Integrated Report2023

Integrated Report

2023

CONTENTSSUNDRUG’s Values and Strategies
01

Table of contents

02

Management philosophy

03

History of SUNDRUG

05

SUNDRUG Group in numbers

06

Areas of business07

Materiality

09

Value creation process

11

Financial and non-financial highlights

13

Message from the President

19Management issues and Medium-term Business Plan

23

Sustainable management promotion policy

Editorial policy

Initiatives on environment
24

Environment

27

Initiatives based on TCFD recommendations

Applicable period
Some contents for the fiscal year
ended March 31, 2023 (April
2022–March 2023) include
activities and forecasts before orafter that period.

Initiatives on society
31

Human resources

33

Diversity & inclusion

35

Health and safety of employees

37

Employee roundtable discussion

41

Quality of customer service

43

Business partners

45

Human rights

47

Contribution to society

48

Coexistence with local communities

Notes concerning
forward-looking statements
The Integrated Report 2023
contains projections and forwardlooking statements regarding the
SUNDRUG Group’s plans andstrategies for the future. Thesestatements are not historical facts,
but rather assumptions and beliefs
based on information currently
available. Actual results may differ
from our projections due to risks
and uncertainties associated withfactors including future economic
trends, consumer spending,market demand, taxation and othervarious systems.

Governance49

Dialogue between officers

51

List of officers

53

Corporate governance58

Risk management

60

Compliance

61

Information security and privacy

The Integrated Report 2023
reports on the SUNDRUG Group’sbusiness performance for theperiod covered and its efforts tocreate value over the medium- tolong-term. It also links and explains
our approach to sustainability as
well as financial and non-financial
information to help shareholders,investors, and other stakeholders
better understand the SUNDRUG
Group and deepen dialogue.

Management data
62

Consolidated financial statement

65

Company information

66

Stock information

We hold high standards and start immediately
Businesses

About the SUNDRUG GroupThe SUNDRUG Group comprises SUNDRUG CO.,LTD.
and its consolidated subsidiaries Seikodo Pharmacy
Corporation., Sundrug Plus Co., Ltd., DIREXCORPORATION, Daiya Inc., and SUNDRUG Dream
Works Co., Ltd.
01

SUNDRUG CO., LTD. Integrated Report 2023

from what we can do right at the moment.

Segments

SUNDRUG CO., LTD.

Drugstore business

Seikodo Pharmacy Corporation

Drugstore business

Sundrug Plus Co., Ltd.

Drugstore business

DIREX CORPORATION

Discount store business

Daiya Inc.

Drugstore business

SUNDRUG Dream Works Co., Ltd.

Drugstore business/Special-purpose
subsidiary in accordance with the provisionsof Article 44 of the Act to Facilitate the
Employment of Persons with Disabilities

Management philosophy

Illuminate
a corner of the world.

By making each and every individual shine,
we try to illuminate even just one corner of the world.
We hope that as our friends growand our small lights come together,
they will become a bigger light.

SUNDRUG CO., LTD. Integrated Report 2023

02

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

H i s t o r y o f S U N D RU G
Since its founding in 1957, the Company’s guiding principle has been to provide

Fiscal year ending March 31, 2026 (plan)“safety, reliance, and convenience” from a customer-focused mindset; that is to always act

Consolidated net sales

from the perspective of ensuring customer satisfaction.

Number of stores
1957 - 1979

1980 - 1994

1957

1980

Founded by the late
Honorary Chairman
Yukimasa Tada
in Setagaya Ward, Tokyo

Reorganized Sundrug Y.K. into a joint stock company andestablished SUNDRUG CO., LTD.

1995 - 2000

2001 - 2006

2007 - 2012

1996

2002

2007

Made Taisei Home
Aid Co., Ltd.
a subsidiary

1980
Opened suburban drugstore in Hachioji City, Tokyo

Stock reassigned to
the First Section of
the Tokyo Stock
Exchange

1998

1985

2020

Sundrug Tokai Co.,
Ltd. merged

2022

Made Sundrug Plus
Co., Ltd. a subsidiary

1987
Relocated headquarters to Fuchu City, Tokyo

Made DIREXCORPORATIONa subsidiary

1994

Made Daiya Inc.
into a subsidiary
2023

Made Seikodo
Pharmacy Corporationa subsidiary1965

1,000,000

Sundrug Pharmacies
Co., Ltd. merged

2014

2008

2009

Started online sales and order information system

Established Sundrug Y.K.
Started chain operations

Made Act Co., Ltd.
a subsidiary

1,750 stores2019 -

2013

Subsidiary Act
Co., Ltd. merged

Made Komine Co., Ltd.
a subsidiary2013 - 2018

¥1 trillion

800,000

Achieved

1,380 stores
2016
Achieved

1,000 stores(1,027 stores)

Started over-the-counter trading

600,000

2011
Made Sundrug TokaiCo., Ltd. a subsidiary

2008

Number of stores

Achieved

Drugstore business

500 stores

Discount store business(503 stores)

400,000

Net sales

1998

200,000

Achieved

100 stores(107 stores)

Founded
0

1957

03

1965

SUNDRUG CO., LTD. Integrated Report 2023

1980

1990

2000

2010

2020

2023

2026 Net sales

SUNDRUG CO., LTD. Integrated Report 2023

(Million yen)04

Initiatives onenvironment

Values and strategies

SUNDRUG Group in Numbers
Number of employees (including part-timers)¥ 690,462 million

15,083

Change in net sales YoY

Drugstore business,
Dispensing pharmacy
business

1,016%

GovernanceManagement data

Areas of businessNet sales+6.4

Initiatives on society

Drugstore businessstores58.2

41.8

Performance ratio
by segment%

Discount store
business

364

Discount store business%stores* Calculated with sales of merchandise to the discount store business excluded from the drugstore business

Drugstore businessDr ugstore mar ket

Other 4.3%

Approximately 50 years have passed since the creation of the “drugstore” business format. In fiscal 2022,
the market grew to 8.7 trillion yen, accounting for 5.6% of the total retail market.
In the past three years, we have had to face the unforeseen situation posed by the outbreak of
COVID-19, but by being able to capture the demand for COVID-19-related products such as masks,
disinfectants, and test kits, as well as daily necessities and other items, we have been able to secure ourposition as part of the “basic infrastructure for daily life.”
By continuing to expand fresh food offerings and enhancing one-stop shopping functions, we expect
the market to reach 10 trillion yen by 2025.
In the future, as Japan will face a super-aging society with an ultra-low birthrate, we believe that the role
expected for drugstores must be further promoting “self-medication” and functioning in close-tandem
as regional healthcare stations and self-medication centers. In addition, we are expected to “strengthen
initiatives such as measures to assist shopping refugees using pharmaceuticals, etc.” We believe that“the drugstores, which sell a range of daily necessities and may offer dispensing functions,” will serve as
key bases for such shopping refugees by offering at-home medication dispensing, providing information
related to nursing care, and delivering pharmaceuticals to remote locations.

¥8,713.4 billion
Up 2.0% YoY

Share in overall retail market:

Market growth rate

Number of stores(100%)(stores)

15,000.0

1.5

25,00012,000.0

105.9

105.5

106.2

9,000.0
6,491.6

6,850.4

7,274.4

110.5

8,036.3

106.3
8,540.8

114.8
102.0

(Forecast)
8,713.4 10,000.0

1.2

103.2

427.4
411.2

%

23,00021,2840.9

102.1

21,00020,22821,725

101.7
22,084

20,631

Number of stores (stores)
451.5

Increase

102.0

Foods 65.9%

Net sales (Billion yen)

1.2
103.6

Net sales
breakdown

29.8%(100%)

103.5

21.5%

Home care 20.7%

Beauty care

Number of stores(Billion yen)

Health & beauty

Health care 30.0%

Net sales
breakdown

Net sales
breakdown%

Share in overall commercial sales:

Market size and growth rate
Market size

5.6
1.3

Others 12.6%

Foods 15.2%

2019

Total sales in the drug market

Discount store business

1.0
0.8

19,5346,000.0

0.6

19,0000.6

3,000.0

0.3

17,0000.4

015,0002020

422.2 424.8

2021

2022

2023

972
870

876

2019

2020

1,016
213.6

903

2021

Net sales (Billion yen)

2022

2023

2019

230.0

2020

255.7 269.8

2021

2022

Number of stores (stores)
288.5

2023

277

292

2019

2020

313

2021

335

2022

364

2023

Drugstore business

Discount store businessOur goal is to develop stores that win the trust of
our customers in accordance with our motto of“safety, reliance, and convenience.” In order toattract as many customers as possible to our stores,
we are promoting the development of attractivelooking stores that meet the diversified needs of ourcustomers. At the same time, we are also promoting
the development of stores where our speciallytrained pharmacists proactively provide customers
with counseling to provide pharmaceuticals withenhanced added value, enabling customers toundergo consultation with peace of mind. As aunique initiative in the industry, we have a “two lines
per store system, with two roles” dividing store staff
into two groups: counseling and sales staff andoperational staff. By dividing specialized works, we
provide greater safety, reliance, and convenience to
our customers.

DIREX is expanding its store openings nationwide
with the goal of opening 1,500 stores. We are
currently developing “new types of stores thatcombine the elements of a drugstore and asupermarket into a discount store,” as well as“community-based stores that meet local needs” andoffer “the most necessary products for daily life at alower price than anywhere else.”W e are always thinking of the best and most convenient way we canprovide our customers with our services. This is why our stores (with some
exception) are open 365 days a year, from 9:00 a.m. through 10:00 p.m.
such that everybody can enjoy shopping with us without worry and at atime that works for them.
O ur discount store business handles a wide range of products, including
25,000 items of necessities such as food, daily necessities, clothing,cosmetics, home electric appliances, car accessories, sporting and leisuregoods, and alcoholic beverages.
T he basis of our pricing strategy is to offer products at lower prices at all
times, and the key point is to maintain these low prices at all times (Everyday
Low Prices) not just for “specific featured products” but for all products.

Dispensing pharmacy business

0

2017

2018

2019

2020

2021

2022

2025

2017

2018

2019

2020

2021

2022

0.2

* FY2022 Survey by JAPAN ASSOCIATION OF CHAIN DRUG STORES

05

SUNDRUG CO., LTD. Integrated Report 2023

The dispensing pharmacy business consists of
two types of dispensing pharmacies: “family caredrugstore pharmacies” and “dispensing specialty
pharmacies located near large hospitals,” which are
uniquely operated as educational institutions thatprovide services and train pharmacists. As aging

of society advances and interest in health gradually
increases, the SUNDRUG Group is dedicated, asa family care drugstore pharmacy, to providing
the types of high-quality medical services that areneeded by local communities to enable as many
people as possible to lead healthy and fulfilling lives.
SUNDRUG CO., LTD. Integrated Report 2023

06

Values and strategies

Materialit yrole.

Identification of ESG themes
based on management
philosophy
STEP

2

Reference and analysis
STEP

3

Identification of candidate
material issues
STEP

4

Discussion by Boardof Directors
STEP

5

Decision

Material issues

E

Process to identify and determine material issues

1 anagement philosophy: “Illuminate a corner of the world”
MM anagement stance “Benefits for all”
M anagement mission “Providing safety, reliance, and convenience”
M anagement means “Think one step ahead and act half a step ahead”

Promotion of environmental
management

SDGs framework andstandards

Board of Directors

S

SDGs
GRI/ISO26000/TCFD
Organizational governance
Human rights
Labor practices
Environment

ESG Committee

Risk and opportunity factors

Participation in the community
Fair operating practices
Consumer issues

Promotion of compliancemanagement

Materiality

Establishment of satisfying
working environment
Risks

OpportunitiesD amage to stores and products on display due tomajor wind and flood damageImplementation of policies and regulations such as
introduction of carbon pricingD ecrease in revenues due to a decrease in thenumber of items purchased and an increase insales of products with price appeal
Decrease in customer trafficI ncrease in difficulty in securing human resourcesIncrease in revenue opportunities due to increased
sales of environmentally friendly productsE nhancement of corporate brand value by handlingenvironmentally friendly products

Policy changes due toincreased social security costsD ecline in revenues due to reductions in drug prices
and dispensing fees

Diversity & inclusionD ifficulty in securing human resources andincreased outflow of human resources due toinadequate working environment and systems

Changes in consumerawareness and lifestyles

Increase in operational costs due to diversified
needs and increased product assortmentL oss of incentive to visit stores and opportunities
for growth due to delays in or misjudgment ofresponses to consumers

Expanded use of IoT anddigital technologyInformation system problems (system failure,
network failure)I ncrease in reputation risk due to information
leakageIncrease in revenue opportunities due to shift to
OTC drugsE asier to secure diverse and talented humanresourcesI mprovement in reputation and corporate brandvalue among society and stakeholders
Increase in revenue opportunities by offering
products that are safe and quality-conscious,
health-conscious, and in line with customer needsIncrease in spending per customer through provisionof merchandise in line with customer needsD ecrease in operational costs associated withhuman labor, etc.
Increase in frequency of purchases andspending per customer through the use of dataI ncrease in revenue opportunities by providing
convenient shopping environments such as
online, apps, etc.
Increase in revenue opportunities throughsales of hygiene products such as masks andsanitizing sprays
Increase in revenue opportunities through salesof alcoholic beverages, groceries, and othereating-at-home products
Maintaining positive relationships with society
and local communities and contributing to theirhealthy development could greatly foster trustand increase the number of fansOccurrence of large-scale
infectious diseasesD ecrease in flow of people and loss of consumption by
overseas visitors to JapanD
 elays or loss of product availability due to supply
chain disruptions
Impact on store operations due to employee infection

Social and local
community relationsL ack of social contribution activities and tenuous
relationships with local communities could damage
the motivation to visit stores and the corporate brand,
resulting in a significant loss of growth opportunities

07

Management data

Direction of initiatives

Examples of major initiativesI ncorporate action on
environmental conservation in
all areas of management andcontribute to the creation of acircular economy and societythat fully and effectively utilizes
resources and energyI ntroduction of solar power
generation
I ntroduction of energy-saving
CFC-free refrigeration andfreezing cases
R eduction of waste by reviewing
procurement and disposal rules
E xpansion of environmentallyfriendly private brand products ake action based on the criteriaTof what is best for our customers,
employees, shareholders,business partners, communities,
society, and the global
environmentP romote fair and appropriate
management with the values
and ethics required of us as acompany and business people
who are members of society,going beyond legal compliance ormulation and dissemination ofF
the Corporate Code of Conduct
E stablishment and disseminationof the Code of Conduct for
Business Partners
D eclaration of Partnership
Building
W hite Logistics - Representationof support for the declaration ofvoluntary actions

 evelop workplaces in whichDhuman resources with diverse
values from various backgrounds
can be themselves and shine
where they areWork to improve thecompetitiveness of the Company
through active human resource
investment, organizational
reform, and enhancement of thepersonnel system to draw out thelatent potential of each employe ertified as a Certified HealthC& Productivity Management
Outstanding Organization
P romotion of health guidance incooperation with health insurance
associations
E xpansion of systems and rules
for work styles
S trengthening training of female
manager candidates

 ork to propose and provide theWhealthcare products and services
necessary for the daily lives of
local customers, provide safety,
reliance, and convenience, andcontribute to the creation of good
cheer and fun in daily lifeC ombine digital (ICT), physical(stores), and format (drugstores,
discount stores, and new formats)to provide customers with new
added valueI mproving quality of customer
service at all customer contact
pointsD evelopment of products andservices that reflect customer
feedback and lifestyles
D evelopment of businesscategories and business models
that will open up opportunities in
the new normal

 pply various viewpoints toA
the management of the Boardof Directors and enhance andstrengthen the system forappropriately determining theoverall direction of the Group andmonitoring its implementation
P roperly manage a wide
range of sustainability risks
to simultaneously maximize
opportunities and minimize
threats

 ppropriate identification ofArisks, analysis and evaluationof business opportunities, andappropriate responses by the
Board of Directors
D isclosure of non-financial
information and promotion of
dialogue with stakeholders
S trengthening IT governance andinformation security

C urrent and future changes in social structure

Topics covered in the analysis

Declining bir thrate andaging societ y
Declining population

GovernanceMateriality and opportunities/risks in the management of the SUNDRUG GroupS

Increase in natural
disasters due to climatechangeInitiatives on society

Five material issues, direction of initiatives, and examples of major initiatives

The SUNDRUG Group has identified material issues (materiality) to prioritize in order to fulfill its social

STEP

Initiatives onenvironment

SUNDRUG CO., LTD. Integrated Report 2023

I ncrease in revenue opportunities by providing
new services such as “health support
pharmacies” and “family care pharmacists”

S
Contribution to healthy,rich lives

G
Promotion of governancemanagement

SUNDRUG CO., LTD. Integrated Report 2023

08

Initiatives onenvironment

Values and strategies

Initiatives on society

GovernanceManagement data

Value creation process
The SUNDRUG Group aims to be a valuable presence in the community by being a retailer that is in daily
contact with customers, by having a mission as a drugstore that provides safety and security and a basefor community health, and by operating stores in an environmentally friendly manner as a member ofsociety that considers the future of the Earth.

Input¥ 220.5 billion

Net assets

creation

Manufacturing capital

Promotion of IoT and DXI nvestment in hardware andsoftwareS upport for and investment
in human resources

StoresDrugstore business

972 stores

Discount store
business

335 stores

Number of membersof digital services

3.12 million IDs

Human capital
Number of Group
employees

Employcapital3,740,395GJ*Total amount of energy used in theabovementioned fiscal year

Foundationfor value creation¥ 690.4 billion

Net sales

Employees
 reation of a comfortableC
working environment
E xpansion of training
opportunities for employeesS upporting diverse work
stylesProfit attributable toowners of parent ¥25.7 billion

CSR

ESG

Corporate
perspective

11.3%

ROE

Means ofdelivering value

Respond to the expectations
and demands of society
including stakeholders
through ourbusiness
activities
Fulfillment
Environment,of corporate
society andsocialgovernanceresponsibility¥ 37.4 billion

Operating profit

Investors’
perspective

Drugstore
Discount store
Online store (e-commerce)

Total assets

A society where the above
goals are feasible xpansion of store openings
E
as physical storesE xpansion of e-commercestoresDevelopment of DX stores¥ 360.6 billion

Net assets¥ 236.3 billion

Promotion of environmental management

Results
Drugstore business
Dispensing pharmacy business

14,239Energy usage*

SDGs

Resolution of social issues

Manufacturing capital(Including part-time employees)

Natural capital

The international community’s perspective

Financial capital

As a drugstore and dispensing pharmacy,
we aim to realize “healthy, rich lives” forthe Japanese people and contribute to
the creation of good cheer and fun inComplementary
daily life.
functions for value¥ 325.7 billion

Outcome(As of March 31, 2023)

Management philosophy

Financial capital
Total assets

OutputCorporate philosophy/value creation process(As of March 31, 2022)

Extend trading areas
Expand target
customer segments
Integrate business formats

Drugstore business

Suburban location: complex stores
Free-standing stores
Station-front location: downtown
and shopping areas

Discount store
business
Number of membersof digital services

幅広い年齢層

Small trading areas

Discount store
business

Changes

StoresPromotion of compliance management
Promotion of governance management

364 stores4.10 million IDs
Establishment of satisfying working environment

Large trading areas

E-commerce/
digital business

1,016 stores

Human capital

Changes in the
management
environment

Increase in natural disasters due to climate change
Occurrence of new infectious diseases
Declining population, rapidly aging society with ultra-low birth rate
Increasing political and economic instability
Policy changes due to increased social security costs
Local community relations
Expanded use of IoT and digital technology
Diversity & inclusion
Changes in consumer awareness and lifestyles

Number of Group
employees

15,083(Including part-time employees)

Natural capital (negative impact)
CO2 emissions

154,230t-CO

Employees
Contribution to healthy, rich lives

2

Sustainable growth (circulation)
09

SUNDRUG CO., LTD. Integrated Report 2023

SUNDRUG CO., LTD. Integrated Report 2023

10

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Financial and non-financial highlights
Financial performance
Net sales:¥ 690,462 million

Ordinary profit:(Million yen)

(Million yen)

800,000

40,000588,069
600,000

617,769

634,310

648,734

690,462¥ 38,134 million

Total assets:¥ 360,672 million

Net assets:(Million yen)

35,80037,15938,22838,134(Million yen)

40,000360,672

34,73430,00030,000262,195

284,276

308,528

40,000325,768
30,000400,000

20,00020,00020,000200,000

10,00010,00010,0000

2019

Operatingprofit:

2020

2021

2022

0

2023

¥ 37,452 million Operating
profit ratio: 5.4 %Operating profit

2019

2020

Profit attributableto owners of parent:

2021

2022

2023

¥ 25,703 million

0

ROA

2019

2020

2021

2022

11.1%

ROE

186,8222019

205,156

2020

2021

13.2

12.9

220,592

236,328

2022

2023

11.2

11.3

2022

2023

11.3%

Operating profit ratio（%）(Million yen)

(%)

(%)

40,0008.0

30,00020.0

20.0

36,60437,452

37,34534,05223,933

23,692

25,32923,85325,7036.0

30,0006.0

171,055

0

2023(Million yen)

35,233¥ 236,328 million

5.9

5.9
5.2

20,00015.0

14.1

20,000

5.4

13.6

15.0

12.9
11.0

4.0

14.7

11.1

10.0

10.0

5.0

5.0

10,0002.0

10,000

0

2019

2020

2021

2022

2023

0

0

2019

2020

2021

2022

2023

0

2019

2020

2021

2022

2023

0

2019

2020

2021

Non-financial performance
Ratio of female managers(SUNDRUG):

of
18.8 % Number
female managers: 71

(%)

20.0

17.0

18.1

18.7

19.7

18.8

52

54

61

70

2019

(Persons)

120

16,000

2020

2021

2022

SUNDRUG CO., LTD. Integrated Report 2023

Number of Group card members:

27.10 million(10,000 persons)

14,126

14,025

14,23915,083

Number of stores:

2,391

2,610

2,710

2,043

1,600

12,000

2,100

60

8,000

1,400

800

30

4,000

700

400

0

0

1,951

1,380

(stores)

2,800

90

2023

*T
 he above figures show the ratio and the number of female employees
in managerial positions

11

15,083

1,200

1,147

1,168

2019

2020

1,216

1,307

1,380

71

5.0

0

(Persons)

13,25915.0

10.0

Number of employees:(including part-timers)

2019

2020

2021

2022

2023

0

2019

2020

2021

2022

2023

0

2021

2022

2023

*The above figure includes the number of duplicate accounts

SUNDRUG CO., LTD. Integrated Report 2023

12

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Message from the President
The SUNDRUG Group will continue to evolve in order to remain
an indispensable presence in the lives of local customers.
President and Representative Director Hiroshi Sadakata will discuss the SUNDRUG Group’s current state,
strengths, and growth strategy.

Hiroshi Sadakata
President and Representative Director

13

SUNDRUG CO., LTD. Integrated Report 2023

Overview of the fiscal year ended March 31, 2023

Progress of the Medium-term Business Plan

Achieved increases in both sales and profit, andefforts to strengthen the management foundation
are steadily bearing fruit
For the fiscal year ended March 31, 2023, net sales
were ¥690.4 billion (up 6.4% YoY) and operating
profit was ¥37.4 billion (up 10.0% YoY), representing
increases in both sales and profit. We improved
profitability by controlling expenses and opened arecord-high 98 stores during the fiscal year, thus
we were able to achieve results almost exactly
as we had planned. By business segment, in the
drugstore business, sales of pharmaceuticals andcosmetics were robust, and in the discount store
business, sales of pet supplies and foodstuffs werestrong. Consequently, the demand for electricity
increased, and the electricity costs rose sharply inboth businesses, which pushed up the SG&A ratio by
about 0.3 percentage points. In addition, both sales
and profit increased owing to the results of initiatives
to improve productivity.
Looking back on the three years of the COVID-19
pandemic, the impact that COVID-19 had on theGroup cannot be understated. Due to the impactof the loss of inbound demand, telecommuting,and refraining from going outside associated withthe restrictions on movement imposed during the
COVID-19 pandemic, sales and profit decreased
significantly in the drugstore business, which operates
station-front stores mainly in shopping districts anddowntown areas. In addition, in standalone freestanding stores, non-food complex stores that are
combined with local supermarkets, and the discountstore business, which strengthened food sales,
consolidated sales increased, and record-high profits
were achieved in the fiscal year ended March 31, 2021
owing to strong stay-at-home demand for foodstuffs
and daily necessities. However, sales increased, andprofit decreased in the fiscal year ended March 31,
2022 due to a reactionary decline in demand.
Despite these difficult circumstances, the
SUNDRUG Group steadily promoted its businessstrategies, strengthened its management foundation,and endeavored to develop human resources which
will serve as the foundation for all of its strategies.
In 2023, restrictions on movement were eased, anddemand began recovering mainly in the tourism
industry. However, against the backdrop of factors
such as the limited number of tourists from China,
inbound demand as of the fiscal year ended March
31, 2023 remained weak at around 30% of thelevel prior to the COVID-19 pandemic. Under suchcircumstances, we take pride in the fact that wehave achieved increases in sales and profit, which
we believe is a result of the initiatives we have
implemented thus far.

Increasing the number of store openings bysystematically training and increasing the numberof development personnel
At present, the SUNDRUG Group is working topromote business strategies and strengthen its
management foundation based on the five-year
Medium-term Business Plan, which aims to achieve
consolidated net sales of ¥1 trillion in the fiscal year
ending March 31, 2026. The strategy of opening more
stores is our most foundational business strategy.
Over the past three fiscal years since the COVID-19
pandemic began, we continued to steadily increase
the number of store openings. In the fiscal year ended
March 31, 2023, the Company opened a recordhigh 98 stores, and the number of stores as of March
31, 2023 reached 1,380 (1,016 drugstores and 364
discount stores) in 44 prefectures across Japan. In thefiscal year ending March 31, 2024, we plan to open
another 120 stores (85 drugstores and 35 discountstores). Regarding drugstores, we are promoting
the development of suburban stores in response toa decrease in demand for station-front stores due tothe COVID-19 pandemic. However, going forward, weplan to restart our efforts to open station-front storesin preparation for an increase in inbound demand. As
for discount stores, the Group operates many stores inwestern Japan and Kyushu, where the headquartersof DIREX are located, and plans to develop new store
opening areas in eastern Japan going forward.
In addition, the most important factor in thedevelopment of diverse store formats, which is one of
the strengths of the SUNDRUG Group, is the trainingof development personnel and the appropriate
allocation of personnel. Since before the COVID-19
pandemic began, we have been systematically training
and steadily increasing the number of development
personnel. This has led to our current track record ofstore openings. The number of store development
personnel reached 48 in the fiscal year ended March
31, 2023, and we plan to increase this figure to 67 in thefiscal year ending March 31, 2024. Going forward, we
will continue to increase the number of these personnel
to solidify our growth and management foundations.
Accelerate store openings to create valuable
pharmacies that meet the needs of the times
The SUNDRUG Group is working to integrate
its business formats in order to encompass thevarious purchasing channels, commercial areas,and customer segments across Japan. In addition,
the Group is promoting a business format strategy
that can respond to customer needs, which differ
depending on location and the times. As part of thisstrategy, we are working to strengthen the dispensing
pharmacy business and the e-commerce business.

SUNDRUG CO., LTD. Integrated Report 2023

14

Initiatives onenvironment

Values and strategies

Initiatives on society

GovernanceManagement data

Message from the President

SUNDRUG, our drugstore chain, sells over-thecounter (OTC) drugs, which are non-prescription
drugs. It includes both standalone drugstores, anddrugstore pharmacies, which are drugstores locatedalongside dispensing pharmacies. Amid risingdispensing pharmacy demand in an aging society,
we have been accelerating the speed of opening
drugstore pharmacies in recent years. In the fiscal
year ended March 31, 2023, we opened 36 drugstore
pharmacies. As a result, as of March 31, 2023, wereached a total of 28 standalone stores and 119
drugstore pharmacies. In the fiscal year ending March
31, 2024, we plan to open one standalone store and40 drugstore pharmacies. In 2028, five years fromnow, we plan to increase the percentage of drugstore
pharmacies from about 10% to about 20% of all
drugstores that we operate.
The key to accelerating the opening of new storesis the training of supervising pharmacists, who areresponsible for store operations. In the past, many
pharmacists desired positions where they would
mainly work at dispensing pharmacies. However,since it is common for drugstores and dispensing
pharmacies to be located together these days, weare receiving more applications from pharmacists for
positions at such drugstore pharmacies. To become asupervising pharmacist at the SUNDRUG Group, one
has to undergo an educational curriculum that lasts forat least 27 months. Nonetheless, many participate in
the training as they appear to be attracted to a systemthat allows them to experience both OTC operations,where they serve customers, and dispensing
pharmacy operations. In OTC operations, there isa risk of administering an unfavorable combination

15

SUNDRUG CO., LTD. Integrated Report 2023

of non-prescription drugs and prescription drugs.
Therefore, we have begun initiatives to further
improve our OTC operations, such as having trained
pharmacists compile information on the combinationof drugs administered on tablet devices.
In addition, as part of our DX initiatives in thedispensing pharmacy business, we offer a service
for reservation of prescription transmission throughthe LINE MINI app, the delivery of pharmaceuticals
after online drug administration guidance, andelectronic prescriptions. As the evolution of DX has
made it possible for patients to send prescriptions todispensing pharmacies through their smartphones,
the nature of dispensing pharmacies is also gradually
evolving. Furthermore, in the fiscal year ended March
31, 2023, the SUNDRUG Group held 29 events at
dispensing pharmacies, in cooperation with local
governments and comprehensive community
support centers. These included health measurement
sessions, nursing care prevention lectures, andmedication consultation meetings, and were attended
by a total of more than 2,000 people. Recently, there
has been a review of basic dispensing fees, which
evaluates the results of contributions to community
healthcare, for large chain pharmacies. In view of this,
we aim to strike a balance between creating valuable
pharmacies and maintaining a stable earnings base in
the dispensing pharmacy business.
Utilizing DX to improve customer convenience andsatisfaction, and to promote greater efficiency
In the e-commerce business, in addition to the
SUNDRUG Online Store website, we have set up
domestic online stores on major shopping websites
such as Rakuten, Yahoo!, and amazon. Also, wesell our products on Lazada, one of the largest
e-commerce sites in Southeast Asia. Furthermore, inthe fiscal year ended March 31, 2023, we renewed
our e-commerce platform, mainly by e-commercebusiness specialists hired from outside the Company.
In addition to renewing the website design andexpanding the product lineup, customers can now
use “SUNDRUG” points for online purchases and pickup products purchased online at a nearby physicalstore. Thus, by integrating our e-commerce sites andphysical stores and developing the Online-MergeOffline (OMO) strategy, a new marketing method,
we strive to increase customer convenience andsatisfaction. We are also cooperating with majordelivery companies to improve productivity, including
improving logistical efficiency, and controllingdelivery costs. Accordingly, we are striving for fullfledged growth in the e-commerce business and aim
to achieve sales of ¥100.0 billion in the e-commercebusiness.
We are also working to further improve theefficiency of store operations through systematizationand digitalization. At the end of the fiscal year ended

March 31, 2023, we have introduced electronic
shelf labelling at a total of 120 SUNDRUG stores.
This eliminates paper-based work that had to be
conducted on the day prior to events such as special
sales days, and ultimately reduces labor costs byapproximately ¥1.8 billion per year. In addition,
we expanded the scope of the automatic orderingof products at all SUNDRUG stores. In addition to
reducing labor costs by shortening ordering timeand sorting operations, this also helps to improve thestockout rate. Regarding our initiatives for SUNDRUG
stores in the fiscal year ending March 31, 2024, we
will introduce a self-scan system in the first half. Thissystem allows customers to register their purchaseswith a smartphone app while they shop around thestore, and to check out all at once. This will shorten the
cash register waiting time, which will also contribute to
the reduction of labor costs of the SUNDRUG Group.
In the second half of the fiscal year, we will introduce
an expiration date management system, which
eliminates the need to check all products on shelves
by registering the date of manufacture in advanceand is expected to improve work efficiency. These

initiatives are intended to improve productivity, butthey are also up-front investments that address theissue of labor shortages amid the declining birth rate
and aging population.
Regarding sustainable management
Incorporating materiality into specific activities towork on progress management and information
disclosure
The SUNDRUG Group aims to “provide products ofvalue and serve to enrich people’s lives.” Under the
Basic Policy on ESG Activities, we identify material
issues (materiality) to be addressed and summarize
related goals and themes to be tackled over the
medium- to long-term.
As an initiative under the theme of “Promotion ofenvironmental management,” in the fiscal year ended
March 31, 2023, we introduced solar power generation
systems at 32 stores of the SUNDRUG Group, as
well as CFC-free refrigeration and freezing cases atabout 80 stores. Through these measures, we aim toMedium-term Business Plan

Aiming for consolidated net sales of ¥1 trillion
Numerical targets for FY3/26
Net sales

Operating profit

1 trillion¥
billionOperatingprofit ratio:
%

¥

60.0

Business strategies
Opening more stores

Strengthening
e-commerce business

M&As

Strengthening dispensing
pharmacy business

6.0

Number of stores

1,750 stores

Strengthening the management foundation
Promotion of digitalization

Productivity improvement

Sustainable management

SUNDRUG CO., LTD. Integrated Report 2023

16

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Message from the President

reduce Group-wide CO2 emissions per unit of floorarea by 50% in fiscal 2030 compared to fiscal 2013.
For private brand (PB) products handled at stores,
we are switching to environmentally-friendly productsthat use recyclable packaging and vegetable oil ink.
As of the end of the fiscal year ended March 31, 2023,
the ratio of environmentally-friendly PB products wasapproximately 31%, and we aim to raise this ratio to100% in the future. In addition, beginning in the fiscal
year ended March 31, 2023, all employees, including
part-timers, were asked to self-report their individual
environmental efforts, such as bringing their own
bottles, and this was incorporated into employee
evaluations. The aim is to create a framework inwhich the Company not only sets forth policies but
also encourages employees to put environmental
initiatives into practice on a daily basis, which theCompany then further spurs on. In a related move, theGroup has discontinued the use of vending machinesfor PET bottled beverages at its headquarters, withthe exception of the reception floor. Going forward,
we will continue to implement initiatives that take theenvironment into consideration, starting from areas inour proximity.
To “create a satisfying working environment,”
SUNDRUG has been recognized as a “company thatoffers strong support for parenting” with Platinum
Kurumin certification. The childcare leave utilization
rate is 100% for women and over 90% for men, andefforts are being made to create a comfortableworking environment for both men and women.
In addition, the employment rate of persons withdisabilities for the entire SUNDRUG Group was 2.97%(for the fiscal year ended March 31, 2023), which issignificantly higher than the statutory employment
rate, which represents our strong awareness ofcommitment to diversity. We have always employeda system that takes into consideration employees’
health as well as occupational safety and health,which tracks factors such as overtime hours, thepaid leave utilization rate, and consideration forwork locations and working hours. In the fiscal year
ended March 31, 2023, the Group was designatedas a Certified Health & Productivity Management
Outstanding Organization, and is currently promoting
initiatives that further consider the environment.
With regard to “Contribution to healthy, richlives,” we at the SUNDRUG Group are doing what
we can to help solve social issues around us. This
includes participating in demonstration experimentsof drone delivery that can help people who havedifficulty shopping, which is being promoted by the
Tokyo Metropolitan Government in Ome City, as
well as collaborating with local governments andcomprehensive community support centers throughour dispensing pharmacy business.
As for our most recent initiatives related tocompliance management and governance

17

SUNDRUG CO., LTD. Integrated Report 2023

management, in November 2022, we announced
our support for the declaration of voluntary actions
for the promotion of white logistics. In May 2023,
we announced our support for the Declaration ofPartnership Building with business partners who share
our supply chain.

Promoting sustainable management
Material issues (Materiality)
Promotion of environmental management

Introduction of solar power generation
I ntroduction of CFC-free refrigeration and freezing cases
P romoting development of environmentally-friendly
private brand products

Promotion of compliance management

Disclosure of the Code of Conduct for Business Partners
P romoting “white logistics” Representation of support
for the declaration of voluntary actions in November 2022
Declaration of Partnership Building

Establishment of satisfying working environmentP romoting the active participation of women
Promoting the employment of persons with disabilities
I nitiatives to enhance work-life balance
Promotion of health management

Contribution to healthy, rich lives

Training supporters for people who suffer from dementia
Working closely with local governments/comprehensive
community support centersP articipating in drone delivery experiments that can help
people who have difficulty shoppingE

To our stakeholders
Expanding business through activities aimed
at solving social issues, thereby leading tosustainable corporate growth
When I think about how to define a differentiating
factor that is “uniquely SUNDRUG,” I think of “being
able to change flexibly in line with the times.” Rather
than deciding what we want to be, the businessstrategy currently being promoted by the SUNDRUG
Group is to respond appropriately to the needsof each trading area, such as those who want a
dispensing pharmacy nearby or those who want topurchase online. Accordingly, we have diversified
our business into station-front and suburban
drugstores, discount stores, dispensing pharmacies,and e-commerce stores. In the current Medium-term
Business Plan, we have made a commitment to ourstakeholders to strive for the following targets: net
sales of ¥1 trillion, operating profit of ¥60.0 billion, and
1,750 stores for the fiscal year ending March 31, 2026.
As a major presumption, these targets include figures
generated from M&As on a scale of nearly ¥100.0
billion. I myself served as President at the time of
the merger with DIREX, and I am keenly aware of theimportance of making swift management decisions
to generate a synergistic effect from the merger,
and motivating people who work on the front lines inorder to achieve such synergies. As the outstandingknow-how that DIREX had as a discount store was
supported by the SUNDRUG Group, both companies
were able to enhance their corporate values throughaggressive nationwide expansion. As mentioned
above, the SUNDRUG Group operates in a diverse
range of business formats. Therefore, we believethat we can demonstrate the synergistic effects of amerger with companies in any business format.
Through the promotion of various measures, wewill steadily increase our business performance andcontinuously enhance our corporate value. Then, we
will distribute stable and continuous dividends to ourshareholders with a target dividend payout ratio of50%. Meanwhile, using cash on hand, we will consider
taking measures that will benefit shareholders, suchas share buybacks, as appropriate, while balancing
them with growth investments such as those for new
store openings and system facilities.
I strongly feel that going forward, the SUNDRUG
Group should continue to evolve according to ourcustomers’ needs, conduct activities while being

Specific examples of initiatives

S

SS
Promotion of governance management

G

conscious of what we can do to solve social issues,and have customers recognize us as a company thatsociety needs through our business activities, which
will lead to our sustainable growth. As explained at the
beginning of this message, the business environment
surrounding the SUNDRUG Group has not returnedto the level prior to the COVID-19 pandemic yet.
Nevertheless, we have made progress in building
a foundation for increasing the number of store
openings and strengthening the dispensing pharmacy
business and the e-commerce business, and we havealso improved profitability by further streamlining store
operations. If growth accelerates along with the fullfledged revival of inbound demand, stakeholders can
expect to witness “even more exciting developments”
from the SUNDRUG Group, which has a lot of “roomfor growth.” I would like to ask our shareholders,investors, employees, business partners, and all otherstakeholders for their continued understanding andsupport.

Publishing the Integrated Report
Promoting dialogue with stakeholders

Please refer to the financial resultspresentation materials for details of
the Medium-term Business Plan.

https://www.sundrug.co.jp/en/ir/news

SUNDRUG CO., LTD. Integrated Report 2023

18

Initiatives onenvironment

Values and strategies

Initiatives on society

GovernanceManagement data

Management issues and Medium-term Business Plan
For the fiscal year ending March 31, 2026, we are aiming to achieve net sales of ¥1 trillion and an operating
profit of ¥60.0 billion. To achieve these targets, we shall implement the following initiatives related to ourbusiness strategies and the strengthening of our management foundation.

By integrating our drugstore, dispensing pharmacy, discount store, e-commerce, and digital businesses, we will
be able to cover various purchasing channels, trading areas, and customer segments, enabling the achievementof further scale expansion in the future.

Drugstore business
Dispensing pharmacy business
Suburban location: complex stores
Free-standing stores
Station-front location: downtown
and shopping areas
Extend trading areas
Expand target
customer segments
Integrate business formats

Improve customer satisfaction and convenience, and increase
efficiency via e-commerce renewals, OMO promotion, etc.

Business strategy:
Strengthening e-commerce business
E-commerce renewals

I ntegrate e-commerce site and customer
sites, and convert them into a retail media
networkImprove customer convenience by renewing
the website’s design
Strengthen communication with customers
by introducing a customer relationshipmanagement (CRM) system
Improve productivity by centralizing
information and introducing automation tools
Further expand product lineup and increase
varietyTransformation through renewal of e-commerce infrastructure

Business format strategy: Covering various purchasing channels, trading areas, and customer segments through the integration of business formats

Online-Merge-Offline (OMO) strategy

Customers of
all ages

Small trading areas

Large trading areas

E-commerce/
digital business

Discount store
business rovide a customer experience (CX) thatP
transcends the barrier between online andoffline channels
Respond to different purchasing styles
through in-store pickups, online-to-offline
marketing, etc.
Integrate online experience with in-store
strengths to provide 1-to-1 marketingIncrease loyalty of existing customers by
utilizing data and strengthening CRM
Acquire new customers through omnichannel strategy

Business strategy: Strengthening
dispensing pharmacy business
As of March 31, 2023,

Business strategy: Opening more stores

Expansion of the number of store openings

28/
119

Number of standalone pharmacies:
Number of drugstore pharmacies:

Drugstore businessInitiatives to further
increase the number ofstore openings

Discount store
business
Store openings ineastern Japan
Development of new
areas

19

SUNDRUG CO., LTD. Integrated Report 2023

Sales of dispensing business Number of prescriptions Unit price of prescriptions

Countermeasures
Strengthening
collection of property
information

Promoting suburban
store openings

Allocation of
personnel to easternJapan area

Increasing store
development staff

Strengthening
freestanding stores

Store openings ineastern Japan area

As of March 31, 2022: 41
As of March 31, 2023: 48
As of March 31, 2024: 67(plan)

As of March 31, 2022: 30
As of March 31, 2023: 40
As of March 31, 2024: 52(plan)

As of March 31, 2022: 7
As of March 31, 2023: 6
As of March 31, 2024: 9(plan)* Cumulative total of 44 stores (expected)

I mproving convenience by responding to thedifferent purchasing and product-receivingstyles of customers
Deliveries without long waiting time, same-day
deliveries
Providing a good CX through 1-to-1 marketing
Productivity improvementI mproving logistical efficiency by adding bases
integrated with distribution centers
Reducing delivery costs through the dispersionof bases (Kansai/Chukyo areas underconsideration)
Optimizing inventory and costs throughdemand forecastingEnabling automatic product registration by
adopting global standards

Initiatives to capture dispensing demand in Japan’s local communities

Dispensing business: Full-year results for FY3/23

Challenges in store development

Improvement in CX¥11,794 million

1,384,667¥8,518

YoY: +10.8%

YoY: +10.9%

YoY: -0.1%

Initiatives to open more dispensing pharmacies
Acceleration of store openings, centering on
drugstore pharmacies
Review of store opening criteria

Early fostering of supervising pharmacists
Initiatives to open more dispensing pharmacies
Service for reservation of prescription transmission

Pharmacy openings: Full-year results for FY3/23

36 drugstore pharmacies opened
FY3/24

Planned openings:

1 standalone pharmacy/

40 drugstore pharmacies

E nabling booking of prescription
appointments through LINE MINI app easures regarding online drugMadministration guidanceD elivery of pharmaceuticals after online
drug administration guidance

Measures regarding electronic prescriptions
I ntroduction of online insurance verification
at all stores

SUNDRUG CO., LTD. Integrated Report 2023

20

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Management issues and Medium-term Business Plan
Strengthening of management foundation

Investments aimed at promoting DX utilization

Utilizing and promoting DX

Initiatives to further increase efficiency of operations
society with an ultra-low birth rate and an extremely
large elderly population. In order to provide new value
by building “health care stations” and enabling “selfmedication,” the utilization of DX is required.
Furthermore, we believe that changes in the social
environment will have a major impact on lifestyles
and consumer behavior. It is necessary to utilize
DX to create a marketing foundation that allows us
to provide truly valuable products to customers in atimely manner.
SUNDRUG will promote the considerationand introduction of strategic utilization of DX in
anticipation of changes in the business environment
in the near future.

We recognize that digital transformation (DX) is
important for the following three reasons and willcontinue to promote it.
As trends of an ultra-low birth rate and a rapidly
aging population continue to progress in Japan, by
2040, a labor shortage of 10 million people can be
expected.
Labor shortage is a serious problem in the drugstore
industry, which is labor-intensive. We believe thatthe utilization of DX is key in helping us convert our
method of sales to a multi-channel structure, and to
improve productivity.
In addition, the role that drugstores play is growing
significantly as Japan moves toward becoming a

Acquisition of customers by utilizing customer information collected from digital sales promotions such as via apps and social media

Began full-fledged introduction ofelectronic shelf labellingAs of March 31, 2023: Introduced at 100 stores in
FY3/23 (Cumulative total: 120 stores)F Y3/24: Planned to be introduced at 150 storesC apital investment: Estimated total of roughly ¥25.0 billion
STEP 1
Reduce in-store work of placing special sale sign
cards, etc.
STEP 2Further increase productivity through the additionof functions
Streamlining of store operations throughvisualization of the quantities of store inventory, etc.
Expanded scope of automatic ordering

Number of SUNDRUG Group card members

27.10 million(as of March 31, 2023)

Official
SUNDRUG app* The above figure includes the number of
duplicate accounts

My Store registration
Number of members: 2.60 million

SUNDRUG
e-shopRakutenpoint card

Digital sales promotion
Online sales flyers

SUNDRUG Groupcustomer information

Online ads
Expand in-store pickup service

SUNDRUG card members

BeaconNEW Partnership cards
with Rakuten Edy

LINEmembership

Digital signage
Proprietary app

Launched in August 2022
Number of cards issued: 17,577

LINE

Membership: 900 thousand

Prescription app

Gross profit +1.0% Labor costs -3.5%

System for automatic ordering of products on sale

As of August 31, 2022: Launched at 111 SUNDRUG storesAs of March 31, 2023: Launched at all SUNDRUG stores
FY3/24: Planned launches at DIREX, Seikodo,
and Plus stores
Reduction in time required to place orders
Improved accuracy in optimal order quantity;
improvement in stockout rateD
 elivery by category and reduced number ofdeliveries
Changing the number of deliveries to fit eachstore’s scale. * Implemented at 176 storesSelf-scan system

Gross profit +0.1% Labor costs -0.4%

Reduction in order

Hours worked-45.0%

Improvement in

Stockout rate

-33.0%

processing timestockout rate

(0.85% 0.57%)

Sorting operations

Hours worked-10.5%

Trial started in FY3/23

Smartphone apps for both customer convenience and productivity improvement
Reduction of waiting time for customers at the cash register and reduction of product registration time at the cash register*Promotion of non-contact transactions toward the new normal in the age of living with COVID-19

Prescription booking

Open the app

Register products and shopping

Pay

Patient medication notebooks

Digital-related sales

Optimized marketing
Increasecustomer loyalty

Sales ratio ofdigital-related sales: 31.7 %(+6.0 pt. YoY)

* Drugstore business FY3/23 results

Retail media business[Net sales] + 28 % YoY

Review possibility of introducing an
expiration date management system

Customer
Promotion

Higher sales

Digital sales
promotion

Use retail
media business

Data utilization methods
1-to-1 marketing

Trial to start in FY3/24

Changing expiration date management on paper management on tablets or handheld terminals
Reduction in time needed for expiration date management and improvement in task accuracy
Register the expiration dates of products

Data management

Expiring products are identified

Handle the expiring products

Promoting retail media business
Manufacturers

SUNDRUG

Targeting using
customer IDs

Store data analysis
and utilization

Increase in numberof orders Efficientsales promotion

Sales promotion impact/analysis results

21

SUNDRUG CO., LTD. Integrated Report 2023

SUNDRUG CO., LTD. Integrated Report 2023

22

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Policy on Promotion of Sustainable Management

Environment

Now that the progress of an ultra-low birth rate and a rapidly aging population as well as preservation of the
Earth’s environment have become much talked about issues, the values of stakeholders and consumers arechanging drastically, and the yardsticks by which corporate value is measured are also changing dramatically.
By implementing initiatives related to ESG, SDGs and CSR while ensuring compliance with laws andregulations, SUNDRUG aims to be a sustainable and resilient company that can respond to social changes
and risks.

With the aim of providing products of value and serving to enrich people’s lives, the SUNDRUG Groupis committed to environmental management, including initiatives for a decarbonized society and thedevelopment of environmentally friendly products.

The international
community’s perspective

SDGs

Laws

Resolution of social issues
Respond to the expectations andStandards

Guidelines

demands of society including
stakeholders throughour business
Environment,
activities
Fulfillment of corporate
society andsocial responsibility
governance

CSR

Corporate perspective
Guidance

ESG

Investors’ perspective

Stakeholder engagement
Recognition of the importance
As a retailer, the Company has stakeholders including
customers, shareholders, employees, suppliers,
distributors, financial institutions, local communities,
and administrative bodies. We believe that creating
a forum for communication with our stakeholders willlead to the development of appropriate solutions to
the various issues that we currently face, thereby
enhancing our social credibility and corporate value.
Also, the Company recognizes that engaging withstakeholders helps to generate suggestions in many
fields, including the promotion of ESG activities,
strengthening of sustainability, development ofcommunity activities, formulation of ethical initiatives
and norms, and strengthening of information
disclosure. Therefore, we will continue to strengthen
initiatives in stakeholder engagement.

Current activities eetings with institutional investors and analysts
MS ite visits for investors
C ollection of customer feedback via email andtelephone

Future activities
We will continue to consider how to implement
and enhance measures for engagement andcollaborations with stakeholders.
Consider conducting investor surveys and dialogue
meetings
C onsider conducting employee satisfaction
surveys and customer surveys

Commitment to stakeholders
Declaration onprotecting the global
environment
Commitment tocustomers
Commitment tobusiness partners
Commitment toshareholders
Commitment toemployees
Commitment to local
communities

23

The Company recognizes that the global environment is the foundation of all its
activities. Therefore, the Company will strive to protect the environment by complying
with laws and regulations and cooperating with its stakeholders.
We will always strive to provide valuable products in order to gain the trust andsatisfaction of our customers, and serve to realize safe, secure, healthy and rich lives.
It is our responsibility to our business partners to ensure “fair trade.” In order to earn thetrust of our business partners, we will comply with good business practices and strive
to build relationships of coexistence and mutual prosperity.
We will actively engage in dialogue with our shareholders and aim to become asustainable and resilient company that can respond to social changes and risks.
We will endeavor to enhance corporate value through both financial and non-financial
measures.
By actively engaging in dialogue with our employees, we pledge to create a healthy
and comfortable working environment, and to provide an environment that enables
sustainable change and continuous growth.
Our goal of realizing safe, secure, healthy and rich lives also represents ourcommitment to local communities. In addition to providing services at our stores, wewill promote events related to medicine and health, as well as tree-planting and fundraising activities in cooperation with local communities.

SUNDRUG CO., LTD. Integrated Report 2023

SUNDRUG Group Environmental Policy
Basic approach
Recognizing that preservation of the global
environment and protection of biodiversity are
the foundation of human life and the source of ourbusiness activities, we have set environmental
management as one of our material issues(materiality) and are promoting it strategically byintegrating it into our management.
To put environmental management into practice,
we have established an environmental policy anda voluntary environmental action plan to serve as
the code of behavior for our various efforts. We takeresponsibility in all of our business fields and areworking to solve environmental issues through ourbusiness activities while working together with various
stakeholders.
Environmental Policy( Activity policy/target) Reduce environmental
impactWe will use resources and energy efficiently andengage in business activities that have a low
environmental impact at every stage of the supply
chain.

( Product development/sales) Environmental
consideration in product sales
We will promote planning and sales of products
and services that take the environment into
consideration not only in-house but also throughcollaboration and co-creation with our suppliers.
( Promotion system) Development of promotion
systemRecognizing the impact of our businessactivities on the environment, we will establish
environmental objectives and targets and work on
making continuous improvements.
( Education/edification) ComplianceIn addition to familiarizing all employees with
the Environmental Policy, we will raise theenvironmental awareness of each employee toensure compliance*.
*A ggregation and proper disposal of waste, chemical substances
contained in products, Energy Saving Act (Act on Rationalizing
Energy Use), Warming Countermeasures Act (Act on Promotion of
Global Warming Countermeasures), etc.

( Disclosures) Promotion of communication
We will provide regular internal and externalreports on our environmental conservation
activities to build good relationships with our
stakeholders.

Voluntary Environmental Action Plan
Numerical targets
Reduce CO2 emissions per floor area (total of
Scopes 1 and 2) by 50% in the Group (in fiscal 2030,
compared to fiscal 2013)
R eduction of food waste by 50% per sales(compared to fiscal 2020)
R eduction of non-food waste by 20% per sales(compared to fiscal 2022)
F ood waste recycling rate of 30%

Implementation planI nstallation of solar panels
I nstallation of efficient lighting, air conditioning,
and refrigerators and freezers
S trengthen control of temperature settings andother energy management practices
C onsider purchasing non-fossil certificates andrenewable energy
I ntroduction of private label products that take into
account energy, water, and waste
I mproving employee awareness and knowledge ofthe environment and environmental management

Details of initiatives

Promotion of environmental management Introduction of solar power
generation; Introduction of CFC-free refrigeration and freezing cases

KPI - Reduce the CO2 emissions per floor area in the Group by 50% (in fiscal 2030, compared to fiscal 2013)
We are promoting the installation of solar power generation systems based on thecharacteristics of individual stores in each region (hours of sunlight, roof area, roof
load capacity, etc.) We plan to reduce CO2 emissions by 30,000 tons* by fiscal 2030.

Contributing
to adecarbonizedsociety
Equivalent to 34 years’ worth of CO2 absorbed annually by 100
hectares of planted Japanese cedar trees aged 36–40 years

Introduction of CFC-freerefrigeration and freezing
cases
Introduction of solar panels

SUNDRUG CO., LTD. Integrated Report 2023

24

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceInitiatives to prevent food loss

Basic approach to waste reduction (initiatives throughout the supply chain)

The Group is working to optimize product lineups, shelving
allotment (what products to put out on which part of the shelves
and in what quantities), orders, and inventory levels at eachstore as it is important to eliminate dead stock in order to control
and reduce food waste. In addition, we are working to reduce
waste by reducing the amount of expired products through“temaedori”* activities and by selling products near their sell-by
dates based on internal criteria by marking them down with the
optimal discount at the right timing. To improve the accuracy ofthese efforts, we work continuously to improve the operational
logic of our IT systems, including automatic ordering systems.

Drugstores and discount stores, which handle alarge number of purchased products, were a little
behind in their efforts to reduce waste. There are awide range of issues to be solved, including “waste
product packaging materials, etc.” and “unsold foodproducts.” Fortunately, the popularization of IT and DX
has made it easier to visualize the amount of goods
purchased, sales volumes, volumes of unsold goods,

Management data

and CO2 emissions (Scope 3 Category 1), and, with
that, our approach to tackling waste is becoming
clearer. In accordance with national policies andguidelines and in cooperation with its business
partners, the SUNDRUG Group promotes the 3 “Rs”
throughout its entire supply chain and is making every
effort to address waste issues.

SUNDRUG Group supply chain*” Temaedori” = A purchasing behavior in which the customer actively chooses
products that are close to their sell-by date, such as those products placed up front
on the shelves for immediate consumption after purchase.

Flow of goods

Food Waste Trends on Weight Basis

Year-on-year 15% reduction(Stores: All directly-managed
stores/Unit: t)

Total Fiscal
2018

Total Fiscal
2019

Total Fiscal
2020

Total Fiscal
2021

Total Fiscal
2022

Total weight deficit (t)

492

361

419

310

338

10% reduction

Total Fiscal
Total Fiscal
Total Fiscal
2023 Forecast 2024 Forecast 2025 Forecast
287

259

233

kg/net sales (million yen)

1.60

1.15

1.41

1.02

1.12

0.95

0.85

0.77

Compared to fiscal 2018

100.0%

72.0%

88.2%

64.0%

69.8%

59.3%

53.4%

48.0%

*The above figures are for SUNDRUG Co., Ltd. only

Image Major initiatives

Ordering

Introduction of automaticordering system

First in, first out“Temaedori” activities

Despite the above measures, waste will still inevitably be generated. Therefore, further efforts are being made to collect waste forrecycling purposes and to reuse it as animal feed, fertilizer, and energy.

(Stores)

Chilling centers
or TC centers

Collection andtransportation

General recycling
centers

Reduction of waste from stores

1

25

SUNDRUG CO., LTD. Integrated Report 2023

Wholesaler

E-commerce
warehouse(transfer)
Distribution
warehouse

Stores(sales)Consumer

Packaging materials and containers used for
products sold by drugstores are often disposed ofas waste after use, thereby placing a burden on theenvironment. The SUNDRUG Group’s private brandproducts are commercialized based on the main
themes of “products with low environmental impact”
and “capable of contributing to the environment
through products.” Specifically, these include: 1)
selection of environmentally friendly materials andmanufacturing processes; 2) use of materials with low
environmental impact (environmentally friendly ink andreusable and recyclable materials); 3) implementationof environmentally-conscious sales promotions(emphasizing environmental consciousness); and4) provision of information relating to environment
credentials (marking signifying compliance withenvironmental initiatives and certification labels).
Although these initiatives have only just begun,
we will continue to provide compelling products tocustomers that meet the demands of our society
in this era in which environmental management isdemanded.

Current activities

Goals for period: 681 SKUs
Achieved (achieved ratio): 210 SKUs (30.8%)

Future activitiesN ew products: 100% compliant with sustainable andenvironmentally friendly materialsE xisting products: Gradually shift to use ofsustainable and environmentally friendly materials

Materials used (ink and paper)

Used paper

Use of environmentally friendly
paper containing bagasse pulp
made from sugar cane (nonwood resources).

Biomass
ink

FSC
PEFC
Vegetable oil-based
certification certification
ink markings

Bagassepaper

Other environmental initiatives

Drugstores generate a large amount of cardboard boxes and plastic waste
including cushioning materials, due to the nature of the products they handle.
At present, most of the cardboard boxes are recycled, but someof the plastics are disposed of as industrial waste. In order to further
reduce the amount of plastic waste we produce, we will continue topromote optimization in purchasing quantities, reusing and recyclingof waste plastics together with our business partners, and to promote
environmentally friendly management.
Dissemination and education about
everything from environmental
issues to the Company’s initiatives
using the in-house training system

Manufacturer

Recognition of the importanceD iscount sales based on expiration date checksG iving instructions to stores to offer discount sales basedon sales trends and transferring products to other storesP romotional sales at the clearance corner

Waste generators

Procurement

Distribution
warehouse

Private brand products

Regular
sales
Final
sales

Distribution
warehouse

10% reduction2

Repeat consultation withrecycling companies, andconduct store-specific test
operations

Objectives

Fiscal 2022

Disposal (t)16,038.6

Recycling (t)12,852.0

Recycling rate

80.1%

* Excluding discount store business

3

Compile requests to
manufacturers and submit
regular written requests

Adoption of business casual dress code

At the headquarters of each SUNDRUG Group
company, we implement Cool Biz measures in thesummer and Warm Biz measures in the winter toreduce CO2 emissions and improve the working
environment of our employees continuously
throughout the year. In October 2021, we adopted abusiness casual dress code (casual outfits with noneckties) for the whole year. In combining Cool Biz andWarm Biz, we are working to reduce CO2 emissions
by calling for proper room temperature control andreasonable means with light clothing according toeach employee’s time, place, and occasion (TPO).

Utilization of store facilities
The Group refurbishes the showcases, furniture,and refrigerators from stores that are relocated,rebuilt, or closed and reuses them at other stores
to reduce waste and effectively utilize resources.
By properly managing and reusing the resourcesfrom stores and offices, we are contributing to
the realization of a circular economy.

SUNDRUG CO., LTD. Integrated Report 2023

26

Values and strategies

Initiatives based on TCFD recommendations

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

GovernanceR etail business (drugstores and discount stores combined)

Scope ofanalysisS UNDRUG Group (headquarters and stores)In the future, the entire supply chain, including business partners

ConsiderationsT ransition risk: C hanges in policies, laws, technologies, and markets as we transition to a low-carbon society aimed at
mitigating climate change, which may affect the financial position of a company or its reputation/ratingP hysical risk: S hort-term weather-related disasters such as typhoons, floods, and forest fires (acute risk), and longterm ongoing weather-related disasters such as water shortages, rise in sea level, extreme heat, and air
pollution (chronic risk), which may affect the financial position of a company.

Scope ofanalysisWeather-related disasters
Increase in electricity prices due to introduction of carbon pricing (report scheduled for the next period)

Scenario
period“ Present to 2050” is recommended, but “up to 2030” will be usedC
 O2 emissions increase along roughly the same path until around 2030 under both 2°C and 4°C increase scenarios

Other
subsidiaries

Targetbusinesses

Chairperson President
and Representative Director
Other
departmentsB oth scenarios of (1) a 2°C increase and (2) a 4°C increase in global average temperature by 2100
compared to pre-industrial levels2 °C increase: Assumption of a decarbonized society with stricter policies than the status quo
4
 °C increase: Assumption that current decarbonization policy and CO2 emission pace will continue

ESG
Promotion
Committee

Human Resource
Division

Scenarios

Monitoring and instruction

Merchandise
DivisionIdentify high-impact risks using a scenario analysis approach that assumes what kind of society theworld will be like in 2030 to 2050, and study, formulate, and implement the necessary countermeasures inadvance to maintain business continuity and corporate growth.

Board of Directors
ReportAdministrative
DivisionObjectivesE stablishment of the ESG Promotion
Committee in April 2020 as an organization
under the direct control of the President andRepresentative DirectorT he committee oversees sustainability
activities aimed at sustainable growth ofsociety and the SUNDRUG Group, and is
responsible for formulating implementationplans and managing progressT he committee meets monthly, and thematters and contents discussed at thecommittee meetings are reported to theBoard of Directors as appropriateT he President and Representative Director
assumes ultimate responsibility for issues
related to climate change and makes
decisions on the allocation of management
resources, the development of systems,
and the implementation of initiatives, while
ensuring consistency between businessactivities and initiatives
Promoting environmental management withan Environmental PolicyA lready introduced a compensation systemthat links ESG indicators to internal Director
compensation

Structure

Sales Division

Response to TCFD recommendations based on the requirements of the Corporate Governance CodeOversight of the Board of Directors
and the roles of management

President’s
Office

TCFD is a framework for disclosing critical information related to the risks and opportunities presented byclimate change and we recognize it as a common yardstick for investors. We respond appropriately to the
TCFD recommendations in accordance with the requests set out in securities reports and the JapaneseCorporate Governance Code with a focus on the completeness, accuracy and consistency of information.

Cross-organizational cooperation
Cooperation
Compliance and Risk Management Committee

World view as a premise for scenario analysis

Worldview and business environment
Contents of disclosure

GovernanceOversight by the Board of
Directors

Environmental management
promotion and guidelines(Environmental Policy)G overnance on climate change(discussions by the Board of
Directors, internal structure)L inking ESG indicators
to internal Director
compensation

Roles of management

Company policy and top
management commitment
on climate change
Management of Group risks
through operation of the ESG
Promotion Committee andthe Compliance and Risk
Management Committee

Strategy
Risks and opportunities

Risk management
Risk identification andIndicators and targets

Impact on the organization Risk management process GHG emissions for Scopes
1, 2 and Scope 3 (whereA ssessment and estimation
Execution of PDCA
appropriate)of opportunities and risks
cycle through the ESG
Promotion Committee andthe Compliance and Risk
Management Committee
Promotion of environmental
management (organizationbuilding, operation,
education, etc.)S copes 1, 2, (3) data
disclosureUtilization and rate ofrecyclingWaste management andemissions (third-party
assurance report)

Organizational resilience
Integration into comprehensive Goals and performance as(toughness, resilience, tolerance) risk management
an organization
Issues and responses
necessary to capture
opportunities and avoid risks
in 2°C and 4°C scenarios

27

SUNDRUG CO., LTD. Integrated Report 2023O versight by the Board of
Directors
Collaboration among theBoard of Directors, ESG
Promotion Committee,
and Compliance and Risk
Management Committee+4°C scenario

ClimateA world in which the global averagetemperature by 2100 increases 2°C above
pre-industrial levels (as agreed in the Paris
Agreement)A world in which the global average temperature by2100 increases 4°C above pre-industrial levels

WorldviewP olicies are introduced and development oftechnologies that will facilitate the transition
to a decarbonized society, such as the shift torenewable energy and adoption of a carbon
tax, are promotedS ociety where changes in the businessenvironment associated with the transition
to a decarbonized society are highly likely toaffect businessRegulatory (transition) risks materializeIncreasingly severe and frequent extreme weather
events due to climate change increasing the risk ofnatural disasters, infectious diseases, etc.
S ociety where changes in the business environmentand consumer behavior due to climate change arehighly likely to affect businessPhysical risks materialize

PolicyC arbon tax is introducedE nergy conservation and renewable energy
measures are further promotedC arbon tax is not introducedC urrent energy conservation and renewable energy
promotion measures are maintained

Procurement
and logistics

Increasing due to cost of environmental
measures (forest protection, plastic
regulations, introduction of carbon tax, etc.)Increasing for agricultural, livestock, and fisheryproducts (yield decrease, quality decline, etc., due todisasters in production areas, climate change, etc.)F looding risk is at current levelIncrease in related costs (relocation, closure,insurance) due to higher flooding risk resulting fromincreased heavy rainfall

Electricity bills

Increasing through the supply chain with theintroduction of a carbon tax

C urrent level throughout the supply chain

Changes in
consumersE stablishment of environmentally friendly
lifestyles
Increased demand for sustainable productsE stablishment of lifestyles to cope with extreme heatIncreased demand for disaster prevention andstockpiling products

Indicators used by theorganizationIdentification of opportunities assessment processR oles and activities of theG reenhouse gas (GHG) andand risks in 2°C and 4°C
ESG Promotion Committee
CO2 emissions volume
scenarios
and the Compliance and Risk Expanding sales ofManagement Committee
environmentally friendlyStakeholder engagement
products (SKUs andthrough industry associations composition of sales)(capturing social demands)
Introduction of EVs, reductionof incinerated waste, etc.

under 2°C and 4°C scenarios+2°C scenario

Medium-term environmental
targets and performanceProgress monitoring based
on KPIsE
 fforts to save energy andreduce CO2 emissions

StoresSUNDRUG CO., LTD. Integrated Report 2023

28

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Analysis based on +2.0°C increase scenario * An analysis based on a +4°C increase scenario is scheduled to be included in a report in the next period

Predictions of damage caused by physical risks

RCP 2.6 (under the 2°C increase scenario, the global average temperature in late 21st century (2081 to 2100) is likely to increase by between 0.9°C and 2.3°C above pre-industrial levels)

Of the 931 stores subject to analysis, it is predicted that 351 (37.7%) will be flooded below floor level or incur flood damage at a depth of at least 50 cm.

Risks and opportunities

ImpactAssessment

Increased electricity costs for stores and logistics facilities due to introduction Largeof carbon pricing
Introduction/increase of carbon pricing Increased commodity procurement costs due to introduction of carbon pricing Medium(higher manufacturer production and shipping prices)
Increased delivery costs due to introduction of carbon pricing (contractors)
Small
Increased investment costs in equipment and machinery to reduce and control GHG emissions Small
Failure to reduce GHG emissions incurs the cost of purchasing emission credits Medium
Policies and Stricter GHG emission regulations
Increased commodity procurement costs due to stricter emission regulations
Small
regulations(higher manufacturer production and shipping prices)
Increased delivery costs (contractors) due to capital investment to reduce and Small
control GHG emissions
Tighter CFC regulations
Increased investment expenses for CFC-free facilities in stores, etc.
Small
Increased procurement costs due to higher prices of alternative materials to
Stricter plastics regulations
Smallmeet plastics regulations
Litigation(environmental
measures,Responding
to(shareholder
andadministrative)
litigationsforinadequate
Transition
Small
GHG emissions)environmental measuresrisks
Increased energy prices due to higher electricity prices (including renewable
Large
energy surcharge)
Increased electricity prices
Increased commodity procurement costs (higher manufacturer shipping prices) Medium
due to higher electricity prices (including a surcharge on renewable energy)MarketIncreased renewable energy prices
Increased energy costs due to higher renewable energy prices
MediumIncreased renewable energy prices and electricity prices, and increased
Increased logistics costs
Mediumlogistics costs due to environmental investments
Changes in consumer lifestyles andDecreased sales due to delayed introduction of environmentally friendly
Mediumpreferences
products and services
Deterioration of brand image and a decrease in sales due to delays in
Decline in consumer reputation
Mediumenvironmental considerations
Reputation
Decreased number of recruitment applications and hires due to the
Decline in social reputation
deterioration of brand image caused by delays in environmental considerations Medium
Decline in valuations by investors and Decline in corporate reputation among investors and rating agencies andSmallrating agencies
higher financing costs due to delays in environmental considerations
Loss of sales opportunities due to damage or closure of stores caused by flooding,
Large
etc.
Loss of sales opportunities due to the shutdown of information system centers Medium
Acute
Increasingly severe disasters
Inventory disposal/shortages and loss of sales opportunities due to flooding,PhysicalLargeetc. of factories, wholesalers, distribution facilities, etc.
risks
Rising average temperatures
Increased electricity consumption at stores and distribution facilities
MediumChronic
Increased insurance costs and relocation costs for stores due to increased risk Small
Rise in sea levelof flooding from high tides and tidal waves
Lower procurement costs due to more efficient business processes andSmall
Introduction/increase of carbon pricing equipment at suppliers
Policies andDecreased logistics costs due to more efficient logistics
Smallregulations
Renewable energy technology
Decreased energy costs due to the introduction of solar power generation with Medium
development
lower costs
Changes in consumer lifestyles andIncreased sales due to the development and expansion of environmentally
Mediumpreferences
friendly products and services
Opportunities
Increased sales through development and expansion of products and services Medium
Rising average temperatures
adapted to rising average temperatures
MarketImproved
brand image and increased sales by addressing environmental
Improved consumer appreciation
Mediumconsiderations
Improved valuations by investors andImproved corporate reputation among investors and rating agencies and lower Small
rating agencies
financing costs by addressing environmental considerations

Inundation depth(assumed maximum scale; cm)

Number of storestargeted for analysis

Less than 50 cm

4

50

99

122

100

199

37

200

299

31

300 cm or more

157

Target stores

351

Number of stores

931

Ratio (%)

37.7

Description STEP 01 Check the current inundation depth at the stores
to the leftsubject to evaluation
A reportscheduled
for thenext
periodCalculate the current amount of damage and loss
STEP 02 (using the damage ratio by inundation depth, etc.)
Confirm the future flood frequency multiple and
STEP 03 estimate the future amount of damage and loss at therespective scale of flooding
Assessment of increase in future risk for the respective
STEP 04 scale of flooding* Refer to Inundation Navigator (Shinsui Navi), Flood Management Economics
Manual (Chisui Keizai Manual), etc. (provided by Water and Disaster
Management Bureau; Ministry of Land, Infrastructure, Transport and Tourism)

https://disaportal.gsi.go.jp/hazardmap/faq/faq.html

Indicators for assessing climate change-related risks and opportunities
Assessment
indicators

Greenhouse gas/CO2 emissions (Scopes 1 & 2; Scope 3 in the future)
Greenhouse gas/CO2 emissions per floor area
Waste generation (food: per sales, non-food: absolute amount)C omposition ratio of environmentally friendly products (Reduction effect of greenhouse gas/CO 2 emissions
through sales of environmentally friendly products)

Initiatives
and results he SUNDRUG Group recognizes the importance of proactively addressing the risks and opportunities
T
associated with climate change
S et a reduction target for greenhouse gas/CO2 emissions by 2030 to contribute to the realization of a
scenario that limits the global temperature increase to less than 2°C
R isk reduction initiatives
R eduction of greenhouse gas/CO2 emissions through transition to renewable energy by installing solar
power generation systems and switching to non-fluorocarbon freezing and refrigeration equipment
P romotion of energy conservation through the introduction of highly efficient equipment and switching to
LED lighting
Achieving resilient supply chains by addressing physical risks associated with climate changeC apturing opportunities
Proactively developing and introducing environmentally friendly products that contribute to sustainability inresponse to changes in consumers’ consumption behavior
F urther quantifying climate change-related risks and opportunities to improve the accuracy of scenario
analysisT hrough analysis, hedge and address risks appropriately while identifying market changes and proactively
pursuing business opportunities to achieve sustainable growth of the Group

Long-term goals in the environmental field
Society we aim for

Initiatives

2030 goals

Reduction of CO2 emissions

Reduce emissions per floor area by 50% (compared to fiscal 2013)

Low carbon
society(Plastic countermeasures)1
 00% reduction of plastic shopping bags, switch to plastic shoppingbags made of environmentally friendly materials (biomass,biodegradable, recycled materials)

Circularsociety

Promotion of food loss reduction
and food recyclingR eduction of food waste by 50% per sales (compared to fiscal 2020)R eduction of non-food waste by 20% per sales (compared to fiscal 2022)F ood waste recycling rate of 30%

Society in harmony Sustainable procurementwith nature1 00% environmentally conscious private brand (PB) products as apercentage of all PB items in the drugstore business

CO 2 emissions
Items evaluated as “Large” in terms of impact

Transition
risks
Physicalrisks

29

Policies and Introduction/increase of carbon pricing
regulations
MarketAcuteIncreased electricity prices
Increasingly severe disasters

SUNDRUG CO., LTD. Integrated Report 2023

Increased electricity costs for stores and logistics facilities due tointroduction of carbon pricing
Increased energy prices due to higher electricity prices (including
renewable energy surcharge)
Loss of sales opportunities due to damage or closure of stores caused byflooding, etc.
Inventory disposal/shortages and loss of sales opportunities due toflooding, etc. of factories, wholesalers, distribution facilities, etc.

Item

Unit

CO2 emissions*1
CO2 emissions (per gross floor area)*

t-CO2
2

t-CO2 /m2

Fiscal 2018 Fiscal 2019 Fiscal 2020 Fiscal 2021 Fiscal 2022
161,432

149,472

149,880

163,968

154,230

0.145

0.129

0.123

0.124

0.109

*1 C
 O2 emissions include emissions associated with the use of fuels and use of electricity and heat supplied. The method and scope used for calculation
are the same as those stated in the regular report under the Act on the Rationalization, etc. of Energy Use.
*2 Gross floor area is as of March 31 of each fiscal year.
* Figures include Daiya Inc., which was included in the scope of consolidation in fiscal 2022.

SUNDRUG CO., LTD. Integrated Report 2023

30

Values and strategies

Human resources

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Pharmacist Training (Career Select System)

We believe that the development of human resources with diverse values and ideas and the creation of an environment in which thosepeople are able to play an active role are both important elements when it comes to corporate growth. Toward this end, the Group iscommitted to the development of a workplace environment and an educational system in which employees can demonstrate their abilities.
Two lines per store system
Pharmaceutical specialty businesses and store
operations businesses both require highly specialized
personnel, and each requires a different set of skills.
Therefore, SUNDRUG has adopted a two lines per
store system in which specialized duties and store
staff are divided into two groups: “dispensing and
OTC counseling staff” and “store operations staff.”

This system enables our staff to focus on their specificduties and fully demonstrate their capabilities. Thismeans that our pharmacists can concentrate on
ensuring customer delight through OTC counselingand health-related consultations without having toalso make time for operational duties.

In parallel with our 15-year training curriculum, we
have also divided our pharmacist training into two
courses: the “dispensing course” and the “OTC
course” as part of our curricula for helping train “familycare pharmacists.” The dispensing course is held attraining type dispensing pharmacies that specialize indispensing training and teaches advanced dispensing
techniques and how to analyze prescriptions. The OTC
course provides education to develop counseling skills
based on a two-line at one-store system at drugstores.
Upon completion of either of the specialized training
courses, we allow employees to take the other course,
creating an environment in which employees are able
to receive a deep level of knowledge and develop astrong skillset in terms of both dispensing and OTC.

OTC + stores withdispensing facilities

Coop-

Nationwide network of stores
erationE xtensive OTC knowledge andhigh-quality counseling skillsF amily care drugstore
pharmacies

Dispensing pharmacies
located near large hospitalsM edical profit-neutral
environmentA cquisition of advanced
dispensing techniquesC ontribution to local medicalcare in cooperation withmedical institutions

15-Year Training Curriculum
We believe that the development of human resources
is the key to ensuring corporate competitiveness. To
this end, we provide an in-depth education designed
to help our employees grow according to their stages
by our “15-year training curriculum,” which is said tobe the best in the industry. After gaining experienceat stores and being assigned as headquarters staff atstore management departments, product purchasing
departments, store development departments, etc.,
training programs are provided to employees in orderto further refine business skills as professionals ineach field. Furthermore, we link group training (Off-JT),in which knowledge is learned in a classroom settingwith on-the-job training (OJT), in which knowledge
is learned through work in the store. Employees thus
acquire “live skills” using both their minds and bodies.
As true professionals, each employee is able tocontribute to the operating of the company and help
our customers lead fruitful lives. We have also set up ajob rotation system whereby employees are assigned

to various departments at the Group headquarters
for a certain period of time in order to help them findtheir future career path at the SUNDRUG. By being
given the opportunity to experience a variety of roles
for a limited time span during the early stages of theircareer, employees acquire skills in communication,customer service, and in-store management from awide range of perspectives, allowing them to thereby
better plot their future career path.

New employees

Responsible
personBasic training

Leadership, management, mentoring, and compliance

The Company has established an advisor qualification
system to help foster specialists who can exceed ourcustomers’ expectations. The qualifications available
include those to become qualified as a Kampo Advisor,
Nutrition Advisor, Supplement Care Advisor, Nursingcare Prevention Advisor, and Beauty Care Advisors, andcan be taken by any employee who has completed thein-house basic training.

GeneralManager
and above

DeputyManager

SectionManager

SeniorSupervisor

Advisor Qualification System

Presentation skills
Logical thinking and facilitation
Negotiation skills
Strategic planning skills

Proposal Meeting

Formulation of business plans

Store operation positions (including sales positions and beauty advisor positions)

New e mp loye e tra in ing

N ew em ploye e fol low-u p

Year

1

2

3

Support for acquisitionof registered sales
clerk qualification

4

5

6

7

8

9 10 11 12 13 14 15

Years

1 to 2Training on pharmaceuticals and health foods
Senior advisor

Product knowledge training
Operations training
Career development support

Nutrition Advisor

Buyer

Kampo Advisor

Store Development

Recruiter

Career path support

DeputyStore Manager

Upskilling support
e-learning in-house education system + “e-JINZAI” external training tool

3 to 4Years

Merchandise Division
Buyer (in chargeof purchasing)Training Manager
Counseling andSales Positions

Supervisor

YearsPresident’s
OfficeInternal
Recruitment

5

Years

General Manager
of Sales Division

Human Resource
Division

Store BusinessLine Development

Human Resources andEducational Development

Dementia
Patient Supporter

SystemPlanning Division

Job Rotation

Person Responsible
for Store Operations(Store Manager)
Customer Service
Psychology Advisor

BeautyDivision

Information Analysis
and Sales Planning Division

Beauty Advisor

Operation Staff(New Employees)

e-commerce
Business Division

Zone Manager

Supervisor

Nursing-care
Prevention Advisor

10

Private Brand
Merchandise Development

In order to make store operations and headquarters
operations more efficient, SUNDRUG regularly holds
Operational Improvement Proposal Meetings. A
distinguished feature of the meeting is that employees
who actually work at the Company participate, andshare areas for improvement related to issues that
employees experience on a daily basis and propose
ideas for improvement. Some of these ideas arereflected in the manuals and systems for the entire
company, meaning the opinions of each employee
are linked directly to the actions of the Company as awhole. This initiative reflects our commitment to valuing
the opinions raised by each and every employee.

Pharmacist positions
Year

1

2

3

4

5

6

7

8

9 10 11 12 13 14 15

New em ployee train ing

31

New em ploye e follow-up

Professional training for pharmacists
Dispensing training
OTC training

Advanced dispensing training
Advisor training
Career development support
Career path support
Upskilling support

Merchandise familiarity training/Pharmacist meetings/Training
support for Education System-qualified Pharmacists acquisition/e-learning in-house education system + “e-JINZAI” external training tool

SUNDRUG CO., LTD. Integrated Report 2023

Years

1

Years

3

Years

5

Years

10

Health Care
Dispensing
Store
Promotion Division Development
Audit Specialist
Person in Charge of
Person Responsible
Merchandise
Dispensing Training
Zone Manager
for Dispensing
Development
Pharmacist for Practical
Training and Guidance
Human Resource
BeautyDivision
Sales
Planning
Nursing-care
Division
Prevention Advisor
SystemPresident’s
Drugstore Pharmacy
Development
OfficeNutrition Advisor
Pharmacists
Dementia Patient
Supporter
Training Manager
Beauty Care
Person in Charge
Advisore-commerce
Home Medicalof Recruitment
Business Division
Care
Buyer

Dispensing
Pharmacist
OTC Pharmacist

Dispensing and
OTC Pharmacist
Recruiter

Supplement
Care Advisor
Kampo Advisor

Person in Chargeof OTC Education
Person Responsible
for OTC

International Traditional
Chinese Physician

SUNDRUG CO., LTD. Integrated Report 2023

32

Values and strategies

Diversity & inclusion* D iversity & inclusion: Respecting and recognizing each individual, and making the most of their positive qualities, regardless of gender, age, disability,
nationality, and other external attributes, as well as internal attributes such as lifestyle, work history, and values.

Promotion of women’s active engagement in the workplace and helping achieve a balance in terms of childcare

We have built an environment that makes it easierfor female employees who are pregnant or who
have given birth or taken childcare leave to continue
working after the fact, including a childcare leavesystem and child-care shorter working hours systemthat allow employees to extend for a period longer
than that required by law, a system for distributing
maternity marks that have incorporated the views of
employees working during their pregnancy, a returnee
follow-up system in which their supervisors provide
support to help women in roles of responsibility
to return to work after taking childcare leave, anenvironment that makes it easier to take paid leave,
reductions in overtime work, allowing the hiring of
employees with fixed working hours and employees
working only at one specific store, and a system inwhich employees are able to choose locations andregions in which they want to work.

provided to report on the utilization rate for childcare
leave, the average length of service, trends in termsof the number of persons in roles of responsibility andtrends in terms of the number of employees, all withrespect to both genders. At these meetings, issues
are also identified and proposals are put forward asnecessary on how to tackle these issues.
In August 2018, SUNDRUG was recognized for its
good corporate practices in promotion of work-lifebalance for women with the award of three stars (thehighest rating) under the Ministry of Health, Labourand Welfare’s Eruboshi system, established pursuant
to the Act on the Promotion of Female Participation
and Career Advancement in the Workplace. We havealso been awarded the Platinum Kurumin certificationby the Ministry of Health, Labour and Welfare,which is only awarded to companies whose support
for parenting under the Next-Generation Act has
already been recognized with Kurumin certification
and who satisfy more rigorous standards in termsof good practice in formulation and implementationof measures toward balancing work and home life,
including male employees taking childcare leave,
continuation of work after taking childcare leave,
reduction of overtime work, and provision of diverse
working conditions.

At meetings of the Compliance and Risk
Management Committee, management meetings andmeetings of the Board of Directors, opportunities are

Promotion of work-life balance
As mentioned above, diverse values and diverse
human resources are necessary for the growth of acompany.
However, lifestyles can vary significantly dependingon factors such as changes in a person’s life stage,
life events, gender, age, and the presence or absenceof disabilities. Therefore, in order for diverse humanresources to be able to work together, it is necessary
to create a workplace environment that allows forflexible working styles that can accommodate a wide
variety of lifestyles.
The current manuals and mechanisms in place
are inadequate when it comes to working styles foraccommodating a wide variety of lifestyles. It is therefore
33

SUNDRUG CO., LTD. Integrated Report 2023

Initiatives on society

GovernanceManagement data

Employment of persons with disabilities

The ultimate aim of diversity & inclusion* is to actively incorporate human resources with diverse values into
our business operations free from restrictions of gender, age, or nationality, so as to allow the building of anorganization that is able to respond flexibly and with speed to a variety of management issues.
We believe that this is an important theme for the SUNDRUG Group as well, with the Group as a wholeworking toward the promotion of diversity and inclusion. We are also developing systems to promote flexible
work styles, such as a Monthly Flexible Working Hours System, and workplace environments that enable adiverse range of individuals to engage in their work with a sense of motivation.

As awareness of self-medication increases, more andmore women are choosing drugstores as places of
employment. As a result, the ratio of full-time female
employees at the Company has increased by nearly 20
percentage points over the past five to six years, withfemale employees now accounting for approximately
40% of our full-time staff.
In order that our employees can work together as
one to deliver on the vision of “realizing healthy, richlives” for our customers, it is important that we build
an environment in which employees are able to get toknow the unique characteristics and gender differencesof each other, and demonstrate their individual abilities
to the maximum extent, regardless of gender.

Initiatives onenvironment

necessary that we remain committed to updating suchmanuals and mechanisms as and when necessary.
The establishment of mechanisms such as manuals
and systems built to address various issues, as well
as working hours and work locations, are importantconditions for employees to work in a diverse range oflifestyles. “Reduction of overtime work,” “Initiatives topromote the use of paid leave,” “Securing adequate
intervals between work shifts to optimize working
hours,” “Introduction of employees with fixed working
hours and employees working only at one specificstore,” and a “System for allowing employees tochoose locations and regions in which they work” arejust some of the initiatives that we are focusing on.

We believe that SUNDRUG’s vision of “realizing healthy,rich lives” should apply not just to our customers andbusiness partners, but also to our employees.
All employees, regardless of disability status, should
be given the opportunity to fully demonstrate theirabilities in their professional lives. If we can ensure that
all employees are able to work lively, only then can weachieve the goal of “realizing healthy, rich lives.”
There may be many situations where a person’s
disability serves as an obstacle in his or her working
life. However, by implementing a system in whichthose without disabilities are able to follow-up withthose with disabilities, it should be possible for us as acompany to grow together toward the same goals.
The Company is committed to the employment of
persons with disabilities and to helping them settle into
the Company such that they can be employed acrossa range of business divisions, including the Store
Support Division and the Support Center Operations
Division, and make full use of their abilities.
Headed by SUNDRUG Dream Works, a specialpurpose subsidiary under the Act to Facilitate the
Employment of Persons with Disabilities, the Groupis engaged in initiatives to employ persons withdisabilities in a variety of locations, including stores,
support centers, and logistics centers. In the past, theCompany has promoted the employment of persons
with disabilities to work in fixed locations, such as theGroup headquarters; however, the Company is now
proactively engaged in the employment of persons
with disabilities to work primarily in stores.
The reason for this is that our stores are locatedacross Japan, which thereby greatly expands
employment opportunities for persons with disabilities.

As part of this hiring process, we make sure to
conduct in-store training in advance for several days
and take measures to minimize mismatches between
persons with disabilities and the stores as much as
possible. In addition, as one of the measures to help
strengthen our follow-up system, we have provided
all employees with disabilities who work at our storeswith smartphones that allow us to keep track of theirworking status and to make daily reports, thereby
helping ensure that changes to their working status
are more easily noticed.
Our efforts to develop an environment thatempowers persons with disabilities to participate
actively in the workplace were recognized in
September 2019 when we received a Bureau ofIndustrial and Labor Affairs Chief’s Award in theTokyo Metropolitan Government’s Excellent Company
Awards for Employment of Persons with Disabilities.
We will continue to create a comfortable working
environment to promote the employment of persons
with disabilities and the creation of opportunities fortheir vocational autonomy and social participation.
At monthly meetings, the persons in charge ofpromoting the employment of persons with disabilities
at SUNDRUG and SUNDRUG Dream Works gather
to report on changes in the employment rate and thestatus of new hires, as well as to share issues andconsider measures to support the retention in theworkplace of persons with disabilities.
As a result of the above activities to promote
the employment of persons with disabilities, theemployment rate for persons with disabilities stands
at 2.97% for the Group as a whole, far exceeding thestatutory employment rate.

Promotion of mid-career hires and employment of senior citizens
If everyone is from the same backgrounds and holds
the same values, the ideas that will emerge from thatwill inevitably lack diversity, and companies will reacha hard limit in how they can adapt and change.
When a company employs a diverse range of humanresources with diverse values, and each employee
respects and recognizes each other’s individuality andmakes the most of each other’s strong points, they areable to grow, and the company is better able to adapt
and develop. We employ diverse human resources sothat employees of a variety of backgrounds can fully
demonstrate their capabilities regardless of skills orage.
With the aim of reliably implementing businessstrategies and realizing management objectives, theGroup promotes the employment of individuals withskills and knowledge that are currently lacking inhouse, and those capable of undertaking specialized
work that cannot be performed by members of ourexisting workforce. For this purpose, we provide
employees with training and career advancement
opportunities that are impartial and not dependent
on how they were hired, and systems of evaluationand employment conditions aligned with individual
abilities and performance. Moreover, we actively
promote the re-employment of former employees who
resigned owing to childbirth, parenting, nursing care,and other life events, and the re-hiring of returnees
who previously worked in the Group and subsequently
pursued careers elsewhere.
In addition, in order to promote the employment
of senior citizens, the Company performs reviews ofstore work assignments to hire senior citizens primarily
in roles such as stocking shelves early in the morning
before store openings.
Mid-career recruitment ratio

Company nameFiscal 2020 Fiscal 2021

Fiscal 2022

SUNDRUG CO., LTD.

31.2%

16.7%

27.5%

Seikodo Pharmacy
Corporation

25.0%

15.6%

28.6%

Sundrug Plus Co.,
Ltd.

51.0%

15.4%

66.6%

DIREX
CORPORATION

74.0%

61.3%

46.2%

*I n accordance with the Act on Comprehensively Advancing Labor
Measures, and Stabilizing the Employment of Workers, and Enriching
Workers’ Vocational Lives

SUNDRUG CO., LTD. Integrated Report 2023

34

Values and strategies

Health and safety of employees

Declaration on HealthWorkers
Safety and trust of employees
and job applicants

Material issues
Preventing severe illness
We have adopted a thoroughgoing approach tothe management of health examination results,
and are bolstering programs to encourage
employees to undergo examinations to preventthe onset of severe illness and raise theproportion of employees receiving specific healthguidance.
Promotion of mental health
We are strengthening education programs
essential to the maintenance of mental andphysical health, and promoting the use of
external counseling service, etc.
Diverse measures for work style reform
We are working actively on measures such as
rectifying excessive work hours, and securing
adequate intervals between work shifts, andconducting surveys and analyses of employee
motivation.

Companies implementing
health and productivity
management

Initiatives on society

GovernanceManagement data

Health initiatives for employees

The Company promotes health management activities to help maintain a workplace environment in which
employees can work in good physical and mental health.

 aturally, our employees are a precious assetN
and key driving force for our Company.
“Good health” is the foundation for employees
both while at work and in order to lead long lives
after retirement.
One of the most important ingredients for a rich life is“good health.”
By maintaining good mental and physical healthas individuals, employees also contribute to better
health and greater fulfillment for their families andcustomers.
We believe that our ongoing health promotion
activities will steadily make a positive impact on the
wellbeing of numerous people right across the globe.
Lifestyle habits developed in one’s 20s and 30s are
said to affect mental and physical health outcomesin one’s 40s and beyond. Because the averageage of employees of our Company is relatively low,
we believe that the first step is to raise our own
awareness of health-related matters.
We are raising health consciousness andvigorously advancing health management initiatives
in order to promote better mental and physical healthamong our employees.

Initiatives onenvironment

ConsumerPreference for merchandiseand services

Workplace management to safeguard the personal
health of diverse workers is an increasingly importantpriority in corporate management. We believe thatrather than leaving the maintenance and promotionof health solely up to individual employees, theirfamilies, and health insurance associations, pursuing
proactive involvement at the company level can help
invigorate our organization and thereby raise thecompetitiveness of SUNDRUG Group employees,
ultimately contributing to the achievement ofsustainable growth. As stated in the Declaration
on Health, SUNDRUG considers it important
that, in order to promote health and productivity
management, we implement measures to prevent
severe illness, improve employee health literacy,
and reform working styles and will implement thesemeasures in a planned and strategic manner.
Specifically...

Based on these four measures, we are aiming to
be a vibrant company where employees can workin good health over the long-term by ensuring thatthey are physically and mentally healthy. Recently,
we participated in the Certified Health & Productivity
Management Outstanding Organizations Recognition
Program, and were recognized as a CertifiedHealth & Productivity Management Outstanding
Organization 2023 (large enterprise category).”

Other detailed initiatives
Measures to prevent severe illness
I mprovement in rate of employees undergoinghealth examinations
Cancer screening subsidization systemS ubsidization system for influenza vaccination
E xternal counseling service for healthcare
Mental health education
I mprovement of implementation rate of specifichealth guidanceF ollow-up measures for after undergoing healthexaminations
I nitiatives to support a better balance between
work and illness
Reduction of work-related accidents

 easures to prevent severe illness andMmental health issues in collaboration withprofessionals
Analysis of issues highlighted in the results ofhealth examinations and measures to improveon these
Education to improve health literacy necessaryfor employees to maintain good healthWork style reform to improve work-life balance

Execution systems
Within our offices, specially appointed members
from each department, led by the Human Resource
Division and other occupational healthcare staff, work
together to resolve issues related to the prevention ofsevere illnesses and to implement work style reforms.
With regard to education to improve health literacy,
the Company is engaged in initiatives to enhance
opportunities for employees to receive training
on improving their health in collaboration witheducational development division.
Outside our offices, the Company has developed
an occupational healthcare system in cooperation
with health insurance associations and industrial
healthcare staff, including public health nurses andindustrial physicians, and regularly holds meetingsto get a better understanding of current healthcare
issues, to consider measures for improvement,
to verify the effects of measures, and to improveexisting measures. Through such initiatives,
the Company is working to promote health andproductivity management.
At monthly meetings of the Safety and HealthCommittee and the Compliance and Risk
Management Committee, etc., the President
and Director, who is the chief officer in charge ofhealth and productivity management promotion,
as well as members of top management, including
officers, and appointed union members, confirm
the progress of such initiatives through regular
reporting, including on the optimization of working
hours, ensuring intervals between work shifts,
measures toward mental health, reports of workrelated accidents, consideration of measures toprevent their recurrence, and measures for medical
leave. In addition, measures to help make further
improvements are discussed at each meeting.

Board of Directors
ESG Promotion Committee
Chief Officer in Charge of Health and Productivity Management Promotion (President)

Financial institutions
and investors
Confidence and appreciation by
financial institutions and investors

Appreciation by
local governments

Business partners
Trust from our business
partners

35

SUNDRUG CO., LTD. Integrated Report 2023

Safety and Health Committee

Local communities
and society
Industrial physician

Cooperation

Public health nurses
External counseling service professionals(public health nurses, clinical psychologists, etc.)

Professional staff outside
Company offices

ESG promotion members
Person responsible for health and productivity management
Educational development
Appointed members from each department

Health insurance association

Labor unions

Health insurance staff

Staff at Company offices
SUNDRUG CO., LTD. Integrated Report 2023

36

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Roundtable discussion between employees
Through the promotion of diversity,
we aim to develop an environment inwhich a diverse range of personnel
can fully demonstrate theircapabilities.
The SUNDRUG Group has identified the establishmentof a satisfying working environment as a material
management issue (materiality). Through a roundtablediscussion between Toshihiko Asami, General
Manager of the Human Resource Division, and threefemale managers, we will report on the status of efforts
to promote diversity and the active participation of
women on the front lines.
Creation of an environment where taking
childcare leave is commonplace for both men
and women
Asami With stores all across the nation, the Company
regularly generates a certain amount of net sales andhas a considerable number of employees. Therefore,
the Company is committed to diversity as a social
responsibility. We work to secure human resources
with diverse attributes, sensitivities, abilities,
values, and experiences, and strive to promote themaximum utilization of each individual’s capabilities.
We believe that providing a place where a diverse
range of people can play an active role will lead toour acquisition of superior human resources, as well
as changes in employees’ behavior and awareness,
which in turn will lead to work style reform.
One of our initiatives in diversity is to promote
the active participation of women. The majority of
the Company’s customers are women. Therefore,
we expect that an increase in the number of female
executives and management-level employees willlead to sales promotion planning and the provisionof services that reflect the unique perspectives andideas of women.

37

SUNDRUG CO., LTD. Integrated Report 2023

Toshihiko Asami
General Manager, Human
Resource Division

Maki Yasuike

Hitomi Miyazawa
Senior Supervisor, Planning
Section, Beauty Division

Ai Shoji
Supervisor,
Sales Division

Section Manager, Training
Section, Beauty Division

One of the features of the system that supports
flexible work styles at the Company is that childcare
benefits are longer than the periods set by the Act onChildcare and Caregiver Leave in Japan. Employees
can take childcare leave up until their child turns theage of three, and the shorter working hours systemfor childcare can be utilized up until the time of theirchild’s graduation from elementary school.
Yasuike When I gave birth in 2007, the Company’ssystem still followed the periods stipulated by thelaw, and when I returned from the one-year childcare
leave, I could only utilize the shorter working
hours system until the day before my child enteredelementary school. After-school daycare services areavailable for children up to the age of 10, but at thatage, it was still difficult for my child to stay at homealone, and I was always very worried. Thankfully, the
Human Resource Division was quick to implement
system reforms, and I was extremely relieved when
the periods for utilizing childcare leave and theshorter working hours system were extended.
Asami Currently, 100% of female employees whoare eligible for childcare leave take it, and almost
all of them utilize the shorter working hours systemafter returning to work. Furthermore, in line withthe promotion of self-medication in recent years,
the number of women who wish to work in the
self-medication field has increased, resulting in an
increase in the number of female employees werecruit. The childcare leave and shorter working
hours system of the Company have been praised as
one of the mechanisms that make it easier for women
to continue working at the Company.
Yasuike After having served in various positions
including as a sales manager at a store, I joined theSales Training Section. After my maternity leave, I
returned to the same department. Many of my seniors
working in the department were also mothers who
had experienced childbirth and childcare, so it felt
like taking childcare leave and returning to work
afterward were just ordinary occurrences. Since I

returned to the same department, I did not have muchdifficulty in catching up with the duties. Nonetheless,for those who return to work, there is a return-to-workfollow-up system that includes re-learning. Therefore,
I think that the follow-up prior to an employee’s return
is solid so that employees can return to work with apeace of mind.
Miyazawa In my case, I worked as a lecturer at
the Educational Development Division until I tookchildcare leave in 2012. When I consulted with mysuperior about my concerns over how to balance myworking hours and childcare, I took the advice of the
Human Resource Division and returned to work at
the Beauty Division. Beauty Division is responsible
for counseling about cosmetics and for sales floor
management at the stores as Beauty Advisors (BA).
After I joined the Company, I was in charge of store
operations, so I knew about a BA’s work. Nonetheless,when I returned to work, I worked in the stores again,
as a BA this time, in order to gain knowledge about
cosmetics, before I returned to the headquarters
as the person in charge of the Beauty Division. By
acquiring detailed know-how regarding cosmetics,
I believe that I was not merely transferred to anotherdepartment to facilitate my childcare efforts but wasalso given the opportunity to advance my future
career.
In addition, I have reduced my commuting to lessthan an hour as I now work closer to my house. Evenamong women who utilize the shorter working hours
system, I think there are many who feel that there
is not enough working time for things like research.
By working at a place close to my house, I canexperience less of such feelings of frustration.
Asami Regarding commuting time, from theperspective of making it easier for all employees,
including women, to work, we try to ensure allcommuting time from home is within an hour inprinciple, which is feasible since our stores have
now expanded nationwide. For employees who
utilize the shorter working hours system, we try toassign them to stores that are closer to their homes.
Even for employees like Ms. Miyazawa who workat the headquarters, an assignment is made after
considering the length of their commuting time. Thisis possible as we have offices in major cities acrossJapan that have headquarters functions and also
serve as training centers.
Miyazawa The Human Resource Division evenasked me about what time I would pick up my childfrom kindergarten, and I was surprised that they
were taking so many factors into consideration when
deciding which store to assign me to. Soon after I got
back to work, my child was down with a fever, and I
had to take about ten days off. I was really gratefulthat my coworkers at the store, whom I was causing
trouble to, did not blame me but instead gave mewords of concern.
Shoji I am a supervisor, which is a managerial
position at a store, and I plan to take maternity
leave from July 2023. There are many men in mydepartment, and in the Company, there are many
male store managers who take childcare leave, and
it is normal for supervisors to ask each other for help
and arrange for personnel to cover their duties. It
feels natural for both men and women to take leave
for childbirth.
Asami As a reference, the percentage of male
employees who take childcare leave is approximately
90%. We have been promoting the utilization ofpaternity leave for a long time. After we received
Platinum Kurumin certification for being a “company
that offers strong support for parenting,” in-houseawareness-raising activities progressed further, andthe paternity leave utilization rate has increased.
Shoji Although it is still some time away, I am going
to be the first female employee to return to her current
position in the Sales Division after taking childcare
leave. In this unprecedented situation, my superiors
have kindly worked for the benefit of my career, whichmakes it so easy for me to work. Going forward, I willcontinue to give my best in the Sales Division.
In addition, there have been some revisions to
the regulations which makes it easier for employees
to seek their career paths. In the past, there was aregulation that only those in the National category,
which comes with the possibility of a job transfer

SUNDRUG CO., LTD. Integrated Report 2023

38

Values and strategies

nationwide, could become a section manager orhigher, and I had trouble making a career plan that
could match my life stages. The regulations wererevised three years ago, making it possible even for
those in the Local Employees category, which does
not involve transfers, to aim for section manager orhigher positions. Upon getting married, I switchedto the Local Employees category. I believe that thisrevision has created a system that makes it easier for
women who want to advance their careers to do so.
As a result, the number of female store managers has,in fact, increased.
Asami The Company’s ratio of female managers, as
defined by the Ministry of Health, Labour and Welfare,
was 18.8% (as of March 31, 2023), which is higher
than the retail industry average of 7.0%. Managersof the Company are defined as those in the positionsof section managers and above, supervisors whooversee multiple stores, and training leaders. The
three employees participating in this discussion are
all managers. The high ratio of female managers
is partly due to the fact that a large proportion ofpharmacists are women. However, recently, there has
indeed been an increase in the number of women who
have moved to the position of a supervisor or a higher
store operation position, such as Ms. Shoji.

Diversity means creating a working
environment that is easy for anyone to work in
Yasuike I think that the Company has established asystem that makes it easy for employees to continue
working for a long time while raising children.
However, I myself have simply returned to work in adivision where there are many women. In my opinion,
we can only truly say that a culture of women’s active
participation has been established when there are
more people like Ms. Shoji, who is trying to advanceher career in the Sales Division while raising a child.
On the other hand, some people prefer to work in theirneighborhood and focus on providing good customer
service. A job-hunting student once asked me, “Do
you have to be a woman who aggressively works toadvance her career?” However, embracing diversity

39

SUNDRUG CO., LTD. Integrated Report 2023

means allowing for a variety of work styles, whether
people want to put their families first, or wish to climb
the career ladder. Personally, I have a daughter who
is currently a high school student, and after leaving
the shorter working hours system four years ago, I
am now working full-time. From now on, I would like tohelp create a working environment that can provide
even more diverse options to my juniors at theCompany.
Asami There are people who want to continue
working at stores and people who want to work invarious jobs at the headquarters, regardless ofwhether they are men or women. Once a year, allemployees have a feedback interview with theirsuperiors, and the Human Resource Division reviews
each employee’s aspiration, evaluates their suitability
to a job, and considers the possibility of a transfer.
For example, pharmacists have options beyond
working at a drugstore that sell over-the-counter
drugs or working at a dispensing pharmacy. Some
pharmacists belong to the Beauty Division or the
Product Development Division. In fact, I am also apharmacist, but I am currently working in the Human
Resource Division. In this way, the Company actively
conducts job rotation while assessing the individual’s
wishes and their suitability for the job.
Yasuike In addition to full-time employees, there are,for instance, people who work part-time in the Beauty
Division all over the country, but there are also people
who become full-time employees to work only at a
certain store. Some have become full-time employees
only at stores close to their homes, while others
have taken the opportunity to become supervisors
responsible for the management of multiple storesafter they became full-time employees.
Asami The Company employs a system in which
there are promotion tests for part-time employees as
well, with the three levels of elementary, intermediate,
and advanced. When a part-timer passes a test,
the contents of their work and their hourly wage willchange. Furthermore, there is a system for appointing
outstanding personnel as full-time employees,
through a letter of recommendation from the stores.
Also, as Ms. Yasuike mentioned, it is possible tobecome a full-time employee of just one particular
store.
Miyazawa Of course, we do not force people tobe appointed as full-time employees just because
they are capable, but I believe that there are many
opportunities at the Company for each stage of life,
such as when one is trying to work in a different way
after their childcare responsibilities are no longer thatheavy.
Asami Also, as an initiative to create a better working
environment, the Company is also focusing on
health and productivity management. In 2022, theGroup was named a Certified Health & Productivity
Management Outstanding Organization. Most
recently, the Company set up an external consultation
service to provide advice regarding the health of
employees and their families, and childcare.

Initiatives onenvironment

Initiatives on society

Yasuike I feel that mental health is very importantfor health management. I often get asked bystore administrators for advice on how to resolveinterpersonal conflicts. There are some things thatare hard to bring up to other people in the Company.
However, it might be easier to say those things toan external consultant, and to ask for advice. In the
future, I hope the system can be developed further,so that there will be easier ways to ask for advice
besides asking it over the phone.
Shoji I can answer the work-related concerns of
my subordinates, but it is difficult to get involved
when they are facing a mental issue. I think it is very
reassuring to have an external consultation service.
Miyazawa I, too, recently asked my immediate
superior for advice about a family issue. In my case,
I feel safe as I believe that my boss will always bekind and supportive. But, to be honest, I have heardof cases where people quit due to problems with theirboss, so I think that the consultation service can be
useful for such cases too.
Asami As I concurrently serve as the General
Manager of the Human Resource Division and the
Chairperson of the Anti-harassment Committee, I
receive many requests for consultations and reports
regarding harassment. When I examine the detailsof these reports, I find that most of the cases areusually due to a simple miscommunication, and thesituation could be resolved by the superior and thesubordinate calmly talking it out trying to understandeach other. As the number of female employees
increases, and as a foundation for the future increaseof women not only in managerial positions but also
in senior management positions, we are working
with the Personnel Development Office to prepare acommunication skills training course for managers,which includes an understanding of physicalconditions unique to women.
Meanwhile, the Company’s store operations arecharacterized by a two lines per store system. Eachstore always has a supervisor who assumes the store
operation position, and a training leader who provides
training on dispensing operations, counseling andsales. There are many cases where staff who assume
store operation positions consult with training leaders
on matters that are difficult to bring up to their
immediate supervisors, and cases where pharmacists
consult with the supervisors. I think that the twolines per store system is one of the foundations formaintaining a culture of openness in the organization,
where the relationship between superiors andsubordinates does not become too inflexible.
Yasuike It has been more than 25 years since I
started working for the Company, and I believe that I
owe this long tenure to the people around me. There
should not be hit or miss in workplace environment.
Depending on the characteristics of a department, it
may be relatively easy or difficult for that department
to accommodate female employees. However, as
the number of female employees increases, I believe
we should make efforts to ensure that both men and

GovernanceManagement data

women can work on equal terms, and I will start byendeavoring to improve the working environment in
my own department.
Miyazawa I, too, could not have worked for morethan 20 years without the help of those around me.
I think that the Company has a system in place thatenables those who want to work for a long time to do
so. At the same time, it has a corporate culture thatencourages those who want to work hard to take onchallenges. On the other hand, I do not think that the
topic of diverse work styles has to be an issue limited
to women. I believe there are also men who needshorter working hours due to the nursing care needsor health problems of their family members. I expect
the Company to continue developing systems that
respond to the diverse needs of all employees.
Shoji I will soon be taking maternity leave andchildcare leave, and I would like to take advantageof the systems that the Company has in place to takea good rest when I need to. Also, I will continue to do
my job to the best of my ability in the Sales Division,and I hope that this will lead to new work styles andmore career options for my juniors in the future.
Asami One of the features of the Company is its
culture of “openness.” Going forward, I hope that
we can continue to engage in a frank exchangeof opinions, and that the Company’s working
environment will continue to evolve, in line with thetimes, into more comfortable one for a diverse rangeof personnel.
* Please refer to page 33 for details on the systems promoting diverse
work styles, implemented in line with the promotion of diversity.

SUNDRUG CO., LTD. Integrated Report 2023

40

Initiatives onenvironment

Values and strategies

Quality of customer service

Basic policy
Under our management philosophy of realizing “healthy, rich lives,” in order to contribute to the creation of“good cheer and fun in daily life,” we believe that it is important to always be listening to our customers and tooperate stores rooted in local communities. Accordingly, the Company is working to develop systems, to provide
education and training, and to enhance support systems, focusing on the following three important themes:

Utilization of customer feedback

Safety of medication

As a retailer, we provide clean and organized store environment in which it is easy for customers to find andpurchase products. Our aim is to continually enrich the content of our stores in line with the expectations of ourcustomers.

The Company has established a Customer Service
Office to offer safety, reliance, and convenience forcustomers. In addition, we collect customer feedback
through inquiries made to stores and through social
media, including Twitter and Instagram, and are
striving to improve store operations and systems toensure customer satisfaction.

Support at the checkoutCounseling andcustomer service

Search system edication consultation &Mhealth foods
Kampo-based body
constitution checkup; bysymptoms
Back-order

Qualified personnel

Customer(Pharmacist, registered sales clerk)

Educationsystem

Support
SystemReliable
supportsystemSearchsystem41

Item

Basic and Intermediate Seminar
CurriculaProfessional Development SeminarCustomer Service Procedure
Training
Qualified Personnel Training
Basic Customer Service Training
Pharmaceutical Response
Confirmation Test
Administrative Operations Manual

Support System Products, Pathology, and Combinations (of medications) edication Consultation Hotline
MCustomer Service Support Tools
Sales Promotion and New
Product Information
Health-related TV Program
Information

Listening to customers’ concerns (symptoms);
responding to their needs; checking
symptoms, finding out the cause of the
medical complaint; choosing a medication;offering curing method; requesting that thecustomer return to the store, etc.

Objectives

Acquisition of knowledge and counseling skills relating to pathology and the selecting ofBasic and Intermediate Seminar Curricula therapeutic drugs
Development of experts in the fields of Kampo medicine, nutrition, nursing care, and beauty
Professional Development Seminarcare
Basic Customer Service Training
Acquisition of basic behavior (greetings, manners) and knowledge of customer service
Learning how to talk with customers and take appropriate action (referrals, recommendations to
Customer Service Training
consult with a doctor, giving advice).
Learning how to respond to customers who need information; how to respond in accordance
Qualified Personnel Training
with laws and regulations; and how to prevent customers from purchasing excessive amountsof specific components of medications
Pharmaceutical Response Confirmation Test Retaining and reviewing knowledge base, and sharing case studies
Understanding and implementing procedures relating to the sales system in accordance with
Administrative Operations Manual
laws and regulations
Responding to consultations and inquiries that are difficult for store staff to answer.
Medication Consultation Hotline
Pharmacists at the Company headquarters respond to inquiries from stores across Japan
Tools,
information, and search tools to be used when answering customer inquiries are stored
Customer Service Support Tools
on dedicated tablets so that responses can be made in a timely fashion.
Sales Promotion and New Product
Share the latest health information, medical knowledge, and product knowledge
Information
Collecting information related to programs provided on TV (regarding health, law or products)
Health-related TV Program Information
in a timely manner and then utilizing that knowledge when deciding what products to put on the
shelves and in conversations with customers at the store.
Identifying
customers who need information, assisting in counseling, and preventing purchase
Pharmaceutical register alert systemof excessive amounts of specific components of medications
Pharmaceutical sales control system
Control of pharmaceutical sales in the absence of qualified personnel
to enable the customer to choose the most appropriate medicine by themselves; Used
Medication Consultation System (CSS) Aforsystem
consultations in which the customer desires some privacy
Kampo-based body constitution checkup; Checking body constitution based on Kampo theory and proposing medications in accordanceby symptoms
with the symptoms. Also providing advice relating to daily life
Back-order
Customers choose products by themselves. Ordering items that are not in stock at the store.

SUNDRUG CO., LTD. Integrated Report 2023

Customer feedback(Phone, email, social media, etc.)

Contact at headquarters

StoresCustomer Feedback(Fiscal 2022)

Contact at headquarters andperson in charge at store

Approx.

2,900

Meetings and review
sessions

cases

Education system Knowledge of products and pathology

ESG Committee: Education and systems for the safe use of pharmaceuticals

Education/
SystemCustomer Feedback Flowchart

Contacting customer

P harmaceuticalregister alert
systemP harmaceuticalsales control
systemCustomers can search by themselves (multi-tablet)

Management data

Responsible department

Improvement of customer service quality at stores
Reliable support system

GovernanceUtilization of customer feedback

The Company is working to improve the quality of its service to each customer by putting in place systems,
education, and frameworks that will enable us to provide products that stakeholders can trust and use safely.

Improvement of customer service quality at stores

Initiatives on society

Medication safety
We are working to prevent dispensing errors based on the fact that such errors have a serious impact on patients’
health and the premise that they are caused by inadequate explanations by pharmacists and errors in terms of
guidance.
As part of initiatives to prevent dispensing errors, we have introduced a unique “Barcode Dispensing Error
Prevention System,” and a “Camera Monitoring Guidance System,” the only one of its kind in the industry, toprevent dispensing errors caused by false assumptions. The Dispensing Division is working to create thesesystems to prevent dispensing errors.
Barcode Dispensing Error Prevention System
When prescription details are entered into a computer
terminal, it outputs a barcode, which is then checkedagainst the same barcode-controlled medication toprevent human error, such as mistakenly taking thewrong medication due to false assumptions. We havealso made our own customizations to further increasesafety when providing patients with their medication.

Camera Monitoring Guidance System
From prescription checks to dispensing monitoring andadvice on medication instruction, senior supervisorsof pharmacists dedicated to dispensing andheadquarters dispensing managers provide in-depth
guidance to on-site pharmacists via high-performance
television cameras installed in the dispensing facilities.
Normally, other pharmacists perform checks in stores,
but with the development and introduction of thissystem, we have established a system in which multiple
pharmacists perform checks in any given situation.

Camera monitoring (at the store)

Camera monitoring(at the headquarters)

Education
After joining the Company, pharmacists undergo
monthly basic training through classroom-based
lectures whereby they can then further deepen
the knowledge and skills they have learned in theclassroom at stores and acquire basic dispensing
skills. Pharmacists build up their skills in stages as theyacquire ever more advanced dispensing skills.

SUNDRUG CO., LTD. Integrated Report 2023

42

Initiatives onenvironment

Values and strategies

Business Partners

Basic policy
business partners and in response has, in conjunction
with its business partners, established the “Code of
Conduct for Business Partners” (see page 61) andissued the “Declaration of Partnership Building.”
In order to contribute to the realization of asustainable society across the entire supply chain,
we are committed to building relationships based on
co-existence and co-prosperity.

Declaration of Partnership Building
The SUNDRUG Group has endorsed the aims of the“Declaration of Partnership Building.”
The “Declaration of Partnership Building” aims
to strengthen partnerships with business partners
who share the supply chain and declares to build,in the name of the company representative, newrelationships of co-existence and co-prosperity withthe aim of achieving a “virtuous cycle between growthand distribution.”
Through the “Declaration of Partnership Building,”
we aim to respect each other’s values, resolvecommon issues, and realize a better society.
The Company’s declaration specifies the following
items:

GovernanceManagement data

White logistics

The Group is working to realize a sustainable society through the strengthening of fair, transparent,
and appropriate transactions and partnerships with business partners that work in cooperation with the
SUNDRUG Group’s businesses.

At SUNDRUG, where “Benefits for all” forms a key
part of our management stance, we recognize thoseparties we do business with as important business
partners of the Group.
In this era of rapid change, there are a variety ofissues facing our society that no one company canresolve on their own. For this reason, the Group
recognizes the importance of fair transactions with its

Initiatives on society

Basic policy

The issue of the working environment (long working
hours) has been highlighted as a contributing cause
to the situation of the aging population of truck
drivers and the decrease in new drivers. The timerequired for performing tasks other than driving, suchas unloading cargo and long standby periods on site,
have been cited as factors in this.
If progress is not made in improving the working
environment for truck drivers, the shortage of drivers
will further accelerate, and we may be forced into

SUNDRUG Group’s white logistics initiatives
We will implement initiatives in 16 areas recommended by the Ministry of Land, Infrastructure, Transport andTourism.
We will continue to implement these initiatives in the areas in which the goals have already been achieved, andplan to pursue further improvements on our own.

Consignor

Individual Items

We will engage in sincere efforts to tackle arange of issues, including those related to theenvironment, energy, and logistics.
We respect each other’s existence and values andbelieve that aiming for coexistence and co-prosperity
will ultimately help lead to the realization of asustainable society.

(Other) optional entries

We endorsed the aims of the “white logistics”
campaign and have announced a “declaration ofvoluntary actions.”
We continue to address a variety of logistics issues,
share our expertise with our business partners, andstrive to optimize supply chains.

Details of the Declaration of Partnership Building“Declaration of Partnership Building” Portal Sitea situation in which goods do not arrive and storescannot be opened.
As part of efforts to improve this situation, a revisionof the laws related to overtime work is scheduled to
be implemented in 2024, with white logistics being
one of the initiatives to improve overtime work.
The Group does not consider these initiatives forwhite logistics to end with the revision of the laws in
2024, and our policy is to continue to promote a range ofimprovements toward improving the efficiency of logistics
throughout the entire supply chain going forward.

Contractor
Securing delivery space
Requests for things to be arranged orderly, etc.

Instructions on
improvement requests
Improvement reports
Stores物流部

Request for cooperation forimprovement
I mp r o v e me n t report s

Warehouse organizing
Layout changes, etc.

Distribution
centerConfirmation reports

By taking part in the white logistics initiative promoted by the Ministry of Land, Infrastructure, Transport and Tourism to help
address the shortage of truck drivers, we will help ensure stability in terms of logistics functions necessary for the lives ofJapanese citizens and industrial activities and contribute to the further growth of the Japanese economy.

Progress in store delivery
warehouse improvement Improvement achievement rate:
Cargo delivered in loose boxes

https://www.biz-partnership.jp/

100%

Goals achieved in 81 out of 81*as of July 2022

Loading andunloading take time…
Unloading & stowage using
cage cart for each store
Witnessed inspection of TC units

Driver operation

Reporting Desk for Business Partners

Center operation

Delivery by cage cart

Delivery using cage cart

The Company has established a reporting desk for its business
partners to address the following issues:
Violation of compliance regulations, coercion of money, goods, wining and dining, etc.
Abuse of dominant bargaining position, violation of the Act against Delay in Payment of
Subcontract Proceeds, etc. to Subcontractors, harassment, violation of human rights, etc.

helpline@sundrug.co.jp

Unloading (sorted by store)

Witnessed inspection of TC units

Driver operation

Center operation

1h

Shorter time spent at store
Reduced work required of driverLess time spent occupying
space for receiving deliveries

2hTime spent at the driver center

43

SUNDRUG CO., LTD. Integrated Report 2023

SUNDRUG CO., LTD. Integrated Report 2023

44

Values and strategies

Human rights
The Group is working to strengthen and promote initiatives relating to, among other things, education on
respecting the human rights of all stakeholders, including employees.
Basic policy on human rights
The Group aims to create good cheer and fun in daily life,
envisaging a future in which all people can lead healthy,rich lives. We believe that respect for human rights is aprecondition for business activity, and that contributing
to the creation of a society that respects human rights
is a key element in our future vision of healthy, rich lives
through our business activities. SUNDRUG Group has
established this SUNDRUG Group Human Rights Policy(hereinafter referred to as “this Policy”) consistent with
the United Nations’ Guiding Principles on Business andHuman Rights, and will advance our activities toward
respect for human rights in accordance with this Policy.
This Policy complements the SUNDRUG Group Codeof Conduct, and under this Policy, the Group will makeconcerted and united efforts to promote respect forhuman rights.

SUNDRUG Group Human Rights Policy
Basic approach
The Group understands that all business activities
have the potential to impact human rights, either
directly or indirectly. We believe that one of our key
responsibilities as a business operator is to upholdinternational norms of human rights such as the UN
Guiding Principles on Business and Human Rights,
cultivate deeper understanding of human rights
problems, and conduct ourselves appropriately.
Scope of application
The Group applies this Policy to all officers andemployees of the Group, including part-time,
contract, and temporary hire employees. Moreover,the Group requires its suppliers to understandand comply with this Policy and expects business
partners to support it.
Human rights due diligence
The Group builds human rights due diligencesystems, identifies negative impacts on humanrights related to the Group’s business, and pursues
initiatives for the prevention and alleviation of these
impacts.
ReliefIn the event that the Group’s activities are found tohave caused or exacerbated any negative impact onhuman rights, we endeavor to institute appropriate

and effective relief measures. Moreover, in theevent that the Group is connected with any negative
impact on human rights as a result of its business
relationships, we take steps toward correction or
mitigation.
Education and training
The Group conducts appropriate education andtraining programs for all its officers and employees,
including part-time, contract, and temporary hire
employees, to ensure that this Policy is incorporated
and implemented effectively in all business activities.
Dialogue and consultation
In the course of implementing this Policy, we makeuse of the expert knowledge of independent externalorganizations and engage in sincere dialogue andconsultation with stakeholders.
Information disclosure
The Group discloses the status of progress on its
own initiatives toward respect for human rights via its
website and other channels appropriately.
Important themes
The Group ensures the prevention of discriminationand harassment, a friendly working environment,
achievement of work-life balance, respect for andassurance of privacy.

Initiatives toward respect for human rights
The Group appreciates that respecting human rights
is an extremely important social responsibility inbusiness activities. We are working to ensure that
all customers, business partners, employees, andall others involved in SUNDRUG Group’s businessactivities conduct themselves responsibly to avoid
causing any negative impact on human rights orbeing indirectly associated with such impact. To doso, we pursue awareness-raising and educational
activities under the Human Rights Policy, Group
Code of Conduct, and Code of Conduct for Business
Partners.

45

SUNDRUG CO., LTD. Integrated Report 2023

Human rights management system
Human rights are inherent rights to live one’s life
as a human should, and their scope and content
is broad-ranging. There are various types ofhuman rights problems that can occur in businessactivities, ranging from sexual harassment, abuseof power, and other forms of harassment in theworkplace, to discrimination and bias against
persons with disabilities, and labor accidents
resulting from long working hours, just to name afew. In addition, as the SUNDRUG Group handles
pharmaceutical products, we potentially face specificInitiatives onenvironment

Initiatives on society

human rights problems stemming from the risk of
mistakenly selling products that have an impact on
the health and lives of our customers. We see humanrights management as integral to corporate risk
management, and believe it is crucial to develop
systems for respecting human rights. In the Group,issues involving human rights such as feedback andcomplaints arising from inadequate consideration forcustomers, in-house harassment, and labor accidents
are addressed by sharing information at monthly
meetings of the Compliance and Risk Management
Committee and Safety and Health Committee with
the involvement of all departments, and instituting
necessary countermeasures through the responsible
departments. In the event of a serious incident, we
notify related departments and individuals via thecompany intranet, and report to the Board of Directors.
Education on respect for human rights
The Group is working continually to ensure respect fordiversity, elimination of all kinds of discrimination on
the basis of race, nationality, sex, age, disability, andother attributes, prevention of harassment (including
abuse of power, sexual harassment, harassment on
the basis of maternity or caregiver duties, and otherforms of victimization), promotion of gender equality,and enhancement of working environments andsystems. We are taking pre-emptive steps to avert theoccurrence of problems, through awareness-raising
activities for employees including dissemination of theCompliance Guidebook and Harassment Prevention
Guidelines, display of harassment prevention posters,internal email alerts, human rights training for different
seniority levels, and e-learning programs.
Moreover, for staff in charge of employee
recruitment and appointment in the Human Resource
Division and store managers responsible forrecruiting part-time workers, we have introduced an
employment manual to ensure that appointments
are made fairly and without reference to attributes
such as race, sex, age, and gender identity. In
marketing and promotional activities, we take care
not to cause misunderstandings or misperceptions
through the use of expressions that may exacerbate
discrimination or human rights infringements, or
those that may defame or denigrate other people.
Respecting customers’ human rights
As the SUNDRUG Group is involved in the sale ofpharmaceutical and cosmetic products, there is a riskof mistakenly selling products that have an impact on
the health and lives of our customers. We recognize
this as one of the Group’s major risks in the areas ofsustainability and human rights. Our number one
focus in order to mitigate this risk is human resource
development: training employees involved in dispensingprescription pharmaceuticals and selling over-thecounter (OTC) pharmaceuticals and cosmetics tobecome professionals within their respective fields ofwork. They need to use their pharmaceutical and productknowledge, communication skills, and other attributes
to the full when consulting with patients and customers
and determining the appropriate use of pharmaceuticaland cosmetic products. We have designed educationand training curricula that are finely tuned to the career
outlooks and proficiencies of each individual employee.
At the same time, on the basis that humans inevitably
make mistakes now and then, we have adopted
systematic, automated risk mitigation strategies in theform of a Barcode Dispensing Error Prevention System
and Camera Monitoring Guidance System for dispensary
staff, and a Quantity Limit System* in the sale of OTC
pharmaceuticals and cosmetics. Employee education
is an investment that protects the health and lives ofGovernanceManagement data

customers and reduces human rights risks, at the sametime as lessening sustainability risks and raising theGroup’s capacity for continued growth. We will work to
make further enhancements to the educational curricula
into the future.
* Quantity Limit System: A system that triggers an alert at the checkout
if the volume of OTC pharmaceuticals purchased exceeds a specifiedlevel

In our drugstore business, we handle sensitive
information such as customers’ medication history
and pharmaceutical purchase history. We situate
proper administration and protection of personal
information as a key issue in management andbusiness, and an obligation to be discharged by
officers and all employees as part of our social
responsibility. With a view to safeguarding customers’
privacy and the security of personal information, the
SUNDRUG Group has established a Basic Policy on
the Protection of Personal Information, along withmeasures such as access restrictions and accesslogs to ensure that personal information stored in oursystems can only be obtained by those who require
it in order to perform their work duties. Throughmeasures such as these, we aim to manage ourorganization so that every employee upholds the Act
on the Protection of Personal Information and otherrelated statutory provisions and internal rules, andperforms their work appropriately while protecting
personal information.
Respecting employees’ human rights
We are pursuing human rights awareness-raising
activities and developing internal regulations andguidelines in areas such as respect for diversity,
prohibition of all forms of discrimination on the basisof attributes such as race, nationality, sex, age,and disability, and prevention of harassments. In
addition, we have established dedicated in-house
contact points in accordance with the Whistleblower
Protection Act, and are working to ensure proper
receipt of reports relating not only to sexual
harassment but also all other forms of workplaceharassment, early detection of problems, and theirswift resolution. We also engage in ongoing andperiodical consultations with labor unions, in order totackle a broad range of issues through collaboration
between labor and management.
As we are in distribution business, where operating
hours are long, we have a responsibility to manage
employees’ work hours properly and appropriately.
We use mechanisms such as attendance systems,
PC logs, security records of store entry and exit, andPOS transaction records to monitor working hours
and avoid having employees working long hours,
thereby protecting workplace safety and health.
We have also been able to reduce monthly average
overtime hours using the Monthly Flexible Working
Hours System, which was introduced with the aim ofhelping employees achieve a better balance between
work and home life.
Respecting human rights in the supply chain
The Group does not manufacture any of the products
it sells in-house: even those products that are sold as
SUNDRUG original brands are manufactured for us
by business partners. For this reason, we consider
it important to work together with our business
partners to prevent human rights infringements in the
supply chain. We discharge our social responsibility
by strengthening structures for collaboration withbusiness partners and a range of other stakeholders
and putting respect for human rights into practice,guided by the Human Rights Policy and the Group
Code of Conduct.

SUNDRUG CO., LTD. Integrated Report 2023

46

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Contributing to society

Coexistence with local communities

In order to help create a better society, the SUNDRUG Group is working together with its stakeholders on
a variety of initiatives, including the holding of seminars at child welfare facilities and providing support todisaster-affected areas.

Based on a desire to prioritize the health of local residents, the Group regularly runs health-related eventsand other such events. We also committed to communicating with our stakeholders through initiatives
closely tied to local communities.

Support for child welfare facilities and disaster-affected areas

Contribution to society through the SUNDRUG Foundation

We issue points based on the value of customers’purchases and make donations to socially beneficial
activities in accordance with the number of points
accumulated. This enables customers to contribute to
the community simply by shopping.

The Group has established the SUNDRUG Foundation
as its social engagement arm to pursue activities suchas support for victims of disasters and contribution to
local communities.

Customers can participate in social contribution activities by accumulating points!
A set amount of money will be donatedbased on the amount of points awarded

Health-related events (results of external activities inlocal communities during fiscal 2022)

Initiatives for people who have difficulty shopping

The Group contributes to the creation of “healthy, richlives” by hosting health-related events such as Health/
Beauty Measurement and Consultation Sessions and
Health Promotion Workshops. In cooperation withmunicipalities and community general support centers,
etc., we host Health Measurement and Consultation
Sessions as well as Health Promotion Workshops. We
utilize the advanced counseling skills and specialized
knowledge that we have developed through ouroperations at our stores and pharmacies toward efforts
to help improve the health of local residents and to help
create a good cheer and fun in daily life.

Participation in drone delivery experiments

Pre-Disease Awareness Booth at Nenrinpick
Kanagawa 2022 (through registration with
Kanagawa Prefecture Health Support Program)At this event, we provided stress checks, brain age
measurements, medication consultations, and body
constitution checks.

Customers use their loyalty
cards for purchases

Points awarded formaking purchases

We donate to sociallybeneficial activities inaccordance with the numberof points accumulated

Recent initiatives
Fund-raising in response to the humanitarian crisis in Ukraine
The Group has contributed funds at the Embassy of Ukraine in Japan toward relief efforts in response to thehumanitarian crisis in Ukraine.
Emergency funding for the Turkey-Syria Earthquake
The Group has made a donation to the Embassy of Turkey in Japan to provide emergency funding in
response to the earthquake in Turkey and Syria.
Support for children’s vaccinations
With the help of Shineikasei corporation, we sold PET bottle caps and disused collapsible containers usedby the Group for use as recyclable materials, and donated the proceeds to the Japan Committee, Vaccines
for the World’s Children, an approved specified nonprofit corporation.
We are also engaged in cooperative efforts to help deliver vaccines to children in developing countries.

The increase in the number of people with shoppingdifficulties (i.e. those who struggle to perform daily
shopping for everyday necessities, pharmaceuticals,
food, etc.) is becoming more serious, and the Group
recognizes it as one of the social issues that it should
help address.
We have participated in the Tokyo Metropolitan
Government’s pilot test of using drones for making
individual deliveries. Through our participation in thispilot test, we are contributing to the core SDG themeof “leave no one behind,” and working to promotesustainable management.
As part of our corporate philosophy, we continue towork toward the realization of “healthy, rich lives” andengage in activities that meet the expectations of local
communities.

Outline of pilot test
Events (from April 2022 to March 2023)

Number of participants

Health measurement sessions
Health-related lectures (with some health measurements)
Number of sessions: 29
Total

1,908
120
2,028

Area: Mitake region, Ome, Tokyo
Products shipped from 153 Ome-Shinmachi StoreT ransported goods: 8
 0 items; Due to weight restrictions,maximum of 2 items per order
Order method: Online or by telephone

Tree planting activities
Creation of SUNDRUG Forest

We plant seedlings of mountain cherry trees,
mountain maple trees, and chestnut trees in Kofu City,
Yamanashi Prefecture, for the purpose of conserving
forests in Japan, promoting CO2 reduction, andraising social contribution and environmental
awareness of employees through participation involunteer activities.

Camellia planting event

We have been holding a camellia planting event for
the “TSUBAKI Beautify Camellia Island Campaign” in
Goto City, Nagasaki Prefecture since 2011. In 2022,
we planted camellia seedlings with the mayor of Goto
City and volunteers from Goto City.

Hosting of seminars at child welfare facilities to help foster self-reliance
We hosted seminars for children residing in child welfare facilities on how to apply self-medication when
they are not feeling well, such as actions to be taken and how to take medicine properly.

47

SUNDRUG CO., LTD. Integrated Report 2023

SUNDRUG CO., LTD. Integrated Report 2023

48

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Corporate governanceDialogue between officers

Tomoko Tsuji Naoki Tada
External Director

Chairman and Director

Amid a rapidly changing market environment,
we will enhance governance functions and continue to evolve.
The SUNDRUG Group is working to strengthen corporate governance as part of its efforts to promotesustainability management. Chairman and Director Naoki Tada and External Director Tomoko Tsuji will
discuss recent initiatives and future issues.

Initiatives in diversity to maintain“on-site capabilities”
Tada One of my responsibilities as Chairman and
Director is to strengthen corporate governance. In
the highly uncertain environment of recent years,
demands and expectations from stakeholders are
getting higher and higher. In particular, from an ESG
perspective, we recognize the need for us to respondby truly integrating the formulation of medium - tolong-term management strategies with defensive
governance, risk management, and compliance.
In the case of the SUNDRUG Group, in terms of theso-called “offensive” aspect, we take pride in how
we have achieved a certain level of results in ourdevelopment of systems and value chains. We arealso working to develop strategies and systems inthe sustainability field. Above all, we recognize thereduction of CO2 emissions toward the realization of

49

SUNDRUG CO., LTD. Integrated Report 2023

decarbonized society as our most important initiative.
We have steadily promoted measures such as theintroduction of solar power generation, the installationof high-efficiency, fluorocarbon-free refrigeration andfreezing cases, and utilization of LED lighting at ourstores. Consequently, we have decided to raise ourprevious numerical target of a 30% reduction from2013 level in 2030, to a 50% reduction.
Tsuji When I first assumed the position of External
Director in June 2020, I had the impression that thiswas a company with a family-like atmosphere, where
the former Chairman was the head of the family, andall the officers and employees would swiftly implement
decisions made by top management. Since theretirement of the former Chairman, SUNDRUG has
evolved significantly, driven by President Sadakata’s
drive for reform, along with social trends such as
the revision of the Corporate Governance Code andmanagement focusing on ESG perspectives.
In particular, in recent years, I have been impressedby management’s strong emphasis on ensuring
the creation of a comfortable working environment.
Based on my personal experience of concurrently
serving at a restaurant company, I believe that inorder to increase customer satisfaction and enhance
corporate value, it is essential to maintain “on-site
capabilities”—that is, to have employees continue towork comfortably.
Tada That is exactly right. The second key initiativein the sustainability field that I mentioned earlier
is the realization of consideration for employees’
health and the working environment, as well as
fair and appropriate treatment. Drugstores are alabor-intensive industry, and in view of the decline
in the working population of society as a whole, it iscertainly an important theme to have store employees
work healthily and comfortably. In the fiscal year

ended March 31, 2023, the Group was designatedas a Certified Health & Productivity Management
Outstanding Organization. Using this as our starting
line, we are currently preparing for the implementationof the PDCA cycle. We also began considering theestablishment of a personnel evaluation system aimed
at realizing fair and appropriate treatment.
Tsuji I believe that a personnel system should besatisfactory not only to those who take maternity leaveand childcare leave, but also to all employees who
devote themselves to their work. That should be amajor prerequisite. In terms of diversity, at SUNDRUG,
the ratio of female managers is 18.8% (as of March 31,2023), which is higher than the retail industry averageof 7.0%. Does this mean that the ratio is relatively highin the front line like stores?
Tada The SUNDRUG Group defines managerial
positions as those at the level of section manager
and above.*1 The employees at our stores areeither in operation positions or sales positions, andpharmacists account for 90 percent of sales positions.
At universities, the pharmaceutics faculty generally
has a high proportion of women, and as interest in
self-medication has increased, the number of female
applicants to the Company has increased significantly.
At present, women account for more than 60% of
new employees. In addition, the Company has widely
introduced systems that make it easier for women towork after they join the Company,*2 such as allowingchanges in employee classifications after marriage,
including whether job relocations are possible ornot, and I believe that these factors contribute to thehigh ratio of female managers. On the other hand, wecannot deny the fact that many of our store managers
and supervisors are still male employees. While we
educate these store managers and supervisors to
improve their ability to communicate with female
employees, and to deepen their understanding of
women’s health issues, we also aim to increase theratio of store administrators, who are one step awayfrom a managerial position, to 30%. When the ESG
Committee was established, Ms. Tsuji pointed out
the necessity of having female committee members,
and I thank her for always checking the initiatives of
the Company from the perspective of diversity andpointing out potential issues.
*1: L evel of section manager and above: Section managers and above,
as well as supervisors who oversee multiple stores, and training
leaders*2: F or details of the systems, please refer to “Diversity & inclusion” onpages 33–34.

Tsuji Work style reforms for men are essential to thepromotion of women’s active participation in society.
At SUNDRUG, the percentage of male employees who
took childcare leave was 90% (in the fiscal year ended
March 31, 2023), far exceeding the national averageof 14.0%. What was your secret in achieving this highpercentage?
Tada The SUNDRUG Group has been encouraging
male employees to take paternity leave since long
before the establishment of post-childbirth paternity
leave (childcare leave at birth) in October 2020
in Japan. At first, store administrators and the likein the Group were hesitant about taking paternity
leave, but as a result of steady efforts to increaseawareness of the system among those eligible totake paternity leave and their superiors, it seems thatthe mindset of “it is normal for men to take paternity
leave” has successfully taken hold. Also, we havedisplayed on our business cards the “Platinum
Kurumin” mark, which represents the Ministry of
Health, Labour and Welfare’s recognition of us as acompany that offers strong support for parenting.
In addition, we conducted educational activities for
department heads at management meetings andother opportunities. These efforts have also led to anincrease in the paternity leave utilization rate.

Deepening discussions as we look to the futureof SUNDRUG
Tsuji In order to further develop the functions of theBoard of Directors, in addition to making decisions
on proposals related to management issues at hand,
I feel that discussions on medium- to long-term
management issues will also lead to the evolutionof SUNDRUG. For instance, I feel that SUNDRUG’s
unique research and analysis capabilities in relation
to store openings are an excellent form of know-how.
It is also true that scale expansion is a basic strategy
in the retail industry, but at some point, I believe that
there may be an inflection point where the correlation
between the number of store openings and profit
margin changes. Going forward, I believe we should
deepen discussions on long-term store strategies,
and on the points of differentiation of SUNDRUG in the
future.
Tada As you have rightly pointed out, the promotionof digitalization is one of the measures we will needto take in order to survive amidst the saturation of
stores across the drugstore industry. Accordingly, we
have developed a system that enables customers
to purchase SUNDRUG products both at stores andvia e-commerce sites. Another measure is to work
closely with local governments and comprehensive
community support centers. Currently, healthmeasurement sessions and consultation meetings
are being held in various regions, and we are making
efforts to turn SUNDRUG stores into a regional basefor health in an aging society.
Tsuji I also feel that the possibilities for drugstores
have broadened following the COVID-19 pandemic.
I believe that drugstores can reduce the burden
on local medical institutions, as well as take on thechallenge of developing new devices and services
by accumulating big data on health and collaboratingwith healthcare manufacturers.
Going forward, I would also like to see SUNDRUG
engage in projects that envision the future, such as
the commercialization of services that meet futuresocial needs developed through open innovationand in cooperation with external parties. I am also
hopeful that SUNDRUG will go beyond the provisionof goods and services and evolve into a form of social
infrastructure. Finally, I would be fulfilling my duties as
an External Director with a high level of awareness of
my responsibilities.
Tada Including the points that you have raised, we
recognize that we will need to make various risk
assessments from a strategic perspective going
forward. In addition to the business format strategy,
we recognize that climate change-related risks,
human capital, the DX strategy, and system risks
are all important governance issues that should
be monitored by the Board of Directors. In order toreceive precise advice from External Directors basedon their expertise and to deepen our discussions,
we will narrow down several key topics and share
information on them and continue to ponder on theideal state of the Board of Directors.

SUNDRUG CO., LTD. Integrated Report 2023

50

Values and strategies

Initiatives onenvironment

Initiatives on society

GovernanceManagement data

Corporate governance

List of officers

Hiroshi Sadakata
President andRepresentative Director

March 1989 Joined the Company
April 2001 Section Manager, Corporate Planning Office
January 2003 Deputy Manager, the Second Sales Division
April 2004 Manager, the Second Sales Division
April 2005 Executive Officer and Manager of the Second Sales Division
June 2008 Director and Manager of the Second Sales DivisionDecember 2009 Director
December 2009 Vice President and Representative Director, DIREXCORPORATION
June 2014 President and Representative Director, DIREX CORPORATION
May 2019 President and Representative Director, the Company
May 2019 Director, DIREX CORPORATION
June 2020 Chairman and Representative Director, DIREX CORPORATION(to present)
April 2022 President and Representative Director, the Company (to present)

Naoki Tada

Masato Matsumoto

Tomoko Tsuji

Chairman and Director

External Director

External Director

May 1990 Joined the Company
April 1995 Section Manager, Corporate Planning Office
September 2000 President and Representative Director, IRYUSHOJI CO., LTD.
March 2001 Retired from the Company
June 2001 Director (Non-Executive Director), the Company
June 2007 President and Representative Director, Forest Co., Ltd.
(currently Forest Mall Co., Ltd.)
June 2009 Chairman and Representative Director, Forest Co., Ltd.
April 2015 President and Representative Director, Forest Co., Ltd.
March 2019 Chairman and Representative Director, IRYUSHOJI CO., LTD.
(to present)
March 2019 Chairman and Representative Director, Forest Mall Co., Ltd.
(to present)
April 2019 Director and General Manager, Administrative Division, theCompany
April 2022 Chairman and Director (to present)

Yoshimitsu Sakai

Takashi Tada

Director

Director

November 1983 Joined the Company
April 1998 Section Manager, Sales Division
April 2001 Deputy Manager, Store Development Division
April 2005 Executive Officer and Manager, Store Development Division
June 2010 Director and Manager, Store Development Division
March 2019 Executive Officer and Manager, Store Development Division
June 2022 Director and Manager, Store Development Division
July 2022 Director and General Manager, Store Development Division(to present)

Nobuhiko Sugiura
External Director

April 1989 Joined The Hongkong and Shanghai Banking Corporation
LimitedAugust 2001 Research Officer at Financial Research and Training Center of
Policy and Legal Division, Planning and Coordination Bureau,
Financial Services Agency
March 2004 Completed the Doctorate Course, Civil Legislation Major at
the Graduate School of Law of the Chuo University (Doctor of
Jurisprudence)
April 2006 Senior Legal Advisor, JP Morgan Securities Japan Co., Ltd.
April 2008 Professor at the Chuo Graduate School of Strategic Management(to present)
June 2014 External Director, the Company (to present)

51

SUNDRUG CO., LTD. Integrated Report 2023

April 1992 Joined Ito-Yokado Co., Ltd.
October 1996 Joined the Company
March 2001 Director (Non-Executive Director), IRYUSHOJI CO., LTD.
(to present)
April 2001 Section Manager, Information Section, Merchandise Division,
the Company
January 2003 Section Manager, Supplier Section, Merchandise Division
May 2005 Section Manager, Corporate Planning Office
December 2006 Retired from the Company
January 2007 Senior Managing Director, Yamaki SC Kaihatsu Co., Ltd.
(currently Forest Mall Co., Ltd.)
June 2009 President and Representative Director, Forest Co., Ltd.
(currently Forest Mall Co., Ltd.)
April 2014 President and Representative Director, C’sRetail Co., Ltd.
(currently C’s One Co., Ltd.)March 2017 Retired from the position of C’sRetail Co., Ltd.
June 2017 Director, the Company (to present)
June 2017 Vice President and Representative Director, DIREXCORPORATION
May 2019 President and Representative Director, DIREX CORPORATION(to present)

April 1979 Joined The Nomura Securities Investment Trust Sales Co., Ltd.
September 2002 Executive Officer, Mitsubishi Securities Co., Ltd. (currently
Mitsubishi UFJ Securities Holdings Co., Ltd.)May 2010 Managing Executive Officer, General Manager of Osaka Branch,
Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.
June 2012 Senior Managing Director, Mitsubishi UFJ Morgan Stanley
Securities Co., Ltd.
June 2013 Executive Vice President, Mitsubishi UFJ Morgan Stanley
Securities Co., Ltd.
June 2015 Executive Vice President, Mitsubishi UFJ Morgan Stanley
Securities Co., Ltd., Managing Executive Officer, Mitsubishi UFJ
Financial Group, Inc.
June 2016 Chairman and Representative Director, MUS Business Service
Co., Ltd.
July 2017 Advisor, SBS Holdings, Inc.
June 2018 External Director, the Company (to present)
March 2019 Outside Audit & Supervisory Board Member, SBS Holdings, Inc.
March 2021 Outside Director (Audit Committee Member), SBS Holdings, Inc.
(to present)

Kazutoshi Yamashita
External Full-time Corporate
Auditor

April 1983 Joined KOKUSAI Securities Co., Ltd. (currently Mitsubishi UFJ
Morgan Stanley Securities Co., Ltd.)
April 1997 General Manager of Hachioji Branch, KOKUSAI Securities Co, Ltd.
September 2002 General Manager of Hiroshima Branch, Mitsubishi Securities Co.,
Ltd. ( currently Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.)
October 2005 Deputy General Manager of Institutional Marketing Second
Division, Nagoya Branch, Mitsubishi UFJ Securities Co., Ltd.
( currently Mitsubishi UFJ Morgan Stanley Securities Co., Ltd.)
April 2010 General Manager of Kochi Branch, Mitsubishi UFJ Morgan
Stanley Securities Co., Ltd.
June 2014 Director and General Manager of Kobe Branch, Mitsubishi UFJ
Morgan Stanley Securities Co., Ltd.
June 2017 Full-time Corporate Auditor, MUS Business Service Co., Ltd.
June 2019 External Full-time Corporate Auditor, the Company (to present)

April 1979 Joined Ajinomoto Co., Inc.
February 1987 Received a doctorate in Agriculture (former Laboratory of Applied
Microbial Chemistry, the University of Tokyo)
March 1988 Postdoctoral Fellow at The Rockefeller University
November 1988 Postdoctoral Fellow at the Pennsylvania State University
December 1989 Joined Sagami Chemical Research InstituteMay 1999 Joined FANCL CORPORATION
April 2004 Executive Officer, Director of Central Research Institute, FANCLCORPORATION
June 2007 Executive Director, General Manager of FANCL ResearchInstitute, FANCL CORPORATION
May 2008 Advisor, Nippon Suisan Kaisha, Ltd. (currently Nissui Corporation)
April 2009 General Manager of Human Life Science R&D Center, Nippon
Suisan Kaisha, Ltd.
May 2015 Executive Officer; General Manager of Ingredients Development
Department, Group Merchandising Division, YOSHINOYAHOLDINGS CO., LTD. (to present)
June 2020 External Director, the Company (to present)
June 2022 Outside Member of the Board, FUJI OIL HOLDINGS INC. (to present)

Tetsuro Ozawa
External Corporate Auditor

April 1987 Admitted as a Member of Tokyo Bar Association
May 1993 Joined Oppenhoff & Rädler Law Office (Cologne, Germany)
June 1997 Completed Master Course of Laws of the University of Cologne
April 2002 Head, Ozawa General Law Office (to present)
June 2012 External Corporate Auditor, the Company (to present)

Kazuma Shinohara

Kishiko Wada

External Corporate Auditor

External Corporate Auditor

October 1998 Registered as Certified Public Accountant
January 2001 Joined SHINSOH Audit & Co
April 2007 Partner, SHINSOH Audit & Co
June 2012 External Corporate Auditor, the Company (to present)
September 2021 Representative, Shinohara CPA Office (to present)

April 1996 Joined Fuji Godo Law Office (to present)
July 2015 Outside Director, Toshiba Plant Systems & Services Corporation
April 2016 Practicing Attorney Professor for Civil Advocacy at the Legal
Training and Research Institute of the Supreme Court
February 2020 Examiner for the Preliminary Bar Examination(Code of Civil Procedure)
March 2021 External Corporate Auditor, L is B Corp. (to present)
April 2021 Vice-President, the Dai-ichi Tokyo Bar Association Executive
Director, Kanto Federation of Bar Associations
June 2022 External Corporate Auditor, the Company (to present)Outside
Director (Audit and Supervisory Committee Member), TAKAOKATOKO CO., LTD. (to present)

SUNDRUG CO., LTD. Integrated Report 2023

52

Values and strategies

Corporate governance
The SUNDRUG Group aims to improve its corporate value by striving to facilitate prompt decision-making
and more efficient management operations, while also making efforts to strengthen and enrich corporate
governance, which serves as the foundation for sustainable growth.
Basic approachcorporate governance, compliance, risk
management, etc. as important management
issues, establish a management system to makefair, transparent, and conscientious decisions froma medium- to long-term perspective, and disclose
management strategies and plans in a timely andappropriate manner.
Furthermore, we adapt to changes in theenvironment, continuously enhance the significanceof the SUNDRUG Group’s existence, and strive forlong-term, stable, and sustainable growth and higher
corporate value of the Group.

The SUNDRUG Group has a corporate philosophy, suchas “Provide safety, reliance and convenience,” and “Start
immediately from what we can do right at the moment, try
to illuminate even just one corner of the world, make best
decisions for all customers, employees, shareholders,business partners, communities, society, and the global
environment, and always act with thoughtfulness,”aiming to realize “healthy, rich lives” for the Japanesepeople and contribute to “the creation of good cheer andfun in daily life.”
We are aware of our responsibilities for all
stakeholders, including shareholders, position

Corporate governance system

G e ne r a l M e e t i n g s o f S h a r e h o l d e r s

Appointment/Dismissal

Cooperation

Appointment/Dismissal

Audit &
Supervisory Board

Appointment/Dismissal

Consultation

Audit

Board of Directors

Nomination andCompensation
Response Advisory Committee

ReportAppointment/
Dismissal/Supervision

Cooperation/
ReportReport/Supervision

Initiatives onenvironment

Initiatives on society

Diversity and structure of the Board of Directors

The Board of Directors makes decisions on
management strategies, management plans, andother important management matters related to
management in accordance with laws, regulations,
the Articles of Incorporation, and the Regulationsof the Board of Directors, with the aim of achieving
sustainable growth of the Company and improving
corporate value over the medium to long term.
In addition, the Board of Directors supervises
the overall management of the Company and its
subsidiaries and affiliates mainly by ascertaining thestatus of the execution of duties by each Director, thestatus of important operations at subsidiaries andaffiliates, and the operation status of internal control
systems such as compliance and risk management
at the Company and its subsidiaries and affiliates.
The Regulations for Approval Authority stipulatedby the Board of Directors clearly defines the authorityof the Board of Directors, the President, each
General Manager, each Department Manager, etc.,
and such information is disclosed to all employees.
The respective decision-making bodies and decisionmakers make decisions after deliberation with therelevant Department Managers, etc., and execute
their operations.

The Company’s Board of Directors consists of
Directors and Corporate Auditors (the number of
Directors is limited to ten and Corporate Auditors tofour as stipulated in the Articles of Incorporation). It
is composed of a small number of elite members toensure prompt and accurate information grasping
and full discussion and decision-making with theparticipation of all Directors.
When appointing candidates for Directors, weselect Internal Directors who are familiar with theCompany’s business and have a high level ofprofessional knowledge, abundant experience, andinsight, and External Directors who have abundantoutside experience and a high level of professional
knowledge, such as management experience atother companies and graduate school professors(Doctor of Jurisprudence), and who can be expected
to perform supervisory and advisory functions.
The Board of Directors determines the candidates
after receiving the report of the Nomination andCompensation Advisory Committee, taking into
consideration diversity and overall balance to ensure
the sustainable growth of the Company.

Audit & Supervisory Board

The Company conducts an evaluation questionnaireon the effectiveness of the Board of Directors for all
Directors and Corporate Auditors who attend themeetings, based on their self-evaluations. Basedon the results of the questionnaire, the Board of
Directors exchanges opinions on the effectivenessand works to make further improvements.

The Audit & Supervisory Board consists of four
Corporate Auditors, including one Full-time External
Corporate Auditor and three External Corporate
Auditors. The Full-time External Corporate Auditor
attends the Board of Directors meetings, as well as
the Management Committee, Compliance and Risk
Management Committee, and other major meetings,
cooperates with the Accounting Auditor and theBusiness Audit Office to audit the status of theexecution of duties by Directors and others from an
objective and neutral standpoint, and also works toenhance the audit function through monthly meetingsof the Audit & Supervisory Board, as well as throughthe sharing of information and exchange of opinionswith other Corporate Auditors as necessary.

Nomination and Compensation Advisory Committee
ReportCooperation

ReportBusiness Audit
Office(Internal control)

Audit

Compliance andRisk Management
Committee

Instruction

Corporate
Lawyers
Audit
Consultation
Advice/Coaching

Departments and Offices

Audit
Management

ReportGroup companies

53

SUNDRUG CO., LTD. Integrated Report 2023

ESG and SDGs
Promotion
Committee

Management data

Board of Directors

Representative Director
Accounting
AuditorGovernance

The Company is a company with an Audit &Supervisory Board. The Board of Directors consistsof seven Directors, three of which are Independent
External Directors.
With respect to the nomination and compensationof Directors, the Company has established avoluntary Nomination and Compensation Advisory
Committee to obtain appropriate involvement andadvice, especially in light of the need to strengthen
independence, objectivity, and accountability. The
Nomination and Compensation Advisory Committee
consists of three External Directors and two Internal
Directors. The majority of the committee consists ofExternal Directors, which enhances independence,
objectivity, and transparency (including gender andother diversity and skill perspectives).
The members of the Nomination and Compensation
Advisory Committee shall be appointed by aresolution of the Board of Directors.
The Nomination and Compensation Advisory
Committee shall, in consultation with the Board of
Directors, deliberate and report to the Board of
Directors.

Evaluations of the effectiveness of the Board of Directors

Evaluation method

All Directors and Corporate Auditors, including thosefrom outside the Company, were asked to complete
an evaluation with their names on the effectiveness of
the Board of Directors, based on the questionnaire on
the effectiveness of the Board of Directors preparedby the secretariat, and to provide a self-assessment
as well to propose issues in a free column. Basedon the results of the questionnaire, we exchanged
opinions and deliberated on future measures to share
recognition of issues and improve the effectivenessand functionality of the Board of Directors, andevaluated the results.

Summary of the results of the analysis and evaluationof the effectiveness of the Board of Directors
Meetings of the Board of Directors were deemed toinclude free, vigorous, and constructive discussion
and exchanges of opinion, with the overall
effectiveness of the Board of Directors generally
evaluated as satisfactory.
However, with regard to the following points, werecognized that there are issues and a room for
improvement.

Future response e will further enhance materials for meetings ofW
the Board of Directors and promote the sharing ofcorporate information.
The Board of Directors will conduct deeper
discussions on management issues and strategies
that will contribute to the improvement of the Group’s
corporate value over the medium- to long-term.

Based on the issues raised through this current
evaluation of the Board’s effectiveness andrecommendations, we will continue to make efforts
for further enhancement of the effectiveness of theBoard of Directors and its invigoration.

SUNDRUG CO., LTD. Integrated Report 2023

54

Values and strategies

About the skills matrix
for the management policies in the Group’s mediumterm management strategy and the reforms that theGroup is implementing toward this, based on theexpertise, knowledge, experience, and diversitythat the Directors have developed in their respective
fields. The basic approach on nominations and thecomposition of the Board of Directors are discussed
in relation to the external environment and the statusof the Group.

Skills matrix

Hiroshi Sadakata

Current positions at
the Company

Chairman and Director

Yoshimitsu Sakai

Director

Director Takashi Tada

Corporate
management

Industrial
experience

GlobalESG

Finance/
Risk management/
Accounting/M&A Legal affairs

President and Representative Director

Naoki Tada

Director

Nobuhiko Sugiura

External Director

Masato Matsumoto

External Director

Tomoko Tsuji

External Director

Kazutoshi Yamashita External Corporate Auditor
Corporate Tetsuro Ozawa

External Corporate Auditor

Auditor Kazuma Shinohara

External Corporate Auditor

Kishiko Wada

Initiatives on society

External Corporate Auditor

Matters concerning policy for determining total amount ofcompensation for Directors and Corporate Auditors andcompensation, etc. for individual Directors and Corporate Auditors

The compensation system for Internal Directors consists offixed compensation based on their position in the Company,and variable compensation in the form of bonuses as anincentive linked to business performance and achievement
rates of individual goals as well as restrictive stockcompensation aimed toward improvement of businessperformance over the medium to long term. In addition,
External Directors and Corporate Auditors receive only fixedcompensation.
Regarding compensation for officers, etc., thecompensation for Directors is determined by the Board of
Directors and that for Corporate Auditors is determinedby the Audit & Supervisory Board within the limit ofcompensation approved by resolution of the General
Meeting of Shareholders in accordance with internal
regulations, after gaining advice and reports based on the
results of deliberations by the voluntary Nomination andCompensation Advisory Committee consisting of all External
Directors (3 persons), the President and Representative
Director, and the Chairman and Director.
The Nomination and Compensation Advisory Committee met
twice during the fiscal year under review, and its themes included
a proposal for officer compensation (including bonuses forInternal Directors), a proposal for the design of the compensation
system, and a proposal for the selection of candidates for
Directors and Corporate Auditors, and the committee reported theresults of its review to the Board of Directors.
Because the total amount of compensation for Directors
and the amount of compensation for each individual Director
were determined through the above procedures, the Boardof Directors believes that the content of these decisions is inline with the decision-making policy.
The ratio of fixed compensation, variable bonuses, andstock options is in the range of (73.6–27.8) : (21.0–68.6) :References

Reasons for appointment of External Directors and Corporate Auditors/Attendance at Board Meetings
Officer category
Position and nameReasons for appointment

As an academician, Mr. Nobuhiko Sugiura is a member of the Financial Services Agency Advisory Council, and as a graduate
school professor (Doctor of Jurisprudence), he has abundant knowledge of corporate management strategy and compliance.
External Director
We have determined that he is capable of supervising the Company’s management from an objective and neutral standpoint
Nobuhiko Sugiura and that there is no risk of a conflict of interest between him and general shareholders. Therefore, we have appointed him as anExternal Director and designated him as an independent officer.
Mr. Masato Matsumoto has extensive experience in the management of financial and other institutions, and possesses a highExternal Director
level of insight and supervisory capability with respect to management. We have determined that he is capable of supervising theMasato Matsumoto Company’s management from an objective and neutral standpoint and that there is no risk of a conflict of interest between him andgeneral shareholders. Therefore, we have appointed him as an External Director and designated him as an independent officer.
As a Doctor of Agriculture, Ms. Tomoko Tsuji has experience and knowledge in strategic promotion management from multiple
External Director
perspectives in the retail industry, including R&D. We have determined that she is capable of supervising the Company’s
management from an objective and neutral standpoint and that there is no risk of a conflict of interest between her and general
Tomoko Tsuji
shareholders. Therefore, we have appointed her as an External Director and designated her as an independent officer.
Mr. Kazutoshi Yamashita has considerable knowledge of and extensive insight into finance and accounting, having held various
positions at financial institutions, and he has served as a full-time corporate auditor and is well versed in corporate governance
External Corporate Auditor and auditing. We have determined that he has monitoring and auditing functions independent of the Company’s management,
Kazutoshi Yamashita that he is capable of auditing from an objective and neutral standpoint, and that there is no risk of a conflict of interest between
him and general shareholders. Therefore, we have appointed him as an External Corporate Auditor and designated him as anindependent officer.
As a Lawyer, Mr. Tetsuro Ozawa has expertise and extensive experience in legal and other matters. We have determined that
External Corporate Auditor he has monitoring and auditing functions independent of the Company’s management, that he is capable of auditing froman objective and neutral standpoint, and that there is no risk of a conflict of interest between him and general shareholders.
Tetsuro Ozawa
Therefore, we have appointed him as an External Corporate Auditor and designated him as an independent officer.
As a Certified Public Accountant, Mr. Kazuma Shinohara has expertise and extensive experience in accounting and othermatters. We have determined that he has monitoring and auditing functions independent of the Company’s management, that
External Corporate Auditor
he is capable of auditing from an objective and neutral standpoint, and that there is no risk of a conflict of interest between
Kazuma Shinohara him and general shareholders. Therefore, we have appointed him as an External Corporate Auditor and designated him as anindependent officer.
As a Lawyer, Ms. Kishiko Wada has expertise and extensive experience in legal and other matters. We have determined that
External Corporate Auditor she has monitoring and auditing functions independent of the Company’s management, that she is capable of auditing froman objective and neutral standpoint, and that there is no risk of a conflict of interest between her and general shareholders.
Kishiko Wada
Therefore, we have appointed her as an External Corporate Auditor and designated her as an independent officer.

55

SUNDRUG CO., LTD. Integrated Report 2023

GovernanceManagement data

Officer compensation system

The SUNDRUG Group has established items thatit deems important for the Board of Directors todemonstrate appropriate supervisory functions
toward the Group’s aim of realizing “healthy,rich lives” for the people of Japan. (“corporate
management,” “industrial experience,” “global,”“ESG,” “finance/accounting/M&A,” “riskmanagement/legal affairs”). Also, the Group appoints
personnel who are able to utilize their capabilities

Name

Initiatives onenvironment

Attendance at Board Meetings

100% (14/14)

92% (13/14)

100% (14/14)

100% (14/14)

100% (14/14)

100% (14/14)

100% (10/10)

Total amount ofcompensation, etc.
(million yen)

(3.7–7.6), although the ratio of each type varies dependingon performance and achievement of evaluation items.

Matters related to fixed compensation andperformance-linked compensation, etc.

The fixed compensation for Internal Directors is determinedin accordance with the Officer Compensation Regulations
and is commensurate with each position as compensation
for management delegation.
Bonuses are paid to Directors as performance-linked
compensation, etc. in order to further enhance motivationand morale of Directors to improve business performance,
thereby ensuring a sustained improvement in corporate value.
The method is to determine the total amount of base Director
bonuses based on the payment standards stipulated in the
Officer Compensation Regulations in accordance with the ratioof the increase in consolidated ordinary profit to consolidated
net sales for each fiscal year, etc., and then to proportionally
distribute the total amount to each Director according to theirposition. The amount is increased or decreased according
to the performance evaluation and qualitative evaluationof each individual Director, and the payment amount isdetermined based on the advice and report of the voluntary
Nomination and Compensation Advisory Committee consistingof all External Directors (3 persons), the President andRepresentative Director, and the Chairman and Director.

Details of non-monetary compensation

The Company has introduced a restricted stock compensation
plan to Directors in order to enhance their value sharing withshareholders through shareholdings, thereby continuously
improving the Company’s corporate value.
The maximum amount of annual compensation under thisplan shall be no more than 100 million yen and no more than
25,000 shares.
The allocation to each eligible Director shall be
determined upon a resolution of the Board of Directors within
the scope approved at the General Meeting of Shareholders.

Total amount of compensation, etc. by type (million yen)Fixed compensation

Variable compensation
Stock options

Number of eligible
officers(persons)

Basic compensation

BonusesInternal Directors

156

30

120

6

4

External Director

18

18

—

—

3

Internal Corporate Auditors

—

—

—

—

—

External Corporate Auditor

15

15

ー

ー

3

(Notes) 1 . The amount of compensation, etc. paid to Internal Directors does not include employee salaries for Directors who concurrently serve as employees.
2. The Company’s officers receive compensation, etc. only from the Company and not from any of its consolidated subsidiaries.

Policy on strategic shareholdings
The Company makes a distinction between
investment shares held for pure investment purposes
and investment shares held for purposes otherthan pure investment (strategic shareholdings),
and acquires and holds such shares as strategic
shareholdings when the Company judges thatsuch shares will contribute to medium- to long-term
enhancement of corporate value, such as building,maintaining, and strengthening relationships withbusiness partners and business alliances.
The Company’s policy is to reduce its current
strategic shareholdings, which are not crossshareholdings, as appropriate, taking into
consideration stock prices and market trends.
With regard to strategic shareholdings, the Boardof Directors regularly reviews the rationality andnecessity of continued holdings from a medium tolong-term perspective for each individual issue, incomparison with the cost of capital, every year todetermine whether or not to retain the shares.
The rationale for holding the shares is examinedwith respect to the acquisition process, the natureof the business relationship, the current and future
strategic significance and risk of the holding, thecomparison with the cost of capital, and other items.
Number of issues and balance sheet amount
Number ofissuesTotal amount on the balance
sheet (million yen)

Unlisted stocks

2

1

Stocks other than unlisted stocks

5

134

SUNDRUG CO., LTD. Integrated Report 2023

56

Values and strategies

In order to comply with laws and regulations for theprevention of bribery, the SUNDRUG Group has
established regulations applicable to the Group
companies and enforces them strictly.
 rohibition of acts deemed to be bribes to publicP
officers, etc.
The Group shall not provide or receive any money,
goods, or any other unfair advantage, or promise,demand, or propose the same, or approve the same
to a public officer or any other person equivalent
thereto (hereinafter referred to as a “Public Officer”)
for the purpose of influencing the execution or
determination of matters related to public affairs inorder to obtain an undue advantage.
 rohibition of bribery to persons other than Public
P
Officers
The Group shall not provide or receive any money,
goods, or any other unfair advantage, or promise,demand, or propose the same, or approve thesame for the purpose of influencing the execution
or determination of matters related to the recipient’s
duties in order to obtain an undue advantage.

The SUNDRUG Group has formulated a policy on
tax affairs that applies to the Company and its Group
companies.
In accordance with the “Group Code of Conduct,”which has been established to ensure compliancemanagement based on a high level of corporate
ethics, the SUNDRUG Group shall comply with all
related laws and regulations, etc., regarding tax
affairs. It is the Group’s social responsibility to ensure
the proper payment of all taxes due, which the Group
recognizes will result in earning the support and trustof all its stakeholders. In accordance with this policy,
we shall ensure the development and managementof business processes and procedures related to thetax affairs and realize proper governance relating totaxation laws.
Compliance with laws and regulations
Through the filing of tax returns and paying of taxes
in an appropriate and timely manner in accordancewith international tax rules and tax-related laws andregulations, the SUNDRUG Group fulfills its corporatesocial responsibility. The Group’s basic policy is tocontribute to the development of local communities
through the appropriate payment of taxes. The Group
does not conduct tax planning for the purpose of tax
avoidance.
E nsuring governance for tax affairs
The SUNDRUG Group is working to improve its
employees’ knowledge regarding tax affairs throughGovernanceManagement data

Prevention of bribery
The Group shall not provide or receive any money,
goods, or any other unfair advantage, or promise,demand, or propose the same, or approve thesame for the purpose of improperly influencing themanagement and business decisions, or the carryingout of duties of the SUNDRUG Group.

In order to address the various risks facing the Group in a timely and appropriate manner, we have

Definition of terms“Bribery” refers to the provision or receipt of money,
goods, or any other unfair advantage, or the promise,demand, or proposal therefor, or the approval
therefor, for the purpose of influencing the execution
or determination of recipient’s duties in order toobtain an undue advantage, or for eliciting any otherunjust actions.
“Public Officer” refers to any Japan-based public
officer, foreign public officer, international publicorganization, political party, or employee thereof, acandidate for public office, or any other person who
may be deemed to be a public officer. This shall also
include their family members (spouses, children,
dependents, etc.)

Concept of risk management

Tax affairs
Basic policy on tax affairs

Initiatives on society

Risk management

Bribery
Basic policy on bribery

Initiatives onenvironment

training and education. Through appropriate andlawful tax processing based on internal rules, we
strive to raise employees’ awareness of matterspertaining to tax compliance and to maintain ourgovernance system for tax affairs.
M anagement of taxation risk
The SUNDRUG Group views taxation risk as animportant risk and is working to minimize its taxation
risk on an ongoing basis by taking appropriate
measures in response to tax reforms, etc. In
accordance with the SUNDRUG Group’s basic
policies and guidelines, each Group company
properly executes its tax-related practices, including
the filing, payment and investigation of its taxes. The
Group fully examines taxation risks in its businessactivities in advance, and works to mitigate any suchrisks by, if necessary, obtaining prior confirmationfrom the administrative authorities and by seeking
advice and guidance from experts.
B uilding a relationship of trust with tax authorities
The SUNDRUG Group strives to maintain a fairrelationship with tax authorities, to provide timely
and appropriate information in response to inquiries
from them, and to cooperate with them in good faithas part of efforts to ensure transparency regarding
tax affairs and to build a relationship of trust. In theevent that a difference of opinion arises between
the Group and the tax authorities, the Group works
in cooperation with the tax authorities to come to anagreement and resolution.

formulated a range of risk management systems and have put them into operation.
Preparing for and responding to risks

The SUNDRUG Group positions risk management
as an important management issue, and works to
identify risks hidden in business activities, suchas large-scale disasters and customer information
leaks, and strengthen our system to manage them.
The Group has established a system, in which, at
normal times, each department identifies risks it has
and works to mitigate them, and at an emergency,
a “task force” is formed as stipulated in the “RiskManagement Regulations,” and the Group as awhole responds to the emergency. As for Corporate
Lawyers, the Group has concluded advisory
contracts with four law firms, and whenever we havea legal issue related to management or operations,
we consult with and get advice from them. The Groupthus strives to avoid and mitigate unforeseeable risks
as much as possible.
Major matters that are deemed to be business risksof the SUNDRUG Group are as follows. (For details,
please refer to the Annual Securities Report.)

 isks related to businesses of managing
Rpharmacies and selling pharmaceuticals,
cosmetics, daily sundries, etc.
R isks related to the financial position andoperating results
Risks related to legal regulations
Risks related to litigation, etc.
Risks related to the business structure

For details,
please refer tothe Annual Securities Report.

https://www.sundrug.co.jp/ir/irdata/securities

Recognition of the importance of BCPs
After its experience of the Great East Japan
Earthquake—a disaster unexpected in its scale—the SUNDRUG Group recognized the necessity of
establishing a Business Continuity Plan, an important
plan that must be prepared during normal times
in order to prepare for times of emergency, which
can often occur without warning. The Kumamoto
Earthquake refreshed in our mind the seriousnessof these issues, and we have continued to review
and revise the content of our BCP measures eversince. In order to fulfill its role as part of the social
infrastructure, the SUNDRUG Group makes maximum
efforts to predict and prepare for disaster risk,
thereby minimizing damage. In addition, given thatthe content of the SUNDRUG Group’s BCP may differ
from that in the BCPs of our logistics contractors,
the Group regularly holds meetings concerning BCP
measures in order to formulate effective BCPs basedaround a common understanding.

Formulation of BCPs
Objectives of formulation
To formulate emergency response plans and actions
during normal times such that Group operations may
be restored and resumed within the necessary time.
ApproachI dentify the types of disaster that may be
predictable and look back on past cases of such
(examples of responses).
C onsider methods of “prevention,”“countermeasure,” and “response” for different
scales* of disaster.
I dentify what needs to be done “before,” “during,”and “after a disaster.”

Formulation and updating
C onfirm whether “prevention” and“countermeasures” have been implemented ateach Group siteA fter a disaster ended, a disaster response
meeting must be held to share information acrossall Group sites.
Implementing and reportingI mplement regular drills in line with the Disaster
Response ManualH old regular meetings concerning disaster
response with the participation of management andmanagers
Planning for initiatives
Hold disaster response meetings six times per year
* Scale of disasters = (Large) earthquakes, pandemics; (Medium)
typhoons, snow accumulation; (Small) traffic accidents, system failures

57

SUNDRUG CO., LTD. Integrated Report 2023

SUNDRUG CO., LTD. Integrated Report 2023

58

Initiatives onenvironment

Values and strategies

Initiatives on societyManagement data

Compliance

Improvements omplete revision of the disaster response manualCfollowing the Kumamoto Earthquake in 2016
R ecognized the necessity of measures to
respond to medium-scale disasters during thetorrential rains that hit western Japan in 2018, andreformulated measures in response
Verified the effectiveness of measures to respondto medium-scale disasters in response to thetorrential rains that hit southern Kyushu in 2020
B enefits of measures seen in response to thetorrential rains that hit northern Kyushu in 2021
R ecognized the inadequacies of measures andnecessity of categorizing measures by type when
the heavy snow hit all over Japan in 2022

In this way, the SUNDRUG Group continuously
reviews its Business Continuity Plan and seeks
to strengthen its resilience and ability to adapt toclimate-related disasters and natural disasters. In
addition, as part of our corporate philosophy, we aim
for corporate management that can contribute to therealization of “healthy, rich lives” and activities thatmeet the expectations of local communities.

The SUNDRUG Group believes that compliance acts as a support for the foundations underlying its
corporate activities and that it is essential in order to help avoid certain risks. Therefore, the Group isstrengthening its legal compliance system and implementing various measures relating to such.
Basic approach

Establishment and operation of an internal reporting deskIn accordance with the SUNDRUG Group Code of
Conduct, the Group takes action toward realizing its
corporate philosophy, with compliance with laws andregulations, social ethics, and internal regulations
serving as the basis of all corporate activities.

The SUNDRUG Group has established a whistleblowing system that allows all officers, employees,
and all people working in the Group to directly reportand ask for resolution of compliance issues. The
hotlines are located not only inside the Company
but also outside the Company (lawyers). Regarding
the whistle-blowing system, internal regulations of
the Group strictly stipulate that confidentiality ofwhistleblowers be protected and disadvantageous
treatment of whistleblowers be prohibited. In
addition, the Group has strengthened activities tomake the above hotlines broadly known in order toraise awareness and understanding of them.

BCP-measure based initiatives
The Company formulates and updates its BCP with the aim of establishing a framework that will prevent a
disruption of its logistics operations throughout the supply chain as we move into a world in which climatechange increases the frequency of natural disasters.
Small-scale disasters
Medium-scale disasters
SD Group BCP measures

Contractors’ BCP measures

Large-scale disasters

SUNDRUG
Distribution
DivisionCore business

Uninterrupted supply

Affected areas

Contractors’
headquarters, etc.

Frequency of occurrence (probability)

Large* Need to set
by time zone ofoccurrence, etc.
Preparation of BCP
Preparation of ERP

Small

Medium-scale disasters
Scale of disaster
Typhoon(flooddamage)

Heavy
snow

Preparation of risk
response measures

SystemfailureSmall-scaledisasters

Pandemic

Traffic
accidents

Compliance promotion system

Preparation of risk
response measures

SD Group
Distribution Center

DIREX
CORPORATION
Logistics
Division

Governance

Torrential
rain(flooddamage)Establishment and operation of theCompliance and Risk Management Committee

In order to identify issues related to compliance andrisks and respond to them appropriately, the Group has
established the Compliance and Risk Management
Committee, which is chaired by the President andconsists of Directors and Department Managers. The
Committee is responsible for reporting compliancecases related to business operations, formulating

and instructing response policies, and establishing
the foundation of the compliance system (promotionand education systems, promotion and audit plan
formulation, etc.). External Full-time Corporate Auditors
and the General Manager of the Business Audit Officealso participate in the Committee to share information
promptly and work in cooperation. Of the contents ofdeliberations of the Compliance Committee, importantmatters are reported at Board of Directors’ meetings.

Preparation of ERP

Compliance structure
Earthquakes

TsunamiCorporate Auditor

ReportCompliance andPreparation of BCP

Risk Management Committee

Large-scale disasters

Chairperson = President

Fire

Impact (length of time during which delivery is not possible) Large

Board of Directors
Policy/Response
Approval

Consultation desk(labor union)

HotlineParticipants = Directors + Division Heads
ReportDisciplinary Committee
Determination ofReportdisciplinary action

Response to revisions of law
E stablishment of framework,
education system, and audit systemM easures against Incidents andAccidents

ReportReceiving ofreports from
employees
and business
partners

Internal reportingdesk(Legal Division)
External reportingdesk(external lawyers)
Anti-harassment
Committee(including humanrights)

Education (quantitative data on initiatives, employees and officers, frequency, number of participants, etc.)
Compliance education

The Group creates a Compliance Guidebook sothat employees can always refer to it for the latest
laws and regulations that are essential for thoseengaged in a pharmacy and drugstore business or aretail business, such as the Act on Pharmaceuticals
and Medical Devices, the Food Recycling Act,and the Antimonopoly Act. In addition to laws and59

SUNDRUG CO., LTD. Integrated Report 2023

regulations, the guidebook presents issues, including
the prohibition of harassment, insider trading, anddiscrimination. The Group thus works to raise awarenessof compliance widely among employees (including
part-time employees). Furthermore, the Group gives
a compliance exam once every six months to confirm
and establish knowledge in line with constant revisions
to laws and regulations.

SUNDRUG CO., LTD. Integrated Report 2023

60

Values and strategies

Initiatives

Description

Creation anddisseminationof Compliance
Guidebook
Implementation ofcontinual education
Preparation of various
manuals incorporatinglaws and regulations
at a practical level
Implementation ofcompliance check tests
General knowledge
test

Allows all Group employees to always check the laws and regulations that are essential for those engaged
in the retail business, such as Act on Pharmaceuticals and Medical Devices, Act on the Protection of
Personal Information, and the Antimonopoly Act. The guidebook comprises “Purposes of the Laws andRegulations,” “Outline of Laws and Regulations,” “Initiatives,” and “Framework for the Company.”
Continual education on one law or regulation per month is provided using the Compliance Guidebook
and e-learning content.
The Group has prepared manuals in which legal compliance is incorporated into store operations,
pharmaceutical sales procedures, cash register procedures, and other procedures, which are then usedas part of the education given in accordance with the curriculum for employees who have joined theCompany.
The Group conducts tests that ask questions related to knowledge of laws and regulations, SDGs, pastcases, etc.
Tests are given to check employee’s knowledge of matters relating to their jobs using e-learning content.

TargetFrequency

All employees—

Responsible
persons or above Monthly
All employees

The SUNDRUG Group aims to create good cheer
and fun in daily life to realize healthy, rich lives for theJapanese people, which is our corporate philosophy,
through drugstore, dispensing pharmacy, cosmetics
store, and variety store operations. To pursue thisphilosophy, we believe it is essential to practiceresponsible conduct and maintain the trust of all
stakeholders for being a corporate group that is wellequipped to discharge its responsibilities to society.
The SUNDRUG Group has established a Group Codeof Conduct to be observed in the course of work, as aset of norms for an organization that regulates itself in
relation to society. Based on this approach, we havealso established a Code of Conduct for Business
Partners, in order to contribute to the realization of asustainable society across the entire supply chain.

Responsible
Twice a year
persons or above

Information security and privacy
We are strengthening measures to ensure appropriate management of information and are promoting
initiatives such as education for all employees involved in business operations.
Recognition of the importanceFuture activities

Information systems for helping realize more efficientmanagement operations have become indispensable.
However, the risks related to information security, suchas loss due to the suspension of information systems,
leakage of customer information, and ransomware,
may have an impact not only on the SUNDRUG Groupbut also on our customers, business partners, andshareholders.
Risk management relating to information security
is one of the important management issues for the
SUNDRUG Group. In particular, we believe that it is thesocial responsibility of the SUNDRUG Group to protect
the information assets held by the Group, including
important information such as customers’ personaldata, from various threats, such as unauthorizedaccess and cyber attacks.

 haring information on the latest threatsSImplementation of inventories of the current status of
security measures, and request for assistance fromsecurity vendors depending on the status
Regular vulnerability assessments
We will promote various measures as needed,
including the provision of security education for
employees.

SUNDRUG CO., LTD. Integrated Report 2023

For the fiscal year For the fiscal year

For the fiscal year For the fiscal year

As of March 31, 2022

As of March 31, 2022

As of March 31, 2023

Current liabilities

Cash and deposits

89,33080,872

Accounts receivable - trade19,10822,224Merchandise

72,41582,700126327

Accounts receivable - other

14,352

15,284

Other

4,209

4,503

(4)

(5)

199,537

205,907

Allowance for doubtful accounts
Total current assets
Non-current assets
Property, plant andequipment
Buildings and structures

94,904

117,370

Accumulated depreciation(39,947)(46,028)

Buildings andstructures, net

54,957

71,341

Land

7,639

7,757

Other

51,30462,235

Accumulated depreciation(36,046)(41,085)

Other, net

15,257

21,14977,855100,248

Intangible assets
Goodwill

2

1,671

Other

5,951

7,433

Total intangible assets

5,954

9,104

Investments and otherassets

Accounts payable - trade67,02974,006

Income taxes payable

5,199

8,249

Contract liabilities

4,301

5,024

Other

19,51425,968

Total current liabilities

96,045113,249

Provision for retirement benefits for
directors (and other officers)—

303

Retirement benefit liability

1,696

1,993

Asset retirement
obligations

5,300

6,156

Other

2,133

2,641

Total non-current
liabilities

9,130

11,095

105,175

124,344

Capital

3,931

3,931

Capital surplus

7,430

7,430

Retained earnings

215,145

230,658

Treasury shares(3,939)(3,940)222,567

238,080

56

82

Revaluation reserve forland(1,940)(1,805)

(120)

(58)

(2,003)(1,781)28

29

Total net assets

220,592

236,328

Total liabilities and net
assets

325,768

360,672

Non-current liabilities

Total liabilities
Net assets
Shareholders’ equity

Total shareholders’ equity

Investment securities

296

334

Long-term loans
receivable
Long-term loans receivable fromsubsidiaries and associates

6,904

7,060

800

945

Deferred tax assets

6,435

7,182

856

796

25,207

26,825Remeasurements ofdefined benefit plans

1,926

2,342

Total accumulated othercomprehensive income

(4)

(75)

42,42045,411

126,230

154,764

325,768

360,672

Deferred tax assets forland revaluation
Leasehold andguarantee deposits
Other
Allowance for doubtful
accounts
Total investments andother assets
Total non-current assets
Total assets

As of March 31, 2023

Liabilities

Current assets

Supplies

Application of the Code of Conduct for Business
Partners
We ask our business partners to understand theCode of Conduct for Business Partners (hereinafterreferred to as “the Code”) and pursue their activities
in accordance with it.
We ask our business partners to take steps to put
the Code into practice not only within their own
companies but also encompassing the suppliers thatthey deal with.
We ask our business partners to cooperate withsharing information on adherence to the Code with
the SUNDRUG Group as necessary.
We ask our business partners to report to SUNDRUG
Group operating company with which they deal in
the event that they detect conduct in contravention of
the Code. In addition, we will take corrective action
promptly, and institute countermeasures to prevent
recurrence.

Management data

(Million yen)

AssetsAll employees Twice a year

GovernanceConsolidated Balance Sheets

Total property, plantand equipment

61

Initiatives on society

Consolidated financial statement—

Code of Conduct for Business Partners
Code of Conduct for Business Partners

Initiatives onenvironment

Accumulated othercomprehensive income
Valuation difference on
available-for-sale securities

Share acquisition rights

SUNDRUG CO., LTD. Integrated Report 2023

62

Values and strategies

Consolidated Statements of Income(Million yen)

For the fiscal year

For the fiscal year

ended March 31, 2022

ended March 31, 2023

492,228

518,516Gross profit

156,506

171,946

Provision of allowance for doubtful accounts—

1

Provision for retirement benefits for directors (and other officers)—

746,514

49,681

Selling, general and administrative expenses

600

638

27,57829,590Other

47,762

54,574

Total selling, general and administrative expenses

122,454

134,493

34,05237,452

ProfitOther comprehensive income
Valuation difference on available-for-sale securities
Revaluation reserve for landRemeasurements of defined benefit plans, net of tax
Total other comprehensive income
Comprehensive income
Comprehensive income attributable toComprehensive income attributable to owners of parent
Comprehensive income attributable to non-controlling interests

Interest income

122

119

Dividend income

66Commission income

7074

Gain on receipt of donated non-current assets

301

254

Other

192

270

Total non-operating income

693

725

Interest expenses

936

Provision of allowance for doubtful accounts

—

2

Other

0

4

Total non-operating expenses

10

43

34,734

38,134Gain on sale of non-current assets

290

157

Compensation income

51

25State subsidy

114

451

Non-operating expenses

Extraordinary income

Other

3

26

459

660

Cancellation penalty—

123

Loss on sale of non-current assets

58

13

Loss on retirement of non-current assets

143

108

Total extraordinary income
Extraordinary losses

Loss on cancellation of rental contracts

147

47

Impairment losses

110

542

Loss on tax purpose reduction entry of non-current assets

29

214

Other

28

35

Total extraordinary losses

519

1,084

Profit before income taxes

34,67537,710

Income taxes - current

10,73812,98883(980)

Total income taxes

Income taxes - deferred

10,821

12,007

Profit23,85325,703

Profit attributable to non-controlling interests
Profit attributable to owners of parent

63

SUNDRUG CO., LTD. Integrated Report 2023——

23,85325,70323,85325,703

(2)
308
(13)
292
24,145

25
134
61
221
25,924

24,145—25,924—

Consolidated Statements of Cash Flows

Non-operating income

Ordinary profit(Million yen)ended March 31, 2023

Cost of sales

Operating profit

Consolidated Statements of Comprehensive Income

Management data

For the fiscal year
690,462

Rent expenses

GovernanceFor the fiscal year
648,734

Retirement benefit expenses

Initiatives on society

ended March 31, 2022

Net sales

Salaries, allowances and bonuses

Initiatives onenvironment

Cash flows from operating activities
Profit before income taxes
Depreciation
Impairment losses
Loss on tax purpose reduction entry of non-current assets
Increase (decrease) in retirement benefit liability
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for point card certificates
Increase (decrease) in contract liability
Interest and dividend income
Interest expenses
State subsidy
Penalty income
Loss on retirement of non-current assets
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Decrease (increase) in accounts receivable - other
Increase (decrease) in trade payables
Increase (decrease) in accrued expenses
Increase (decrease) in long-term deposits received
Increase (decrease) in accrued consumption taxes
Other, net
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Subsidies received
Other, net
Net cash provided by (used in) operating activities
Cash flows from investing activities
Purchase of property, plant and equipment
Purchase of intangible assets
Loan advances
Proceeds from collection of loans receivable
Purchase of shares of subsidiaries resulting in change in scope of consolidation
Payments of leasehold and guarantee deposits
Proceeds from refund of leasehold and guarantee deposits
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities
Repayments of short-term borrowings
Repayments of long-term borrowings
Dividends paid
Purchase of treasury shares
Proceeds from exercise of employee share options
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(Million yen)

For the fiscal year

For the fiscal year

ended March 31, 2022

ended March 31, 2023

34,675
10,209
110
29
214
(0)
(3,914)
4,301
(129)
9
(114)
—
143
(693)
(34)
(1,256)1,731
34
10(1,659)972
44,64010(0)(13,083)
114—
31,682

37,71012,068
542
214
173
3
—
722
(126)
36
(451)
(5)
121
(2,679)(7,199)
(541)
3,860
697
66
95
1,732
47,04210(6)(10,123)451
537,380(18,825)(964)(1,248)60—(1,177)803
694(20,659)(24,789)(1,324)(920)
93(1,004)(1,765)859
338(28,512)——(8,187)(0)0(8,187)2,835
86,49589,330(80)(7,191)(10,053)(0)—(17,326)(8,458)89,33080,872SUNDRUG CO., LTD. Integrated Report 2023

64

Initiatives onenvironment

Values and strategies

Company information
Company
nameHeadquarters
Established
CapitalRepresentative
Number of
employees
Businesssites
Number ofGroup stores
Major
Subsidiaries
Descriptionof businessInitiatives on society

GovernanceManagement data

Stock infor mation(as of March 31, 2023)

SUNDRUG CO., LTD.

Status of stock (as of March 31, 2023)

Ownership and distribution of shares1-38-1 Wakamatsucho, Fuchu, Tokyo 183-0005, Japan
April 1965
¥3,931.20 million
Hiroshi Sadakata, President and Representative Director
Non-consolidated: 7,233 persons/Consolidated: 15,083 persons (including part-timers, as ofMarch 31, 2023)
783 directly-managed stores/560 subsidiary stores/37 franchise and other stores/49 distribution
centers nationwide
Total 1,380 stores

Number of shares authorized 536,000,000 shares

Securities companies

Number of shares issued

1.93%

Seikodo Pharmacy Corporation, Sundrug Plus Co., Ltd., DIREX CORPORATION, Daiya Inc.,SUNDRUG Dream Works Co., Ltd.
Drugstore chain operation
Dispensing pharmacy operation
Product provision and business guidance to franchise and voluntary chain stores, etc.

119,331,184 shares

20.43%(including treasury shares)
Number of shareholders

Individuals
and others

20,37010.98%

Foreign institutions
and individuals
29.29%

Hokkaido area

Hokkaido area
Hokkaido
88 stores
Tohoku area
Aomori prefecture
12 stores
Akita prefecture
8 stores
Iwate prefecture
8 stores
Miyagi prefecture
18 stores
Yamagata prefecture 9 stores
Fukushima prefecture 17 stores
Kanto area
Gunma prefecture
10 stores
Tochigi prefecture
12 stores
Ibaraki prefecture
14 stores
Saitama prefecture
71 stores
Chiba prefecture
43 storesTokyo
182 stores
Kanagawa prefecture 69 stores

Koshinetsu area
Niigata prefecture
79 stores
Nagano prefecture
11 stores
Yamanashi prefecture 32 stores
Tokai area
Shizuoka prefecture 15 stores
Gifu prefecture
1 storeAichi prefecture
71 stores
Mie prefecture
8 stores
Kinki area
Shiga prefecture
7 stores
Kyoto prefecture
16 stores
Osaka prefecture
73 stores
Hyogo prefecture
41 stores
Nara prefecture
12 stores
Wakayama prefecture 7 stores
Chugoku area
Tottori prefecture
7 stores

Shimane prefecture
5 stores
Okayama prefecture 18 stores
Hiroshima prefecture 20 stores
Yamaguchi prefecture 20 stores
Shikoku area
Tokushima prefecture 15 stores
Kagawa prefecture
19 stores
Ehime prefecture
46 stores
Kochi prefecture
24 stores
Kyushu area
Fukuoka prefecture 86 stores
Saga prefecture
25 stores
Nagasaki prefecture 34 stores
Kumamoto prefecture 40 stores
Oita prefecture
20 stores
Miyazaki prefecture 25 stores
Kagoshima prefecture 28 stores
Okinawa prefecture 14 stores

Number of shares held Shareholding ratio(thousands)(%)

IRYUSHOJI CO., LTD.

43,776

37.44

The Master Trust Bank of Japan, Ltd. (Trust Account)

14,040

12.01

Custody Bank of Japan, Ltd. (Trust Account)

5,546

4.74

Naoki Tada

3,112

2.66

Takashi Tada

2,200

1.88

JPMorgan Chase Bank 385632

2,153

1.84

JPMorgan Chase Bank 385047

1,926

1.65

401stores

CEP LUX-ORBIS SICAV

1,683

1.44

Tokai area

OM02 State Street 808424 Client Omni

1,517

1.30

National Mutual Insurance Federation of Agricultural Cooperatives

1,508

1.29

88stores
Koshinetsu area

122stores
Kinki area

156stores

Tohoku area

72stores

Chugoku area

70stores

Kanto area

Shikoku area
Kyushu area

272stores

104stores

Other Japanese
corporations
37.37%

Major shareholders (top 10)
Name of shareholders

Main business sites (as of March 31, 2023)

Financial institutions

95stores

Notes:1 . Although the Company holds treasury shares (2,407 thousand shares), it is excluded from the above major shareholders.
2. The shareholding ratio is calculated excluding treasury shares.

Information on the website

Annual Dividend per ShareDividend payout ratio (%)

Dividends (yen)

120

80

100
90

60

Websitehttps://www.sundrug.co.jp/en

IR sitehttps://www.sundrug.co.jp/en/ir/message

SUNDRUG CO., LTD. Integrated Report 2023

66

68

70

32.2

33.6

32.3

71

45.5
40

34.8

30

0

65

60

20

2019

2020

2021

2022

2023

0

SUNDRUG CO., LTD. Integrated Report 2023

66