Annual Report 2017

From April 1, 2016 to March 31, 2017

Securities Code 4775

Good Medical Practicethrough Good Management
Medical institutions like hospitals and clinics need good management to provide good medical care.
Providing good medical care from the outset, however, also results in good management.
Therefore, good medical care and good management are both essential to the provision ofefficient, high-quality healthcare. When treating patients, doctors have pride and a sense of
mission that cause them to do everything in their power for the patient they are treating.
Consequently, Sogo Medical’s mission is to provide the institutional support that enables doctors to focus on the provisionof this good medical care.

Management Principles
At Sogo Medical, a unique set of management principles is at the center of the work that we do andthe way we undertake it. Our Pledge dedicates our lives to valuing human life through our vocationand putting our hearts into our work. The Mission Statement declares the Company’s purpose. Our
Corporate Credo outlines the assurances and promises we make to society.

Mission Statement

Our Pledge
We shall, in our own lives, highly value
the irreplaceable lives of others.
We shall strive always to beright-thinking, grateful, diligent, modest,honest, refined, straight and fair
independent people.
We believe that our work contributes
to the advancement of society andbenefits many people, andshall therefore conduct our work
responsibly and efficiently.
We shall not hesitate to do goodnor prevent harm.

We shall work to build a better society
through good medical practice.

Corporate Credo
1. We shall be a company that values
each life as irreplaceable.
2. We shall be a good partner to our
suppliers and earn their trust.
3. We shall encourage our employees tolive full lives, and grow together
with them as a company.
4. We shall seek to cultivate thecharacter, skills, and insight of each
employee, to meet our
responsibilities both as a company as
a whole and as individual citizens.

Sogo Medical’s Vision of Good Medical PracticeBringing people together in optimal settings for integrated support of compassionate medical practice.
Bringing people together

Recipients and providers of medical practice and the local community understand and share each other’s thoughts and situations
with trust and respect.

Optimal settings• Permanent settings for efficient medical resource allocation and development• Reliable, safe settings for medical practice recipients and providers• Settings for differentiated medical functions, coordinated to realize the potential of specialization• Settings for appropriate information disclosure to facilitate consent and choice

Compassionate medical practiceCompassionate medical practice from the beginning to the end of life through the social, economic, physical, and psychologicalaspects of care, enhancing the quality of life for all, and enabling them to smile with a sense of hope.
(Such peripheral areas as prevention and long-term care are considered a part of medical practice.)

SOGO MEDICAL CO., LTD.

Contents
Corporate Logo

The upper circle is the head
• (intelligence)
The lower circle is the heart• (passion)
The arc in the center is the body• (conduct)

02 Long-Term Vision & Business Outline
04 Business Overview
06 Sogo Medical’s Development
08 2017 Highlights

President’s Message
12 General Outline of the
13
15
16
20

Fiscal Year Ending March 31, 2017
Medium-Term Management Plan Priority Initiatives
Achieving Our Long-Term Vision
Action 2020 Medium-Term Management Plan
Our Long-Term Vision

Action Reports

Action Reports
22 Medical Practice Support Business
28 Pharmacy Business

36 2017 Business Performance by Segment

38 Directors, Audit & Supervisory Board Members andCorporate Executive Officers

40 Corporate Governance
42 Internal Control System and Compliance System
43 CSR Management & Topics

47 Five-Year Summary ofConsolidated Financial Statements

48 Management’s Discussion and Analysis
54 Risk Information
56 Consolidated Financial Statements• This annual report contains forward-looking statements relating to performance projections
and future predictions that are based on judgments made in light of information available atthe time of writing, and as a result includes risks and uncertainties. For this reason, there is apossibility that actual results may differ from such forecasts.
• If it becomes necessary to make revisions to items presented in this annual report after
publication, the revised items will be updated on the company website in the “Investor
Relations” section.

Stock Information
63 Stock Information

Stock Information

A cautionary note on forward-looking statements

Corporate Information

62 Corporate Information

Financial Section

Financial Section

Corporate GovernanceCorporate GovernanceBusiness Performanceby Segment

Business Performance by Segment

Corporate Information

President’s Message

This combination of intelligence, passion and conduct forms thebasis for action at our company with our emphasis on management
consulting.

Company Profile

Company Profile

The logo is designed arounda human being motif.

Annual Report 2017 01

Long-Term Vision & Business Outline

We shall work to build a better society through good medical practice.

Patients

Business
Partners

Local
Communities
Shareholders

Doctors

The
Environment

MedicalInstitutions
Long-Term Vision

Achieving a Japanese Healthcare Business Model to
Support an Integrated Community Care System

Action 2020 Medium-Term Management Plan

Realization of a Japanese Healthcare Business Model

Support forGood Medical Care

Assisting Local Medical Carewith Advanced Specialist Expertise

Support for Leading Safe,
Comfortable Lives

Medical Practice
SupportPharmacies

Other Activities

Dispensing Pharmacies

Long-Term CareManagement Consulting, DtoD,
Leasing, Rental, Design &Construction, Healthcare
Information Service

Management Principles

Our Pledge

02

SOGO MEDICAL CO., LTD.

Mission Statement & Corporate Credo

Company Profile

It is through achieving a unique Japanese healthcare business model that we will help create a medical
For more details, see p. 20
system that provides citizens with efficient, high-quality medical care.

President’s Message

Long-Term Vision
Achieving a Japanese Healthcare Business Model to
Support an Integrated Community Care System

Action Reports

Action 2020 Medium-Term Management Plan
Realization of a Japanese Healthcare Business Model(For the three-year period from April 2017 to March 2020)

2

3

4

Healthcare Mall
Development

Hospital
Management
SupportCreateHigh-Value
Pharmacies

To Achieve
Our Long-Term
VisionCorporate Governance1

Providing Total Consulting-Based Medical Management Support

Pharmacies

Design & Construction

Sogo Pharmacies

Somtech Co., Ltd.

Pharmacy group companies

GM Co., Ltd.

RentalDoctors &MedicalInstitutions
Patients

Wholesale ofPharmaceuticals

Sogo Care Network Co., Ltd.
Sun Villa Co., Ltd.

Healthcare & Prevention
Hokendohjinsha Inc.

S.M.E Co., Ltd.

Hospital Management
Support

Healthcare Malls

Introduction of
successors

Human Resources

Facilities

Sogo Medipro
Co., Ltd.

Sogo Real EstateCo., Ltd.

Practice change &start-up support

Funding

Information

Stock Information

coordination
DtoD System Healthcare
supportManagement
Consulting

Corporate Information

Long-Term Care

Leasing

Financial Section

Total Medical Management Support
Sogo Medical offers total
consulting-based medical
management support thatenables hospitals and clinics toprovide efficient, high-quality
healthcare. We are engaged in avariety of activities that support
good medical practice.
Our DtoD system helps tostimulate local medical carethrough doctor introductions,
support for the succession of
medical practices, and thecoordination of medical care.
We have also established 674
dispensing pharmacies
nationwide, and lease medical
equipment and rent TVs to help
improve the quality of amenities
for patients.

Business Performanceby Segment

We are building a platform for regional healthcare networks through our DtoD system and high-value
pharmacies, as well as through collaboration with other companies.
For more details, see p. 16

Annual Report 2017 03

Business Overview

Medical Practice Support

Percentage
of total sales

20.7%

We provide management consulting,including basic concept formulation andmanagement enhancement support for
medical facilities, as well as support forphysician practice start-ups, transfers, andcoordination through our DtoD system. We
also provide rental televisions to hospitalpatients, medical device leasing, andplanning, design, and construction of
long-term care facilities.
Please refer to p. 22 for our achievements in Medical
Practice Support.

Pharmacies

Percentage
of total sales

78.5%

We operate 674 dispensing pharmacies
across Japan, including our Sogo Pharmacies
that serve as “general healthcare stations.”
Our keyword is “coordination”—working withmedical institutions and doctors in the care ofpatients, and lending support to local medicalcare. We take various measures to enable ourpharmacists to work to their fullest capabilities
so that people come to consider them their“primary care pharmacist” at their “primarycare pharmacy.”
Please refer to p. 28 for our achievements in Pharmacies.

OthersPercentage
of total sales

0.8%

04

SOGO MEDICAL CO., LTD.

We are expanding our elderly care businessthrough Sogo Care Network Co., Ltd.,
which manages fee-based residential
homes for the elderly, and Sun Villa Co.,
Ltd., which manages fee-based homes
with long-term care for the elderly.

Company Profile
President’s Message

Contributing to the Revitalization of
Local Medical Care through the DtoD (Doctor to Doctor) System
Career change, support to launch
independent practice

n
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pp

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ng

h
li s diab or
Est coCorporate GovernanceRegistration

Su

m
na en
tio t o f
n s h e altruc thcar e
tures

Re

SOGO
MEDICAL

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t
por

t io

gis

tra

tra

gis

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Independent
Physicians

Re

er c

Financial Section

General Healthcare Stations
High-quality dispensing
services meeting patientneeds• In-home guidance• Polypharmacy evaluation andresolution• Advanced pharmaceutics
management

Multifaceted healthcare
support services• Local healthcare support
seminars• Self-medication• Web-based services

Stock Information

Insurance-supported
dispensing through healthcare
and multidisciplinary
coordination

General healthcare stations
supporting an integrated
community care system

Corporate Information*2 GOES: Gradable OJT Educational System

Su

ion

• Introduction of superior physicians• Support for overall healthcare coordination

Enhanced functions and dispensing services*1 Self-medication: Taking responsibility for one's own health, aperson treats slight physical ailments on his or her own.

e, S u c c e s s

Hospitals

High-Value Pharmacies with Local Roots
By putting our pharmacists’ abilities to work, we havepromoted in-home medical care, supported disease
prevention efforts, offered self-medication*1 support,
and accelerated the use of generic pharmaceuticals,
all to promote the establishment of high-value
pharmacies.
Also, through our GOES*2 independent training
system, we are furthering efforts to improve thequality of medical service by providing ourpharmacists with the necessary medical andpharmaceutical knowledge, communication ability,
technical skills, and proper attitude.

nd en cSupport

Employed
Physicians

epe

Introduction of successor

Business Performanceby Segment

In d

C are

Our DtoD (Doctor to Doctor) system, which offers
support for succession of medical practices,
healthcare coordination, and practice transfers, waslaunched in October 2001 and is celebrating its 15th
anniversary this year.
The DtoD system is a framework that supports boththe ambitions of doctors and good medical practices.
For example, one service offered under the DtoD
system provides extensive nationwide placement
information to doctors wishing to change theirpractice, suggesting opportunities that provide thebest match. The DtoD system also provides
comprehensive support to doctors seeking to go into
private practice, from practice start-up preparation,
including the drawing up of management principles
and a business plan, through post-launch follow-up.
The system can also introduce successors to medical
practice owners who have worked to build up apractice over many years when they have no person
ready to carry forward the business. We also
introduce hospitals with superior doctors who meettheir needs and we support overall healthcare
coordination.
The DtoD system also connects hospitals, employedphysicians, and doctors in private practice within theregion, contributing to the creation of important ties
among practitioners to realize efficient, high-quality
healthcare.

Action Reports

15 Years of Helping Doctors Reach Their Aspirations

Healthcare (health enhancement, illness prevention)

Annual Report 2017 05

Sogo Medical’s Development
Net Sales(¥ billion)

140

We will continue to support good medical practice tobuild a better society.

120

100
Net Sales

Ordinary Income

8060June 1988
Pharmacy businesslaunched

40

June 1978
Sogo Medical Leasing Co.,
Ltd. established with acapitalization of ¥20 million

October 1994
Design andconstruction of
medical facilities
begun

November 1989
Green Members (nowSucceed Members) system
for medical personnel
launched

November 1987
TV rental business forpatients launched

20

0
1979

1980

1981

1982

1983

1984

1985

1986

1987

1988

Major Events

1978-1987• 1978• 1987

SOGO MEDICAL CO., LTD.

1990

1991

1992

1993

1994

1995

1996

1997

1988-1996

June
Sogo Medical Leasing Co., Ltd.
established with a capitalization of¥20 million• 1988June
Pharmacy businesslaunched• 1989NovemberGreen Members(now Succeed Members) system
for medical personnel launched• 1994

October
Design and construction of
medical facilities begun

NovemberTV rental business forpatients launched
Area around the Fukuoka Tenjin Center Bldg.
at the time of the company's establishment

06

1989

First Sogo Pharmacy,
in SakuradaiCompany Profile
Ordinary Income(¥ billion)

5

4

Action Reports

November 2011
Long-term care service
business launched

President’s Message

6
March 2015
Acquired 61.6% of shares of
Hokendohjinsha Inc., a healthcare
information services company

3

All shares of TV rental
company acquired
September Listed on First Section ofTokyo Stock Exchange
October
DtoD system launched

March 2014
Net sales reach ¥100
billion2

2016
February

10August 2000
Listed on Second Section ofTokyo Stock Exchange

June 2010
300th Sogo
Pharmacy
openedNovember 2004
200th Sogo
Pharmacy
openedDecember 2012
400th Sogo
Pharmacy
opened2007-2016• 2000AugustListed on Second Sectionof Tokyo Stock Exchange• 2007

AugustBusiness alliance formed with Mitsui & Co., Ltd.

• 2011• 2001April
All shares of TV rental
company acquired
September
Listed on First Section ofTokyo Stock Exchange
October
DtoD system launched

NovemberLong-term care service
business launched• 2014March
Net sales reach ¥100 billion• 2005

April
Hospital operational management contracting begun• 2015• 2016

Villanova Otani, a fee-based home withlong-term care for the elderly
March
Acquired shares of Hokendohjinsha Inc.,a healthcare information services company

February
Acquired shares of GM Co., Ltd., a company
that performs interior construction at medical facilities
DecemberAcquired shares of Miyonodai Pharmacy Group

Stock Information

1997-2006

At our listing on the Second Section of
the Tokyo Stock Exchange

December 2016
600th Sogo
Pharmacy
openedApril 2014
500th Sogo
Pharmacy
openedCorporate Information

January 2002
100th Sogo
Pharmacy
openedFinancial Section-1
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Corporate Governance

April 2005
Hospital operational
management
contracting begun

Acquired 75% of shares of
GM Co., Ltd., a company that
performs interior construction at
medical facilities
December Acquired shares of Miyonodai
Pharmacy Group

Business Performanceby Segment

2001
April

August 2007
Business alliance
formed with Mitsui &Co., Ltd.

Annual Report 2017 07

2017 Highlights
Each humble activity adds up and leads to steady growth.
Medical Practice Support

A total of 345 doctors
attended our seminars on
how to open a practice.

418 new
practicequestionnaires
collected.

Seminar Participation from Doctors
We hold seminars for doctors seeking
to start their own private practices,
providing support to make these
doctors’ dreams into a reality.

New Practice Questionnaires
Interviews were carried out with doctors to determine what an
ideal medical practice would be. These questionnaires haveallowed Sogo Medical to support each physician in providing
better medical care.

We have 39 healthcare
management consultants.
Officially Registered as Healthcare Management
Consultants with the Japan Association of
Healthcare Management Consultants
Our consultants provide a wide range of management
consulting services as partners to medical institutions, fromsolving immediate problems to setting up structures for the
future.

Net Sales¥122.2

69,159 doctors areregistered with our DtoD system.
Support for Doctors Who Wish to
Change Jobs or Open a Practice
Our support creates an environment inwhich employed physicians can give theirfull attention to providing medical care andrealize their aspiration to change jobs oropen a private practice.

Succeed Members
now total 1,666.
Succeed Members
We provide support for running a medical practice andachieving good management at medical institutions from avariety of angles that includes human resources, facilities,
funding, and information.

Operating Income / Operating Income
to Net Sales Ratio
Operatingincome120.7 billion
103.3

64.4 65.8

70.4 72.7

80.2

107.9

4.8

86.6

4.1
3.0

3.8

08

SOGO MEDICAL CO., LTD.

2011

2012

2013

2014

2015

2016

2017

5.0

6.0 billion
5.0

4.3

3.2
2.4

4.7

2008 2009 2010

¥ 6.2

Operating income to
net sales ratio

6.0
4.6

2008 2009 2010

5.7

2011

5.0

2012

2013

4.9
4.6
2014

5.0

2015 2016

5.1%
2017

Company Profile
President’s Message

Pharmacies

We ran economic comparison
simulations for 83 pharmacies.
As new policies have been adopted for locating pharmacies outsideof hospitals and clinics, we forecast and analyze economic
conditions for medical institutions before and after this shift tofacilitate the smooth functioning of pharmaceutical dispensing.

HealthCare Note
This application brings convenience by
shortening patient waiting times, forexample, and by allowing pharmacists
to review patients’ medication records
ahead of time, promoting more reliable
dispensing of medicine.

Business Performanceby Segment

2,364
Pharmacists

Action Reports

Economic Comparison Reports

HealthCare Note
(Electronic Medicine Scheduler)registered users now
total 52,915.

Pharmacists(As of March 1, 2017)

We provided feedback to
doctors from 95,948 trace
reports.

There arenow 674
Sogo
Pharmacies.

Corporate GovernanceA broad-based training system
helps pharmacists improve theirskills and expand pharmacy
services.

Trace Reports

Sogo Pharmacies

Information from patients, including dosage
schedules, was shared with doctors to
improve the quality of care given to patientsin collaboration with medical institutions.

We have expanded our network of dispensary pharmacies
nationwide to serve as “general healthcare stations” with rootsin their local communities. By putting our pharmacists’ skills
into action we are helping to improve local medical care.

Financial Section

Total Assets /Capital Adequacy Ratio

Total Net Assets / ROE

Corporate Information¥86.7

Capitaladequacy ratio

Total
assets66.9 69.8

2008 2009 2010

2011

2012

2013

15.9 17.4
14.7 15.0

35.7 37.7

2014billion

74.6

57.1

43.0
36.2
29.5 29.9
50.1
49.6
43.3
40.5 36.7 37.8

¥ 32.8ROE

39.5

2015 2016

37.6%

2017

14.1
8.6

10.0

2008 2009 2010

19.5

13.1

2011

21.6

23.9

13.6
12.3

26.5

12.6

29.6

12.2%

11.0

Stock Information

53.1

Total net assets

billion

8.3
2012

2013

2014

2015 20162017

Fiscal year ending March 31

Annual Report 2017 09

We are building aplatform for regional
healthcare networks throughour DtoD system andhigh-value pharmacies.

Kenji Sakamoto
Representative Director,
President andChief Executive Officer

10

SOGO MEDICAL CO., LTD.

Company Profile
President’s Message
Action Reports

President’s Message

Business Performanceby Segment

12 General Outline of the Fiscal Year Ending March 31, 2017
Medium-Term Management Plan Priority Initiative 1

Corporate Governance

13 Undertaking New Businesses

Medium-Term Management Plan Priority Initiative 2

14

Improving Existing Businesses
Medium-Term Management Plan Priority Initiative 3

Enhancing Corporate Value

15 Achieving Our Long-Term Vision

Financial Section

Formulating Our New Medium-Term Management Plan

16 Action 2020 Medium-Term Management Plan
20 Our Long-Term VisionCorporate Information
Stock Information

Annual Report 201711

General Outline of the Fiscal Year Ending March 31, 2017

In this fiscal year what kind of results were seen with regard to the medium-term
management plan “Further Challenge—Toward a better society in which people can livewith a sense of security”?

Development of new and existing businesses during the term put realizationof our Long-Term Vision on a solid footing.
Our two principal strengths are our DtoD
system, with strong links to physicians andmedical institutions, and our nationwide
network of 674 high-value pharmacies. By
pursuing our business based on these twinpillars, we believe we succeeded in laying afoundation during the term for the realizationof our Long-Term Vision.

12

SOGO MEDICAL CO., LTD.

In our medical practice support business, we
focused on healthcare mall development andmanagement support for hospitals. We believe
we succeeded in further evolving our efforts
relating to healthcare malls. For example, wewere able to attract pediatricians to healthcaremalls in areas where the population of young
persons is increasing, and succeeded in creating
an environment where busy parents can obtain
immediate medical attention for sick children.
We strongly believe that healthcare malls havean essential role to play going forward in helping
to solve a variety of challenges facing local
communities, as well as bringing peace of mind
to local residents.
In the field of hospital management support,
we believe that demand for consulting services
will grow in the future, with Sogo Medical
promoting functional specialization by, andstrengthened coordination between, medical
institutions. This trend will enable us tocontribute to the realization of more efficient
healthcare.
In our pharmacy business, we seizedopportunities generated by the Primary Care
Pharmacist System established by thegovernment in April 2016 to promote the further
development of primary care pharmacists andpharmacies. We focused on enhancing thequality of our pharmacists and pharmacies
throughsuchmeasuresasincreasing
pharmacist specialization, initiating in-homemedical care, and strengthening healthcare
support-related services. As a result, ourpharmacists were able to build strong
relationships of trust with patients, and webelieve this led to growth as our pharmacies
were increasingly chosen by patients.

Undertaking New Businesses

grow further as the role and situation of
hospitals in local medical care is reevaluated.
We continue to secure personnel who can serveas heads of hospital administration or
management planning departments, and arecontributing to greater healthcare efficiency
through hospital management support. As wepush these initiatives forward, we will continue
to consider new business opportunities.

company-specific employee guidance (or check
duration, or high-stress indicators) with unified
headquarters control—we began offering
Co-Labo stress check packages for groupcompanies in January 2017. Going forward, we
will coordinate with Hokendohjinsha to promotebusinesses that will contribute to the health of
local community residents.

Corporate Information

Hokendohjinsha
supports
enterprises
pursuing healthcare management and the healthof their employees. In 2007, the company
extended its EAP* business.
Proprietors of enterprises employing morethan 50 people are required to carry out anannual stress check. Through Hokendohjinsha,
we are strengthening the marketing of our stresscheck requirement package. To respond todiverse customer requests including unified
checks across group companies, or group

Financial Section

We are synergizing to enhance the content of our businesses.

Corporate Governance

Please tell us about this year’s efforts in collaboration with Hokendohjinsha Inc.
on the theme of healthcare and prevention.

Business Performanceby Segment

During the three-year term of the previous
medium-term management plan, we focused on
hospital management support, with internal andexternal support provided by Sogo Medical
management consultants. We have alreadyachieved a return to profitability by supported
hospitals, and are currently continuing our
support to help them achieve further growth.
We expect demand for management support to

Action Reports

By providing internal and external support for hospitals, we are achieving
steady growth.

President’s Message

Please tell us about efforts made during this fiscal year to support hospital management.

Company Profile

Medium-Term Management Plan Priority Initiative 1* EAP: Employee Assistance Program
Stock Information

Annual Report 2017 13

Medium-Term Management Plan Priority Initiative 2

Improving Existing Businesses

Please summarize efforts during the term relating to DtoD-based medical practicesupport and high-value pharmacy creation.

We have developed and expanded efforts in both areas and are aiming tocontribute to local medical care.
Our medical practice support business was
active in numerous areas, including healthcaremall development, consulting for medical
institutions, and support for succession of medical
practices. With the opening of Kajigaya-Ekimae
Clinic Mall (Kanagawa), Miyahara Clinic Mall
(Osaka), and Shingu Chuo-Ekimae Mall (Fukuoka),
our network of healthcare malls expanded to 75
locations at the close of the term.
We also increased the breadth of our hospital
bed reorganization consulting services, carryingout 20 such cases during the term, andfurthermore carried out 46 cases of practice
succession support for clinics. These efforts are
helping to strengthen the support for the
reorganization of local medical care functions.

Medium-Term Management Plan Priority Initiative 3

In our pharmacy business, we establishedpharmacies that serve as general healthcare
station with deep community roots, andaggressively promoted the strengthening ofprimary care pharmacy functions. In October
2016, we began applying for approval for ourpharmacies to act as healthcare support
pharmacies, and Sogo Pharmacy Hagi (HagiCity, Yamaguchi Prefecture) received approval in
the same month. As of March 31, 2017, 35
pharmacies had received approval. We also
added 105 pharmacies to our network (including
92 from M&A transactions). As a result, thenumber of pharmacies at the end of the termincreased by 98, to 674.

Enhancing Corporate Value

Please talk about the efforts made and results achieved this year with regard to creating
mechanisms that enable employees to take pride in their work and feel a sense of purpose,and that allow the organization to grow with its employees.

We further developed our human resource systems and structures, andworked to promote diversity and work-life balance.
We extended the efforts of the previous term
to promote an organization where employeeswith disabilities can achieve independence andwork with confidence and pride as a strategic
strength of the company. We also promoted

14

SOGO MEDICAL CO., LTD.

greater participation on the part of female
employees, implementing training courses todevelop female managers and seminars topromote opportunities for women.

Financial Section
Corporate Information
Stock Information

16 Policy Background17 Action 2020 Medium-Term Management Plan
18 Action Plan
20 Our Long-Term VisionCorporate Governance

Please see the following pages for further details on the new
medium-term management plan

Business Performanceby Segment

The new medium-term management plan aims torealize a Japanese healthcare business model. In thearea of medical practice support, our Higashinihon
Office will strengthen its Healthcare Mall Development
Division, while the Nishinihon Office will establish a
Healthcare Mall Development Group to promote rapid
mall development. We will also continue to promotemanagement consulting and support for third-party
medical practice succession. In our pharmacy
business, it will be important to enlarge the roles ofpharmacists and pharmacies to realize better healthcare in the wake of changes in applicable regulations.
We will not only expand our efforts relating to in-homecare and healthcare and prevention, but alsoemphasize enhanced quality with the aim ofestablishing general healthcare stations.
Moreover, we are looking ahead to the creation of
new businesses utilizing ICT, as well as futureinternational expansion. To this end, we establishedthe International Business Promotion Group in April
2017, and initiated research into model internationalcase studies and candidate locations for expansion.
We will also apply expertise we acquire outside Japanto our domestic businesses to achieve bothinternational and domestic growth.
What we achieve over the next three years will havean important impact on our future development. We
will bolster our foundation to promote long-term
growth, working as a unified team to perfect aJapanese healthcare business model.

Action Reports

We will continue to develop and expand existing businesses whileconsidering opportunities for new business start-ups and international
expansion.

President’s Message

Please describe the focus of activities for the new medium-term management plan torealize the company’s long-term vision.

Company Profile

Achieving Our Long-Term Vision Formulating Our New Medium-Term Management Plan

Annual Report 2017 15

Action 2020 Medium-Term Management Plan

Policy Background

Evaluation of Previous Medium-Term Management Plan and Main Points of the New Plan
During the term of our previous medium-term management plan, we engaged in a wide variety of activities relating to
DtoD and high-value pharmacies, contributing to building a platform for regional healthcare networks. Over the plan’s
three years, we were once again impressed with the necessity of further strengthening and developing healthcare malldevelopment, hospital management support, and creation of high-value pharmacies.

Total Sales

Summary Evaluation of the Previous Plan

EBITDA Margin
Previous Medium-Term
Management Plan Term
Average Annual Growth of Total
Sales over 3-year Period: 5.8%

1 Undertaking New Businesses• Provided management support to hospitals and other medical facilities contributing to local
communities, from acute to in-home care

• Pharmaceutical sales to medical institutions, initiation of healthcare and prevention services

103.3 107.9

business activities

86.6

2 Improving Existing Businesses• 858 practice start-ups (including 52

120.7 ¥122.2 billion• Generic drug utilization rate over 70%

healthcare malls)• Initiated new “start-up from scratch”
support system*(quantitative base)• 220,000 trace reports (feedback to physicians)

9.2

3 Enhancing Corporate Value

2013/3* 14/3

• Consolidated new personnel system, made impartial evaluations visible• Delegated significant decision authority, speeding up decision-making* Sogo Medical provides the management resources—personnel, equipment, and funding—for a practice start-up,
reducing physicians’ start-up risk and helping them realize their dreams

8.9

8.8

9.1

15/3* 16/3

9.1%

17/3*

Note: EBITDA = Earnings before tax + depreciation expense+ goodwill amortization
EBITDA Margin = EBITDA÷Total Sales* revised fiscal year, treatment income

Anticipated Changes in Operating Environment
During the three-year term of the new medium-term management plan, we expect a variety of changes to take place,including simultaneous revisions to treatment and care fees, new plans for medical treatment and the care insurance
business, and an increase in the consumption tax in October 2019. In response, we will reinforce our businessfoundation toward realization of our long-term vision.
New Medium-Term Management Plan Term
Fiscal year ending
March 31, 2017

Fiscal year ending
March 31, 2018

Fiscal year ending
March 31, 2019

Revised Treatment Income●

Central Social Insurance
Medical Treatment Income
Active discussion of revision●

Revised Drug Income●

Revised Long-Term Care
IncomeSOGO MEDICAL CO., LTD.

●●
Care insurance for ordinary
Diet session
Submission of systemrevision proposal

Fiscal year ending
March 31, 2021

●

●

●

Treatment Plan

6th Treatment Plan

7th Treatment Plan (start of Community Health Care Visions)

Care Insurance
Business Plan

Care Insurance Business Plan

Care Insurance Business Plan

Macro Factors

16

Fiscal year ending
March 31, 2020

End of House ofRepresentatives Term

End of House of Councilors
Term / Consumption Tax
Increase

Tokyo Olympics andParalympics

Company Profile
President’s Message

Action 2020 Medium-Term Management Plan

Realization of a Japanese Healthcare Business Model

Action Reports

Based on the growth we have achieved through the fiscal year ending March 31, 2017, we are convinced that threefactors will drive a Japanese healthcare business model: healthcare malls to address medical care challenges in local
communities; management support for hospitals, which will be instrumental in the formation of an efficient, effective
healthcare system; and creation of high-value pharmacies to support and enhance local residents’ health. Goingforward, we will promote these three areas and aim to establish a foundation for a business structure that will enable us
to achieve our long-term vision. Furthermore, to achieve the long-term vision on a higher dimension, we will promote
activities to expand our business scope and develop international business.

Objectives for the Fiscal Year Ending March 31, 2020

Support functional specialization and coordination to build an
integrated community care system
Toward 37 Hospital Management Support Cases

03 Create High-Value
Pharmacies

Support an integrated community care system withpharmacies that serve as general healthcare stations
Organic growth*1 of 2.3 million prescriptions (20%)

04 To Achieve Our
Long-Term Vision

Enhancement/strengthening of existing businesses and scope
expansion of health-related businesses
Exploiting New Areas, Leveraging Bidirectional
Domestic/International Expertise

Management Targets (Fiscal year ending March 31, 2020)
Total Shareholder
Returns

Growth Investment

Financial Strategy

Total Sales

Facilities Investment

Net Debt-to-Equity Ratio*3

Payout Ratio¥160 billion (organic)¥20 billion allocatedover three years

Approx. 0.5 (times)

Maintained atminimum 20%

EBITDA Margin*2
Over 9%Aggressive use of M&A
and coordination in
separate category

Where funding is required tosupport strategic growth, wewill use mainly interest-bearing
debt and limit the ratio toapproximately 1.0

Maintaining stable,
continuous dividend
payouts

Stock Information

Cash Flow

Corporate Information

Building a Platform for Regional Healthcare Networks

Financial Section

02 Support HospitalManagement

Corporate GovernanceSocial infrastructure acting as core facilities for medical
treatment, nursing care, and support for daily life
Toward 200 Locations

Business Performanceby Segment

01 Develop Healthcare
Malls*1 Organic Growth: independent growth exclusive of M&A*2 EBITDA: Earnings before tax + depreciation expense + goodwill amortization
EBITDA Margin: EBITDA ÷ Total Sales*3 Net debt-to-equity ratio: (Interest-bearing debt – cash and deposits – certificates of deposit)/shareholders’ equity
Interest-bearing debt includes lease obligations and installment purchase accounts payable that are included in the consolidated balance sheet

Annual Report 2017 17

Action 2020 Medium-Term Management Plan

Action Plan

01 Healthcare Mall
Development

Toward 200 Locations

Creating healthcare malls to meet the challenges faced
by local communities is a step toward enhanced
community security.

Healthcare Mall Number Targets

300

Number of healthcare malls

Because we believe development of healthcare malls is a step toward more securecommunities from a medical standpoint, Sogo Medical is actively supporting thecreation of such malls nationwide.
Concentrating medical capabilities required by communities in healthcare malls
and promoting coordination between physicians enhances utility for patients andcreates a sense of security.
Furthermore, by promoting the creation of ideal healthcare malls that incorporate
functions other than medical treatment, including nursing care, healthcare andprevention, and daily life support, and by deepening mutual coordination between
physicians, we will contribute to building a society that allows local residents tocontinue living in familiar neighborhoods with peace of mind.
As regional cities become more compact, we are helping to make communities
better places to live by supporting the development of healthcare malls that bringdispersed medical and other functions together in one location.

200

75

2017/3

100

18/3

130

19/3

20/3

21/3

New Medium-Term
Management Plan Term

Healthcare mall categories
Independent Clinic Grouping
General Treatment Clinic Type &Specialized Treatment Clinic Type

Model Case Study

Healthcare mall housing multiple clinics and offering highly specialized treatment
Promoting coordination between physicians enhances patient utility and peace of mind.

Healthcare mall offering treatment by specialist physicians in multiple treatment
disciplines
Patients can undergo health examinations in a number of treatment specialties in a single clinic,enhancing patient utility through unified patient data management, reception, and payment.

Healthcare malls offer new potential toprovide medical capabilities on a par withhospitals.

Sogo Medical is developing healthcare malls that can serve mild-symptom,
chronic-phase and other patients with the same effectiveness as advanced
acute care hospitals.
Healthcare malls scheduled to open in October 2017 will offer 10 specialties
also found in advanced acute care hospitals. These malls will deliver
treatment services in coordination with hospitals, contributing to formation ofan efficient, effective treatment delivery structure.

Model coordination with hospitals

Advanced Acute
Care Hospital

Outpatient
acceptance(advanced medical
treatment)
Provide advanced
treatment toacute-phase patients.

Specialized
Treatment Clinic-Type
Healthcare Mall(primary care treatment)

Health screening,
hospital admission,
introduction ofpatients requiring
specialized treatment

Respond tochronic-phase andmild-symptom patientneeds with wide rangeof medical departments.

Estimated Opening

Planned medical departments

October 2017

Internal medicine, gastroenterology, cardiology, pulmonology, endoscopy, dermatology, urology, ENT, OB-GYN, etc.

Healthcare Mall
Evolution
Community healthcare mall
Malls will offer nursing care, healthcare and prevention, and other functions in addition to medical treatment to support
healthcare and daily life in local communities.
These malls will serve as centers of support for local residents to continue living in familiar neighborhoods with peace of mind.

18

SOGO MEDICAL CO., LTD.

Company Profile

SupportPresident’s Message

02 Hospital Management

Toward 37 Hospital Management Support Cases

2017/3New cases
Total cases atthe close of
the term

5

18/3

19/3

20/3

3

9

20

8

17

37

New Medium-Term Management Plan Term

Solutions

Securing personnel

Information gathering

Service expansion• Invitation of partner physicians• Secure consultants able to serve as heads of• Gather information relating to consulting needs of• Expand Succeed

03 Create High-Value
Pharmacies

corporate and private hospitals• Promote specialized treatment clinic-type healthcare
malls

Members services

Organic growth of 2.3 million prescriptions (20%)

By strengthening our primary care and healthcare support functions, weare endeavoring to enhance the quality of our services. Furthermore, we
are adding pharmacies through both new openings and acquisitions,creating a nationwide network of pharmacies that serve as “general
healthcare stations.”

Pharmacy Number Targets

812

Number of pharmacies, beginning of term
New pharmacies due to healthcare mall development
Other new pharmacies

732
692

674

18/3

19/3

70
10
30

20/3

New Medium-Term Management Plan Term

04 To Achieve Our

Long-Term Vision

Exploiting New Areas, Leveraging Domestic /International Expertise

We have established “healthcare and prevention” and “medical ICT” asmajor themes for exploration and are considering commercializing themin new areas while using them to extend and strengthen existing
businesses. Furthermore, we are exploring opportunities for international
expansion, promoting activities with an eye to the future.

Domestic
With “healthcare and prevention”
and “medical ICT” as major
themes for exploration, we will:• Extend and strengthen existing
businesses;• Consider commercialization ofthese themes in new areas.

International• Research model casestudies focusing on
Europe and North
America• Consider deployment of
new businesses targeting
Asia and elsewhere

Stock Information

We are exploring new business opportunities that will
enable us to utilize existing resources in Japan andabroad.

Corporate Information

2017/399

10

Financial Section

We are expanding our pharmacy network, bolsteringprofitability, and delivering high-quality services
nationwide.

Corporate Governanceadministration or management planning

Business Performanceby Segment

As demand rises for consulting related to hospital bed reorganization,
Sogo Medical is providing consulting with private hospitals on an implantor visit basis. Going forward, we will expand our internal capabilities
through such measures as addition of personnel, and will leverage our
network to promote coordination between medical institutions anddifferentiation of medical functions to create environments where
medical institutions can effectively fulfill their respective roles.

Management Support Case Targets

Action Reports

We will support specialization and coordination of
medical functions and establish environments thatallow physicians to devote themselves to treatment.

Annual Report 2017 19

Our Long-Term Vision (Fiscal year ending March 31, 2028)
Achieving a Japanese Healthcare Business Modelto Support an Integrated Community Care System

Hospital Management Support

Ideal Healthcare Mall

Existing
healthcare mall
Advanced acute care hospital

Pharmacy

Acute care hospital
Treatment

Nursingcare

Residential life
Hospital bed
reorganization

Rehabilitation hospital

Medical practice
succession, healthcare
coordination,practice transfer support
systemDaily life
support

Healthcare&
prevention

Chronic care hospital

Sogo Medical’s goal is to build regional healthcare networks capable of realizing the full potential of advanced acute care
hospitals, acute care hospitals, Rehabilitation hospitals, and chronic care hospitals as well as healthcare malls with primarycare treatment capabilities. We will do this by promoting coordination between these facilities and through tie-ups with othercompanies. Development of ideal healthcare malls and hospital management support are both important for realizing this goal.
We will create coordination by supporting hospital specialization and work to develop healthcare malls with nursing care,healthcare and prevention, and daily life support capabilities. Through these efforts, we will progress toward achieving a
Japanese healthcare business model.

Positioning of the New Medium-Term
Management Plan

Working to build a better
society through good medical
practice

We will advance our current efforts, and achieve
concrete results while closing the gap between thecurrent state and our long-term vision.

Our Long-Term Vision(Fiscal year ending March 31, 2028)

Achieving a Unique
Japanese Healthcare Business Model

New Medium-Term Management Plan
(April 2017 to March 2020)

Realization of a Japanese Healthcare Business Model
Current Medium-Term Management Plan
(April 2014 to March 2017)

Further Challenge—Toward a better society in which people can live with a sense of security

20

SOGO MEDICAL CO., LTD.

Company Profile
President’s Message

22 Summary & Data

26 Healthcare mall development and medical practice succession support
Pharmacy Business

30 Primary Care Pharmacist & Pharmacy Activities
31 Strengthening Healthcare Support Functions

33 Other Topics

Corporate Information

32 Enhancing Advanced Pharmaceutics Management

Financial Section

28 Summary & Data

Corporate Governance

24 Hospital Management Support

Business Performanceby Segment

Medical Practice Support Business

Action Reports

Action Reports

Stock Information

Annual Report 2017 21

Developing andExpansion of
Healthcare Malls
We have developed 75 healthcare malls
nationwide as centers for treatment
and nursing care.
SOGO MEDICAL

Action Report

Medical Practice
Support Business
Summary & Data

We are supporting the maintenanceand enhancement of local medical care,and promoting the creation of medical
environments to allow residents to livewith peace of mind.
The goal of our medical practice support business is to create ahealthy management base that will allow physicians to concentrateon their practices. To achieve this, the support we provide must be
appropriate to the current state of the institution as well as thesurrounding community environment. We strive to enrich andenhance the content of the support we provide, to enable medical
institutions to make greater contributions to local communities.

Promoting Support for
Medical PracticeSuccession
Preserving local medical practices that
support daily life.
We supported 46 medical practice
successions during the term.

Medical Practice Support Business Total Sales
29,77925,81122,062

2013/3

14/3

15/3¥25,305
23,302

16/3

million

17/3

Hospital Management
SupportTo help meet the challenges of achanging medical environment, we
provided hospital bed reorganization
consulting for 20 medical institutions.

22

SOGO MEDICAL CO., LTD.

Healthcare malls opened during the term
Miyahara Clinic Mall

Tanashi Clinic Mall

(September 2016, Osaka City, Osaka)(September 2016, Nishitokyo City, Tokyo)

Hibikino Mall
(July 2016, Kitakyushu City, Fukuoka)(May 2016, Nagareyama City, Chiba)(October 2016, Kasuya District, Fukuoka)

Healthcare malls at the close of the term
65

75

President’s Message

Minaminagareyama Clinic Mall
Shingu Chuo-Ekimae Mall

Company Profile

Healthcare malls not only provide patients with greater
convenience, they promote more efficient treatment byfostering coordination among physicians, and arecontributing to the provision of in-home care throughcoordination with other professionals. We are continuing
to focus on healthcare mall development, and thenumber of healthcare malls totaled 75 at the end of theterm. Going forward, we will actively promote thecreation of healthcare malls as centers for treatment andnursing care.

53
36

14/3

15/3

16/3

17/3

30 to 39
4.9%

Average age

59.2
50 to 59
31.1%

16/3

Doctors Who Wish toTransfer or Open a Practice46

40,778

17/3

2013/314/3

56,505

15/3

16/3

69,15917/3

Stock Information

Under the Ministry of Health, Labour and Welfare’s Community HealthCare Visions, the question is what functions medical institutions should
fulfill in each locality. Sogo Medical receives numerous inquiries frommedical institutions concerning hospital bed reorganization, and during
the term we provided consulting for 20 reorganization projects. We
provide comprehensive support, not only improving the institution’s
management situation, but considering the role the institution should playin view of expected changes in the local external environment, andsolutions to challenges likely to be encountered in fulfilling that role.

48,43062,429Corporate Information

15/3

60 to 69

25.7%

Source: 2014 Survey of Physicians,
Dentists, and Pharmacists(Ministry of Health, Labourand Welfare)

Financial Section

14/3* Physicians: practice owners,
enterprise representatives or
employees.

18.8%

Corporate Governance2013/3

Under 290.2%
Over 70

40 to 49
19.4%

74
50

47

(May 2016, Kawasaki City, Kanagawa)Physician age distribution

Medical practice succession support cases
80

Kajigaya-Ekimae Clinic Mall

(October 2016, Ogaki City, Gifu)

Business Performanceby Segment

One of the major challenges facing local medical care is
the aging of practice owners and a lack of available
successors. Sogo Medical is promoting support for
third-party medical practice succession, using ournationwide DtoD network of physicians wishing totransfer or start their own practices, to introduce
practice owners to potential successors. During theterm, we contributed to the stability and development oflocal medical care by providing support for 46 cases of
hospital succession.

Ogaki-Ekimae Mall

Action Reports

2013/3

41

Annual Report 2017 23

SOGO MEDICAL

Action Report

Medical Practice
Support Business

Sotaro Nagahata
Senior Consultant
Consulting Division
Sogo Medical Co., Ltd.

Takahiro Honda
LeaderNagoya Branch
Sogo Medical Co., Ltd.

Action Report1

Hospital
Management Support

Realizing One Physician’s Vision with
Total Management Support
Kiyosu Respiratory Medical Hospital

Haruhi Respiratory
Medical Hospital
Relocation and management
support for specialized hospital
Haruhi Respiratory Medical Hospital, theonly specialized institution of its kind in
Aichi Prefecture, opened in Kiyosu City in
May 2016.
In 2012, we matched a corporate healthinsurance association-supported hospital,
which the corporation was looking to divest,
with Dr. Yuji Saito, a physician registeredwith our DtoD service. This marked thestart of the project, and over four years later,
the new hospital opened.

24

SOGO MEDICAL CO., LTD.

Yuji Saito

Chairman, Kiyosu Respiratory Medical Hospital
Director, Haruhi Respiratory Medical Hospital

High-quality medical care for theentire local community. We
worked to realize one doctor’s
dream.
“I had been feeling dissatisfied withhow few small- and medium-sized
hospitals there were in the Nagoya
region. I was concerned thatpatients in Aichi Prefecture weren’t
able to find treatment in their local
communities.”
In 2012, when Dr. Saito became
director of the new hospital, hedecided to replace the aging
structure and upgrade Kiyosu’s
medical infrastructure. To realize his

ideal of treatment for both acuteand chronic-phase patients, Sogo
Medical coordinated resources at its
head office, as well as at theregional office and branch levels, todeliver total support, including
finding a new location, building
design and construction, andpersonnel recruitment. At the sametime, Sogo Medical consultants
began providing internal andexternal management support.

Company Profile
President’s Message
Action Reports
Business Performanceby Segment

issues, and advertising.”
Nagoya Branch member Takahiro
Honda is responsible for otheraspects of management support. “Icoordinate with Mr. Nagahata toprovide support in a variety of areas
like physician introductions, leasing
and installment payments, andrentals. Our goal is for Haruhi
Respiratory Medical Hospital to
become an important part of Aichi

Stock Information

corporate networks.”
Dr. Saito agrees: “I believe that as
more people become aware of theactivities of this hospital and of Sogo
Medical, more medical institutions
will take advantage of support, andlocal
medical
care
will
be
progressively revitalized.”
Going forward, Sogo Medical willcontinue working to enhance thequality of medical practice by further
deepening its coordination with local
physicians such as Dr. Saito, andwith local medical institutions.

Corporate Information

Prefecture’s
regional
healthcare
network. We’re working hard tocontribute to local medical care by
combining our respective skill setswith our physician, local, andFinancial Section

The transformed hospital opened in
May 2016. Bathed in spring sunshine,
Haruhi Respiratory Medical Hospital
took the first step on a new journey.
Dr. Saito noted, “We received
support in a wide range of areas, andthe internal and external management
support was especially reassuring.
We were able to open the new
hospital smoothly, without concerns.”
Sogo Medical consultant Sotaro
Nagahata pointed out, “My role wasto create an environment in which an
ideal could be realized of a hospitalproviding integrated treatment for
acute- and chronic-phase patients.
Two Sogo consultants understand thehospital’s current situation, and we’re
helping to implement a range ofmanagement improvement proposals
relating to areas like personnel, labor

Corporate GovernanceOur goal was to create a center of
local medical care byproviding internal and externalmanagement support.

Annual Report 2017 25

SOGO MEDICAL

Action Report

Medical Practice

医業 支 Business
援事業
SupportAction Report

2

Healthcare Mall
Development

Kajigaya-Ekimae
Clinic Mall

Areas of Support
Real estate search, design/construction,
pharmacy opening, etc.

Action Report

3

Healthcare Mall
Development

Miyahara Clinic Mall

Areas of Support
Real estate search, design/construction,
pharmacy opening, etc.

26

SOGO MEDICAL CO., LTD.

Serving a wide age range, from children to adults.
A new healthcare mall that will continue toengage with the local community.
Kajigaya-Ekimae Clinic Mall opened
in Kawasaki City, Kanagawa
Prefecture in May 2016. Offeringsuch services as pediatrics,
ophthalmology, dentistry, Sogo
Pharmacy, a nursery school, anddaytime nursing care in a facility
close to the train station, the mall isa highly convenient environment foryoung and old. As the population of
the surrounding community skews
relatively young, the presence of themall has been met with an especiallyjoyous response from local mothers
raising children.
We are also actively supporting
events held in the mall to promote
engagement with local residents.
In addition to business planning,
Sogo Medical is providing a wide
range of other support required
for the start-up, including rent

negotiation with the landlord andfinancingnegotiations
withfinancial institutions.
With the mall now in operation,
we are continuing our support topromote deep roots in the local
community. This support includes
generating connections between
medical institutions, pharmacies,
and the local populace.
Going forward, we will continue
to contribute to the growth ofKajigaya-Ekimae Clinic Mall, and tothe creation of a local community
where people can reside withpeace of mind.

This healthcare mall in the heart of
Osaka is meeting local medical needs and providing peace ofmind for young and old.
Miyahara Clinic Mall opened in
September 2016 in a convenient
location just one stop away from
Shin-Osaka Station. The area is home
to shopping districts, elementary andjunior high schools, and a populationthat ranges from young to elderly.
Beginning around December 2014,
Sogo Medical initiated discussions
with the site owner concerning thehealthcare mall concept. After ananalysis of the locality, we decided toseek practitioners of internal medicine,orthopedics, pediatrics, gynecology,
and ophthalmology. Subsequently wecontracted to provide start-up support
in internal medicine, orthopedics, andpediatrics, and moved ahead withfull-scale mall development, providing
overall support with structural design
advice, tenant leasing contracts, layout
and construction, interior fitting-out,and equipment selection andinstallation.
Just before the opening, wecoordinated closely with physicians onplanning for an open house tothoroughly familiarize residents with thefacility. The mall received more than athousand visitors over two days, andmany of those who visited returned tothe mall as patients after it opened.
Residents appreciated the ability toconsult with a female doctor of internal
medicine, and with its orthopedic andpediatric services, which had not been
available in the neighborhood, the mallhas already become an essential part ofthe community.
Furthermore, we are continuing tosearch for a practitioner in gynecology,
or ophthalmology, and will continue tosupport the mall in its efforts to meetthe needs of young and old.

4

require new equipment and remodelingof the old clinic building.
In May 2016, Elm Josei Clinic wasreborn. Patients appreciate themeticulous service, which inspires trust,and access to important medical tests,
which brings peace of mind. Sogo
Medical will continue providing a wide
range of support to realize the new
director’s goal of strengthened
coordination with nearby medical
centers and seamless medical careboth pre- and post-partum.

Corporate Information
Stock Information

Areas of Support
Start-up consulting, real estate search,
etc.

The director of Elm Josei Clinic,
located in Goshogawara City, Aomori
Prefecture, had approached aphysician, whom he had known fromtheir university days, to take over theclinic because the director’s health was
declining. The physician was unsure
how to respond to this unexpected
proposal, but was inspired by the
director’s dedication and decided totake over the clinic. He needed
specialized support to make thetransition go smoothly, and thus asked
Sogo Medical for help.
In October 2015, we began providing
medical practice succession support
for the clinic, which handles over 300
births annually. The new director
wanted to expand the midwife staff,
strengthen childbirth services, andprovide enhanced post-partum
guidance to new mothers. This would

Financial Section

Elm Josei Clinic

Contributing to medical practice succession support for thecontinuation of a private obstetrics practice that is essential tothe community.

Corporate Governance5

continued to meet the needs ofphysicians and patients and worked
to enhance clinic operations withsupport for additional personnel
recruitment. We also updated thebusiness plan based on patient
usage patterns, and Sogo
Pharmacy agreed to stock Chinese
herbal suppositories prepared by
the pediatric practice. We are now
considering an extension to clinic
hours at the request of patients.
To ensure that the mall will
become an indispensable part ofdaily life for the local community, theclinic and pharmacy are working
together to provide medical services
that meet the needs of residents.

Business Performanceby Segment

Action Report

Medical PracticeSuccession Support

The 2015 national census showedthat Japan’s fastest-growing
community was the town of Shingu,
in the Kasuya District of Fukuoka
Prefecture. With a new elementary
school opening and other signs
pointing to future expansion, theShingu Chuo-Ekimae Mall opened in
October 2016. The mall offers
treatment in neurosurgery andpediatrics as well as a Sogo
Pharmacy. Sogo Medical provided avariety of support for the pediatrics
practice, including a local market
survey, business planning, andscheduling through to the launch,allowing the doctors to open thepractice with peace of mind. We
were on hand to address any
concerns and doubts as they arose,
promptly and effectively.
After the mall opened, we

Action Reports

Areas of Support
Start-up consulting, leasing, installment
payments, real estate search, pharmacy
opening, etc.

Medical treatment suited to a growing,changing community. A healthcare mall withresidents’ needs in mind.

President’s Message

Shingu Chuo-Ekimae Mall

Company Profile

Action Report

Healthcare Mall
Development

Annual Report 2017 27

Creating high-value
pharmacies
With “coordination” as a keyword,
we are creating pharmacies with deep
local roots across the nation.

SOGO MEDICAL

Action Report

Pharmacy Business
Summary & Data

Supporting health for more people
through enhanced pharmacy functions
and additional locations.
We are engaged in a broad range of pharmacy business activities
nationwide, including enhancing pharmacist specialization andproviding healthcare support for local residents. By opening new
pharmacies and acquiring existing pharmacies, we have achieved
steady growth in the scope and quality of the business.

Pharmacy Business Total Sales¥95,966

63,4202013/328

SOGO MEDICAL CO., LTD.

72,171

14/3

96,405

million

16/3

17/3

80,660

15/3

Sogo Medical’s goal for
pharmacists andpharmacies
Sogo Pharmacies serve as “general
healthcare stations” that provide
support to everyone wishing tomaintain their health.

Expanding nationwide network

493

417

538

576

674

24

674

Pharmacies
2

As of March 31, 2017

8

5

16

15/3

16/3

17/3

5
25
8

76
10
20
19

5
5
14
4
2
3
29
39 5
22 13
38 11
10
1
19
6 1 4

25 8
42 6
87 18
24

Action Reports

14/3

7

1 2

5

2013/3President’s Message

Number of Pharmacies

Company Profile

We have actively promoted the strengthening ofpharmacy functions, for example by helping
pharmacists acquire highly specialized capabilities
and by providing support for health improvement.
In addition, by opening new and acquiringexisting pharmacies, we expanded our network
to 674 locations.

Ministry of Health, Labour and Welfare’s “Vision for Patient-Centered Pharmacies”

Business Performanceby Segment

Sogo Medical has worked to expand the role of its pharmacies as “general healthcare stations.” In its “Vision for Patient-Centered Pharmacies,”
the Ministry of Health, Labour and Welfare called for serving in dedicated roles as primary care pharmacists and pharmacies with healthcare
support and advanced pharmaceutics functions. We are working to achieve this vision through our “general healthcare station” pharmacies.
Going forward, we will further pursue this ideal as we respond to social needs and changes in the regulatory environment.

calls for development of primary care pharmacies with roles at the forefront of healthcare and with local roots
Advanced Pharmaceutics Functions

Contributing to illness prevention and healthcare
supportMeeting needs for advanced pharmaceutics
management• Procurement capabilities and advice structure to enable• Coordination with medical institutions to manage sideproper selection of medications requiring guidance for use• Health advice desk, examination recommendation andintroductions to medical institutions, etc.

effects of cancer treatment; selection of HIV medications,etc.

Centralization and ongoing monitoring of
information relating to use of medications

Utilizing ICT (electronic drug history notebooks, etc.)• Monitor prescription information for all medical institutions
visited by the patient• Monitor medications used, including nonprescription drugs,
in a centralized, ongoing manner; provide pharmacologicalmanagement and guidance

24-hour and in-home response
Responding to nighttime and holiday
in-home care needs• 24-hour response• Pharmacological management and guidance in the use of
medications for in-home patients* In addition to coordination with local pharmacies and regional

pharmacist associations, coordination is possible withcomprehensive regional support centers, etc., serving as centers
for advice in remote areas• Prescription verification and recommendation• Feedback on side effects and medication status• Provision of advice relating to medications, health, etc.
• Promotion of testing at medical institutions

Healthcare Support Pharmacy

Stock Information

Coordination with medical institutions, etc.: information sharing via medical information coordination network

Corporate Information

Ongoing monitoring of side effects and efficacy;
prevention of duplicate medications andpharmacological interactions

Financial Section

Primary Care Pharmacists and Pharmacies

Corporate Governance

Healthcare Support Functions(Source: prepared by Sogo Medical from Ministry of Health, Labour and Welfare data)

Annual Report 2017 29

SOGO MEDICAL

Action Report

Pharmacy Business

Action Report

1

Primary Care Pharmacist & Pharmacy Activities

On-the-job Training
Program Launched

Training with simulated patient

Full-scale Launch of
In-home Care Specialist
Pharmacist* Activities

Sterile clean bench compounding* Becoming an in-home care specialist pharmacist requires
internal certification.

Managing Leftover
Medications• Front• BackLeftover medication bags

30

SOGO MEDICAL CO., LTD.

We launched a practical training program for approximately 1,500
pharmacists nationwide.
This training will enable us to enhance the quality of our frontline service.
To support the Primary Care
Pharmacist System established by
the government in April 2016, webegan a new personnel training
program in August of the same year.
The program consists of two
components. The first includes
providing guidance to patients
regarding safe and effective
non-prescription medications, aswell as self-medication support

advice relating to daily life patterns
and other topics. The second
component uses simulated patients
tostrengthen
pharmacists’communication skills. Training isgiven over a two to three month
period in each of 44 national
districts, with the goal of producing
more effective primary carepharmacists.

We help pharmacists specialize.
All group pharmacies are working to provide in-home medical services.
To further bolster our capabilities tomeet expanding in-home medicalcare needs, we launched a training
program for in-home care specialist
pharmacists in FY2016.
Selected pharmacists took part in
the nationwide program, acquiring awide range of knowledge and skills
and deepening their understandingof such topics as how aging
affects physiological functions andinfluences oral care.
We are currently creating a
structure to provide dispensing forin-home patients at all grouppharmacy locations, and offer
clean-room and clean-benchcompounding at selected locations.
In this way, we are contributing
further to local medical care withadvanced services.

All Sogo Pharmacies offer free leftover medication bags.
This effort helps ensure appropriate pharmacologic treatment, and saves
approximately ¥5 million in monthly healthcare costs.
Leftover medications resulting frompatients forgetting or neglecting totake their medication, is an issue
in medical treatment. Managing
leftover medications for patientsdelivers convenience and helps
reduce healthcare costs.
Starting in May 2016, Sogo
Medical Group began distributing
free leftover medication bags. Upon
their visit to the pharmacy, we

confirm whether or not patients
have leftover medications. If theydo, we collect the medication on thespot, or provide them with a bag for
return of the medication on asubsequent visit. Over theapproximately seven months since
the program began, the value of
surplus medications collected
totaled approximately ¥35 million, or¥5 million per month on average.

2Company Profile

Action Report

Strengthening Healthcare Support Functions

dispensing booths• Hosting of health-related events(early detection of cognitive
impairment, diabetes prevention,
nutritional seminars, etc.)

We are enhancing our event quality with content packages, anotherexample of how we support health promotion for local residents.

Package content
1. Lectures by pharmacists andnationally certified senior
nutritionists
Information relating to cognitive
impairment and diabetes
prevention

3. Health measurement events
Measurement of such metrics as
blood pressure, vascular age,and body composition, withpharmacist advice on results

Stock Information

2. Hands-on health events
Simple memory tests, brain
stimulation programs

Corporate Information

In response to increasing demandfor healthcare support functions
from pharmacies, we began
staging our ongoing health eventswith content packages to enhancetheir quality.
Certified healthcare support
pharmacies have already begun
staging content package events.
Going forward, we will continue toupgrade the content of these
events and plan to extend them toour pharmacies nationwide.

Health event• Private consulting spaces andFinancial Section

Strengthening Our
Health Event Program

Activity examples

Corporate Governance

Healthcare advice seminars and healthcare
support implementation

forward, we will continue to actively
promote these pharmacies to createhigh-value pharmacies.

Business Performanceby Segment

Managing medications requiring guidance
for useHealthcare support pharmacies
are equipped with basic primarycare pharmacist and pharmacy
functions, and actively support thehealth of local community residents.
In October 2016, Sogo Pharmacy
Hagi was the first to be certified as ahealthcare support pharmacy. By
the end of the term, the number ofsuch pharmacies totaled 35.
Healthcare support pharmacies
are positioned as centers topromote the health of local
residents. They are intended tofunction in the same general way as
the “general healthcare stations” wehave promoted to date, with deeproots in local communities. Going

Action Reports

Healthcare support pharmacy
case studies

We are reinforcing our health advice and multidisciplinary coordination tocreate high-value pharmacies.

President’s Message

Healthcare Support
Pharmacy Activities

Annual Report 2017 31

SOGO MEDICAL

Action Report

Pharmacy Business

Action Report

3

Enhancing Advanced Pharmaceutics Management

Promotion of Specialist
Cancer and Diabetes
Training for Pharmacists

To meet the requirements of advanced pharmaceutics management,
we are enhancing pharmacist specialization.

To meet patients’ advanced
pharmaceutics management needs,
Sogo Medical Group is pursuing aninternal certification program in
specialized cancer and diabetes
training for pharmacists. In FY2016
we selected 13 pharmacies in sevenareas across Japan, and provided
training to approximately 30
pharmacists.
Since 2011, Sogo Pharmacy

Tenjin Chuo has offered services
from specialist pharmacists withcancer and diabetes training
certifications to provide patientswith optimal care. Based on theexpertise thus accumulated, weare expanding these efforts
throughout the company throughsystematic training in such areas
as disease awareness, patient
psychology, and care procedures.

Cancer Conversation Café

Main activities of Sogo Pharmacy Tenjin Chuo
(Chuo Ward, Fukuoka City)
We are enhancing pharmacist specialization through the following advanced
activities to provide higher-quality care.

•Condition-Specific Pharmacist System

Helping a patient

In 2011, we introduced a designated pharmacist system for patients withcancer and diabetes. The designated pharmacist familiarizes him- or herself
with the patient to provide customized care. Five designated cancer
pharmacists have provided care for approximately 450 patients, and threediabetes pharmacists have overseen around 330 patients.

•Cancer Conversation Café: Learning From Cancer Patients
Sogo Medical has held Cancer Conversation Cafés on a monthly basis since
March 2013, with the goal of creating a society where cancer patients canregain their optimism and lead rewarding lives. Cancer patients and theirfamilies can give voice freely to their thoughts in a relaxed atmosphere over a
cup of tea and receive advice addressing their concerns.

•Recruitment of Accredited Pharmacists of Ambulatory Cancer
Chemotherapy

Accurate dispensing

32

SOGO MEDICAL CO., LTD.

Four pharmacists at Tenjin Chuo have acquired certification as Accredited
Pharmacists of Ambulatory Cancer Chemotherapy from the Japanese Societyof Pharmaceutical Oncology (as of April 2017, only 22 pharmacy-based
pharmacists held this certification nationwide). This is the only certification in
Japan for pharmacists aiming to acquire and utilize cancer treatment
knowledge and technique, and the capacity to provide patient support.

4Company Profile

Action Report

Other Topics

Personnel from other dispensing
pharmacies also take regular partin these forums, which promotefurther efforts to achieve functional
reinforcement of primary carepharmacists and pharmacies acrosslocation and enterprise boundaries.

Corporate Information
Stock Information

To achieve high levels of quality in allof our pharmacy locations, Sogo
Medical Group pharmacies sharecase studies of outstanding activities
at annual Pharmacy Forums.
The 2016 forum was thenineteenth to date, with over 570
participants, a record number. In
addition to oral and poster-based
science presentations, the Business
Improvement Division made an oralpresentation and held workshops.
In addition, a “Sogo Pharmacies
Disaster Response Seminar” washeld to convey what pharmacies
should do in times of disaster.
Overall, the forum featured the mostdiverse and richest content to date.

Financial Section

Outstanding activities by individual pharmacies are presented and sharedwith the entire network. Sogo Medical is working to enhance theactivities of its pharmacies in unique ways.

Corporate GovernanceCase study presentationin the Tokyo metro area, where
demand for in-home medical care isincreasing.
Going forward, Miyonodai
Pharmacy Group will deploy its
techniques and expertise in in-homemedical care, accumulated overmany years, to Sogo Pharmacies
nationwide. This will contribute to
the formation of an integrated
community care system andcultivate pharmacists who canmake genuine contributions tosociety as care providers, thereby
enhancing the corporate value ofthe Sogo Medical Group.

Business Performanceby Segment

Pharmacy ForumIn December 2016, Miyonodai
Pharmacy Group became part of
the Sogo Medical Group.
Miyonodai Pharmacy Group
anticipates the needs of an aging
society, and is equipped with theadvanced expertise needed toaddress diverse in-home medicalcare needs. From an early stage,
they were a pioneer in such areas as
in-home guidance in the use of
medications, sterile compounding,rental of syringe pumps forcontinuous infusion of pain
medications, and night-time
services.
Furthermore, Miyonodai Pharmacy
Group has a first-rate business base

Action Reports

Pharmacist guides an elderly in-home patient in
the use of medications

Applying advanced techniques and expertise throughout its network,
Miyonodai Pharmacy Group is helping to build an
integrated community care system.

President’s Message

Miyonodai Pharmacy
Group with 91 Locations
Joins Sogo Medical

Annual Report 2017 33

SOGO MEDICAL

Action Report

Pharmacy Business

Action Report

5

Other Topics

Development of
Private Brand Products andOpening a Virtual Shop

Virtual shop poster displaying products with QR
codes (Sogo Pharmacy Tenjin Chuo)

Animated Video

Original animation: “Grandpa’s Medicine”

34

SOGO MEDICAL CO., LTD.

Sogo pharmacists and nationally certified senior nutritionists collaborated
to develop original products.
Now these products are available for order and home delivery throughour virtual shops!
In September 2016, Sogo Pharmacy
Tenjin Chuo launched a virtual shop
to offer branded SOGO SMILE
products. This was the first test ofconcept and the first virtual shop to
appear in any pharmacy or drug
store nationwide. Using the ExOrder*
smartphone app enables easy
settlement, and products aredelivered as soon as the following
day. The system saves customers
from having to carry home heavy
drinks or bulky products. Orders canalso be placed outside regularbusiness hours, making it easierthan ever for consumers to takeadvantage of Sogo products.

Moreover, starting in late March,
2017, we began adding a flyer
version to the poster version of Tenjin
Chuo’s virtual shop. Diapers andother nursing care products wereadded for an enhanced productlineup. Our goal is to extend theflyer version to 280 locations,approximately 40% of our network,by September 2017.
* Smartphone app developed by AliveCast Inc.

This original animated video promotes awareness of Sogo Pharmacy.

To help more people understandour goals and activities, we createdan animated video to introduce
Sogo Pharmacy. This was our
second corporate branding video,
after the short released in 2015,“Jobs that Support Lives of Local
Communities,” which focused on
the theme of third-party medical
practice succession.
The new video shows a Sogo
pharmacist helping a patient solve
his leftover medication problem, andconveys the essence of the Sogo
Pharmacy approach.

In April 2016, the government
established the Primary Care
Pharmacist System. When patients
have a better understanding of
the role of their pharmacist,
pharmacists gain expanded
opportunities to demonstrate theircapabilities,
which
produces
benefits for local medical care.
Going forward, Sogo Medical will
aim to create primary carepharmacists and pharmacies thatcan support local medical carethrough a wide range of activities.

Company Profile

President’s Message

Business Performanceby Segment

36 2017 Business Performance by Segment

Action Reports

Business Performance by Segment

Corporate Governance
Financial Section

Corporate Information

Stock Information

Annual Report 2017 35

2017 Business Performance by Segment

Percentage ofTotal Sales

40.7%

Higashinihon Office

Net Sales (¥ million)

Number of Healthcare Malls

Medical Practice
Support

39,614

43,83839

Pharmacies

Existing

Newly opened

333

34

48,054
26

227

243
22

8,969

7,750

2015/3

16/3

17/3

2015/3

16/3

17/3

2015/3

16/3

17/3
Percentage ofTotal Sales

27.5 %

Nishinihon Office

Net Sales (¥ million)

Number of Healthcare Malls

Medical Practice
Support

33,176

Existing

32,463

26,41019,784

Number of Pharmacies

Pharmacies

26,208

Newly opened

19

20

143

15
142

17/3

2015/3

16/3

17/3

2015/3

16/3

17/3
Percentage ofTotal Sales

31.8%

Kyushu Office

Net Sales (¥ million)

Number of Healthcare Malls

Medical Practice
Support

37,79339,90529,75236

SOGO MEDICAL CO., LTD.

Existing

37,541
30,539

168
10

16
12

12

2015/3

16/3

158

Newly opened

167

6

161

168

3

165

7,001

6,077

16/3

Number of Pharmacies

Pharmacies

33,8288,040

2015/3

165

6,254

6,765

16/3

8

24

16

127
8,420

173

166

28,205

2015/3

239

226

205

8,617

94

17

39,08436,08830,997

Number of Pharmacies

17/3

17/3

2015/3

16/3

17/3

Company Profile
President’s Message

42 Internal Control System and Compliance System

Corporate Governance

40 Corporate GovernanceBusiness Performanceby Segment

38 Directors, Audit & Supervisory Board Members and Corporate Executive Officers

Action Reports

Corporate Governance

43 CSR Management & Topics
Financial Section
Corporate Information
Stock Information

Annual Report 2017 37

Directors, Audit & Supervisory Board Members
and Corporate Executive Officers (As of June 22, 2017)

Board of Directors

Kenji Sakamoto

Shinya Mikita

Makoto Kuroda

Masatoshi Sadahisa

Representative Director, President
and Chief Executive Officer

Representative Director,
Executive Vice President

Director & Senior Executive
Managing Officer

Director & Senior Executive
Managing Officer

In charge of Corporate Auditing Division,
Management Strategy Division

In charge of Higashinihon Office

In charge of Nishinihon Office

In charge of Administration Division,
Personnel Division

Moritaka Nakashima

Takao Nakashima

Itsuo Tashiro

Director & Senior Executive
Managing Officer

Director & Senior Executive
Managing Officer

Director & Vice Chairman

In charge of Pharmacy Management
Division

In charge of Kyushu Office, DtoD Strategy
Division, Consulting Division, Medical
Practice Support Business Division

Kiyotaka Watanabe

Eiichi Seki

Takashi Kamite

Director (External Director)

Director (External Director)

Director (External Director)

Audit & Supervisory Board Members

38

Shoji Hirao

Seiou Yamakawa

Naomasa Mitsukado

Setsuko Gondou

Standing Auditor

Standing Auditor (External Auditor)

Auditor (External Auditor)

Auditor (External Auditor)

SOGO MEDICAL CO., LTD.

Company Profile
President’s Message

Corporate Executive Officers

Shinya Mikita*

President and Chief Executive
Officer

Executive Vice President

Makoto Kuroda*

Masatoshi Sadahisa*

Moritaka Nakashima*

Takao Nakashima*

Senior Executive Managing Officer

Senior Executive Managing Officer

Senior Executive Managing Officer

Senior Executive Managing Officer
Manager of DtoD Strategy Division

Kohichi Hashimoto

Joji Haraguchi

Yuriko Tanigawa

Akihiro Shitozawa

Executive Managing Officer

Executive Managing Officer

Executive Managing Officer

Executive Managing Officer

Manager of Management Strategy
DivisionManager of Kyushu Office

Manager of Pharmacy Management
DivisionManager of Medical Practice Support
Business Division
Manager of New Business Development
Division

Takahide Terada

Genichi Shimmura

Kazuya Watabe

Shigeyuki Nakano

Action Reports

Kenji Sakamoto*

Senior Managing Officer
Manager of Higashinihon OfficeTakamichi Okuno

Nobuo Fujii

Toshikazu Matsuo

Osamu Yamasaki

Managing Officer

Financial Section

Senior Managing Officer
Manager of Administration Division
Manager of General Affairs Department

Managing Officer

Managing Officer

Assistant to Manager of Higashinihon
OfficeAssistant Manager of Pharmacy
Management Division

Manager of Nishinihon Office

Masatomo Hara

Katsuyuki Honda

Tetsuro Irie

Takeshi Togami

Managing Officer

Managing Officer

Managing Officer

Managing Officer

Assistant Manager of Pharmacy
Management Division
Manager of In-Home Care Promotion
Business Department

Manager of Personnel Division
Manager of Hiring Department

Manager of Consulting Division
Manager of Consulting Promotion
Department

Assistant to Manager of Higashinihon
OfficeManager of Medical Profession
Management Support Division

Assistant Manager of Management
Strategy Division

Stock Information

Managing Officer

Corporate Information

Managing Officer

Assistant Manager of Administration
Division

Tadahiro Dantsuka

Corporate Governance

Senior Managing Officer
Deputy Manager of DtoD Strategy Division

Business Performanceby Segment

Senior Managing Officer
Assistant to Manager of Kyushu Office
Dispatched to HAMIQ* Corporate executive officers indicated with an asterisk also serve on the board of directors.

Annual Report 2017 39

Corporate Governance

Basic Policy

Sogo Medical considers one of its most important issues
facing management to be recognizing the importance ofcorporate ethics based on legal compliance, while also making
prompt decisions in response to the ever-changing businessenvironment and working to make management sounder inorder to record continued corporate value. To achieve that, it isnecessary to build good relationships with customers, clients,
local communities, employees, and other stakeholders, at thesame time as enhancing corporate governance by strengthening,
improving, and implementing functional systems required bylaw, including the general meeting of shareholders, board of
directors, audit and supervisory board, and independent
external auditors.
We also aim to increase management transparency byproviding fast, accurate, and wide-ranging information
disclosure to all our shareholders and investors.

Corporate Governance System (As of June 22, 2017)

The board of directors is made up of 10 members, of which 3
are outside directors, reflecting the company’s size whileemphasizing mobility.
Sogo Medical has adopted an audit and supervisory board
system with a board of auditors and believes including external
auditors allows for the effective monitoring of management.
Board of directors’ meetings are held every month as a
general rule with decisions made about important company
matters.
Managing directors’ meetings attended by working
managing directors and standing directors are held twice permonth as a general rule, to make decisions about whichmatters to discuss at board of directors’ meetings and about
important matters that are not decided at board meetings.
Individual item meetings attended separately by working
managing directors, standing directors and other relevant
management are generally held twice per month, respectively.
As a general rule these meetings decide important matters notdecided at managing directors’ meetings, and discuss
important issues brought up at managing directors’ meetings.
At management meetings, working managing directors,

executive managing officers, and other involved management
in attendance deliberate and exchange information regarding
management-related issues.
Sogo Medical has adopted a corporate executive officer
system in which officers selected by the board of directors
perform the administration of business matters under the
direction of the board of directors.
The company also holds regular new employee training andgradable training through the year as well as working to
improve compliance with workplace training on the subject ofcorporate ethics and compliance management given by staff
responsible for promoting compliance.
Sogo Medical declares the following basic policy, “We do
not involve ourselves with anti-social forces or clientcompanies who have a relationship with anti-social forces,
under any circumstances.”
For the purpose of removing anti-social forces, together withthe cooperation of outside expert organizations such as
lawyers and relevant administrative bodies, we will work as agroup to create a corresponding structure.

Auditing System (As of June 22, 2017)

The audit and supervisory board comprises 4 auditors, ofwhich 2 are standing auditors and 2 are part-time auditors.
Three of these are external auditors to ensure fairness andtransparency. Each auditor attends board of directors’
meetings, while standing auditors also attend and offer
opinions at managing directors’ meetings, management
meetings, and individual item meetings.
Auditors monitor the legality of operations based on financial
standards, audit planning, and task divisions, as outlined by
the audit and supervisory board.
Internal audits are held systematically by the corporate

40

SOGO MEDICAL CO., LTD.

auditing division, consisting of 10 members, auditing all
divisions and reporting the results directly to the president.
Audited divisions are given guidance on where they need to
improve, with further reporting required on whether
improvement has been made or not, ensuring an efficient audit
process.
Collectively, the audit and supervisory board members,
corporate auditing division, independent external auditors, andinternal control division exchange information regarding audit
planning and audit results as required, working to achieve
efficient and effective audits.

Company Profile
President’s Message

Governance Systems (As of June 22, 2017)

General Meeting of Shareholders
Selection / Dismissal

Board of Directors

Audit & Supervisory
Board

Directors
10 members

Audit(3 external directors)
Financial Audit
Selection /Dismissal /Supervision

Audit & Supervisory
Board Members
4 members (3 external auditors)

Corporate Auditor Division

Independent External Auditors(Mutual Coordination)
Financial Audit

Corporate Auditing Division

ReportRepresentative Director, President and Chief Executive Officer
Corporate Executive Officers

Business Performanceby Segment

Selection /Dismissal /Supervision

Selection / Dismissal

Action Reports

Selection / Dismissal

Internal Control DivisionCorporate GovernanceInternal Control
Internal Auditing

Divisions

Help Desk
9 Sogo Medical employees
3 outside lawyers

ReportRequest Advice /Report Information

Compliance Hotline

Total Remuneration of Each Category of Officers in the
Fiscal Year Ending March 31, 2017
Total by form of remuneration (¥ million)
Officer category

Number ofrecipients

Basic
Stock
compensation options

Bonuses(not including external directors)

8

174

174

–

–

Audit & supervisoryboard members

1

12

12

–

–

Outside officers

6

32

32

–

–

Total

15

218

218

–

–

(not including external auditors)

2. Remuneration for Sogo Medical officers only includes theamount paid by Sogo Medical, excluding payments fromsubsidiaries.
3. No Sogo Medical officer receives a consolidated salary of
more than ¥100 million.
4. Annual remuneration for directors (not including employee
salaries for people who are both directors and employees)
was given a firm limit of ¥300 million with a limit to increases
of 2% of the previous fiscal year’s consolidated net income
in a resolution at the 34th General Meeting of Shareholders
held on June 20, 2012.
5. Annual compensation for audit and supervisory board
members was limited to ¥50 million in a resolution at the 24th
General Meeting of Shareholders held on June 18, 2002.

Stock Information

Directors

Notes: 1. Remuneration of directors (not including external directors)
includes profit-linked compensation as decided at theboard of directors’ meeting held on May 21, 2015.

Corporate Information

officer) decides remuneration for directors after consulting withthe board of directors and compensation for auditors is decided
after discussion among auditors, in both cases within the limits
decided at the general meeting of shareholders.

Shareholders monitor remuneration through a limit to the total
amount of remuneration for directors and audit and supervisoryboard members (including bonuses) decided throughresolutions at the general meeting of shareholders. The
president (who is the representative director and an executive

Financial Section

Officer Remuneration

Annual Report 2017 41

Internal Control System and Compliance System

Sogo Medical is striving to build up its Group-wide compliance system by establishing a common corporate charter and code of ethics
shared by the Sogo Medical Group.
In order for directors and employees to perform their duties with corporate social responsibility and corporate ethics in mind, we put
our compliance policy (Sogo Medical action standards) into practice, while making the policy thoroughly understood and enforced. Inorder for directors and employees of the Sogo Medical Group to perform their duties in accordance with the law and the articles ofassociation, we have placed a director in charge of compliance (legal department management officer) as well as formed an internal
control committee, which is managed by the compliance division (according to policies of dividing duties).
We have also set up a help desk (compliance hotline), which employees can contact with requests for advice or to report
information and get a speedy response.
In order to enhance compliance knowledge among directors and employees of the Sogo Medical Group, we are upgrading training,as part of our efforts to improve knowledge of respecting compliance.

Information Management System
Sogo Medical has a system in place for storing and managing information related to work carried out by directors. Based on the law
and its own internal regulations, directors make and keep the minutes of board meetings and other information related to importantwork duties as well as the decisions made, which are collectively recorded and managed appropriately.
We have also established document management regulations for directors’ decisions and reports, based on which we store andmanage this information. Information is managed carefully based on our information management, information system management
regulations, and personal information protection regulations.

Risk Management System
We have installed a function in the compliance division that supervises risk management of the entire Group and placed a director in
charge of it. In order to establish fundamental policy and promotion systems for risk management, we have determined risk
management regulations, and constructed and put into operation risk management systems. The compliance division evaluates theeffectiveness of the establishment and operations of risk management. In the case a problem is identified, the division provides
recommendations for improvement to the respective departments to enhance effective monitoring.
Also, to make precise response guidelines for the entire Group when a crisis occurs, we have determined standard crisis
management regulations, created a business continuity plan (BCP) and a disaster prevention manual, and are preparing a system thatallows accurate response in times of emergency.

42

SOGO MEDICAL CO., LTD.

Company Profile

CSR Management & Topics

2. We shall provide services that surpass customer expectations.
3. We shall create an environment in which employees feel secure and derive fulfillment in their work.
4. As a member of society, we shall be committed to compliance and earn the trust of customers and other people.

Financial Section

Compliance Efforts and Stance

Meeting the responsibilities
required by society
Fulfilling our
responsibility as
a company

Ethical practiceOurcompliance

GeneralcomplianceCorporate Information

Regulatory compliance(compliance in a narrow sense)

Our Pledge, Mission Statement, Corporate Credo

Stock Information

Compliance is generally thought of in the sense of “regulatorycompliance,” or conforming with laws and internal regulations.
However, we undertake compliance in a broader sense. In
addition to complying with laws, we consider compliance to mean
acting in an ethical manner and eschewing any activity that would
inconvenience society as we strive aggressively to meet society’s
expectations. Our compliance goes beyond obeying the letter ofthe law, and our actions extend to a respect for the social norms
that form the background for these laws.
We endeavor to be a company that delivers essential value to all
people. As such, we remain sensitive to changes in society,considering individually what society requires and following
through with actions to satisfy those needs.

Corporate Governance

The Sogo Medical Group’s CSR activities are the same as its business activities—to build a better society through good
medical practice.
Our job is to support good medical practice, and that is connected to the development of society and improving the lives ofmany people. Through supporting good medical practice in the future, we aim to fulfill our social mission as a company.

Business Performanceby Segment

1. We shall understand and share our management principles and fulfill our corporate mission through our work.

Action Reports

Four Principal Elements of CSR

President’s Message

Our CSR activities are the very same as our business activities—working tobuild a better society through good medical practice.
We work hard to develop valuable human resources who can make good
medical practice and a better society a reality.

Annual Report 2017 43

CSR Management & Topics

Promoting Diversity
The significance of Sogo Medical’s efforts to promote diversity
lies in our employees’ realization of our mission statement
through teamwork and the demonstration of their personalcapabilities as they actively utilize the system to realize theirpersonal career vision within their practice of Our Pledge, ourMission Statement, and our Corporate Credo.
In April 2017, the Personnel Division, which functions as thecore promoter of diversity within the company, established the

Major Activity 1:

Diversity Promotion Group. In addition to measures to promote
greater utilization of female employees and to change employees’
approach to work, the group will work to promptly implement
broad measures to further utilize a diverse range of individuals,
including persons with disabilities and senior citizens.

Promoting Employment for Persons with Disabilities

Launching a corporate network to promote employment of persons with disabilities
We have held corporate seminars and gatherings to reach out
across boundaries and aim for a better environment where
employment of persons with disabilities can be promoted andbecome routine. Since October 2016, we have hosted three
exploratory gatherings featuring information exchanges
between companies on their experiences, challenges, andsystems relating to employment of persons with disabilities,
along with lectures by outside experts and other activities.
During the coming term, we plan to place these activities on afull-scale footing.
Participating Enterprises
Shin-Idemitsu Co., Ltd.

Kyushu Railway Company

Daisho Co., Ltd.

GooDay Co., Ltd.

Major Activity 2:

etc.

Promoting Female Employees’ Activities

Three years after the launch of the job transfer system, 12 women shift to professional positions
Sogo Medical revamped its personnel system, and in 2013 itlaunched a job transfer system. Over three years the system,
which anticipates future business expansion, has resulted in

15 employees, including 12 women, switching from clerical toprofessional positions.

Sogo Medical Job Classifications
Professional Positions

Clerical Positions(must fulfill all of the following requirements)(principally centered on the following)• Principally engaged in planning• Principally engaged in standardized work

• Eligible for promotion to executive positions• In principle, no change in job classification(however, job transfer system is available)• May be ordered to transfer place of work, requiringrelocation of residence

44

SOGO MEDICAL CO., LTD.

• Not subject to transfer orders• Not eligible for promotion to executive positions

Company Profile

childrearing and awarded the Kurumin mark, which is given tocompanies that promote next-generation childcare support
policies. In FY2017, we began a pilot program to allow
employees to work from home, and with this and othermeasures, we are augmenting our efforts to create and promote
the utilization of internal systems that match women’s life plans.

Examples of Systems to Support Diverse Work Styles• Support for employees with non-work commitments

SystemUser’sVoice• Addressing the problem of long working hours
Promotion of no-overtime days, consecutive vacation days, etc.

Not only can I balance childcare and work, my motivation is enhanced.

Systems used: Childcare leave (3 times)

Miho Tsuruta
Hiring Dept.

Job transfer system

Reduced working hours for childcare

Consecutive vacation days

With the aim of ongoing human resource development, we are
adopting and implementing a graded training structure
corresponding to employees’ growth and roles, including
graded programs and executive development programs. Our

management principles are the foundation of every training
program, and through these programs we are working to realize
the characteristics that are needed in each employee.

• Practice Process Innovation (PPI) Internal Certification
PPI is Sogo Medical’s internal certification system for personnel working in
the areas of start-up support, personnel placement, and pharmacy management.

PPI skills by level

Personnel
Placement PPI

Leadership

PharmacyManagement PPI

Implementation(ability to perform)

Knowledge and skills(ability to retain)
Level I

Level II

Level IIIses ce
sin anBu formrpeLevel IV

Level V

New Employee
Training•Introductory residentialtraining course for new
employees hired
regularly•OJT / Block training
for new employees•Follow-up training

Skill
Improvement
Training•Communication•Medical knowledge•Pharmaceutical affairs,
technical skills,
behavior training(practical training)•Physical
assessment
training•In-home medicalcare training•Overseas training
etc.
•Board-certified
pharmacy
specialist training

Stock Information

PPI

GOES is an independent on-the-job training system for helping
pharmacists fully utilize their skills.

Skills Improvement

Start-up
Support PPI• Gradable OJT Educational System (GOES) for Pharmacists

Corporate Information

Principal Training Programs

Financial Section

Development of Human Resources

Corporate GovernanceI have three children, and I’ve used the childcare leave system three times. I’m currently using
the system that allows reduced working hours to make time for childcare. This system allows
reduced working hours through the child’s first year of elementary school, which is very
helpful since elementary schools require children to return home earlier than when they werein nursery school. The company’s internal support system is extensive, and many women
including me make use of it. I feel it’s an environment that allows me to work with lots ofmotivation.

Business Performanceby Segment

Childcare leave, reduced working hours for childcare, nursing care leave,
reduced working hours for nursing care

Action Reports

We promote work-life balance because we believe that as our
employees grow, our company grows with them. In particular,
because more than half of our pharmacists are women, it isessential that we create work environments that make it easy for
women to work and offer them growth opportunities.
In 2007, Sogo Medical was recognized by the Ministry for
Health, Labour and Welfare as an enterprise that supports

President’s Message

Promoting Work-Life Balance

GOES Gradable OJT Educational System for Pharmacists(PPI: Practice Process Innovation)

Annual Report 2017 45

Financial Section

47 Five-Year Summary of Consolidated Financial Statements
48 Management's Discussion and Analysis
54 Risk Information
56 Consolidated Financial Statements

46

SOGO MEDICAL CO., LTD.

Company ProfileFive-Year Summary of Consolidated Financial Statements
Years Ending March 31

2013

2014

2015

2016

2017

107,945

120,776

122,216

Operating income(¥ million)

4,324

5,014

5,017

6,087

6,248

Ordinary income(¥ million)

4,343

5,068

5,227

6,196

6,440

Net income attributable to owners of the parent(¥ million)

2,532

2,856

2,774

2,318

3,779

Total net assets(¥ million)

21,63623,934

26,52129,64632,880Total assets(¥ million)

57,13866,982

69,811

74,62186,760Net assets per share(yen)

1,496.64

1,655.73

1,824.14

1,967.14

2,178.46

Net income per share(yen)

175.41

197.82

192.20154.65252.52

Cash dividends per share

(yen)

40.00

40.00

40.00

45.00

50.00

(Includes interim dividend)(yen)(20.00)(20.00)(20.00)(22.50)(25.00)

Dividend payout ratio

(%)

22.8

20.2

20.8

29.1

19.8

Capital adequacy ratio

(%)

37.8

35.7

37.7

39.5

37.6

Net income to shareholders’ equity ratio (ROE)

(%)

12.3

12.6

11.0

8.3

12.2

Price-earnings ratio(times)

9.5

10.5

17.6

24.7

16.6

Price-to-book ratio(times)

1.1

1.2

1.8

1.9

1.9

(thousands of shares)

15,34015,34015,34015,34015,340Cash flows from operating activities(¥ million)

7,269

7,461

6,051

7,004

10,931

Cash flows from investing activities(¥ million)(3,380)(5,335)(5,296)(4,981)(9,933)

Cash flows from financing activities(¥ million)(2,777)(1,370)(1,637)

(635)

3,301

Cash and cash equivalents at end of period(¥ million)

5,095

5,851

4,968

6,356

10,655

Number of regular employees(people)

2,508

2,650

2,951

3,233

4,047

Number of part-time employees(people)

735

1,064

1,190

1,208

1,132

Number of shares outstanding

Other Financial Data (Consolidated)
Years Ending March 31

2014

2015

2016

2017

(%)

5.0

4.9

4.6

5.0

5.1

Ordinary income to net sales ratio

(%)

5.0

4.9

4.8

5.1

5.3

Net income to net sales ratio

(%)

2.9

2.8

2.6

1.9

3.1

(times)

1.5

1.5

1.5

1.6

1.4

Return on assets

(%)

7.9

8.2

7.6

8.6

8.0

Current ratio

(%)

128.8

122.0

121.5

125.5

135.4

Fixed assets to capitalization

(%)

80.0

81.7

83.7

81.7

78.0

Interest-bearing debt ratio

(%)

25.1

23.2

23.7

24.7

28.3

(times)

0.43

0.40

0.44

0.41

0.42

Total assets turnover

Net debt-to-equity ratio

Stock Information

Operating income to net sales ratio

Corporate Information

2013

Financial Section

Note: The number of regular and part-time employees indicates the average number of people employed during the year (excluding members of the Sogo
Medical Group dispatched outside the Group and including personnel dispatched from outside the Group to the Sogo Medical Group). Part-time
employees indicates people working part-time, contract employees, and dispatched personnel.

Corporate Governance

103,318

Business Performanceby Segment

86,658

Action Reports(¥ million)

President’s Message

Net sales

Notes: 1. Interest-bearing debt includes lease obligations and installment purchase accounts payable that are included in the consolidated balance sheet.
2. Method of calculating the net debt-to-equity ratio: (Interest-bearing debt – cash and deposits - certificates of deposit)/shareholders’ equity.
(On April 1, 2015, we carried out a 2-for-1 split of common stock, and calculations have been carried out, assuming this stock split, for net assets per share,
dividends per share, interim dividends per share, and total number of issued shares in and prior to the fiscal year ending March 31, 2015.)

Annual Report 2017 47

Management’s Discussion and Analysis
1. Operation Results
Overview of Performance During the YearIn the fiscal year under review, while net sales of thepharmacy division declined due to such factors as changes
in the price of medications, net sales for medical practicesupport segments such as the consulting division and therental division increased. Consequently, net sales were1.2% higher compared to the previous term, at ¥122,216
million. On the profit front, operating income rose 2.6% to¥6,248 million, while ordinary income increased 3.9% to¥6,440 million. Net income attributable to owners of theparent jumped 63.0% to a record ¥3,779 million, a result
due in part to the impact of the impairment loss recorded in
the previous term.
The fiscal year under review was the last year of our
medium-term
management
plan,“Further
Challenge—toward a better society in which people can livewith a sense of security,” during which we worked to solve
social issues in medical treatment through our DtoD systemand high-value pharmacies.
We continued efforts geared toward the development
and expansion of healthcare malls, establishing 10 new
malls during the term. At the close of the term, the numberof malls totaled 75.
In the area of hospital management support, the numberof consulting projects related to hospital bed reorganization
increased. During the term, 20 projects were implemented,
and we are strengthening our support for functional
reorganization of local medical care. We also implemented
46 medical practice succession cases, which are helping tomaintain and revitalize local medical care.
In the pharmacy division, we responded to the April 2016drug price and dispensing fee revisions, which called forpharmacists and pharmacies to become primary carepharmacists and pharmacies by leveraging the functions ofour pharmacists and promoting efforts to make ourpharmacies “general healthcare stations” that local
residents will choose. As a result, we received an increased
number of signed forms from patients consenting to theprimary care pharmacist system.
We also promoted the collection of leftover medications,prevention of medication side effects, and other goals
through the use of trace reports for pharmaceuticalcoordination. We also responded to patient needs foradvanced pharmaceutics management by promoting
specialist training leading to internal certification forpharmacists in such areas as cancer and diabetes, as wellas in-home care, and expanded our activities relating tohealthcare support pharmacies, with 35 such outlets as ofthe end of the term. In addition, recognizing the need toaccelerate the enhancement of in-home medical care, we
added the Miyonodai Pharmacy Group, a pioneer in thisarea, to the Sogo Medical Group in December 2016.
With the addition of 105 dispensing pharmacy outlets
during the term (including 92 from M&A transactions), total
outlets stood at 674 at the close of the term.

48

SOGO MEDICAL CO., LTD.

Segment Financial Results by Business and Region
From the fiscal year ending March 31, 2013, Sogo Medical
reformed its organizational and management structure,
adopting a region-based structure, in order to draw up
strategies and conduct business through prompt decision
making at a regional level. Accompanying this reform, theprevious reportable segments, “Medical Practice Support,”“Pharmacies,” and “Others,” were abandoned in favor of theregion-based reportable segments “Higashinihon,”“Nishinihon,” and “Kyushu.”In this report, for the convenience of readers and to allow
for comparison between years, there is analysis based on
the previous segments in the “By Business” section andbased on the new segments in the “By Region” section.

By Business
Medical Practice Support
The Medical Practice Support segment comprises theprovision of such services as medical management
consulting for medical institutions and doctors, the DtoD
system, TV rental for patients in hospitals, leasing andinstallment sales of medical equipment, and the planning,
design, and construction of medical facilities.
Net sales from medical practice support for the year were¥25,305 million, an increase of 8.6% from the previous yearthat was enabled by an increase in income from consulting
and rentals, although leasing and installment net sales
declined. Operating income increased by 437.3% to ¥738
million.
The following describes the situation in each division.

(1) Consulting
Net sales from the consulting division posted a 7.4%
increase year on year, to ¥2,035 million. Of this amount,medical institution management consulting sales rose
20.4% to ¥1,483 million. Sales related to support for
doctors who wish to transfer or start up a practicedecreased 16.8% to ¥551 million. In addition to supporting 5,183 transfer projects, medical practice succession
support cases totaled 46.

(2) Rental
Net sales in the rental division were ¥6,836 million, a
25.1% increase from the previous year. Within theseresults, net sales of products increased 150.3% to¥2,003 million, and rental sales increased 3.6% to 4,832
million.

(3) Leasing and Installment
Net sales in the leasing/installment division fell 8.0% year
on year, to ¥10,153 million. This was the result of an
18.0% drop in lease net sales to ¥711 million, and a
10.5% drop in product sales to ¥7,774 million.

Company Profile

Years Ending March 31

2015

2016

2017

Net sales (¥ million)

107,945

120,776

122,216

25,811

23,30225,305

1,693

1,894

2,035

Medical Practice Support
Consulting
Rental

5,922

5,465

6,836

Leasing and Installment

15,243

11,035

10,153

Total sales in the others division expanded 28.0% to¥6,280 million, thanks in part to positive performance by
GM Co., Ltd. (interior finishing of hospitals and clinics)
and Somtech Co., Ltd. (planning, design and construction of hospitals, clinics and assisted living facilities).

Others

2,952

4,905

6,280

Pharmacies

80,66096,40595,966

1,473

1,068

944

5,017

6,087

6,248

Others

1,068(¥ million)

944

1,473

738

6,655

6,316

Others

(123)

(114)

(52)

Elimination/Corporate

(670)

(591)

(754)

MedicalPractice
SupportPharmacies

Consulting Sales

Others(¥ million)

95,96625,811

23,30225,305

16/3

17/3

6,655

1,005

137
(114)
(591)

2015/3

16/3

6,316

738
(52)
(754)
17/3

2015/3

Rental Sales

Practice succession
support(projects)

RentalSales of rental contracts(¥ million)

Sales of leasing contracts

Leasing(¥ million)
Sales of medical equipment

Installment

5,863
5,183

74

16/3

46

17/3

1,728

800

4,193

4,665

2015/3

16/3

4,832

17/3

5,159
514
945

923
554
867

8,622

8,690

2015/3

16/3

1,070
597
711
7,774

Stock Information

2015/3

17/3

Leasing and Installment Sales

2,003

50

16/3

Corporate Information

Medical Practice Transfer/
Succession Support Projects

2,035 (¥ million)

1,693

4,805

(123)
(670)

1,894

Financial Section

96,405

5,535

137

4,805

Elimination/Corporate

80,660Practice transfer
support

1,005

Pharmacies

Operating Income by BusinessPharmacies

2015/3

Medical Practice Support

Corporate Governance

MedicalPractice
SupportOperating income (¥ million)

Business Performanceby Segment

Sales by Business

OthersAction Reports(4) Others (Design and Construction of Medical Facilities,
Healthcare Information Services, etc.)

President’s Message

Elsewhere, lease receivables and investment assets
fell 35.1% to ¥911 million; installment receivables were
2.8% lower at ¥1,821 million; and operating assets
declined 16.6% to ¥2,732 million. The balance of lease
contracts fell 9.3% to ¥9,008 million, due to a variety offactors including the influence of negative interest rates.

17/3

Annual Report 2017 49

Management's Discussion and Analysis

By Region
Pharmacies

Higashinihon

In the pharmacy division, we are moving ahead with thecreation of high-value pharmacies throughout Japan.
We opened 105 new pharmacies (including 92 from
M&A transactions), and as a result the number ofpharmacies at year-end was 674, up 98 from last year,
contributing ¥3,755 million toward net sales. Although net
sales from the 47 pharmacies opened in the previous fiscal
year increased 25.3% to ¥7,532 million, net sales fromexisting pharmacies fell 6.3% to ¥82,856 million. As a result,net sales from the pharmacy division fell 0.5% to ¥95,966
million. In addition, operating income fell 5.1% to ¥6,316
million.

In addition to sales increases in the rental and consulting
divisions, the pharmacy division saw increased revenue
from pharmacies opened during the term. As a result of
these and other factors, net sales rose 9.6% to ¥48,054
million.
Operating income rose to ¥1,408 million, a 14.6%
increase, due in part to increased sales in the rental
division.

Number of Pharmacies / Pharmacy Sales
Number ofpharmacies

Net sales (¥ million)

96,405

Despite an increase in sales in the rental division and thedesign and construction business, net sales were ¥32,463
million, 2.1% below the level achieved in the previous term,
due partly to lower sales in the leasing and installment
division.
Operating income rose 5.5%, to ¥2,197 million, driven byhigher sales in the rental division, the design andconstruction business, as well as increased profits in the
consulting division.

674

80,660538

95,966

Nishinihon

576

KyushuAlthough sales were higher for the rental division, theleasing and installment division and the design andconstruction business, net sales were 5.9% lower, at¥37,541 million, partly due to a drop in average prescription
revenue at the pharmacy division’s existing outlets.
Operating income dropped 9.7% to ¥2,576 million, due
to the impact of lower sales in the pharmacy division.

2015/350

SOGO MEDICAL CO., LTD.

16/3

17/3

Company Profile

107,945 120,776

122,216

39,614

43,83848,054

Medical Practice Support

8,617

7,750

8,969

Pharmacies

30,99736,08839,084

Net sales (¥ million)
Higashinihon

Nishinihon

28,20533,17632,463

Medical Practice Support

8,420

6,765

6,254

Pharmacies

19,784

26,41026,208

Kyushu39,90537,541

8,040

6,077

7,001

Pharmacies

29,75233,82830,539

2,331

3,855

4,157

5,017

6,087

6,248

842

1,228

1,408

OthersOperating income (¥ million)
Higashinihon

1,510

2,082

2,197

Kyushu

2,643

2,854

2,576

Others

620

490

856

Adjustments

(599)

(568)

(790)

Net Sales by Region
Higashinihon

Nishinihon

Kyushu

3,855

4,157

39,90537,54133,17632,463

43,83848,054

Financial Section

2,331(¥ million)

Others37,79328,20539,614
16/3

17/3

Operating Income by Region
Higashinihon
Adjustments

Nishinihon

Kyushu(¥ million)

490

856

2,854

2,576

2,082

2,197

1,228

1,408

2,643
1,510
842
(599)
2015/3(568)
16/3

Stock Information

620

OthersCorporate Information

2015/3

Corporate GovernanceNishinihon

In April 2017, Sogo Medical inaugurated Action 2020, its new
medium-term management plan, which will unfold over aspan of three years. During the fiscal year ending March 31,
2018, the first year of the plan, we will build a platform forregional healthcare networks by working actively to develop
healthcare malls, deliver hospital management support, andcreate high-value pharmacies; and to achieve our 2028
vision, we will strive to strengthen and add new capabilities
to existing businesses and expand into other
healthcare-related businesses.
The company forecasts net sales of ¥135,566 million (a10.9% increase over the current term). Operating income isforecast to reach ¥7,001 million (up 12.0%), while ordinary
income is expected to total ¥7,016 million (up 8.9%), and net
income attributable to owners of the parent is projected toamount to ¥4,029 million (up 6.6%).

Business Performanceby Segment

37,793

Medical Practice Support

Forecast for the Fiscal Year Ending March 31, 2018

Action Reports

2017

President’s Message

2016

2015

Years Ending March 31

(790)
17/3

Annual Report 2017 51

Management’s Discussion and Analysis
2. Financial Position
AssetsTotal assets at the end of the year increased by ¥12,138
million over the previous year to ¥86,760 million. Current
assets increased by ¥5,809 million to ¥44,999 million. The
main factors underlying this were an increase in cash anddeposits totaling ¥4,454 million, and in notes and accounts
receivable-trade of ¥1,777 million.
Noncurrent assets rose by ¥6,329 million to ¥41,760
million. This was the combination of an increase of ¥1,595
million in buildings and structures, net, and ¥3,870 million in
goodwill.

Liabilities
Liabilities for the year were ¥53,879 million, a ¥8,903 million
increase over the previous year. Current liabilities rose by¥1,990 million to ¥33,228 million. This was the result of a
¥1,667 million increase in notes and accounts payable-trade.
Noncurrent liabilities rose by ¥6,913 million year on year to¥20,650 million. This was mainly due to a ¥5,966 million
increase in long-term loans payable. In addition,interest-bearing debt (including lease obligations andaccounts payable-installment purchases) increased by¥6,143 million to ¥24,590 million, and the net debt-to-equity
ratio—found by subtracting cash and deposits frominterest-bearing debt and dividing the result by shareholders’equity—rose by 0.01 points, to 0.42.

Net Assets
As of March 31, 2017, net assets were ¥32,880 million, a
year-on-year increase of ¥3,234 million. Declines from thepayment of dividends (¥710 million) were offset bycomprehensive income attributable to owners of the parent(¥3,779 million). As a result, the capital adequacy ratio was
39.5%, an increase of 1.9 percentage points compared to37.6% on March 31, 2016.

Cash Flow
As of March 31, 2017, cash and cash equivalents totaled¥10,655 million, a year-on-year increase of ¥4,299 million(67.6%). The primary factors are described below.

Cash Flows from Operating Activities
Cash provided by operating activities increased by ¥10,931
million. The major cash increases were ¥6,391 million fromincome before income taxes, ¥3,902 million fromadjustment for depreciation and amortization, and ¥987
million from goodwill amortization. The major cash
decrease was ¥2,222 million from income taxes paid.

Cash Flows from Investing Activities
Cash decreased by ¥9,933 million as a result of investing
activities. This was mainly due to purchase of investments
in subsidiaries resulting in change in scope of consolidation(¥6,440 million) and purchase of own-used assets (¥3,152
million).

Cash Flows from Financing Activities
Cash increased by ¥3,301 million as a result of financing
activities. This was due to an increase in cash due tolong-term loans payable (¥10,933 million), while cash
decreased by ¥4,446 million due to repayment of long-termloans payable, and by ¥1,924 million due to repayment of
installment payables.

Trends in Cash Flows
Operating cash flow
Free cash flow(¥ million)

Investment cash flow

10,931
7,004

6,051
755

2,022
997

(5,296)(4,981)

2015/316/3(9,933)
17/3

Note: Free cash flow = cash flows from operating activities+ cash flows from investing52

SOGO MEDICAL CO., LTD.

Company Profile

Interest-Bearing Debt / Net Debt-to-Equity Ratio

Trends in Dividends

Financial Section

Our basic policy on shareholder returns is to maintain apayout ratio of approximately 20%. We recognize that there
are calls to raise our payout ratio further, but at present we
consider it important to retain earnings to avoid degrading
our financial base over the long term, and we intend to
apply the cash on hand toward investment in growth inorder to expand the scale of our business operations.
Through this investment in growth, we expect our stock
price to rise, and we will pay back shareholders throughincreases in the value of their shares.
The Action 2020 medium-term management plan, which
went into effect in April 2017, states a policy of maintaining
the minimum dividend payout ratio at 20%. Based on thispolicy, the next annual dividend payment is expected to be¥55.0 per share (interim and yearend dividends of ¥27.5).
In addition, in gratitude for the support of ourshareholders, and to enhance the attractiveness of ourshares and increase the number of medium- to long-term
shareholders, we are introducing special shareholder
incentives.

Corporate GovernanceIn accordance with the goals of our medium-term
management plan, we maintain an ongoing focus on
healthcare mall development, hospital management
support, and creation of high-value pharmacies. We plan tocontinue moving in this direction and anticipate thatsuitable funds will be needed to achieve these goals in theyears to come.
Capital for the facility leasing of medical institutions andthe opening of 105 new pharmacies (including 92
pharmacies from M&A transactions) in the fiscal year
ending March 31, 2017 was provided by our retained
earnings as well as financial institution loans and leasing.
To make “good medical practice” a reality, Sogo Medical
must not only target the stable management of medical
institutions; we must also achieve stable management of
our own operations. Holding to the basic principle ofexpanding shareholders’ equity through the accumulationof income, while considering an appropriate level of debt
leveraging, we have sought to maintain a net debt-to-equity
ratio of 0.5 over the past several years.
While making steady progress in line with our growthstrategies, we must at the same time shore up our financialbase. We recognize that in the future, we must step up ourefforts to create a balanced capital structure.

Business Performanceby Segment

Shareholder Returns

Action Reports

Issues on the Financial Front

President’s Message

3. Financial Strategies

Net debt-to-equity ratio (times)

Dividends (¥)

Corporate Information

Interest-bearing debt (¥ million)

Dividend payout ratio (%)

50

24,59045
16,572

2015/3

29.1
0.41

16/3

0.42

17/3

19.8

20.8

2015/3

16/3

Stock Information

0.44

40

18,44717/3

Note: On April 1, 2015, we carried out a 2-for-1 split of common stock,and dividends per share prior to March 31, 2015 have been
calculated assuming that the stock split had been performed.

Annual Report 2017 53

Risk Information
Business Risks
Business risks related to the operational performance
reported in this annual report that have a possibility ofmaterially affecting investor decisions are listed below.
Points regarding future events are based on judgments
made as of June 22, 2017.

1. M&A and Other Investments
The Group invests through mergers and acquisitions, etc.
as part of business expansion efforts, and theaccompanying goodwill is recorded. It is therefore possiblethat new goodwill could be generated that increases
amortization costs. Or, if the firm invested in does notachieve initial performance targets and is not likely toachieve them into the future, it becomes necessary to book
an impairment loss, which can affect the performance of
the Group.

2. Pharmacies
A. Pharmacies and separation of dispensing andprescribing functions
In order to increase the quality of healthcare, the Japanese
government is pursuing policies encouraging theseparation of prescribing and dispensing functions so that
medical institutions focus on medical activities such as
medical treatment and pharmacies provide drug history
management, patient compliance instructions, and otherservices. However, if the degree of separation reduces in
the future, this could have an effect on new pharmacy
openings and the overall performance of pharmacies.

B. Pharmacy regulations
To perform dispensing duties within our Group, it isnecessary to receive permission to open a new pharmacy
and be designated as a health insurance pharmacy by theprefectural or city governor, as well as receive other kinds ofdesignation as necessary. In the unlikely event that a
pharmacy was forced to suspend business or was closed
down as the result of a legal infraction or some otherreason, this could have an effect on the performance ofpharmacies.

C. Drug price and dispensing fee revisions
Dispensing sales comprise revenue from prescription drugs
and dispensing technical fees. Revenue from prescription
drugs is based on official prices called the Drug Price
Standards decided under the Health Insurance Act, while
revenue from dispensing technical fees is also based on fees
decided under the same act. Changes in drug prices anddispensing fees as a result of official revisions could have aneffect on the performance of pharmacies.

54

SOGO MEDICAL CO., LTD.

D. Dispensing errors
Our Group treats the prevention of dispensing errors as animportant issue, therefore we increase the skill andknowledge of pharmacists through training and implement
multiple checks and a dispensing error prevention system.
Our Group has also taken out liability insurance forpharmacists in all its pharmacies as a precautionary
measure. However, in the case of a major dispensing error
leading to loss of public trust, financial losses from lawsuits,
or other losses, there could be an effect on theperformance of pharmacies.

E. Consumption tax
Under the Consumption Tax Act, dispensing sales are notsubject to consumption tax, but pharmaceuticals purchasedby our Group are taxable. Consequently, consumption
tax paid by our Group on purchases is recorded asconsumption tax on the statement of income as part ofdispensing cost of sales. When consumption tax was
introduced and later increased, the increase was taken into
account in drug price revisions and the company was alsoable to have it taken into account when negotiating with our
suppliers. However, if future rises in consumption tax are notreflected in drug prices or our suppliers’ prices, there could
be an effect on the performance of pharmacies.

F. Recruitment of pharmacists and the pharmacy
opening plan
Under the Pharmaceutical and Medical Device Act, a fixed
number of pharmacists are required at pharmacies, andunder the Pharmacists Act, dispensing duties must be
performed by pharmacists. Our Group presently hasenough pharmacists at all its pharmacies to meet thecriteria of the Pharmaceutical and Medical Device Act. Our
company also has a pharmacist recruitment plan based on
its new pharmacy opening plan and by implementing
recruitment activities and supplementing the main period ofhiring in recruitment season with initiatives throughout theyear, our Group expects to recruit enough pharmacists
such that there will be no obstacles to its pharmacy
opening plan. However, if it proves impossible to recruit
enough pharmacists or if our Group’s pharmacy opening
plan is delayed and recruitment nonetheless goes ahead,so that for a time there are more pharmacists than areneeded, there could be an effect on the performance ofpharmacies.

Company Profile

A. Rental transactions

B. Responding to technological advances
5. DtoD promotion

C. Consumption tax

4. Leasing / installment
A. Changes in interest rates

6. Personal information protection

Stock Information

The Group handles personal information as defined in theProtection of Personal Information Act in all of its various
businesses. In 2006, our Group acquired PrivacyMark
certification and we are working to prevent personal
information leaks. However, in the event that personal
information was leaked, loss of public trust, financial losses
from lawsuits, or other losses could affect our
performance.

Corporate Information

Ultralow interest rate policies in the leasing/installment
business environment have led to increasingly fierce
competition with other companies over lease fees.
Leasing/installment contracts and profit margins areaffected by changes in interest rates.

Financial Section

If consumption tax is increased but not reflected in patients’
TV rental fees or absorbed through the cutting of costs, it
could have an effect on the performance of the rental
division.

The DtoD system supports practice succession, healthcare
cooperation, and doctors transferring practice. The system
helps to solve problems by comprehensively providing
assistance to doctors wishing to start or change practice,doctors in practice seeking successors, and medical
institutions looking for excellent doctors and healthcare
partners. Revenues from the DtoD system come not only
directly in such forms as introduction fees as part of doctortransfer support and consulting fees for doctors starting
new practices, but also indirectly through related businessexpansion that increases productivity and profitability.
As the number of employed physicians, medical practiceowners, and medical institutions registered in the systemincreases, DtoD results will steadily improve. As afundamental strategy, Sogo Medical plans to further
promote and strengthen the DtoD system and expand its
business. However, if DtoD business expansion does not
go according to plan, it could have an effect on our
performance.

Corporate Governance

The shift to digital-only terrestrial broadcasting in July 2011is now complete, but if it became necessary to respond toa similar advance in technology, while there would be thepossibility of exploiting new business opportunities such as
through product development, the obsolescence ofexisting equipment and subsequent investment could havean effect on the performance of the rental division.

Business Performanceby Segment

To increase the efficiency of funds collection, Sogo Medicalsells part of the property from the contracts it acquires
during the fiscal year and records it on the statement ofincome as product sales. These sales transactions refer tosales to another leasing company of the equipment fromthe lease contracts or installment contracts signed withcustomers. We collect receivables from customers and paythat money to the leasing company. We profit from thedifference between the purchasing price from the supplierand the selling price to the leasing company. If sales
increase, unearned lease contract and installment
receivables decrease and revenue from lease fees andinstallment sales also decrease.

Action Reports

Sogo Medical operates a system whereby patients pay touse TVs and other items that are placed in medical
institutions based on rental contracts. Net sales from rental
transactions (revenue from rental fees) vary based on thenumber of TVs and the rental fee. Presently, there is a
downward trend in the number of beds, which is having aknock-on effect on the number of TVs in medical
institutions. Revenue from rental fees is affected by the
number of beds, their occupancy rates and the number ofhours patients spend watching TV.

B. Product sales

President’s Message

3. Rental

Annual Report 2017 55

Consolidated Financial Statements
Consolidated Balance Sheet
2015

2016

2017

(Apr. 1, 2014–
Mar. 31, 2015)(Apr. 1, 2015–
Mar. 31, 2016)(Apr. 1, 2016–
Mar. 31, 2017)

AssetsCurrent assets
Cash and deposits

4,988

6,376

10,830Notes and accounts receivable-trade

17,485

19,617

21,395

Accounts receivable-installment sales

1,806

1,874

1,821

Lease receivables and investment assets

1,701

1,403

911

Inventories

7,543

6,583

6,557

628

789

811

2,450

2,566

2,710

(19)

(20)

(38)

36,584

39,18944,999Property for lease

5,929

5,177

4,823

Buildings and structures, net

8,763

11,716

13,312

Land

3,992

4,109

4,720

Other, net

3,116

2,539

2,216

Total property, plant and equipment

21,801

23,54225,072

Goodwill

5,252

5,833

9,703

Other

1,031

1,201

1,537

Total intangible assets

6,283

7,034

11,241

Investment securities

1,566

1,134

1,327

Deferred tax assets

468

507

445

3,107

3,231

3,673

(0)

(19)

(0)

5,141

4,853

5,446

33,22635,431

41,76069,811

74,62186,760

Deferred tax assets
Other
Allowance for doubtful accounts
Total current assets
Noncurrent assets
Property, plant and equipment

Intangible assets

Investments and other assets

Other
Allowance for doubtful accounts
Total investments and other assets
Total noncurrent assets
Total assets

56

SOGO MEDICAL CO., LTD.

Company Profile

2015

2016

2017

(Apr. 1, 2014–
Mar. 31, 2015)(Apr. 1, 2015–
Mar. 31, 2016)(Apr. 1, 2016–
Mar. 31, 2017)

18,841

18,59020,258

360

610

415

2,903

4,046

4,607

Lease obligations

363

267

256

Accrued expenses

2,072

2,972

2,629

Income taxes payable

1,452

1,572

1,762

190

182

187

Other

3,925

2,994

3,112

Total current liabilities

30,10931,23733,228Long-term loans payable

6,835

9,204

15,171

Lease obligations

1,028

714

920

Long-term accounts payable-installment purchase

3,055

1,938

2,160

Other

2,260

1,880

2,397

Total noncurrent liabilities

13,18013,737

20,65043,29044,97553,879

Capital stock

3,513

3,513

3,513

Capital surplus

4,136

5,566

5,566

Retained earnings

19,25520,94424,012

Treasury stock(1,044)

(920)

(920)

Total shareholders’ equity

25,861

29,10432,172

Valuation difference on available-for-sale securities

475

338

432

Total accumulated other comprehensive income

475

338

432

184

203

275

26,52129,64632,88069,811

74,62186,760Liabilities

President’s Message(¥ million)

Current liabilities
Short-term loans payable
Current portion of long-term loans payableNoncurrent liabilities

Shareholders’ equity

Non-controlling shareholders
Total liabilities and net assets

Stock Information

Total net assets

Corporate Information

Accumulated other comprehensive income

Financial Section

Net assets

Corporate GovernanceTotal liabilities

Business Performanceby Segment

Deferred profit on installment sales

Action Reports

Notes and accounts payable-trade

Annual Report 2017 57

Consolidated Financial Statements
Consolidated Statements of Income(¥ million)

2015

2017

(Apr. 1, 2015–
Mar. 31, 2016)(Apr. 1, 2016–
Mar. 31, 2017)

Net sales

107,945

120,776

122,216

Cost of sales

93,139103,178

103,761

Gross profit

14,805

17,59818,454

Selling, general and administrative expenses

9,787

11,511

12,206

Operating income

5,017

6,087

6,248

Non-operating income

368

287

447

Dividends income

20

22

25

Rent income

38

31

21

Insurance cancellation refunds

106

36

21

−

−

168

202

196

209

Non-operating expenses

159

178

254

Interest expenses

75

75

81

Loss on valuation of investments securities

17

−

−

Loss on lease cancellation

−

−

35

Gain on sales of investment securities
Other

Other

65

103

137

Ordinary income

5,227

6,196

6,440

Extraordinary loss

51

1,371

48

Impairment loss

51

1,014

48

Loss on sales of stocks of subsidiaries and affiliates

−

87

−

Loss on valuation of investment securities

−

270

−

Income before income taxes

5,175

4,824

6,391

Income taxes-current

2,236

2,569

2,452

Income taxes-deferred

163

(68)

87

Total income taxes

2,400

2,501

2,540

Net income

2,774

2,323

3,851

0

4

71

2,774

2,318

3,779

Net income attributable to non-controlling shareholders
Net income attributable to owners of the parent

58

2016

(Apr. 1, 2014–
Mar. 31, 2015)

SOGO MEDICAL CO., LTD.

Company Profile

2015(¥ million)

2016

2017

(Apr. 1, 2014–
Mar. 31, 2015)(Apr. 1, 2015–
Mar. 31, 2016)(Apr. 1, 2016–
Mar. 31, 2017)

2,774

2,323

3,851

Valuation difference on available-for-sale securities

234

(136)

94

Total other comprehensive income

234

(136)

94

3,009

2,186

3,945

3,009

2,181

3,873

0

4

71

Net income

President’s Message

Consolidated Statements of Comprehensive Income

Other comprehensive income
Action Reports

Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners of the parent
Comprehensive income attributable to non-controlling shareholders(¥ million)
Accumulated othercomprehensive income

Shareholders’ equity
Total
shareholders’equityValuation difference
on available-forsale securities

Non-controllingshareholders

Net
assetsBalance on March 31, 2014

3,513

4,136

17,058(1,043)

23,665240

28

23,934

Dividends from surplus

−

−

(577)

−

(577)

−

−

(577)

Net income attributable toowners of the parent

−

−

2,774

−

2,774

−

−

2,774

Purchase of treasury stock

−

−

−

(1)

(1)

−

−

(1)

Disposition of treasury stock

−

−

−

−

−

−

−

−

Net changes of items otherthan shareholders’ equity

−

−

−

−

−

234

156

390

Balance on March 31, 2015

3,513

4,136

19,255(1,044)25,861

475

184

26,521Dividends from surplus

−

−

(629)

−

(629)

−

−

(629)

Net income attributable toowners of the parent

−

−

2,318

−

2,318

−

−

2,318

Purchase of treasury stock

−

−

−

(708)

(708)

−

−

(708)

Disposition of treasury stock

−

1,429

−

832

2,262

−

−

2,262

Net changes of items otherthan shareholders’ equity

−

−

−

−

−

(136)

18

(117)

Balance on March 31, 2016

3,513

5,566

20,944(920)

29,104338

203

29,646

Dividends from surplus

−

−

(710)

−

(710)

−

−

(710)

Net income attributable toowners of the parent

−

−

3,779

−

3,779

−

−

3,779

Purchase of treasury stock

−

−

−

−

−

−

−

−

Disposition of treasury stock

−

−

−

−

−

−

−

−

Net changes of items otherthan shareholders’ equity

−

−

−

−

−

94

71

166

Balance on March 31, 2017

3,513

5,566

24,012(920)

32,172432

275

32,880Stock Information

Treasurystock

Corporate Information

Retainedearnings

Financial Section

Capitalsurplus

Corporate GovernanceCapitalstock

Business Performanceby Segment

Consolidated Statements of Change in Net Assets

Annual Report 2017 59

Consolidated Financial Statements
Consolidated Statements of Cash Flows(¥ million)

2015(Apr. 1, 2014–
Mar. 31, 2015)

Net cash provided by (used in) operating activities
Income before income taxes
Depreciation and amortization
Goodwill amortization
Impairment loss
Interest and dividends income
Capital cost and interest expenses
Decrease (increase) in notes and accounts receivable-trade
Decrease (increase) in accounts receivable-installment sales
Net decrease (increase) in lease receivables and investment assets
Decrease (increase) in inventories
Increase (decrease) in notes and accounts payable-trade
Increase (decrease) in other assets/liabilities
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Purchase of own-used assets
Proceeds from sales of own-used assets
Purchase of property for lease
Purchase of investment securities
Purchase of investments in subsidiaries resulting in change in scope of consolidation
Other, net
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayments of lease obligations
Repayments of installment payables
Cash dividends paid
Purchase of treasury stock
Net cash provided by (used in) financing activities
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period

60

SOGO MEDICAL CO., LTD.

2016

2017

(Apr. 1, 2015–
Mar. 31, 2016)(Apr. 1, 2016–
Mar. 31, 2017)

5,175
3,746
805
51
(22)
131
1,050
(104)
313
(953)
(1,735)
(223)
33
8,269
22
(131)
(2,108)
6,051

4,824
3,836
1,021
1,014
(23)
112
(993)
(75)
298
1,253
(1,436)
(798)
620
9,652
23
(111)
(2,559)
7,004

6,391
3,902
987
48
(27)
105
1,127
57
491
751
(670)
(193)
258
13,23027(103)(2,222)
10,931(3,767)
−
(359)
(270)
(579)
(318)
(5,296)(4,233)
172
(876)
(11)
(147)
115
(4,981)(3,152)4(264)−(6,440)(80)(9,933)9
4,749(3,211)(512)(2,094)(577)(1)(1,637)
(882)
5,851
4,968

64
6,485
(3,001)(751)(2,092)
(629)
(708)
(635)
1,387
4,968
6,356

(224)
10,933(4,446)(324)(1,924)
(710)
−
3,301
4,299
6,356
10,655

Company Profile(¥ million)

2015

Apr. 1, 2014–Mar. 31, 2015

Sales
Unaffiliated sales

Total
Segment profit
Segment assets

Reconciliations* 2

Consolidated
amounts* 3

Others*1

Total

105,6132,331

107,945—

107,945

2

796

4,823

5,620

(5,620)—37,796
2,643
15,272

106,410
4,996
56,156

7,155
620
5,698

113,565
5,617
61,855(5,620)
(599)
7,955

107,945
5,017
69,811

Nishinihon

KyushuTotal

39,61428,20537,79355738

39,670842
25,02928,943
1,510
15,8542016

Apr. 1, 2015–Mar. 31, 2016

Intersegment sales
Total
Segment profit
Segment assets

Others*1

Total

Reconciliations* 2

Consolidated
amounts* 3

116,920

3,855

120,776—

120,776

0

601

6,020

6,622

(6,622)—39,906
2,854
16,635

117,5226,165
61,180

9,875
490
4,745

127,398
6,655
65,926(6,622)
(568)
8,695

120,776
6,087
74,621

Nishinihon

KyushuTotal

43,83833,17639,90540

560

43,8791,228
25,82333,737
2,082
18,7202017

Sales
Unaffiliated sales
Intersegment sales
Total
Segment profit
Segment assets

Reportable Segments

Reconciliations* 2

Consolidated
amounts* 3

Total

118,059

4,157

122,216—

122,216

−

369

5,455

5,825

(5,825)—37,541
2,576
15,045

118,428
6,182
70,793

9,613
856
5,239

128,042
7,038
76,032(5,825)(790)
10,727122,216
6,248
86,760

Nishinihon

KyushuTotal

48,05432,46337,541

1

368

48,055
1,408
37,691

32,831
2,197
18,056

Notes:*1. Others includes business segments that are not classified as reportable segments, which includes wholesale distribution of pharmaceutical products and healthcare
information services.
*2. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (–¥790 million) included elimination of intersegment sales (¥18 million) and overall corporate expenses (–¥809 million).
The overall corporate expenses were mainly classified as general and administrative expenses and were not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥10,727 million) included elimination investment against equity (–¥17,598 million) and overall corporate assets(¥29,410 million). The overall corporate assets were mainly classified as parent company deposits and were not allocated to reportable segments.
*3. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

Stock Information

Others*1

Higashinihon

Corporate Information

Apr. 1, 2016–Mar. 31, 2017

Financial Section

Notes:*1. Others includes business segments that are not classified as reportable segments, which includes wholesale distribution of pharmaceutical products and healthcare
information services.
*2. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (–¥568 million) included elimination of intersegment sales (¥1 million) and overall corporate expenses (–¥570 million).
The overall corporate expenses were mainly classified as general and administrative expenses and were not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥8,695 million) included elimination investment against equity (–¥9,562 million) and overall corporate assets(¥18,902 million). The overall corporate assets were mainly classified as parent company deposits and were not allocated to reportable segments.
*3. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

Corporate Governance

Sales
Unaffiliated sales

Reportable Segments
Higashinihon

Business Performanceby Segment

Notes:*1. Others includes items such as TV rental for hotels, which are not classified as reportable segments.
*2. Reconciliations were as follows:(1) Reconciliation for reportable segment loss (–¥599 million) included elimination of intersegment sales (¥26 million) and overall corporate expenses (–¥572 million).
The overall corporate expenses were mainly classified as general and administrative expenses and were not allocated to reportable segments.
(2) Reconciliation for reportable segment assets (¥7,955 million) included elimination investment against equity (–¥8,464 million) and overall corporate assets(¥17,150 million). The overall corporate assets were mainly classified as parent company deposits and were not allocated to reportable segments.
*3. Reportable segment profits were reconsolidated with the operating income of the consolidated income statement.

Action Reports

Intersegment sales

Reportable Segments
Higashinihon

President’s Message

Segment Information

Annual Report 2017 61

Corporate Information (As of June 1, 2017)
Licensed personnel (including part-timers)

Corporate Outline
Company Name
Head Office
FoundedCapitalListedBanking
Relationships

Group
Companies

Dispensing
Pharmacies

Bases
Employees

Sogo Medical Co., Ltd.
Fukuoka Tenjin Center Bldg. 16F, 2-14-8 Tenjin, Chuo-ku, Fukuoka
June 12, 1978
¥3,513 million
First Section, Tokyo Stock Exchange. (Code 4775)
The Bank of Fukuoka, Ltd., Mizuho Bank, Ltd., The 77 Bank, Ltd., The
Kita-Nippon Bank, Ltd., The Bank of Yokohama, Ltd., The Gunma Bank, Ltd.,The Joyo Bank, Ltd., The Chiba Bank, Ltd., The Chiba Kogyo Bank Ltd., The
Musashino Bank, Ltd., The Shizuoka Bank, Ltd., The Hachijuni Bank, Ltd., The
First Bank of Toyama, Ltd., The Bank of Kyoto, Ltd., The Juroku Bank, Ltd., The
Senshu Ikeda Bank, Ltd., The Kiyo Bank, Ltd., The Chugoku Bank, Ltd., The
Hiroshima Bank, Ltd., The San-in Godo Bank, Ltd., The Shikoku Bank, Ltd., The
Kitakyushu Bank, Ltd., The Miyazaki Bank, Ltd., The Oita Bank, Ltd., The Bank ofSaga, Ltd., The Eighteenth Bank, Ltd., The Higo Bank, Ltd., The Kagoshima
Bank, Ltd., The Nishi-Nippon City Bank, Ltd., The Chikuho Bank, Ltd., The
Miyazaki Taiyo Bank, Ltd., The Bank of Tokyo-Mitsubishi UFJ, Ltd., Mitsubishi
UFJ Trust and Banking Corporation, Sumitomo Mitsui Banking Corp., Sumitomo
Mitsui Trust Bank, Limited, Development Bank of Japan Inc., The Norinchukin
Bank, etc.
Somtech Co., Ltd. (design and construction of hospitals, clinics and assisted
living facilities)
Sogo Medipro Co., Ltd. (paramedical staff introduction and dispatch)
Sogo Real Estate Co., Ltd. (lease and management business for medical facilities)
S.M.E Co., Ltd. (wholesale of pharmaceuticals)
Sogo Care Network Co., Ltd. (assisted living facility business)
Sun Villa Co., Ltd. (Senior living associated with nursing service)
Hokendohjinsha Inc. (healthcare information service)
GM Co., Ltd. (interior finishing of hospitals and clinics)
Sogo Medical Pharmacy Chubu Co., Ltd., Aoba Pharmacy Co., Ltd., Maeda &Co., Ltd., Yataya Pharmacy Co., Ltd., Taikodo Yakkyoku Honten Co., Ltd.,
Beauty Drug Saito Co., Ltd., Pharma Systems Co., Ltd., Shokando Co., Ltd.,
Miyonodai Pharmacy Co., Ltd., Motoki Pharmacy Co., Ltd., Ai Dispensing
Pharmacy Co., Ltd., Kanamecho Pharmacy Co., Ltd., Tsukasa Dispensing
Pharmacy Co., Ltd., Koyu Co. Ltd., Mitsuhira Co. Ltd., Flower Dispense Co.,
Ltd., Green Pharmacy Co., Ltd., Koyama Co., Ltd., Mitsuyasu Dispensing
Pharmacy Co., Ltd., Kitano Dispensing Pharmacy Co., Ltd., KS Medicine
Dispensing Pharmacy Co., Ltd.
710 (3 offices, 23 branches, 4 sales offices, 1 satellite office, 677 pharmacies, 2
in-hospital stores)
5,711 workers (4,296 full-time workers, 1,415 part-time workers)

Pharmacists

2,520

Registered nurses

61

Public health nurses

16

Midwives

7

Registered dietitians

10

Social workers

4

Psychiatric social workers

15

Care workers

69

Care managers

19

Attorneys

1

CPAs

1

Tax accountants

1

Clinical psychologists

25

Industrial counselors (including senior counselors)

12First-class architects

17Interior coordinators

4

Real estate transaction specialists

57

Healthcare management consultants registeredwith the JAHMC

39

Personnel certified for start-up support;
PPI Level III or above

98

Personnel certified for recruitment;
PPI Level III or above

113

Personnel certified for pharmacy management;
PPI Level III or above

90

Note: PPI is our internal certification with Level V as the highest.
Figures are valid as of April 1,2017.

Corporate Timeline
Jun. 1978

Oct. 1987
Nov. 1987
Jun. 1988
Oct. 1989
Nov. 1989
Oct. 1994
Aug. 2000
Apr. 2001

Sep. 2001
Oct. 2001
Jan. 2002

Dec. 2003
Apr. 2005
Aug. 2007

62

SOGO MEDICAL CO., LTD.

Established Sogo Medical Leasing Co., Ltd. with a capitalizationof ¥20 million, for business purposes of leasing medical
equipment and consulting for medical institutions.
Started real estate agency and practice inheritance businesses.
Started the TV rental business for patients.
Established the first Sogo Pharmacy.
Name changed to Sogo Medical Co., Ltd.
Started the “Green Members” (now “Succeed Members”)
member system targeted to medical personnel.
Started the planning, design, and construction of medical
facilities.
Listed on Second Section of Tokyo Stock Exchange.
Acquired all outstanding shares of Orix Media Supply Co., Ltd., acompany that carried out TV rentals for hospitals, etc.
Began operation of stores within hospitals.
Listed on First Section of Tokyo Stock Exchange.
Started the DtoD system.
Acquired all outstanding shares of the pharmacies Hello Medical
Co., Ltd., Hello Network Co., Ltd. and Hase Dispensing
Pharmacy Co., Ltd.
Started temporary introduction and placement service of othermedical staff.
Started hospital operational management contracting.
Formed business alliance with Mitsui and Co., Ltd.

Sep. 2007
Jun. 2010
Jan. 2011
Oct. 2011
Nov. 2011
Jun. 2012
Nov. 2012
Aug. 2013
Oct. 2014
Mar. 2015
Jun. 2015
Aug. 2015
Feb. 2016
Dec. 2016

Conducted allocation to third party to Mitsui & Co., Ltd.
Acquired all outstanding shares of Aoba Pharmacy Co., Ltd., apharmacy.
Started wholesale marketing of medical and pharmaceutical products.
Acquired all outstanding shares of Maeda Pharmacy Co., Ltd., apharmacy.
Started long-term care service businesses, such as residential homes
for the elderly.
Acquired all outstanding shares of Sun Villa Co., Ltd., a fee-based
residential home for the elderly.
Acquired all outstanding shares of Yataya Pharmacy Co., Ltd., apharmacy.
Acquired all outstanding shares of pharmacies Taikodo Yakkyoku
Honten Co., Ltd. and TM Yakkyoku Co., Ltd.
Absorption-type merger with pharmacies Taikodo YakkyokuHonten Co.,
Ltd. and TM Yakkyoku Co., Ltd.
Acquired 61.6% of shares of Hokendohjinsha Inc., a healthcare
information service company.
Acquired all outstanding shares of Shokando Co., Ltd.
Transferred all shares of Sogo Media Supply Co., Ltd.
Acquired 75% of shares of GM Co., Ltd., a company that performs
interior construction at medical facilities.
Acquired shares of Miyonodai Pharmacy Group.

Company Profile

Stock Information (As of March 31, 2017)

Major Shareholders (Top 10 Largest Shareholders)Name of Shareholder

Number of Shareholders

6,497 shareholders

Number of Unit Shareholders

5,839 shareholders

Mitsui & Co., Ltd.
GOLDMAN SACHS INTERNATIONAL(Standing proxy: Goldman Sachs Japan Co., Ltd.)Tokyo Century Corporation
The Bank of Fukuoka, Ltd.
Hirosada Oyamada
Japan Trustee Services Bank, Ltd. (trust account)
The Kitakyushu Bank, Ltd.
THE CHASE MANHATTAN BANK, N.A. LONDON SPECIAL OMNIBUS SECS
LENDING ACCOUNT (Standing proxy: Mizuho Bank, Ltd.)
Employees Shareholders’ Association of Sogo Medical
The Master Trust Bank of Japan, Ltd. (trust account)

Number of Shares Held(thousands of shares)

Shareholding
Ratio

3,819

25.51%

1,191

7.95%

722
615
453
451
404

4.82%
4.10%
3.03%
3.01%
2.69%

323

2.15%

235
202

1.57%
1.35%

Breakdown of Shares by Type of Shareholder
Financial Institutions
3,169 thousand shares(20.7%)

Treasury Stock
372 thousand shares (2.4%)

Individuals
and Others
3,733 thousand shares(24.3%)

15,340

Other Companies
61 shareholders (0.9%)

Securities Firms
23 shareholders(0.4%)

Securities Firms
103 thousand shares(0.7%)

6,497

thousandsharesForeign Companies, etc.
3,343 thousand shares (21.8%)

Foreign Companies, etc.
119 shareholders (1.8%)

Number of
Shareholders

Other Companies
4,618 thousand shares (30.1%)

Individuals and Others
6,262 shareholders (96.4%)

Corporate Governance

Number of
SharesFinancial Institutions
32 shareholders (0.5%)

Business Performanceby Segment

Ratios of controlling shares are calculated excluding Sogo Medical treasury stock (372 thousand shares).

Action Reports

Total Number of Issued Shares 15,340,156 shares

President’s Message

Shareholder Composition

Share Price and Trading Volume
Financial Section

Share Price (yen)
5,000
4,500
4,000
3,500

Corporate Information

3,000
2,500
2,000
1,500
0

Trading Volume (ten thousand shares)
150
100

0

4

5

6

7

8 9 10 11 12 1
2014

2

3

4

5

6 7
2015

8

9 10 11 12

1

2

3

4

5

6 7 8
2016

9 10 11 12

1

2

3 4
2017

(On April 1, 2015, we carried out a 2-for-1 split of common stock. Figures on share price and trading volume prior to and including the fiscal year ending
March 31, 2015 were calculated assuming that the stock split had been performed.)5

Stock Information50

For further inquiries, please contact: Sogo Medical Co., Ltd., Public and Investor Relations Division
TEL: +81-92-713-9181 E-mail: ir@sogo-medical.co.jp http://www.sogo-medical.co.jp/english/

Annual Report 2017 63

[ Memo ][ Memo ]Fukuoka Tenjin Center Bldg. 16F, 2-14-8 Tenjin, Chuo-ku, Fukuoka
www.sogo-medical.co.jp/english

Printed in Japan