALUE CREATION STRATEGY

SUSTAINABILITY

INFORMATION

Group Statement

Corporate governance / Risk management / Internal control and compliance

Improve level of external appraisal etc.

13

14

AIN GROUP'S VALUE CREATION

Materiality

The AIN Group is committed to achieving sustainable development with society in order to meet the expectations and requests of customers and all its other diverse stakeholders. We have therefore identified and categorized a wide range of CSR, ESG and sustainability issues and assessed them from two perspectives - degree of importance to the Group and degree of impact on stakeholders - to define the Group's materiality.

Process for defining materiality and formulating action plans

Our stakeholders and materiality

Dedicated to improving the health and happiness of our customers

We have been dedicated to improving the health and	we will seek to grow in a sustainable way by adjusting
happiness of our customers by supporting their health and	and responding to the needs of our customers and all
beauty through our business activities. We consistently	our other stakeholders, while also practicing sustainability
strive to attain this goal by taking a sound and ethical	management that creates social, environmental and
approach in all our corporate activities. Going forward,	economic value.

MESSAGE FROM THE PRESIDENT

In December 2020, we used the following process to		We also established project teams for each area of
define and disclose the Group's materiality and the		materiality. The teams devised initiatives and set KPIs,
supporting value creation story.		which were disclosed in May 2021 and we are currently
		implementing the initiatives to achieve our targets.

[Customers]

Access high-quality services

[Patients]

Stakeholders

[Local communities]

Create a prosperous society for future generations

AIN GROUP'S

Step 1

Explore a wide range of social issues

Refer to ISO 26000, the United Nations Global Compact, SDGs and criteria set by ESG assessment bodies to explore a wide range of issues

Step 2

Define materiality

Define the Group's materiality by assessing the importance of issues identified along two lines: importance for the Group and impact for stakeholders

Step 3

Create the Group's value creation story

Organize and finalize the Group's value creation story in line with materiality

Step 4

Take action to achieve the materiality goals

F o r m p r o j e c t t e a m s f o r each area of materiality to implement measures, set and work towards KPIs

Alleviate concerns about health and nursing care

[Employees]

Grow and develop in a stable, motivating workplace

[Shareholders and investors] Back companies with prospects for sustainable growth

[Business partners] Achieve sustainable growth

VALUE CREATION VALUE

Regularly review and adjust

Sustainability governance

Dispensing pharmacy

business
CSV		S

AIN Group's six materiality areas

12

Cosmetic and drug store

business
CSV		S

CREATION STRATEGY

We have formed a Sustainability Committee to establish,		AIN Group's sustainability activities and regularly reports
promote and embed a sustainability management		and puts forward proposals on key matters to the Board
system across the Group. The committee discusses		of Directors. The committee also utilizes Management
and determines policies and measures related to the		Meetings to promote sustainability throughout the Group.

Contribute to local	Provide beauty
healthcare	and happiness

Board of Directors

Supervise

Report

Sustainability Committee

Committee Chairman: President and Representative Director

Committee Vice Chairman: Representative Senior Managing Director

Members: 19

	Promote
							Management
Management Meetings
			Office
Divisions, Businesses,			Sustainability
Group Companies			Management Department
	Promotion
					support

Key sustainability issues discussed by the Board of Directors in fiscal 2023

Setting CO2 emission reduction targets and disclosure based on TCFD recommendations

Establishing tax policies and anti-bribery/anti- corruption policies

Formulating CSR Procurement Policy and Guidelines

Conducting employee engagement survey

Progress with KPIs and initiatives related to materiality (mid-term and term-end)

5

See pages 27-30

3

Ensure sound

4

See pages 23-26

management

Business process

base

Business process

S

Safety, peace of

Protect the environment

E

and reduce

SDG preamble Human

mind and trust

environmental

rights for all people

impact

6

See pages 23-26

See pages 41-43

Cooperate with local

Management base

communities and

G

businesses

SDG preamble Human

Local communities

and businesses

S

E

rights for all people

CSV

Creating Shared Value

E

Environment

S

Social

See pages 31-38,45-50

See page 44

G

Governance

SUSTAINABILITY

INFORMATION

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16

AIN GROUP'S VALUE CREATION

Special Feature Dialogue with Experts (Held in July 2023)

Implementing effective sustainability management amid drastic changes in the business environment

Profit-making activities and sustainability management are two core business activities

Toshihiko Goto	Mari Kogiso	Toshihide Mizushima	Rieko Kimei
Chief Executive of	Co-CEO of SDG Impact	Representative Senior	Director,
Sustainability Forum Japan	Japan Inc.	Managing Director	Division Manager of
	Executive of Sustainability	Committee Vice Chairman	Personnel
	Forum Japan	of Sustainability Committee

Nobuyuki Takakura	Hideki Fujiwara	Hisashi Yoshioka	Reiko Ueki
Director,	Senior Executive Officer,	Department Manager of	Department Manager of
In charge of Risk	Division Manager of	Personnel	Sustainability Management
Management	Operational Support

MESSAGE FROM THE PRESIDENT AIN GROUP'S VALUE CREATION VALUE CREATION

Please tell us about the global sustainability and ESG trends, and how they are incorporated into your business strategies.

Mr. Toshihiko Goto (hereinafter referred to as Goto)

In June 2023, the International Sustainability Standards Board (ISSB) announced two standards related to sustainability in general (IFRS S1) and climate change (IFRS S2). In response, the Sustainability Standards Board of Japan (SSBJ) under the Financial Services Agency is scheduled to formulate Japan's domestic standards by the end of

the needs of global investors, but it may be difficult for operating companies to decide how much disclosure should be made at their discretion.

In any case, as international standards have now been established, companies' serious efforts will be important going forward.

Ms. Mari Kogiso (hereinafter referred to as Kogiso)

As Mr. Goto has pointed out, we recognize that the market is still rocking when it comes to corporate sustainability disclosure. Meanwhile, in Europe, among ESG investments, there are funds called Article 9 Dark Green funds, which also set the goal of

and happiness of its customers. I feel that the story will be easier to understand if you go into further detail on how this value creation story will lead to the expansion of your business and profit generation.

Goto It is no exaggeration to say that the

TCFD, which is proposed internationally, is not only about risk management, but also a business strategy itself. We have entered an era in which the perspective of how an operating company makes

profit and implements sustainability management are questioned as a single concept.

While your company endorses the TCFD recommendations, considering that sustainability standards are about to be formulated in Japan, companies are at the cusp of sustainability management right now.

STRATEGY

SUSTAINABILITY

the year.

creating an impact on society, and are attracting an

Gathering opinions from young employees, relayed by upper management

The problem in Japan is that, at present, it is not clear to what extent information disclosure is obligatory. While Europe is moving toward making extensive disclosure mandatory, the extent to which reporting will become mandatory in Japan will significantly change the responses of operating companies in the future. Generally, mandatory disclosure narrows the range of mandatory disclosure items. If the scope is narrow, not only will it not meet

inflow of cash. In other words, investors are expecting companies to not only disclose their ESG figures, but also to properly analyze and disclose the impact of their businesses on society.

To do so, they will likely need to develop a value creation story that outlines how their sustainability management will lead to profit.

Your company has put forth a value creation story of being dedicated to improving the health

Mizushima We are aware that the role of companies has come into question at a more fundamental level.

We did not originally have a company motto or corporate philosophy, but our founder, President Ohtani, has been conveying the importance of being sincere and humble since the Company's founding, and the employees who were working together naturally absorbed this view. However, as

the size of the Company has grown, employees have fewer opportunities to interact with the President. Therefore, in 2012, we created the Group Statement. The Group Statement summarizes the ideas, values, and purpose that are important to the Group, asserting that employees are the central players to the Company becoming a leading corporate group that continues to evolve for stakeholders. I thought it

INFORMATION

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