Corporate Overview / Business Strategy in Jun. 2017
Who is cocokara fine Inc.? 1
Group Overview Scale of operation JPY 377.2 bn. cocokara fine Inc. 9% 1% Sales Composition by Business Segment origin of the company name We hope everyone s Cocoro (mind) and Karada (body) are fine. 13% 77% Drugstore Pharmacy Wholesale Nursingcare service JPY 290.1 bn. Drugstore Operations JPY 48.9 bn. Pharmacy Operations JPY 2.4 bn. Nursing care services Top-rated pharmacy operations in the drugstore industry JPY 35.6 bn. Wholesale E-Commerce International Business FY03/17 Results 2
Cocokara Fine Group Overview (as of Jun.30,2017 ) cocokara fine Inc. Drugstore and Pharmacy operations,wholesale cocokarafine Healthcare Inc. Drugstore and Pharmacy operations,wholesale Became subsidiary in November 2013 Became subsidiary in February 2017 IWASAKI KOHKENDO Co., Ltd. Drugstore operations Toho Chozai Y.K. Pharmacy operations Became subsidiary in April 2017 Koshi Pharmacy Y.K. Drugstore and Pharmacy operations Nursing care services Others FINECARE Inc. Nursing care services Became subsidiary in April 2016 Yamamoto Service Co.,Ltd. Nursing care services cocokarafine Associe Co., Ltd. Operations involving the deployment of a diverse range of human resources cocokarafine Next Co., Ltd. Overseas operations centered on product exports cocokarafine soleil Co., Ltd. Special subsidiary dedicated to employment of people with disabilities SHANGHAI COCOKARA FINE INC. Retail operations for health and beauty care products in China 3
Management Principle Management Principle To pursue the health of mind and body, and to contribute to the community. Corporate Slogan Becoming Omotenashi No.1 Management Policy Establish a community-based healthcare network. Foster competent human resources that can satisfy society s needs 4
Industry Ranking in Japan Sales No.7 Rank Drugstore FY bn. JPY 1 MatsumotoKiyoshi 2016/03 536.0 2 WELCIA 2016/02 528.4 3 TSURUHA 2016/05 527.5 4 SUNDRUG 2016/03 503.7 5 COSMOS 2016/05 447.2 6 SUGI 2016/02 414.8 7 cocokara fine 2016/03 373.2 8 CAWACHI 2016/03 260.6 9 CREATE SD 2016/05 231.8 10 Kusuri no Aoki 2016/05 163.4 Dispensing fees (Drugstore industry rankings) Rank Drugstore bn. JPY No.4 1 WELCIA 76.4 2 SUGI 69.6 3 TSURUHA 53.7 4 cocokara fine 50.2 5 MatsumotoKiyoshi 40.6 Number of stores No.4 Rank Drugstore Store 1 TSURUHA 1,667 2 MatsumotoKiyoshi 1,545 3 WELCIA 1,472 4 cocokara fine 1,307 5 SUNDRUG 1,027 *Source: gekkan-md,oct.2016 Stores that dispense over 1,000 prescriptions per month No.1 Dispensing fee-to-sales ratio (excl. nursing care and wholesale) Dispensing fees per store 14.4% JPY 216mn *Source: Drug Store Magazine, July 2016 5
Over 1,300 stores in The Higher Populated Area in Japan 4rd Largest Network in the Industry 1,304stores Number of dispensing stores:249 Hokkaido 28stores Tohoku Cluster Urban drugstores 154stores Drugstores in shopping streets 319sores Kansai 7stores Drugstores in residential areas 371stores 411stores Chugoku 126stores Kantou& Koushinetsu 445stores Community Drugstores 214stores Shikoku Tokai& Hokuriku 214stores Osaka Nagoya Tokyo Kyushu& Okinawa 19stores 97stores Many of our stores are located in major metropolitan areas (as of Mar. 31,2017) 6
Corporate History cocokara fine Inc. (Listed on TSE1) Other M&A activity Sep.2010 Iwai Co., Ltd. Apr.2008 Seijo and Segami merged and established cocokara fine Holdings, listed on TSE1 Jan.2011 Aug.2011 Oct.2011 SO Pharmaceutical Corporation Medical Index Co., Ltd. Suzuran Co., Ltd. Oct.2010 Nov.2012 Apr.2013 Nov.2013 Apr.2016 Feb.2017 Apr.2017 Cocokara fine Holdings and Allied Hearts Holdings merged. Changed the trade name to cocokara fine Inc. Acquires all outstanding shares in KODAMA Co., Ltd., an operator of drugstores and pharmacies with a focus on Niigata Prefecture, and makes it a subsidiary. Integrated sales subsidiaries*. Unified store operation systems, backbone systems, and promotional measures, thus eliminating differences among the sales subsidiaries. Acquires all outstanding shares in IWASAKI KOHKENDO Co., Ltd.,an operator of drugstores in Yamaguchi Prefecture, and makes it a subsidiary. Acquires all outstanding shares in Yamamoto Service Co.,Ltd.,an provider of nursing care and at-home care service in Setagayaku,Tokyo,and makes it a subsidiary. Acquires all outstanding shares in Toho Chozai Y.K., an provider of dispensing pharmacy business, and makes it a subsidiary. Acquires all outstanding shares in Koshi Pharmacy Y.K.,an operator of drugstores and pharmacy in Shimane Prefecture,and makes it a subsidiary. Dec.2011 Riha Works Ltd. Dec.2011 Genki Co., Ltd. Sep.2012 ABC Drug Co., Ltd. Jun.2013 Kusurinoebina. Aug.2013 Kojido Co., Ltd. Jun.2016 Kobe maruzen Co., Ltd. Sep.2016 Toyoyakuhin Co.,Ltd. * Integration of our sales subsidiaries in Apr. 2013 Drugstore Operations Drugstore Operations 7
Drugstore Industry in Japan 8
Drugstore Industry in Japan 1961 1974 1975 1990 2002 Universal care Start separation of pharmacy and clinic Distance restrictions on pharmacies were abolished Drugstores appeared Government statistical document adds a Drugstore category Pharmacies General sales stores prescription Hospitals Business conditioned Dispensing pharmacies Openings accelerated Drug stores - Expand range of goods - Discount sales of cosmetics, etc. Rate at which dispensing separated from prescribing 1990 12.0% 2015 70.0% Number of Drugstores 18,874 Drugstores & Dispensing market size & approx 調剤薬局 14 trillion JPY Number of Dispensing Pharmacies 58,326 9
Environments - Super aging society - 25 20 15 10 5 0 Rapidly aging population in Japan 30 (%) Population aged 65 or over Growth in national medical spending in Japan Outlook for national medical expenses and elderly medical expenses (Trillion yen) 60 50 40 30 20 10 0 National medical spending 16 4.1 20.6 5.9 27 8.9 30.1 33.1 Elderly medical expenses 37.4 41.5 11.2 11.6 12.8 15.2 47.2 19.7 52.3 24.1 22.5% in 2010, expected 30.2% in 2025 (Statistics Bureau) The national medical expenses are expected to reach JPY 52.3 trillion by Fiscal 2025 (Ministry of Health, Labour and Welfare, Japan) Note: Elderly medical expenses for Fiscal 1985 to Fiscal 2000 start at age 70; in Fiscal 2005, elderly medical expenses start at age 79 through September and start at age 74 for the remainder of the year; for all subsequent years, elderly medical expenses start at age 75. 10
Environments - Healthcare Reforms - (Former Japanese healthcare system) Hospital-Oriented Go to the hospital as soon as you become sick! Health care reforms by Japanese government over the recent years Reduced Medical Treatment Expenses Reduction in Prescription drug coverage costs Self-pay ratio of medical expenses are increasing. It costs more to go to the hospital. The geriatric health care system was revised. From hospitalization to in-home / facility nursing care due to a reduction in beds in hospitals An increasing need for community healthcare Switched OTC Drug Drugs that were available only by prescriptions can be purchased at pharmacies. Generic drugs came into wide use Costs of drugs became lower. Self-Medicated Healthcare I protect my health by myself. Drugstores and dispensing pharmacies became receptacles for society needs Expand markets related to Prevention & Self-healthcare 11
Direction of cocokara fine 12
Three Functions Desired of Drugstores Drugstore Industry Specialization Counseling-oriented Drugstore Communication between store staff and customers Cooperation with medicine, centered on dispensing pharmacies * CS: convenient stores * SM: supermarkets * HC: home centers Low-Price Discount Drugstore Refined product selection Reducing personnel expenses Accessibility Convenient Drugstore Expanding product selection and store size Providing new services To be the community healthcare Infrastructure promoting an intimate relationship to the community by pursuing convenience & high expertise. 13
We will meet peoples overall health related needs cocokara fine s Business Fields We expand fields by enhancing, expanding dispensing and nursing care businesses Drugstore Dispensing Pharmacy Nursing Care Health Prevention Potential Illness Illness Nursing Care Terminal Care Sales of health food & drugs Health advice Nutrition consultation Introduction of cancer screening Registered drug seller Nutritionist Pharmacist Dispensing House call dispensing Nursing care manager Facility nursing care In-home care Home nursing Nurse 14
Business Strategy 15
Mechanisms to Utilize Customer Opinions in Management Customer consultation center a call center for customers staffed by some 20 people Call center Method of collecting opinions Annual (March 2017) E-mails 4,182 Telephone calls 23,054 Line of reporting that goes directly to the president Postcards 791 Total 28,027 Flow to utilize customer opinions (Cases) Customer service at XYZ store is poor What are the operating hours of XYZ store? Mr. ABC at XYZ store is very kind The staff s comment on XYZ made me feel great! I wish there was this type of service available... I wish there was this type of product available... Customer opinions Information aggregation Sharing issues and finding solutions Horizontal dissemination Call center Coordinated by Management Strategy Headquarters, issues are shared and solutions deliberated with relevant departments Horizontal dissemination to stores nationwide through omotenashi (customer care) realization groups / store guidance Employee education Store manual updates Operation improvement Providing new services New product development Cooperation with other companies Omotenashi realization groups Analyze customer feedback, propose improvements, implement these and verify effects 16
Product Strategy value-added private brands VIVCO Through cooperation with Kyushu University, a research team led by Professor Masahiro Goto developed the added-value beauty care product VIVCO that utilizes S/O technology, the latest patented technology that increases permeability S/O technology Derived from medical technology research to deliver antidiabetic drugs and other active pharmaceutical ingredients (typically administered through injections) via the skin, thus reducing the burden on patients. Prof. Masahiro Goto, Kyushu University High permeability Vitamin C Hesperidin Development of prescription drugs High stability Hyaluronic acid VIVCO is a hit product with cumulative sales for the series exceeding 1mn units. 17
Product Strategy Private-brand products Sales ratio of PB products 9.3%(FY03/17) general private brands Quality NB = PB (same) Price NB > PB (low price) NB = National brand PB = Private brand value-added private brands Discover latent needs through customer relations,and develops new products general private brands Contact with customers through service and presentation abilities of staff trained by the Company, leading to realization of sales Not only sales at company stores, but also wholesale to overseas and other companies 18
Customer strategy cocokara club card Sales composition within total drugstore product sales 100% Member sales composition maintaining high level(76%) 80% 60% Active members* 700mn over Member sales composition 76% Prepaid payment sales composition 20% (Data as of FY03/17) 40% 20% 0% Prepaid payment sales composition grew to 20% *Active members: The number of card members who made purchases within the previous year 19
Customer strategy Expanding interaction with customers and providing highly convenient services Far Distance to Cocokara Fine Near Does not know / does not use Knows, but does not use Visitor (Use occasionally) Member Loyal Customer (Uses all services) Analog promotion (Flyers) External online media Useful information OKwave Twitter Card member registration Cocokara Club Site (customer site) Store information App download Product information Facebook Member sales composition 76% 20% Target of 400,000 E-commerce functions Prepaid charging Target of My Store registrations 200,000 My Store sales promotion, Double day, flyers, exclusive coupons Positioning More than a Friend, Less than a Doctor Member functions Prepaid payment sales composition ID-POS, IoT App usage log Site usage log Card members App members My Store registrations Cocokara Club - Magazine - Usage of member functions - Usage of e- commerce functions Promotion to individual customers 20
Internet Sales Measures Feature : For safety and peace of mind of customers Creating a framework that will allow customers to choose medication with a peace of mind Pharmacists are available on Saturdays, Sundays, and holidays to consult with each customer Points are linked with club cards used at stores TOPICS1: Initiatives with Japan Post (Announced February 2015) Mail order business for medical products and household goods, etc., with Japan Post Co., Ltd., in order to improve the local life infrastructure. (Number of bases) 24,000 1,300 TOPICS2:Initiatives with Amazon (started in April 2017) Offering products to Amazon Prime members via Amazon s Prime Now service (products delivery within an hour at the earliest) to enhance convenience for local customers 21
Anytime, Anywhere, Anyone, cocokara fine Store Product reservation service (app) I ll reserve a product that I need to buy today E-mail Individual sales promotion I was just wondering about that new product! E-commerce Buy online, in-store pickup I can buy medicine anytime, how convenient I received my medicine without waiting using the prescription app Pharmacy Prescription service (app) Customer I can instantly search for products that are right for me Website Product search A discount coupon for that new product I m interested in! Apps Coupons (app) 22
Further Store Productivity Improvements ICT deployment to improve in-store work efficiency and added value Price adjustment via the POS Use of a PC in the store office for product searches and viewing sale histories Use of a PDA on the sales floor for ordering Increased in-store work efficiency In-store movement = inefficient Jun.2016 Device unification Set up in-store Wi-Fi network Considered introduction of apps to increase efficiency of in-store functions Launch of Aoi app Price adjustment Daily work reduction of 20 minutes per store Annual efficiency gain of about 150,000 hours Promotion Eg. Product explanation, videos, skin diagnosis, etc. Viewing sale histories Ordering Reduction in opportunity losses 10% decrease in inventory shortages Payments Eg. Payment option not using a cash-register Member Information Eg. Simplified support for special orders Further advances Automated orders Measures to counter losses Knowledge sharing Eg. Internal use of social networking services 23
Pharmacy Strategy Dispensing Fees JPY502bn (Drugstore industry rankings) No.4 Dispensing fees per store JPY216mn (Listed drugstore companies) No.1 (Drugstore industry rankings) Stores that dispense over 1,000 prescriptions per month 184stores No.1 Source: Drug Store Magazine, July 2016 Total number of facilities:249 (Specialized in dispensing:147 Drugstore with dispensing:102) as of Mar. 31,2017 Dispensing fee-to-sales ratio (Excluding nursing care and wholesale) 14.4% FY03/17 24
Pharmacy Strategy Promotion of the Health Support Pharmacy Focus on training of family pharmacists, advance standardization and streamlining of operations 1) Enriching self-health management functions via implementation of health monitoring stations and health consultation meetings, etc., including advice on self-medication and improving overall quality of life 2) Expansion of house call dispensing and cooperation with nursing House call dispensing stores FY03/16137stores 200 150 100 House call dispensing stores House call dispensing stores FY03/17187 stores 50 0 3) Fostering specialized pharmacists and dedicated staff that can support dementia, diabetes, and cancer patients 4) Expanding product sale functions in dispensing pharmacies FY03/16 Product sales 123% YoY FY03/17 Product sales 120% YoY 25
Nursing care Business Strategy Developing broad nursing care operations Assisted living senior housing Operates one facility in Sayama City, Saitama Assisted-living nursing home Short stay Day service At-home nursing base Home-visit nursing care In-home long-term care support Others Operate one facility in Kiyose City, Tokyo Operates one facility in Saitama Operates five day-service facilities in Tokyo and Saitama, six rehabilitation-type facilities in Tokyo and Saitama Operates five facilities in Tokyo and Saitama Operates five facilities in Tokyo and Saitama Operates five facilities in Tokyo and Saitama School business, sales and rental of nursing care equipment,elder-care taxi, housing renovation Assisted-living nursing home Finecaregarden Kiyose Strengthening support for at-home healthcare Strengthening rehabilitation-centric daytime care services Day Service Genki Kurabu Kokubunji Day Service Genki Kurabu Higashifuchu Rehabilitation Riha Day Bonnar Tama Center Rehabilitation Riha Day Bonnar Fuchumiyoshicho At-home Nursing / Home-Visit Nursing Operations Upfront investment to secure nurses, etc. Yamamoto Service Co. Ltd. (operates an homevisit nursing care business in Tokyo's Setagaya Ward) converted into a subsidiary 26
Establish healthcare network Model of SAYAMA E-commerce (cocokara club) Drugstore of our group (Sayamadai store) Hospitals and Clinics at the area At-home nursing care (FINECARE Inc.) Pharmacy of our group (Sayamagaoka pharmacy) Nursing care (FINECARE Inc.) Aozora The operation of assisted living senior housing at Sayama-shi Saitama prefecture that has 95 rooms and Promote creating model of healthcare network 27
Medium-term Plan Medium-term plan through FY03/20. Anytime, Anywhere, Anyone, cocokara fine + Establish a community-based healthcare network. FY03/20 Net sales JPY420bn Ordinary income (Ratio to net sales) JPY22bn(5.2%) FY03/15 FY03/17 Net sales JPY349.1bn Net sales JPY377.2bn Numerical management targets Ordinary income (Ratio to net sales) JPY6.5bn (1.9%) ROA (Ordinary income) 2.2% ROE (Net income) 4.8% Ordinary income (Ratio to net sales) JPY12.5bn (3.3%) ROA (Ordinary income) 8.6% ROE (Net income) 8.7% ROA (Ordinary income) ROE (Net income) 10% or higher 10% or higher 28
Net sales Ordinary income Consolidated Sales & Ordinary Income (Trends and Plan) (Billion yen) 400 350 Net Sales Ordinary Income 321 335 349 349 373 377 390 420 22.0 (Billion yen) 20.0 300 250 200 150 190 256 10.3 13.4 13.7 9.4 13.4 13.8 12.5 15.0 10.0 100 7.0 6.5 5.0 50 0 0.0 29
Shareholder returns DOE Total payout ratio Concept of shareholder returns we will continue to return profits to shareholders in line with business performance, and to consider the total payout ratio and DOE, with the goal of maintaining steady dividends. We will also consider share buybacks based on market conditions, capital efficiency, and our capital ratio. (%) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2.2 DOE Total payout ratio 19.4 300,000 shares Treasury stock purchase 2.1 42.4 146.7 2.0 JPY60 JPY70 Increased Dividend payout 600,000 shares Treasury stock purchase 2.3 62.3 2.1 24.4 FY03/13 FY03/14 FY03/15 FY03/16 FY03/17 Dividend per share (JPY) 60 60 60 70 70 Net assets (JPY mn) 73,417 75,320 75,235 77,955 83,237 Net income (JPY mn) 7,855 3,598 1,658 6,927 7,037 (%) 150.0 100.0 50.0 0.0 30
http://corp.cocokarafine.co.jp/english/ The information published on this book is intended to provide financial data and management indicators on cocokara fine Inc. and its affiliates (hereinafter, "the Company"). Nevertheless, the Company does not make any warranties or statements regarding the content of this information. Some of the information appearing on this book contains mention of the future performance of the Company. These forward-looking statements do not guarantee future performance and include risk and uncertainties. The actual performance of the Company may differ from such statements due to changes in the business environment or other factors. 31