Consolidated Financial Statements for the Third Quarter of

the Fiscal Year Ending March 31, 2018

[Japanese GAAP]

February 5, 2018

Company name: VITAL KSK HOLDINGS, INC.

Stock exchange listing: Tokyo Stock Exchange

Code number: 3151

URL: http://www.vitalksk.co.jp/

Representative: Mr. Taisuke Murai, President & CEO

Contact: Mr. Kiharu Takahashi, General Manager of Accounting & Finance

Phone: +81-03-3275-3303

Scheduled date of filing quarterly report: February 13, 2018

Scheduled date of commencing dividend payments: ─

Preparation of supplementary explanatory materials: None

Quarterly financial results meeting: None

(Amounts of less than one million yen are rounded down.)

1. Consolidated Results for the Third Quarter of the Fiscal Year Ending March 31, 2018

(April 1, 2017 – December 31, 2017)

(1) Consolidated Operating Results (% indicates changes from the previous corresponding period.)

Net sales Operating profit Ordinary profit Profit attributable to

owners of parent Nine months ended Million yen % Million yen % Million yen % Million yen %

December 31, 2017 433,608 (2.7) 1,672 (39.4) 4,438 (20.2) 3,243 (14.6)

December 31, 2016 445,667 (3.6) 2,757 (34.2) 5,563 (20.7) 3,796 (19.7)

(Note) Comprehensive income: Nine months ended December 31, 2017: ¥5,954 million [(5.0)%]

Nine months ended December 31, 2016: ¥6,265 million [(18.1)%]

Basic earnings per share

Diluted earnings per share

Nine months ended Yen Yen

December 31, 2017 57.56 49.53

December 31, 2016 67.36 58.00

(2) Consolidated Financial Position Total assets Net assets Equity ratio

Million yen Million yen %

As of December 31, 2017 343,184 94,828 27.4

As of March 31, 2017 305,375 90,007 29.3

(Reference) Equity: As of December 31, 2017: ¥94,179 million

As of March 31, 2017: ¥89,415 million

2. Cash Dividends

Annual dividends

1st quarter-end

2nd quarter-end

3rd quarter-end

Year-end Total

Yen Yen Yen Yen Yen

Year ended March 31, 2017 - 10.00 - 10.00 20.00

Year ending March 31, 2018 - 10.00 -

Year ending March 31, 2018 (Forecast)

10.00 20.00

(Note) Revision to the forecast for dividends announced most recently: None

3. Forecast of Consolidated Results for the Fiscal Year Ending March 31, 2018

(April 1, 2017 - March 31, 2018)

(% indicates changes from the previous corresponding period.)

Net sales Operating profit Ordinary profit Profit

attributable to owners of parent

Basic earnings per share

Million yen % Million yen % Million yen % Million yen % Yen

Full year 570,000 (1.9) 2,100 (34.5) 5,800 (17.0) 4,070 (14.8) 72.22

(Note) Revision to forecast of consolidated results announced most recently: None

* Notes:

(1) Changes in significant subsidiaries during the period under review: None (2) Accounting policies adopted specially for the preparation of quarterly consolidated financial statements: Yes

* For details, please see “(3) Notes to Quarterly Consolidated Financial Statements (Accounting policies adopted specially for the preparation of quarterly consolidated financial statements)” on page 8 of the attached materials.

(3) Changes in accounting policies, changes in accounting estimates and retrospective restatement

1) Changes in accounting policies due to the revision of accounting standards: None

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

3) Changes in accounting estimates: None

4) Retrospective restatement: None

(4) Total number of outstanding shares (common shares)

1) Total number of outstanding shares at the end of the period (including treasury stocks):

December 31, 2017: 61,224,796 shares

March 31, 2017: 61,224,796 shares

2) Total number of treasury stocks at the end of the period:

December 31, 2017: 4,868,826 shares

March 31, 2017: 4,868,605 shares

3) Average number of shares during the period:

Nine months ended December 31, 2017: 56,356,117 shares

Nine months ended December 31, 2016: 56,356,337 shares

* These quarterly financial results are outside the scope of quarterly review.

* Explanation of the proper use of performance forecast and other notes

The earnings forecast and other forward-looking statements herein are based on the information currently

available and certain assumptions deemed reasonable by the Company, and thus actual results may differ

significantly from these forecasts due to a wide range of factors.

1

Table of Contents

1. Qualitative Information on Quarterly Financial Results .................................................................................. 2

Explanation of Operating Results .................................................................................................................... 2

2. Quarterly Consolidated Financial Statements and Primary Notes.................................................................... 4

(1) Quarterly Consolidated Balance Sheets ....................................................................................................... 4

(2) Quarterly Consolidated Statements of Income and Comprehensive Income ............................................... 6

(3) Notes to Quarterly Consolidated Financial Statements ................................................................................ 8

(Notes on going concern assumption) ..................................................................................................... 8

(Notes in the case of significant changes in amount of shareholders’ equity) ......................................... 8

(Accounting policies adopted specially for the preparation of quarterly consolidated financial statements) ......... 8

(Segment information) ............................................................................................................................ 8

2

1. Qualitative Information on Quarterly Financial Results

Explanation of Operating Results

The Japanese economy during the nine months ended December 31, 2017 continued to be on a moderate

recovery trend as seen in improvements in corporate earnings and the employment situation, led by the

government’s economic and financial policies and other factors. However, factors such as concern over policies

overseas have created an uncertain outlook.

In the pharmaceutical wholesale industry, our Group’s primary business segment, Japan’s medical expense

curbing policy led to drug price revision in April 2016, which lowered drug price standards by 7.8%. The

government is likely to continue with its policy to limit medical costs in the future.

Under these circumstances, the Group is in the second year of its third medium-term management plan for

the three-year period from the year ended March 31, 2017 to the year ending March 31, 2019. In the third

medium-term management plan, the Company defines its long-term vision with a 10-year goal of “Becoming

an indispensable presence in regional and community healthcare by strategically providing products and

services to support medicine and nursing.” Furthermore, under this long-term vision, as its medium-term vision

during the third medium-term management plan, the Company defined the two visions of “1. Even in the

Generic Medicine 80% era, construct a system to create profits,” and “2. Move deeper into regional healthcare

by establishing a business foundation for a medicine-nursing cooperative business.” Additionally, to realize this

medium-term vision, the Company has been working toward the four basic principles of “1. Demonstrating the

comprehensive strength of the Group by implementing effective and efficient Group management,” “2.

Promoting and further deepening area marketing that always emphasizes the viewpoint of the local people,” “3.

Fostering and retaining healthcare coordinators,” and “4. Becoming a solutions company for the medical and

nursing sectors.”

In April 2017, the Company absorbed its wholly-owned consolidated subsidiary VK Shared Service, Inc.

The Information Systems Department of the subsidiary was transferred to the Information Systems Department

Office, the ICT Strategy Department of the Company. Moving forward, the ICT Strategy Department will

manage and control the Group’s entire IT system, and review ICT investments. Meanwhile, the head office of

KSK CO., LTD. moved into a new building in December 2017, and the new Osaka Branch created through

integrating the Osaka Sales Department with the Osaka Daiichi Chuo Branch and Osaka Daiichi Kita Branch

was relocated to the new building in January 2018. Additionally, through also integrating the Osaka Daini

Branch in February 2018, the Company seeks to consolidate its business locations.

For the nine months ended December 31, 2017, in the pharmaceutical wholesale business, the core

business of the Group, the effects of declines in sales of hepatitis C medication and the emergency price

revision of OPDIVO, an antineoplastic agent were significant, and as a result, net sales were ¥433,608 million

(97.3% of that of the same period of the previous year), operating profit was ¥1,672 million (60.6% of that of

the same period of the previous year), ordinary profit was ¥4,438 million (79.8% of that of the same period of

the previous year) and profit attributable to owners of parent was ¥3,243 million (85.4% of that of the same

period of the previous year).

Performance results by business segment are as follows.

1) Pharmaceutical Wholesale Business

In the pharmaceutical wholesale business, sales of long-listed drugs continued its previous decline due to

category changes. In the medical payment revisions in April 2016 as well, further measures for promoting use

of generic drugs were proposed, and declines in sales of long-listed drugs were persistent during the nine

months ended December 31, 2017. Under such circumstances, the Group focused on the sales of new products

(original drugs) and products covered by the premium pricing scheme for the promotion of new drug creation

and resolution of unapproved drugs/off-label use. Additionally, its focus was also placed on promoting

negotiations by single unit and single price, an initiative to improve logistics for which efforts have been made

3

across the pharmaceutical wholesale industry. Furthermore, the Group conducted business activities across a

wide area in the medical and nursing sectors, including the establishment of domain-based liaisons (Note 1) to

strengthen specialization in domains such as residential care and cancer treatment, strengthening the sales and

rental business of welfare equipment through the acquisition of “welfare equipment consultant” certifications

by 32 MS (Note 1) staff, and expansion of “Meron Support,” (Note 2) which provides support for creating

regular pharmacies and pharmacies that provide health support for local residents. However, as mentioned

earlier, the effects of declines in sales of hepatitis C medication were significant, and as a result, net sales were

¥412,242 million (97.2% of that of the same period of the previous year), and segment income (operating

profit) was ¥1,465 million (55.5% of that of the same period of the previous year).

At present, the Hyogo Logistics Center for KSK CO., LTD. is currently under construction. The Hyogo

Logistics Center is scheduled to begin operations in May 2018, and through creating frameworks in response to

urban logistics, the Company seeks to improve logistics efficiency.

(Note 1) Domain-based liaisons, MS

Wholesale MSs (marketing specialists; sales representatives for pharmaceutical wholesale) that possess

specialized knowledge in specific patient and medical fields, and can provide information, etc. from a customer

perspective.

(Note 2) Meron Support

“Meron” is customer support centered on the pharmacy portal website provided by the Group, and is a

platform that matches regional residents with their regular pharmacies. “Meron Support” is one of the “Meron”

services, and provides support for holding events at pharmacies through the rental of various simplified testing

and measurement equipment.

Meron website URL (in Japanese): http://www.meron-net.jp/

2) Other Businesses

In other businesses, net sales were ¥21,365 million (99.1% of that of the same period of the previous year)

due mainly to a decline in sales in the veterinary drug wholesale business, but as a result of a recovery in

business performance in the dispensing pharmacy business, segment income (operating profit) was ¥158

million (269.0% of that of the same period of the previous year).

4

2. Quarterly Consolidated Financial Statements and Primary Notes (1) Quarterly Consolidated Balance Sheets

(Million yen)

As of March 31, 2017 As of December 31, 2017

Assets

Current assets

Cash and deposits 23,022 37,238

Notes and accounts receivable - trade 125,788 137,883

Inventories 29,137 32,967

Accounts receivable - other 15,125 16,493

Other 2,318 1,800

Allowance for doubtful accounts (293) (79)

Total current assets 195,098 226,303

Non-current assets

Property, plant and equipment

Buildings and structures, net 15,447 15,932

Land 19,880 19,874

Other, net 3,855 6,080

Total property, plant and equipment 39,183 41,887

Intangible assets

Goodwill 4,239 4,007

Other 3,181 2,845

Total intangible assets 7,421 6,853

Investments and other assets

Investment securities 51,732 55,387

Other 12,970 13,711

Allowance for doubtful accounts (1,030) (959)

Total investments and other assets 63,673 68,139

Total non-current assets 110,277 116,880

Total assets 305,375 343,184

5

(Million yen)

As of March 31, 2017 As of December 31, 2017

Liabilities

Current liabilities

Notes and accounts payable - trade 170,688 204,712

Short-term loans payable 1,330 1,350

Current portion of long-term loans payable 2,261 518

Income taxes payable 370 839

Provision for bonuses 1,723 666

Other provision 202 223

Other 3,513 3,935

Total current liabilities 180,089 212,245

Non-current liabilities

Convertible bond-type bonds with subscription

rights to shares 10,029 10,022

Long-term loans payable 4,812 4,800

Other provision 182 184

Net defined benefit liability 7,058 7,341

Negative goodwill 1,473 920

Other 11,723 12,840

Total non-current liabilities 35,278 36,110

Total liabilities 215,368 248,356

Net assets

Shareholders’ equity

Capital stock 5,000 5,000

Capital surplus 12,739 12,739

Retained earnings 49,726 51,840

Treasury shares (3,759) (3,759)

Total shareholders’ equity 63,706 65,820

Accumulated other comprehensive income

Valuation difference on available-for-sale

securities 24,204 26,941

Remeasurements of defined benefit plans 1,503 1,416

Total accumulated other comprehensive

income 25,708 28,358

Non-controlling interests 592 648

Total net assets 90,007 94,828

Total liabilities and net assets 305,375 343,184

6

(2) Quarterly Consolidated Statements of Income and Comprehensive Income

Quarterly Consolidated Statements of Income

Nine Months Ended December 31, 2016 and 2017

(Million yen)

For the nine months ended

December 31, 2016

For the nine months ended

December 31, 2017

Net sales 445,667 433,608

Cost of sales 412,072 401,215

Gross profit 33,595 32,393

Reversal of provision for sales returns 240 202

Provision for sales returns 235 223

Gross profit - net 33,600 32,373

Selling, general and administrative expenses 30,843 30,701

Operating profit 2,757 1,672

Non-operating income

Interest income 104 107

Dividend income 640 667

Share of profit of entities accounted for using

equity method 93 89

Office work fee 1,086 1,091

Amortization of negative goodwill 552 552

Other 422 352

Total non-operating income 2,899 2,861

Non-operating expenses

Interest expenses 29 34

Rent expenses 49 44

Other 14 14

Total non-operating expenses 93 94

Ordinary profit 5,563 4,438

Extraordinary income

Gain on sales of non-current assets 1 2

Gain on sales of investment securities 57 113

Gain on investment in partnership - 172

Other 25 4

Total extraordinary income 84 292

Extraordinary losses

Loss on sales of non-current assets 11 －

Impairment loss 27 15

Loss on retirement of non-current assets 5 9

Dismantlement expense 59 －

Other 22 1

Total extraordinary losses 127 26

Profit before income taxes 5,519 4,705

Income taxes 1,645 1,401

Profit 3,874 3,304

Profit attributable to non-controlling interests 78 60

Profit attributable to owners of parent 3,796 3,243

7

Quarterly Consolidated Statements of Comprehensive Income

Nine Months Ended December 31, 2016 and 2017

(Million yen)

For the nine months ended

December 31, 2016

For the nine months ended

December 31, 2017

Profit 3,874 3,304

Other comprehensive income

Valuation difference on available-for-sale

securities 2,302 2,720

Remeasurements of defined benefit plans, net of

tax (163) (86)

Share of other comprehensive income of entities

accounted for using equity method 252 16

Total other comprehensive income 2,390 2,650

Comprehensive income 6,265 5,954

Comprehensive income attributable to

Comprehensive income attributable to owners of

parent 6,187 5,893

Comprehensive income attributable to non-

controlling interests 78 60

8

(3) Notes to Quarterly Consolidated Financial Statements

(Notes on going concern assumption)

For the nine months ended December 31, 2017 (from April 1, 2017 to December 31, 2017)

Not applicable.

(Notes in the case of significant changes in amount of shareholders’ equity)

For the nine months ended December 31, 2017 (from April 1, 2017 to December 31, 2017)

Not applicable.

(Accounting policies adopted specially for the preparation of quarterly consolidated financial statements)

Calculation of tax expenses

Tax expenses are calculated by the method in which the effective tax rate on profit before income taxes for

the current consolidated fiscal year after application of tax effect accounting is reasonably estimated, and

profit before income taxes was multiplied by the estimated effective tax rate.

(Segment information)

I. For the nine months ended December 31, 2016 (from April 1, 2016 to December 31, 2016)

Information on net sales and income (loss) by reportable segment

(Million yen)

Reportable segment

Others

(Note 1) Total

Adjustment

(Note 2)

Amount recorded in Quarterly

Consolidated Statements of

Income (Note 3)

Pharmaceuti-cal

Wholesale Business

Total

Net sales

Net sales to outside customers 424,101 424,101 21,566 445,667 – 445,667

Inter-segment net sales or

transfers 3,784 3,784 1,938 5,722 (5,722) –

Total 427,885 427,885 23,504 451,390 (5,722) 445,667

Segment income 2,638 2,638 58 2,697 60 2,757

(Notes) 1. “Others” is the segment which is not included in reportable segments, including such businesses as

dispensing pharmacy business, retail of pharmaceuticals, etc., wholesale of agricultural chemicals and

veterinary drugs, transportation business, nursing care service business and consulting services for

medical institutions.

2. Adjustment of segment income of ¥60 million refers to elimination of inter-segment transactions.

3. Adjustments are made to reconcile segment income to operating profit reported on the quarterly

consolidated statements of income.

9

II. For the nine months ended December 31, 2017 (from April 1, 2017 to December 31, 2017)

(Million yen)

Reportable segment

Others

(Note 1) Total

Adjustment

(Note 2)

Amount recorded in Quarterly

Consolidated Statements of

Income (Note 3)

Pharmaceuti-cal

Wholesale Business

Total

Net sales

Net sales to outside customers 412,242 412,242 21,365 433,608 – 433,608

Inter-segment net sales or

transfers 3,785 3,785 1,610 5,396 (5,396) –

Total 416,028 416,028 22,976 439,005 (5,396) 433,608

Segment income 1,465 1,465 158 1,623 48 1,672

(Notes) 1. “Others” is the segment which is not included in reportable segments, including such businesses as

dispensing pharmacy business, retail of pharmaceuticals, etc., wholesale of agricultural chemicals and

veterinary drugs, transportation business, nursing care service business and consulting services for

medical institutions.

2. Adjustment of segment income of ¥48 million refers to elimination of inter-segment transactions.

3. Adjustments are made to reconcile segment income to operating profit reported on the quarterly

consolidated statements of income.