Interview with the President

As a company that is part of the social

infrastructure supporting Japan’s public

health insurance system and medical

administration, the Alfresa Group aims

for quality growth and the achievement

of its Healthcare Consortium vision

through continued proactive capital and

business investment.

Denroku Ishiguro

As president, tell us about your outlook as you work toward the goal of achieving the

Healthcare Consortium vision, as well as your medium- to long-term vision.

By expanding our business domains, we will strengthen our earnings base, with the aim of

fulfilling our mission as a company that is part of the social infrastructure.

The Alfresa Group conducts its business activities in areas related to medicine, life and health. In particular, our Ethical Pharmaceuticals Wholesaling Business is part of the social infrastructure supporting medicine and people’s health. I believe the market for ethical pharmaceuticals will see stable growth for the time being due to the aging of the population and the release of new drugs. At the same time, however, Japan’s working-age population has continued to fall, and is expected to fall further, and thus in the long term, any dramatic growth in the market may be difficult. In addition, because Japan’s National Health Insurance (NHI) system is financed by the people of Japan via their taxes, the need to maintain the nation’s social security system in robust condition makes it difficult to allow ethical pharma-ceutical wholesalers supporting the social infrastructure to excessively pursue profit.

Given those conditions, the Alfresa Group must move forward to further evolve and streamline its pharmaceutical distribution operation while seeking out new business opportunities beyond domestic ethical pharmaceutical

distribution and making every effort to foster high-added-value business domains. In this way, the Group will strengthen its earnings base to maintain the reliable, safe and sincere distribution of ethical pharmaceuticals, etc., and to continue growing as a corporate group responsible for supporting the social infrastructure. Under our current medium-term management plan, we are validating our efforts by achieving several track records in gaining new business capabilities in new business areas, for example, in the manufacturing of active pharmaceutical ingredients (APIs) and in our business overseas.

Through these efforts to strengthen our earnings base, we intend to provide society with products and services in every medical-, life- and health-related field as a “Health-care Consortium,” thus achieving “Our Philosophy” which states, “We create and deliver a fresh life for all.” To fulfill its social mission, the Alfresa Group will continue moving for-ward tofor-ward becoming a social infrastructure company backed by a strong earnings base.

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Rapid Changes in the Future Population Structure

127.08 116.62 86.74 150 100 50 0 45 (Million people)

Aged 14 and below Aged 15~64 Aged 65 or above Percentage of elderly (aged 65 or above) (%) 30 15 0 77.85 Decrease: 10.12 million Rapid decrease: 23.55 million 16.23 33.00 67.73 12.04 36.85 34.64 26.0 31.6 39.9 7.91 44.18 Source:

“Population Estimates” by the Ministry of Internal Affairs and Communications; “Population Projections for Japan (January 2012)” by the National Institute of Population and Social Security Research; “Vital Statistics”

What kind of year was the fiscal year ended March 31, 2015 for your company as

a leader of the ethical pharmaceutical wholesale industry?

While market conditions were challenging, our efforts at implementing distribution reforms

delivered results. Capital and business investment toward achieving our Healthcare Consortium

vision also continued unabated.

Conditions in the ethical pharmaceutical market surround-ing the Alfresa Group grew even more challengsurround-ing in the fiscal year ended March 31, 2015.

The Group saw some impact from the lowering of NHI drug prices in the spring of 2014, and from the rapid spread of measures to encourage the use of generic drugs. Con-straints on hospital visits were also seen, in part due to a reaction to the surge in demand prior to the April hike in the consumption tax, and poor weather in the first half of the fiscal year. Due to these factors, the market for ethical pharmaceuticals contracted for the first time in 17 years, with negative growth of 2.7%.

The Alfresa Group continued to strengthen its efforts to achieve the management targets, and thereby increase corporate value, set forth in “13–15 Medium-term Manage-ment Plan—The Challenge of Reform ~Uniting to Climb

New Peaks~,” which concludes with the fiscal year ending

March 31, 2016. For the fiscal year ended March 31, 2015, consolidated net sales were ¥2,421,162 million,

down 3.3% year on year, while operating income fell by 16.4% year on year to ¥29,229 million and net income was down 10.3% year on year to ¥22,923 million.

At the same time, we did see progress in the industry’s most important issue, distribution reforms, including “eco-nomically rational transactions,” “separate pricing for each product,” and “reform of the practice of deliveries prior to price agreements.” By carefully explaining these issues to our customers and gaining their understanding, efforts in these areas have become considerably more widespread. We intend to work hard to ensure they become even more firmly established.

To achieve the Healthcare Consortium vision, the Alfresa Group needs to provide products and services across all health-related fields through forming strategic partnerships with other firms and expanding its business domains in addition to providing stable distribution of pharmaceuticals. I believe we were successful in ensuring that capital and business investments toward that goal continued unabated.

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What are some of the specific efforts you’ve made toward achieving the Healthcare

Consortium vision?

In each of our areas of business, we have accelerated our efforts to expand our business and

geographic scope.

In order to achieve future growth, in the fiscal year ended March 31, 2015, our efforts focused on expanding our business and geographic scope.

In the Ethical Pharmaceuticals Wholesaling Business segment, SEIWA SANGYO CO., LTD. and Tokiwa Yakuhin Co., Ltd., both consolidated subsidiaries, were merged, with an effective date of April 1, 2015, and the new company

has changed its name to TS Alfresa Corporation. The new company will work with a wide range of manufacturers to provide ethical pharmaceuticals as well as medical devices, providing its customers with total support while also working to streamline distribution and strengthen marketing opera-tions with even closer ties to the local community. Further, on October 1, 2014, the diagnostic reagents wholesaling

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Interview with the President

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The Alfresa Group is also moving ahead with efforts to restructure distribution. By rebuilding distribution functions and marketing operations in the Kansai area, the Group will work to strengthen customer service and achieve low-cost operations.

In Okinawa Prefecture, the dual-purpose complex with the head office and distribution center of RYUYAKU CO., LTD. started operations in January 2015, achieving the safe and reliable supply of pharmaceuticals by introducing an earthquake-resistant structure and power outage counter-measures and improved productivity through more efficient distribution operations. The new facility also enables enhancement of low-cost operations by utilizing energy-saving equipment.

In August 2014, Alfresa Corporation began offering a vaccination schedule management system targeting medical institutions and the guardians of infants, in order to contrib-ute to improvements in infant vaccination safety.

In the Self-medication Products Wholesaling Business segment, in October 2014, Alfresa Healthcare Corporation acquired all of the shares of Mogi Pharmaceutical Co., Ltd., a group company of Matsumotokiyoshi Holdings Co., Ltd. The goal of the acquisition is to utilize Mogi Pharmaceutical Co., Ltd.’s business assets and expertise regarding the healthcare wholesaling business in the drug store field to

a new Delivery Center was completed and began operation at Alfresa Pharma Corporation’s Okayama Pharmaceutical Plant. This completes the rebuilding of the plant’s drug formulation, packaging and delivery center facilities, giving it a consistent line from production through distribution, and ensuring a more sophisticated ability to supply high-quality products.

In addition, Alfresa Fine Chemical Corporation, which began business in April 2015, was turned into a wholly owned subsidiary when Alfresa Pharma Corporation took over Daiichi Sankyo Propharma Co., Ltd.’s Akita Plant. This represents the Alfresa Group’s first site for the manufactur-ing of APIs for ethical pharmaceuticals. With advanced manufacturing and quality control systems in place, the Group will continue to provide a stable supply of products, and work to strengthen the API business into a new core component of the Manufacturing Business.

As part of the expansion of our business scope through progress in our development as a Healthcare Consortium, in the fiscal year ending March 31, 2016, we have established a new Medical-related Business segment. In this segment, the Group will strengthen the business bases of Apollo Medical Holdings Inc. and Nihon Apoch CO., LTD., both of which are engaged in the dispensing pharmacy business, and realize increases in corporate value.

Diagnosis, Treatment

Cure

Self-medication

Manufacture

Wholesale

Retail

How exactly are these efforts to expand your business and geographic scope

useful in strengthening the business base of the Alfresa Group?

Speaking of social responsibilities, your medium-term management plan also includes

the promotion of CSR. Tell us about the purpose of CSR activities at the Alfresa Group.

Through expansion of the business and geographic scope, the Group achieves quality growth,

enabling it to balance, at a high level, strengthening of its business base and execution of its

social responsibilities—the twin drivers of its management.

At the Alfresa Group, which is involved in business directly related to human lives,

we believe that our business activities themselves partly entail CSR elements.

The Alfresa Group conducts business across a wide range of health- and medical-related fields, and is part of the social infrastructure supporting Japan’s public health insurance system and medical administration. It is extremely important that we ensure the solid execution of our social responsibili-ties through the stable supply of pharmaceuticals.

While one goal of our efforts to expand our business and geographic scope is the achievement of the Healthcare Consortium vision, at the same time these efforts are not just a matter of growing in scale. Our aim is to achieve qual-ity growth, thereby strengthening the Group’s business base

and financial standing. To that end, we not only look at organic growth, but proactively engage in efforts to take advantage of M&A and other measures. By acquiring the foundations for growth, maintaining quality growth into the future and building a more robust structure, we can take our ability to provide a stable supply of pharmaceuticals to an even higher level and enrich the Healthcare Consortium even further.

By achieving quality growth, the Alfresa Group will bal-ance, at a high level, the strengthening of its business base and execution of its social responsibilities.

Businesses related to health and medicine are character-ized by their direct involvement in human life. This is why we believe that our business activities themselves partly entail CSR elements.

Since the founding of the Alfresa Group, we have worked to fulfill our social mission by continuing to pro-vide the safe and reliable distribution of pharmaceuticals, sincerely and with stability. The true value of the Group’s infrastructure for providing a stable supply of pharmaceu-ticals will be particularly tested in the case of events that have a significant impact on the social infrastructure, including major natural disasters or the outbreak of infectious diseases. At the time of the 2011 Great East Japan Earthquake, the entire distribution network was

affected, but the Group worked together to ensure the stable supply of pharmaceuticals, and contributed to medical care in the disaster-stricken region. Each of the Group companies has established its own business continuity plan, and worked to share information infra-structure and improve the distribution system regularly in preparation for unforeseen events. By establishing this robust business base, we believe the Group is better prepared to fulfill its own social responsibility to provide safe and reliable distribution of pharmaceuticals under any circumstances. The Group creates value through its health- and medical-related business activities, and endeavors to contribute in some way to enhancing Japan’s social welfare.

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share in this awareness, I think it will enhance even

To conclude, please tell shareholders and investors in the Alfresa Group about

your stance on shareholder returns and dividends.

We consider returning profits to shareholders to be one of the most important priorities of

manage-ment. We implemented a four-for-one stock split, thereby increasing the liquidity of our shares.

New investments are necessary for the further develop-ment of the Healthcare Consortium vision. The stable procurement of funds for these investments requires the understanding of our shareholders and investors. In addition to carefully explaining the Group’s corporate value, we would also like to be proactive in communicating our capital and dividend policies.

The Company determines dividends based on consoli-dated financial results, with a target of a dividend on equity (DOE) ratio of 2%, comprehensively con-sidering the enhancement of its financial standing, the stability of its management base and future business development.

In the fiscal year ended March 31, 2015, the Company conducted a four-for-one stock split with an effective date of September 30, 2014, lowering the amount per unit of investment with the goal of making it easier for shareholders and investors to invest.

A year-end dividend of 16 yen per share was decided upon, and combined with an interim divi-dend of 13.75 yen per share*, this resulted in a full-year dividend of 29.75 yen per share*.

Regarding dividends for the coming fiscal year, under its basic policy, the Company plans to pay an interim dividend of 16 yen per share, followed by a year-end dividend of 16 yen per share, for a full-year dividend of 32 yen per share, an increase over the previous fiscal year.

We ask for the continued support of our shareholders and investors, and will do our utmost to meet your expectations.

* After consideration of the stock split

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