Financial Results for the Fiscal Year Ended May 15, …...TSURUHA Holdings, Inc. (3391) Financial Results for the Fiscal Year Ended May 15, 2020 - 3 - Cash flows from operating activities

Financial Results for the Fiscal Year Ended May 15, 2020 [J-GAAP]

June 22, 2020

Name of listed company: TSURUHA Holdings, Inc. Listed on: Tokyo Stock Exchange, 1st Section

Securities code: 3391 URL: http://www.tsuruha-hd.co.jp

Representative: Jun Tsuruha, President and Representative Director

Contact: Makoto Murakami, Executive Officer and Chief Administrative Officer TEL: +81-11-783-2755

Scheduled date of holding the ordinary general meeting of shareholders: August 11, 2020

Scheduled date of filing the financial report: TBD

Scheduled date to start dividends distribution: July 20, 2020

Supplementary documents for this summary of financial statements: Yes

Explanation meeting for financial results: Yes (Figures shown are rounded down to the nearest million yen.)

1. Consolidated results for the year ended May 15, 2020 (May 16, 2019 – May 15, 2020)

(1) Consolidated operating results (Percentage figures show changes from the previous year.)

Net Sales Operating Income Ordinary Income Net Income Attributable

to Owners of the Parent

Millions of yen % Millions of yen % Millions of yen

enyen

% Millions of yen %

Year ended May 15, 2020 841,036 7.5 45,013 7.6 46,298 6.9 27,899 12.4

Year ended May 15, 2019 782,447 16.2 41,826 4.0 43,313 4.1 24,824 0.1

Note: Comprehensive income: Year ended May 15, 2020: ¥37,561 million (67.7%) Year ended May 15, 2019: ¥22,395 million (-32.3%)

Net Income per

Share

Diluted Net

Income per Share

Return on

Shareholders’

Equity

Ordinary Income

to Total Assets

Operating Income

to Net Sales

Yen Yen % % %

Year ended May 15, 2020 576.85 574.80 12.7 11.8 5.4

Year ended May 15, 2019 513.84 511.70 12.5 12.2 5.4

(Reference) Equity in earnings of affiliates: Year ended May 15, 2020: ¥- million Year ended May 15, 2019: ¥- million

(2) Consolidated financial position

Total Assets Net Assets Shareholders’ Equity

Ratio Net Assets per Share

Millions of yen Millions of yen % Yen

As of May 15, 2020 414,002 250,934 56.4 4,821.26

As of May 15, 2019 372,293 220,214 55.0 4,238.15

(Reference) Equity capital: As of May 15, 2020: ¥233,389 million As of May 15, 2019: ¥204,922 million

(3) Consolidated cash flows

Cash Flows from

Operating Activities Cash Flows from

Investing Activities Cash Flows from

Financing Activities

Cash and Cash Equivalents at End of

Year

Millions of yen Millions of yen Millions of yen Millions of yen

Year ended May 15, 2020 40,636 (16,927) (10,473) 56,935

Year ended May 15, 2019 33,701 (24,990) (9,136) 43,700

http://www.tsuruha-hd.co.jp/

2. Dividends

Dividends per Share

Total Dividends

(annual)

Dividends

Payout Ratio

(consolidated)

Dividends on

Net Assets

(consolidated)

First

Quarter

-end

Second

Quarter

-end

Third

Quarter

-end

Year-end Annual

Yen Yen Yen Yen Yen Millions of yen % %

Year ended May 15, 2019 ― 73.00 ― 75.00 148.00 7,155 28.8 3.6

Year ended May 15, 2020 ― 74.00 ― 93.00 167.00 8,080 29.0 3.7

Year ending May 15, 2021

(Forecast) ― 83.50 ― 83.50 167.00 29.9

3. Consolidated financial forecast for the fiscal year ending May 15, 2021 (May 16, 2020 – May 15, 2021)

(Percentage figures show changes from the same period in the previous year.)

Net Sales Operating Income Ordinary Income

Net Income

Attributable to Owners

of the Parent

Net Income per Share

Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen

First six months 424,400 1.9 21,550 (9.3) 22,193 (9.2) 13,480 (13.3) 278.53

Full year 860,000 2.3 45,200 0.4 46,484 0.4 27,000 (3.2) 557.89

* Notes

(1) Significant changes to subsidiaries during the term (Transfers of specific subsidiaries with changes in the scope of consolidation): None (2) Changes in accounting policies, accounting estimates and restatement of revisions

1) Changes in accounting policies due to revision of accounting standard, etc.: None

2) Changes in accounting policies other than 1): None

3) Changes in accounting estimates: None

4) Restatement of revisions: None (3) Number of outstanding shares (common stock):

1) Number of shares issued and

outstanding (including treasury stock) As of May 15, 2020 49,282,868 shares As of May 15, 2019 49,237,968 shares

2) Number of treasury stock As of May 15, 2020 886,255 shares As of May 15, 2019 886,098 shares

3) Average number of shares issued and

outstanding in each period Year ended May 15, 2020 48,365,452 shares Year ended May 15, 2019 48,312,034 shares

* This kessan tanshin document is outside the scope of audit procedures conducted by certified public accountants or the

independent auditor.

* Explanation of appropriate use of financial forecasts and other special items

The forward-looking statements in this document, including forecasts, are based on information available at the time of disclosure and on

certain assumptions deemed to be reasonable by the Company. Actual results may differ materially from forward-looking statements due to

a number of factors. For more details about these assumptions and other conditions that form the basis of these forecasts, please refer to page

3 of the supplementary materials, “1. Summary of financial results and other information, (4) Business forecasts.”

(Access to financial results briefing documents)

Financial results briefing documents are disclosed on the Company’s website on the same day as the briefing (Japanese version only).

- 1 -

Contents

1. Summary of financial results and other information ............................................................................................................ 2

(1) Summary of financial results for the fiscal year ended May 15, 2020 ............................................................................. 2

(2) Summary of financial position ......................................................................................................................................... 2

(3) Summary of cash flows .................................................................................................................................................... 2

(4) Business forecasts ............................................................................................................................................................ 3

(5) Basic policy on distribution of profits and dividends ....................................................................................................... 3

2. Basic stance on selection of accounting standards ................................................................................................................. 3

3. Consolidated financial statements and related notes............................................................................................................. 4

(1) Consolidated balance sheets ............................................................................................................................................. 4

(2) Consolidated statements of income and comprehensive income ..................................................................................... 6

(Consolidated statements of income) ............................................................................................................................... 6

(Consolidated statements of comprehensive income) ...................................................................................................... 8

(3) Consolidated statements of changes in net assets ............................................................................................................. 9

(4) Consolidated statements of cash flows ........................................................................................................................... 11

(5) Notes on consolidated financial statements .................................................................................................................... 13

(Notes related to the going concern assumption) ........................................................................................................... 13

(Basic important matters for preparing the consolidated financial statements) ............................................................. 13

(Segment information, etc.) ........................................................................................................................................... 15

(Per share information) .................................................................................................................................................. 16

(Significant subsequent events） ................................................................................................................................... 17

4. Others ...................................................................................................................................................................................... 18

(1) Purchases and sales ........................................................................................................................................................ 18

TSURUHA Holdings, Inc. (3391) Financial Results for the Fiscal Year Ended May 15, 2020

- 2 -

1. Summary of financial results and other information

(1) Summary of financial results for the fiscal year ended May 15, 2020

In the fiscal year under review (May 16, 2019 to May 15, 2020), the Japanese economy continued to recover at a modest

pace. However, typhoons and other natural disasters, a rush in demand before the hike to consumption tax and a subsequent

pullback, as well as concerns about the impact of the COVID-19 outbreak on domestic and overseas economies and trends in

capital markets, contributed to an uncertain outlook.

Meanwhile, in the drugstore sector, the operating environment remained challenging, with the pace of consolidation and

realignment accelerating further amid intensifying competition to open stores and reduce prices.

Against this backdrop, the TSURUHA Group continued to offer a high level of customer service, mainly through

advice-based sales, and worked to address the shrinking market caused by Japan’s aging population and intensifying

competition. Specifically, the Group pushed ahead with store renovations centered on food sales areas aimed at improving

convenience for customers, while in private brands, the Group reinforced product development and sales structures and worked

to renew and expand the private brand business by launching two new brands – Kurashi Rhythm and Kurashi Rhythm Medical.

Targeting improvements in the operational efficiency of stores and enhancement of productivity, the Group also worked on

introducing new support systems for staff allocation, inventory management and other functions.

In store openings, the Group targeted specific areas for multiple store openings as part of its area dominance store-opening

strategy and implemented a scrap and build approach for existing stores. In the fiscal year under review, the Group opened 129

new stores and closed 63 existing stores. The Group also added two stores, comprising one store operated by Ogata Mura

Pharmacy (Akita Prefecture), which became a subsidiary of TSURUHA Co., Ltd. on July 4, 2019, and one store acquired from

Egashira Eizai Co., Ltd. by Tsuruha Group Drug & Pharmacy Nishinihon Inc. on May 1, 2020, resulting in a total of 2,150

directly managed stores as of the end of the fiscal year. In Thailand, the Group opened one new store and closed two stores,

resulting in a total of 22 stores in Thailand as of May 15, 2020.

TSURUHA Group store openings and closures (Number of stores)

End of previous period

Store openings

Became subsidiary,

others

Store closures

Net change End of current period

Of which dispensing pharmacies

Hokkaido 401 23 － 20 3 404 99

Tohoku 482 30 1 7 24 506 100

Kanto,

Koshinetsu 456 35 － 18 17 473 156

Chubu, Kansai 223 14 － 4 10 233 110

Chugoku 299 19 － 6 13 300 91

Shikoku 198 8 － 7 1 211 56

Kyushu 23 － 1 1 0 23 3

Domestic total 2,082 129 2 63 68 2,150 615

(The figure at the end of the current period excludes 22 overseas stores and 4 franchise stores.)

As a result of the above, for the fiscal year under review, TSURUHA Holdings reported net sales of ¥841,036 million (up

7.5% year on year), operating income of ¥45,013 million (up 7.6%), ordinary income of ¥46,298 million (up 6.9%), and net

income attributable to owners of the parent of ¥27,899 million (up 12.4%).

(2) Summary of financial position

As of the end of the fiscal year under review, assets totaled ¥414,002 million, an increase of ¥41,709 million compared with

the end of the previous fiscal year. This mainly reflected an increase in merchandise related to new store openings and an

increase in valuation difference on investment securities.

Liabilities totaled ¥163,067 million, an increase of ¥10,988 million compared with the end of the previous fiscal year. The

main factor was an increase in notes and accounts payable – trade related to new store openings.

Net assets totaled ¥250,934 million, an increase of ¥30,720 million compared with the end of the previous fiscal year.

As a result, the equity ratio was 56.4%, up 1.4 points from the previous fiscal year-end.

(3) Summary of cash flows

As of the end of the fiscal year under review, cash and cash equivalents (cash) totaled ¥56,935 million, an increase of

¥13,235 million from the end of the previous fiscal year.

The Group’s cash flow position and factors affecting cash flows during the current fiscal year were as follows:


- 3 -

Cash flows from operating activities

Operating activities provided net cash of ¥40,636 million (up 20.6% year on year). This mainly reflected income before

income taxes of ¥43,847 million, depreciation of ¥7,817 million, increase in notes and accounts payable – trade of ¥6,684

million and amortization of goodwill of ¥3,685 million. The main cash negative items were increase in inventories of ¥9,931

million and income taxes paid of ¥14,685 million.

Cash flows from investing activities

Investing activities used net cash of ¥16,927 million (down 32.3%). This primarily reflected purchase of property, plant

and equipment of ¥14,148 million and payments for guarantee deposits related to new store openings of ¥6,223 million.

Cash flows from financing activities

Financing activities used net cash of ¥10,473 million (up 14.6%). This mainly reflected cash used of ¥7,205 million for

cash dividends paid.

(4) Business forecasts

In the fiscal year ending May 15, 2021, the outlook for the Japanese economy is likely to remain uncertain amid concerns

about the impact of the COVID-19 outbreak on economic conditions in Japan and overseas. In the drugstore sector, the

operating environment is likely to remain challenging amid intensifying competition to open stores and reduce prices, as well

as an accelerating pace of sector restructuring through M&As and business and capital tie-ups that transcend industry

barriers.

Against this backdrop, we will work to create convenient drugstores that are close to home and satisfy customers, guided by

our business philosophy of “making life better for our customers.” This will include continued efforts to enhance our

advice-based services, which draw on our high level of expertise in health and beauty, while working to offer convenience

through lineups of high-quality, affordable products such as our private brand range. In addition, as the operator of the largest

chain of drugstores in Japan, we will push ahead with marketing initiatives that make use of ID-POS data. In store openings, we

plan to open 130 stores targeting specific locations, including new areas, in order to strengthen our store network using our area

dominance store-opening strategy.

Based on the above, our consolidated financial forecasts for the fiscal year ending May 15, 2021 are net sales of ¥860,000

million (up 2.3% year on year), operating income of ¥45,200 million (up 0.4%), ordinary income of ¥46,484 million (up 0.4%),

and net income attributable to owners of the parent of ¥27,000 million (down 3.2%).

(5) Basic policy on distribution of profits and dividends

The Group’s basic policy is focused on shareholder returns through the payment of stable dividends, while taking into

account the need for funds to reinforce the operating base and support future business development. The Group plans to use the

dividend payout ratio as a benchmark for the distribution of profits to shareholders.

In accordance with this policy, the Group pays an interim dividend and a year-end dividend, twice a year.

For the fiscal year under review, the Company paid an interim dividend of ¥74.00 per share, in line with its dividend

forecast. The Company has decided to pay a year-end dividend of ¥93 per share, an increase of ¥19 from its original forecast

of ¥74.00, in light of business results. As a result, the full-year dividend is ¥167 per share. For the fiscal year ending May 15,

2021, the Company plans to pay a full-year dividend of ¥167 per share.

For the fiscal year ending May 15, 2021, the Group plans to pay an interim dividend and a year-end dividend for

shareholders of record on the final days of those fiscal periods.

The Group intends to use retained earnings for investments to boost corporate value, such as capital investment to open new

stores and expand and refurbish existing stores, and to fund M&A deals and other initiatives that support growth.

2. Basic stance on selection of accounting standards

The Group will gather information and examine the possibility of adopting IFRS in future.


- 4 -

3. Consolidated financial statements and related notes

(1) Consolidated balance sheets (Millions of yen)

As of May 15, 2019 As of May 15, 2020

Assets

Current assets

Cash and deposits 42,833 57,069

Accounts receivable – trade 26,745 31,180

Securities 1,000 －

Merchandise 98,212 108,163

Raw materials and supplies 52 48

Short-term loans receivable 2 2

Others 15,983 15,312

Total current assets 184,830 211,776

Non-current assets

Property, plant and equipment

Buildings and structures 66,351 71,181

Accumulated depreciation (31,359) (33,726)

Buildings and structures, net 34,992 37,454

Machinery, equipment and vehicles 76 74

Accumulated depreciation (74) (73)

Machinery, equipment and vehicles, net 2 1

Tools, furniture and fixtures 40,569 43,922


Tools, furniture and fixtures, net 10,264 10,681

Land 11,938 12,597

Lease assets 6,386 6,402


Lease assets, net 3,707 3,592

Construction in progress 348 2,483

Total property, plant and equipment 61,254 66,810

Intangible assets

Goodwill 35,733 32,121

Software 402 423

Telephone subscription right 87 87

Others 583 624

Total intangible assets 36,806 33,258

Investments and other assets

Investment securities 27,925 37,372

Long-term loans receivable 15 13

Deferred tax assets 4,926 5,175

Guarantee deposits 52,048 55,242

Others 4,581 4,420

Allowance for doubtful accounts (96) (67)

Total investments and other assets 89,401 102,157

Total non-current assets 187,462 202,225

Total assets 372,293 414,002


- 5 -

(Millions of yen)

As of May 15, 2019 As of May 15, 2020

Liabilities

Current liabilities

Notes and accounts payable - trade 87,254 93,968

Current portion of long-term loans payable 2,406 1,903

Accounts payable – other 13,445 14,889

Lease obligations 562 517

Income taxes payable 9,514 8,897

Provision for bonuses 4,651 4,916

Provision for directors’ bonuses 566 614

Provision for point card certificates 4,208 4,107

Others 4,172 6,459

Total current liabilities 126,783 136,274

Non-current liabilities

Long-term loans payable 7,153 5,250

Lease obligations 4,154 3,945

Deferred tax liabilities 5,567 8,328

Net defined benefit liability 2,695 3,043

Asset retirement obligations 2,815 2,932

Others 2,908 3,292

Total non-current liabilities 25,295 26,793

Total liabilities 152,078 163,067

Net assets

Shareholders’ equity

Common stock 10,023 10,290

Capital surplus 28,075 28,342

Retained earnings 154,896 175,590

Treasury stock (5,311) (5,312)

Total shareholders’ equity 187,684 208,911

Accumulated other comprehensive income

Valuation difference on available-for-sale securities 17,370 24,554

Remeasurements of defined benefit plans (132) (132)

Total accumulated other comprehensive income 17,238 24,421

Subscription rights to shares 1,292 1,639

Non-controlling interests 13,999 15,962

Total net assets 220,214 250,934

Total liabilities and net assets 372,293 414,002


- 6 -

(2) Consolidated statements of income and comprehensive income

(Consolidated statements of income) (Millions of yen)

Year ended May 15, 2019 Year ended May 15, 2020

Net sales 782,447 841,036

Cost of sales 558,664 596,774

Gross profit 223,782 244,262

Selling, general and administrative expenses

Employees’ salaries and allowances 69,180 76,844

Employees’ bonuses 4,145 4,820

Provision for bonuses 4,651 4,916

Provision for directors’ bonuses 566 614

Retirement benefit expenses 823 903

Rents 41,656 44,633

Provision for point card certificates 298 (100)

Others 60,632 66,617

Total selling, general and administrative expenses 181,956 199,249

Operating income 41,826 45,013

Non-operating income

Interest income 142 131

Dividend income 211 236

Gain on donation of equipment 868 753

Rent income 191 208

Compensation income 94 －

Insurance income 92 60

Others 572 1,016

Total non-operating income 2,173 2,407

Non-operating expenses

Interest expenses 526 509

Early withdrawal penalty 80 465

Provision of allowance for doubtful accounts 0 －

Others 79 147

Total non-operating expenses 687 1,122

Ordinary income 43,313 46,298

Extraordinary income

Gain on reversal of subscription rights to shares 47 －

Gain on sales of non-current assets 61 10

Gain on sales of investment securities － 102

Total extraordinary income 109 112


- 7 -

(Millions of yen)


Extraordinary losses

Loss on disaster 87 51

Loss on retirement of non-current assets 176 234

Loss on sales of non-current assets 51 －

Impairment loss 1,114 2,013

Loss on sales of investment securities － 263

Others 70 －

Total extraordinary losses 1,500 2,563

Income before income taxes 41,921 43,847

Income taxes – current 14,650 14,037

Income taxes – deferred 208 (630)

Total income taxes 14,858 13,407

Income 27,062 30,440

Net income attributable to non-controlling interests 2,238 2,540

Net income attributable to owners of the parent 24,824 27,899


- 8 -

(Consolidated statements of comprehensive income)

(Millions of yen)


Income 27,062 30,440

Other comprehensive income

Valuation difference on available-for-sale securities (4,579) 7,169

Remeasurements of defined benefit plans (87) (1)

Total other comprehensive income (4,667) 7,167

Comprehensive income 22,395 37,607

(Breakdown of comprehensive income)

Comprehensive income attributable to owners of the

parent 20,212 35,082

Comprehensive income attributable to non-controlling

interests 2,182 2,525


- 9 -

(3) Consolidated statements of changes in net assets

Year ended May 15, 2019 (May 16, 2018 – May 15, 2019)

(Millions of yen)


Common stock Capital surplus Retained earnings Treasury stock Total shareholders’

equity

Balance at the beginning of

period 9,492 27,545 137,270 (5,311) 168,997

Change of items during the period

Issuance of new shares 530 530

1,061

Dividends from surplus

(7,192)

(7,192)

Net income attributable to owners of the parent

24,824

24,824

Purchase of treasury stock (0) (0)

Change in scope of

consolidation (6) (6)

Net changes of items other than shareholders’ equity

Total change of items during the period

530 530 17,625 (0) 18,686

Balance at the end of the period 10,023 28,075 154,896 (5,311) 187,684


Subscription rights to shares

Non-

controlling

interests

Total net assets

Valuation

difference on

available-for-sale

securities

Remeasurements

of defined benefit

plans

Total

accumulated

other

comprehensive income


period 21,924 (73) 21,850 1,128 12,013 203,989

Change of items during the

period

Issuance of new shares

1,061

Dividends from surplus

(7,192)

Net income attributable to

owners of the parent

24,824

Purchase of treasury stock (0)

Change in scope of

consolidation (6)

Net changes of items other

than shareholders’ equity (4,553) (58) (4,611) 164 1,985 (2,461)


(4,553) (58) (4,611) 164 1,985 16,225

Balance at the end of the period 17,370 (132) 17,238 1,292 13,999 220,214


- 10 -

Year ended May 15, 2020 (May 16, 2019 – May 15, 2020)

(Millions of yen)


Common stock Capital surplus Retained earnings Treasury stock Total shareholders’

equity


period 10,023 28,075 154,896 (5,311) 187,684

Change of items during the period

Issuance of new shares 267 267 534

Dividends from surplus (7,205) (7,205)

Net income attributable to owners of the parent

27,899 27,899



than shareholders’ equity －


267 267 20,693 (0) 21,227

Balance at the end of the period 10,290 28,342 175,590 (5,312) 208,911


Subscription rights to shares

Non-

controlling

interests

Total net assets

Valuation

difference on available-for-sale

securities

Remeasurements

of defined benefit plans

Total

accumulated

other comprehensive

income


period 17,370 (132) 17,238 1,292 13,999 220,214

Change of items during the

period

Issuance of new shares － 534

Dividends from surplus － (7,205)

Net income attributable to

owners of the parent － 27,899

Purchase of treasury stock － (0)


than shareholders’ equity 7,183 (0) 7,182 346 1,963 9,493

Total change of items during

the period 7,183 (0) 7,182 346 1,963 30,720

Balance at the end of the period 24,554 (132) 24,421 1,639 15,962 250,934


- 11 -

(4) Consolidated statements of cash flows

(Millions of yen)


Cash flows from operating activities

Income before income taxes 41,921 43,847

Depreciation 7,607 7,817

Impairment loss 1,114 2,013

Loss on disaster 87 51

Amortization of goodwill 3,902 3,685

Increase (decrease) in allowance for doubtful accounts 6 (29)

Increase (decrease) in provision for bonuses 386 262

Increase (decrease) in provision for directors’ bonuses 40 47

Increase (decrease) in net defined benefit liability 384 348

Increase (decrease) in provision for point card certificates 237 (100)

Increase (decrease) in provision for directors' retirement

benefits (517) －

Interest and dividend income (354) (367)

Compensation income (94) －

Insurance income (92) (60)

Interest expenses 526 509

Gain on donation of equipment (868) (753)

Loss on retirement of non-current assets 176 234

Loss (gain) on sales of non-current assets (10) (10)

Loss (gain) on sales of investment securities － 161

Gain on reversal of subscription rights to shares (47) －

Decrease (increase) in notes and accounts receivable –

trade (2,933) (4,408)

Decrease (increase) in inventories (10,845) (9,931)

Increase (decrease) in notes and accounts payable – trade 5,818 6,684

Increase (decrease) in accrued consumption taxes (515) 1,872

Others 180 3,651

Subtotal 46,110 55,524

Interest and dividend income received 216 240

Proceeds from insurance income 92 60

Proceeds from compensation 94 －

Interest expenses paid (527) (502)

Income taxes paid (12,285) (14,685)

Net cash provided by (used in) operating activities 33,701 40,636


- 12 -

(Millions of yen)


Cash flows from investing activities

Payments into time deposits (0) (0)

Proceeds from withdrawal of time deposits 9 －

Purchase of property, plant and equipment (9,053) (14,148)

Proceeds from sales of property, plant and equipment 1,155 24

Purchase of software (189) (179)

Purchase of investment securities (2) (5)

Proceeds from sales of investment securities 11 708

Purchase of shares of subsidiaries resulting in change in

scope of consolidation (11,813) (3)

Payments of loans receivable (322) (9)

Collection of loans receivable 9 5

Payments for guarantee deposits (7,665) (6,223)

Proceeds from collection of guarantee deposits 2,606 2,796

Others 262 107

Net cash provided by (used in) investing activities (24,990) (16,927)

Cash flows from financing activities

Net increase (decrease) in short-term loans payable (2,750) －

Proceeds from long-term loans payable 7,000 －

Repayment of long-term loans payable (6,018) (2,424)

Repayments of lease obligations (699) (581)

Proceeds from issuance of new shares 721 301


Cash dividends paid (7,192) (7,205)

Dividends paid to non-controlling interests (196) (562)

Net cash provided by (used in) financing activities (9,136) (10,473)

Net increase (decrease) in cash and cash equivalents (426) 13,235

Cash and cash equivalents at the beginning of period 44,124 43,700

Increase in cash and cash equivalents resulting from

inclusion of subsidiaries in consolidation 1 －

Cash and cash equivalents at the end of period 43,700 56,935


- 13 -

(5) Notes on consolidated financial statements

(Notes related to the going concern assumption)

There is no related information.

(Basic important matters for preparing the consolidated financial statements)

1） Items related to the scope of consolidation

(1) Number of consolidated subsidiaries: 17

Names of consolidated subsidiaries

TSURUHA Co., Ltd.

Kusurinofukutaro Co., Ltd.

Tsuruha Group Drug & Pharmacy Nishinihon Inc.

Lady Drug Store Co., Ltd.

Kyorindo Group Holdings Co., Ltd.

Kyorindo Co., Ltd.

B&D HOLDINGS Co., Ltd.

B&D Co., Ltd.

Hiroshima Chuo Pharmacy Co., Ltd.

TSURUHA Group Merchandising Co., Ltd.

TSURUHA Financial Service Inc.

TSURUHA Corporation Kita Hokkaido Co., Ltd.

TSURUHA Corporation Minami Hokkaido Co., Ltd.

TSURUHA Corporation Tohoku Co., Ltd.

TSURUHA Pharmacy K.K.

TSURUHA Shurui Hanbai Co., Ltd.

Several Co., Ltd.

Ogata Mura Pharmacy was included in the scope of consolidation following the acquisition of 100% of its shares by

consolidated subsidiary TSURUHA Co., Ltd. on July 4, 2019. However, the company was subsequently excluded

from the scope of consolidation after it was absorbed by TSURUHA Co., Ltd. through a merger on October 1, 2019.

(2) Names of important non-consolidated subsidiaries

Tsuruha (Thailand) Co., Ltd.

(Reasons for exclusion from the scope of consolidation)

Non-consolidated companies are small in size, with total assets, sales, net income (based on the Company’s

equity stake) and retained earnings (based on the Company’s equity stake) that do not have a material impact on

the consolidated financial statements of the Group.

2） Notes related to the application of the equity method

(1) Non-consolidated subsidiaries and affiliates to which the equity method has been applied


(2) Names of important non-consolidated subsidiaries and affiliates to which the equity method has not been applied

Tsuruha (Thailand) Co., Ltd.

(Reasons for non application of the equity method)

The equity method has not been applied to companies that have a minimal impact on net income (based on the

Company’s equity stake) and retained earnings (based on the Company’s equity stake) and are immaterial overall

to the consolidated financial statements of the Group.

3） Notes related to fiscal years and other details of consolidated subsidiaries

All consolidated subsidiaries have the same fiscal year-ends as the consolidated closing date.

4） Items related to accounting standards

(1) Valuation standards and methods for important assets

1) Securities

Available-for-sale securities

With market value


- 14 -

Available-for-sale securities with market value are stated at fair value based on the market price as of the

consolidated closing date (valuation differences are reported as a separate component of net assets and the cost

of securities sold is determined based on the moving average method).

Without market value

Available-for-sale securities without market value are stated at cost using the moving average method.

2) Inventories

a. Merchandise

Merchandise are valued at cost using the monthly moving average method (balance sheet values are

written down in line with any decline in profitability), while medicines used in dispensing activities are

valued at cost using the retail price method (balance sheet values are written down in line with any decline

in profitability).

b. Raw materials and supplies

Last cost method

(2) Depreciation and amortization methods for important depreciable assets

1) Property, plant and equipment (Excluding lease assets)

Declining balance method

However, the straight-line method is used for buildings (excluding equipment attached to buildings) acquired

after April 1, 1998 and structures and equipment attached to buildings acquired after April 1, 2016.

Expected useful lives of assets are principally as follows:

Buildings and structures

2 – 45 years

Machinery, equipment and vehicles

6 years

Tools, furniture and fixtures

2 – 20 years

2) Intangible assets (Excluding lease assets)

Straight-line method

Internal-use software is amortized using the straight-line method over estimated useful lives (five years).

3) Lease assets

Depreciation of lease assets is based on the straight-line method with zero residual value, assuming the lease

period as the useful life. Financial leases, except for those in which ownership is considered to be transferred, for

which the commencement date of the lease transaction falls in the financial years that began before May 15, 2008,

are accounted for using a method similar to that for ordinary operating lease contracts.

(3) Accounting standards for important allowances and provisions

1) Allowance for doubtful accounts

To provide for potential loss on receivables, the Company provides an allowance for the expected amount of

irrecoverable receivables. Allowances for general debts are calculated based on the historical rate of default, while

allowances for specific debts where recovery is doubtful are based on the likelihood of recovery on an individual

basis.

2) Provision for bonuses

Provision for employees’ bonuses is provided at an estimated amount to be paid to the employees for the current

fiscal year.

3) Provision for directors’ bonuses

Provision for directors’ bonuses is provided at an estimated amount to be paid to directors for the current fiscal

year.

4) Provision for directors’ retirement benefits

Certain consolidated subsidiaries provide a reserve for the payment of retirement benefits to directors at the end

of the fiscal year based on the internal rules of those subsidiaries.

5) Provision for point card certificates

Provision for points granted to cardholders is provided based on the value of projected point usage in the future.

(4) Accounting for retirement benefits

1) Allocation of expected benefit payments

When calculating retirement benefit liabilities, the benefit formula basis is used to allocate expected benefit

payments to the period until this fiscal year end.

2) Treatment of actuarial differences


- 15 -

Actuarial differences are recorded as gains or losses in the fiscal year following the fiscal year in which the

difference is recognized using the straight-line method based on a set period (three to ten years) within the average

remaining service years of the employees.

(5) Goodwill amortization method and period

Goodwill is amortized in equal installments over a reasonable period of 5 to 20 years, with periods determined on

a case-by-case basis.

Goodwill with an immaterial impact is amortized in a lump sum.

(6) Scope of funds in the consolidated statements of cash flows

Funds include cash at hand, demand deposits at banks and highly liquid short-term investments with negligible

risk of fluctuation in value and maturities of less than three months from the date of acquisition.

(7) Additional information related to the preparation of consolidated financial statements

Accounting treatment of consumption and other taxes

Consumption tax and local consumption tax are accounted for using the tax exclusive method. Consumption tax

and local consumption tax that are not applicable for exclusion are recorded as expenses in the current fiscal year.

(Segment information, etc.)

[Segment information]

Segment information has been omitted, as the Group’s only business segment is product sales, primarily of

pharmaceutical products and cosmetics.

For information related to procurement and sales, please refer to “4. Other (1) Purchases and sales”.

[Related information]

i. Information by product and service

Information has been omitted, as the Group’s only segment is product sales, and sales to external customers in this

business account for more than 90% of sales recorded in the consolidated statements of income.

ii. Information by region

(1) Net sales

Information has been omitted, as the Group does not record net sales to external customers outside Japan.

(2) Property, plant and equipment

Information has been omitted, as the Group does not own property, plant and equipment outside Japan.

iii. Information by major customer

Information has been omitted, as the Group does not have an external customer that accounts for more than 10% of net

sales recorded in the consolidated statements of income.

[Information on non-current asset impairment losses by reportable segment]

Information has been omitted, as the Group’s only segment is product sales.

[Information on goodwill amortization amounts and outstanding amortization balances by reportable segment]

Information has been omitted, as the Group’s only segment is product sales.

[Information on gains on negative goodwill by reportable segment]



- 16 -

(Per share information)


Net assets per share 4,238.15 Net assets per share 4,821.26

Net income per share 513.84 Net income per share 576.85

Fully diluted net income per share 511.70 Fully diluted net income per share 574.80

Note: Amounts for net income per share and fully diluted net income per share are calculated based on the following items.


Net income per share

Net income attributable to owners of the

parent (millions of yen) 24,824 27,899

Amounts not attributable to owners of

common stock (millions of yen) －－

Net income attributable to owners of the

parent associated with common stock

(millions of yen)

24,824 27,899

Average number of shares of common stock

during fiscal year (shares) 48,312,034 48,365,452

Fully diluted net income per share

Adjustment to net income attributable to

owners of the parent (millions of yen) －－

Increase in number of shares of common

stock (shares) 201,811 172,472

(Of which, subscription rights to shares) (201,811) (172,472)

Details of shares not included in calculation of

fully diluted net income per share due to

non-dilutive effect

9th issue of subscription rights to

shares approved by resolution of

the Board of Directors on

September 4, 2018 (3,728

subscription rights to shares)

9th issue of subscription rights to

shares approved by resolution of

the Board of Directors on

September 4, 2018 (3,641

subscription rights to shares)


- 17 -

(Significant subsequent events）

Business combination through acquisition

At a meeting on April 30, 2020, the Board of Directors approved the acquisition of a majority of outstanding shares in JR

KYUSHU DRUG ELEVEN CO., LTD. (Drug Eleven) from Kyushu Railway Company (JR Kyushu), making Drug Eleven a

consolidated subsidiary of the Group.

(1) Overview of business combination

(i) Name and business of acquired company

Name of acquired company: JR KYUSHU DRUG ELEVEN CO., LTD.

Business: Retail of pharmaceuticals, cosmetics and daily necessities, and operation of dispensing pharmacies

(ii) Main reasons for business combination

As part of the JR Kyushu Group, Drug Eleven operates 228 drug stores and dispensing pharmacies (as of end-February

2020), based on the corporate philosophy of “finding joy in the health, beauty and satisfaction of customers and contributing

to local communities with a feeling of gratitude.” Drug Eleven has rolled out stores in a variety of formats tailored to local

community characteristics and customer usage scenarios, and with floor areas ranging from roughly 13m2 to 990m2. The

chain includes stores in stations and station buildings that leverage the JR Kyushu Group’s distinctive strengths, as well as

traditional urban-type stores and road-side stores.

The TSURUHA Group aims to use the share acquisition to further increase corporate value. Specifically, the Group plans to

reinforce its dominance in the Kyushu and Okinawa regions, while also working with Drug Eleven to support the respective

drugstore and dispensing pharmacy businesses through initiatives that take advantage of economies of scale in joint

procurement, shared IT systems and reduced store opening costs, and by pooling management resources such as expertise and

personnel. The Group and Drug Eleven will also explore ways of maximizing synergies in a wide range of other common

areas.

(iii) Date of business combination

May 28, 2020

(iv) Legal form of business combination

Share acquisition

(v) Name of company after acquisition

No change

(vi) Ratio of voting rights acquired

51%

(vii) Basis for recognition of acquired company

Cash acquisition of shares by the Company

(2) Acquisition cost of the acquired company and breakdown by type of payment

Cash payment for shares ¥14,000 million

Acquisition cost ¥14,000 million

(3) Details and amounts of main costs related to the acquisition

Advisory fees, etc. (estimate) ¥146 million

(4) Amount of goodwill incurred, reasons for goodwill and method and period of amortization

To be determined

(5) Amounts and details of main assets and liabilities received on date of business combination

To be determined


- 18 -

4. Others

(1) Purchases and sales

1) Results of purchases

Item

Year ended May 15, 2020

(May 16, 2019 – May 15, 2020)

Amount (Millions of yen) Share (%) Year-on-year (%)

Products

Drugs 109,403 18.0 105.7

Cosmetics 93,831 15.5 99.5

Sundries 172,152 28.4 107.5

Food products 164,316 27.1 110.9

Other 65,326 10.8 105.9

Subtotal 605,030 99.8 106.6

Real estate leasing costs 183 0.0 131.5

Commission income, etc. 1,508 0.2 93.1

Total 606,723 100.0 106.5

Notes: 1. Amounts are actual purchasing prices.

2. Other mainly comprises childcare products, health food products and medical devices.

2) Results of sales

Item

Year ended May 15, 2020

(May 16, 2019 – May 15, 2020)

Amount (Millions of yen) Share (%) Year-on-year (%)

Products

Drugs 183,738 21.8 105.9

Cosmetics 133,509 15.9 97.6

Sundries 229,386 27.3 111.0

Food products 194,494 23.1 111.3

Other 96,378 11.5 110.6

Subtotal 837,507 99.6 107.5

Real estate leasing fees 872 0.1 104.0

Commission income, etc. 2,657 0.3 99.0

Total 841,036 100.0 107.5

Note: Other mainly comprises childcare products, health food products and medical devices.

Documents

Financial Results for the Fiscal Year Ended May 15, …...TSURUHA Holdings, Inc. (3391) Financial Results for the Fiscal Year Ended May 15, 2020 - 3 - Cash flows from operating activities