Integrated Report2022

Integrated Report

2022

CONTENTS
Value creation by SUNDRUGManagement philosophy

Illuminate a corner of the world.

01

Management philosophy

02

Table of contents

03

History of SUNDRUG

05

Two businesses

07

Materiality

09

Value creation process

The Integrated Report 2022 reportson the Group’s business performancefor the period covered and its efforts
to create value over the medium- tolong-term. It also links and explains ourapproach to sustainability as well as
financial and non-financial information
to help shareholders, investors, andother stakeholders better understandthe Group and deepen dialogue.

11

Financial and non-financial highlights

Applicable period

13

Message from the President

Some contents for the fiscal year ended
March 31, 2022 (April 2021 - March
2022) include activities and forecasts
before or after that period.

Specific strategies for value creation

19

Management issues and Medium-term Business Plan

We hold high standards and21

Strengthening of management foundation

start immediately from what we can do right at the moment.

23

Human resources development

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

Editorial policy

Sustainability strategy and governance structure to
support value creation

25

Environment

27

Initiatives based on TCFD recommendations

31

Society33

Respect for human rights

34

Quality improvement

35

Coexistence with local communities

37

Dialogue between officers

39

Governance45

Business and other risks

Notes concerning forward-looking
statements
The Integrated Report 2022 contains
projections and forward-looking
statements regarding the Group’splans and strategies for the future.
These statements are not historicalfacts, but rather assumptions andbeliefs based on information currently
available. Actual results may differ
from our projections due to risks anduncertainties associated with factors
including future economic trends,
consumer spending, market demand,and taxation.

Financial and corporate data

01

SUNDRUG CO., LTD. Integrated Report 2022

47

Consolidated financial statement data

50

Company information / stock information

SUNDRUG CO., LTD. Integrated Report 2022

02

Value creation by SUNDRUG

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

History of SUNDRUG
Fiscal year ending March 31, 2026 (plan)

Consolidated net sales

1,750 stores

Number of stores
1957 - 1979

1980 - 1994

1957

1995 - 2000

1980

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

2002

1996

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

Made Taisei Home
Aid Co., Ltd.
a subsidiary

1980
Opened suburban drugstore in Hachioji City, Tokyo

1998
Made KomineCo., Ltd. a subsidiary

1985

2013 - 2018
2013

2007
Made Act Co., Ltd.
a subsidiary2019 2020

Sundrug TokaiCo., Ltd. merged

1987
Relocated headquarters to Fuchu City, Tokyo

Subsidiary Act
Co., Ltd. merged

Made Sundrug Plus
Co., Ltd. a subsidiary
2022

Made DIREXCORPORATIONa subsidiary1994

1,000,000

Sundrug
Pharmacies
Co., Ltd. merged

2014

2008

Made Seikodo
Pharmacy Corporationa subsidiary

1965
Started chain operations

Stock reassigned to
the First Section of
the Tokyo Stock
Exchange

2007 - 20122009

Started online sales and order information system

Established Sundrug Y.K.

2001 - 2006

¥1 trillion

Achieved
1,281 stores

800,000

2016
Achieved
1,000 stores(1,027 stores)

Started over-the-counter trading

600,000

2011
Made Sundrug TokaiCo., Ltd. a subsidiary

2008
Achieved
500 stores(503 stores)

400,000

Number of stores
Drugstore business (SUNDRUG, Seikodo, SD Plus, franchise)
Discount store business (DIREX)

1998

Net sales

200,000

Achieved
100 stores(107 stores)

Founding
0

1957

03

1965

SUNDRUG CO., LTD. Integrated Report 2022

1980

1990

2000

2010

2020

2022

2026 Net sales

SUNDRUG CO., LTD. Integrated Report 2022

(Million yen)04

Value creation by SUNDRUG

Specific strategies for value
creation

Value creation by SUNDRUG

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Two businesses

Drugstore business

Other

Health care

4.2%

29.8%

Discount store businessNet sales (million yen)

Number of stores (stores)

427,499

13.8%

31.0%

400,019

861

870

2018

2019

876

903

Net sales
breakdown

Consumables

21.2%

Net sales (million yen)

Number of stores (stores)

21.7%

946

422,251 424,825

411,212

Beauty care

Health & beauty

12.9%

Food

Net sales
breakdown

Other

198,563

213,617230,010

255,714

269,885
258

277

292

313

335

Food
2018

2019

2020

2021

2022

2020

2021

2022

Drugstore business
Under the motto of “safety, reliance and convenience,”
the Group provides value-added products(pharmaceuticals) by offering a broad product lineup,
providing customers with health counseling byprofessional staff, and offering detailed explanations
about illnesses and medicines.
As a unique initiative in the industry, we have a“two lines per store system, with two roles” dividing

65.4%

2018

2019

2020

2021

2022

2018

2019

2020

2021

2022

Discount store businessstore staff into two groups: counseling and sales staff
and operational staff. By dividing specialized work, we
provide greater safety, reliance and convenience to
our customers.
We are expanding nationwide based on efficient
store operations, product supply systems, andadvanced human resource training systems.

Our discount store business handles a wide range of
products, including 25,000 items of necessities suchas food, daily necessities, clothing, cosmetics, home
appliances, car accessories, sporting and leisuregoods, and alcoholic beverages.

The basis of our pricing strategy is to offer products
at lower prices at all times, and the key point is tomaintain these low prices at all times (Everyday Low
Prices) not just for specific featured products but for
all products.

Responding to customer needs
DIREX is expanding its store openings
nationwide with the goal of opening 1,500 stores.

Dispensing pharmacy business
The Group’s dispensing pharmacy business consistsof 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 society ages and interest in health gradually
increases, drugstores are expected not only to sell
products but also to become a familiar presence for

05

SUNDRUG CO., LTD. Integrated Report 2022

local customers as home doctors for customers andprovide comprehensive health management services.
The Group promotes highly specialized local familycare drugstore pharmacies by training pharmacists
with advanced dispensing skills, knowledge of a wide
range of pharmaceuticals including over-the-counter
drugs, and excellent communication skills to provide
counseling from the customer’s perspective.

DIREX is currently operating a nationwide networkof discount, drug, and fresh food integrated stores.
We aim to be a discounter convenient for daily life.
We are currently developing new types of storesthat combine the elements of a drugstore anda supermarket 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.

SUNDRUG CO., LTD. Integrated Report 2022

06

Value creation by SUNDRUG

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Materiality
The Group has identified material issues (materiality) to prioritize in order to fulfil its social and economic role asa social entity.

Process to determine material issues

STEP

1

Management policy
STEP

2

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

 anagement philosophy: “Illuminate a corner ofM
the world”

 anagement mission “Providing safety, relianceMand convenience”

Management stance “Benefits for all”

 anagement means “Think one step ahead andM
act half a step ahead”

Current and future changes in social structure ateriality and opportunities / risks in theMmanagement of the Group

Analysis
STEP

3
4

STEP

5

Promotion of environmental managementI ncorporate action on environmental
conservation in all areas ofmanagement and contribute to thecreation of a circular economy andsociety that fully and effectively
utilizes resources and energyI mprovement of energy efficiency inline with the voluntary environmental
action plan

ESG Committee
Organizational governance
Human rights

Labor practices
Environment

 articipation inP
the community

Fair operating practices
Consumer issues

S
Promotion of compliance management

Risk and opportunity factors

Risks

Opportunities

Increase in natural disasters due toclimate changeD amage to stores and products on display due tomajor wind and flood damageImplementation of policies and regulations such as
introduction of carbon pricing

Increase in revenue opportunities due to increased
sales of environmentally friendly productsE nhancement of corporate brand value by handlingenvironmentally friendly productsD ecrease in revenues due to a decrease in thenumber of items purchased and an increase in salesof products with price appealD ecrease in customer trafficIncrease in difficulty in securing human resourcesIncrease in revenue opportunities by providing newservices such as health support pharmacies andfamily care pharmacistsD ecline in revenues due to reductions in drug prices
and dispensing feesIncrease in revenue opportunities due to shift to OTC
drugs

Diversity & inclusionD ifficulty in securing human resources and increased
outflow of human resources due to inadequate
working environment and systemsE asier to secure diverse and talented humanresourcesI mprovement in reputation and corporate brand value
among society and stakeholders

Changes in consumer awarenessand 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 of responses
to consumers

Increase in revenue opportunities by offering productsthat are safe and quality-conscious, health-conscious,and in line with customer needsI mprovement in reputation and corporate brand value
among society and stakeholders

Expanded use of IoT and digitaltechnologyI nformation system problems(system failure, network failure)Increase in reputation risk due to information leakageD ecrease in operational costs associated with humanlabor, etc.
Increase in frequency of purchases and spend per
customer through use of dataIncrease in revenue opportunities by providing
convenient shopping environments such as online,
apps, etc.

Occurrence 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 infectionIncrease in revenue opportunities through sales ofhygiene products such as masks and sanitizing sprays
Increase in revenue opportunities through sales ofalcoholic beverages, groceries, and other eating-athome products

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 opportunitiesM aintaining positive relationships with society andlocal communities and contributing to their healthy
development could greatly foster trust and increase
the number of fans

Declining population
Policy changes due to increasedsocial security costs

SUNDRUG CO., LTD. Integrated Report 2022

 ake action based on the criteriaTof what is best for our customers,
employees, shareholders, business
partners, communities, society, andthe global environment
 romote fair and appropriatePmanagement with the values andethics required of us as a company
and business people who aremembers of society, going beyond
legal compliance

Materiality

Board of Directors

Declining bir thrate and aging
societ y eduction of waste by reviewingRprocurement and disposal rules

GRI / ISO26000 / TCFD

Topics covered in the analysis

07

Examples of major initiatives

 xpansion of environmentally-friendlyE
private brand products

SDGs

Reference

Discussions anddecisionsE

Direction of initiatives

SDG framework and standards

Identification
STEP

Material issues

S
Establishment of satisfying working environment

S
Contribution to healthy, rich lives

 evelop workplaces in which humanD
resources with diverse values
from various backgrounds can bethemselves and shine where they are ork to improve the competitivenessWof the Company through active humanresource investment, organizational
reform, and enhancement of thepersonnel system to draw out thelatent potential of each employee

 ork to propose and provide theWhealthcare products and services
necessary for the daily lives of local
customers, provide safety, relianceand convenience, and contribute to
the creation of good cheer and fun indaily life ombine digital (ICT), physical (stores),Cand format (drugstores, discountstores, and new formats) to provide
customers with new added valueG
Promotion of governance management

 pply various viewpoints to theAmanagement of the Board of Directors
and enhance and strengthen thesystem for appropriately determining
the overall direction of the Group andmonitoring its implementation
 roperly manage a wide range ofPsustainability risks to simultaneously
maximize opportunities and minimize
threats

 ormulation and dissemination of theF
Corporate Code of Conduct stablishment and dissemination ofE
the Code of Conduct for Business
Partners
 esponsible procurement andRsales activities from the customer’s
perspective
Promotion of white logistics

 ertified as an outstanding enterpriseC
engaging in efforts to advance healthand productivity management
 romotion of health guidance inPcooperation with health insurance
associations
 xpansion of systems and rules forEwork styles
 trengthening training of femaleS
manager candidatesI mproving quality of customer service
at all customer contact points
 evelopment of products andD
services that reflect customer
feedback and lifestyles
 evelopment of business categoriesDand business models that will open
up opportunities in the new normal

 ppropriate identification of risks,A
analysis and evaluation of business
opportunities, and appropriate
responses by the Board of Directors
 isclosure of non-financial
D
information and promotion of dialogue
with stakeholders
 trengthening IT governance andS
information security

SUNDRUG CO., LTD. Integrated Report 202208

Value creation by SUNDRUG

Specific strategies for value
creation

Value creation by SUNDRUG

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Value creation process
Corporate philosophy

The Group aims to be a valuable presence in the community by being a retailer that is in daily contact withcustomers, by having a mission as a drugstore that provides safety and security and a base for community health,and by operating stores in an environmentally friendly manner as a member of society that considers the future of
the Earth.

As a drugstore, dispensing pharmacy, cosmetics store, and variety store, we aim torealize “healthy, rich lives” for the Japanese people and contribute to the creation of“good cheer and fun in daily life.”

Changes in the external environmentI ncrease in natural disasters due toclimate changeD eclining birthrate and aging society,and declining population

 olicy changes due to increasedPsocial security costs
D iversity & inclusion
C hanges in consumer awareness andlifestyles

Value provided to society xpanded use of IoT and digitalE
technology
O ccurrence of large-scale infectious
diseases
L ocal community relations

The Group is committed to providing value to its
customers and society based on the following material
issues.

VisionPromotion of environmentalmanagement

S

Promotion of compliance
management

S

Establishment of satisfying working
environment

S

Contribution to healthy, rich lives

G

Promotion of governance
management

Significance of SUNDRUG’s existence(Purpose)

Means ofdelivering value
Drugstore
Discount store
Online store (e-commerce) ain the trust and satisfaction of our customers
Gby providing valuable products

Expansion of store openings as
physical stores
Expansion of e-commerce stores
Development of
DX stores

Invested capitalE erving to realize safe, secure, healthy and richS
lives

Financial capital
Total assets: ¥325.7 billion

Corporate vision

N et assets: ¥220.5 billion(As of March 31, 2022)

Contributing to improving people’s life
experience through healthy, rich lives

Human capital umber of Group employees: 14,239
N(Full-time and part-time employees)

Environmentally friendly stores tores that are easy to use for all
S
generations

Manufacturing capitalFoundation forvalue creation

StoresDrugstore business:

Output946 stores

Discount store business: 335 stores(As of March 31, 2022)

Employees
Creation of a comfortableworking environment
Expansion of training
opportunities for employees
Supporting diverse
work styles

 ustomer service with a peace ofCmind atisfactory prices and productSlineup
Function as a drugstore
 roviding the roles ofP
a health support pharmacy andfamily care pharmacist

Complementaryfunctions for value creation
IoT and DX
Investment in hardware andsoftwareSupport for and investment in
human resources handling
hardware andsoftwareFiscal 2022

Fiscal 2026

N et sales¥648,734 million

N et sales¥1 trillion

O perating profit¥34,052 million

O perating profit¥60.0 billion

O perating profit ratio
5.2%

O perating profit ratio
6.0%

 umber of storesN
858 stores umber of storesN
1,750 storesManagement foundation

Compliance andgovernance management

Materiality

09

SUNDRUG CO., LTD. Integrated Report 2022

SUNDRUG CO., LTD. Integrated Report 2022

10

Value creation by SUNDRUG

Specific strategies for value
creation

Value creation by SUNDRUG

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Financial and non-financial highlights
Financial performance
Net sales:¥648,734 million

Ordinary profit:(Million yen)

(Million yen)

800,000

40,000600,000

564,215

588,069

617,769

634,310

36,792¥34,734 million
35,80037,159Total assets:

38,228¥325,768 million(Million yen)

(Million yen)

40,00040,00034,734

648,734
30,000Net assets:

30,000246,619

262,195

284,276

308,528

325,768
30,000400,000

20,00020,00020,000200,000

10,00010,00010,0000

2018

Operatingprofit:

2019

2020

2021

0

2022

Operating¥34,052 million profit ratio: 5.2%

Operating profit

2018

2019

2020

Profit attributable to ownersof parent:

2021

2022

¥23,853 million

0

ROA

2018

2019

2020

2021

2022

11.0%

ROE

(%)

(Million yen)

(%)

(%)

8.0

30,000

20.0

20.0

6.4

171,055

2018

2019

186,822205,156

2020

2021

13.2

12.9

220,592

2022

11.2%

Operating profit ratio

40,00030,000154,8280(Million yen)

36,080¥220,592 million

35,23336,60437,34534,052

24,82923,933

23,692

25,329

6.0

6.0

5.9

5.9

15.7

23,853

14.1

15.0

13.6

20,000

5.2

20,000

17.1
14.7

15.0

12.9

11.2

11.0

4.0

10.0

10.0

5.0

5.0

10,0002.0

10,000

0

2018

2019

2020

2021

2022

0

0

2018

2019

2020

2021

2022

0

2018

2019

2020

2021

2022

0

2018

2019

2020

2021

2022

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

19.7%

(%)

20.0

17.1

18.1

17.6

18.7

19.7

Number of employees:

Number of Group card members:(Persons)(10,000 persons)

16,0002,800

12,47913,25914,126

14,025

14,23926.1 million

Number of stores:

2,391
2,043

1,600

12,000

2,100

10.0

8,000

1,400

800

5.0

4,000

700

400

2018

2019

2020

2021

SUNDRUG CO., LTD. Integrated Report 2022

2022

0

2018

2019

2020

2021

2022

0

1,281

(stores）

2,610

15.0

0

11

14,239

1,808

2018

1,951

2019

2020

1,200

2021

2022

0

1,119

1,147

1,168

2018

2019

2020

1,216

2021

1,281

2022

SUNDRUG CO., LTD. Integrated Report 2022

12

Value creation by SUNDRUG

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Message from the President

We respond swiftly to the changing social environment andcontinue to be a necessary part of people’s lives.
President and Representative Director Hiroshi Sadakata will discuss the Group’s strengths, approach,and growth strategy.
What are the strengths of SUNDRUG?

A well-balanced business andstore development are
the characteristics of our Group

shopping area and downtown stores where sales of generalpharmaceuticals and other health products are the mainstay,
suburban standalone stores with enhanced food sales, andcomplex stores with local supermarkets that provide enhanced
sales of household goods. Furthermore, the discount store
DIREX offers a wide range of products from daily commodities,

The SUNDRUG Group operates 1,281 stores (as of March 31,

clothing, fresh food, home appliances, and household goods2022) in 44 prefectures nationwide, centering around theto meet the needs of areas with a relatively low population

drugstore SUNDRUG and discount store DIREX. Our drugstore

density as a one-stop store. The key to this diverse storeand discount store businesses are characterized by a “gooddevelopment is the store development staff. Although it takesbalance” in terms of store development, with suburban

about two years to train staff to a level where they can sign adrugstores located along national highways and other major

contract for one store, we believe that the fact that we are now

roads and station-front stores located in the center of shopping

looking to open 100 stores is the result of our efforts to train

areas and in front of train stations.

personnel involved in development and increase the number ofI was appointed President and Representative Director of
the Company in May 2019, after having served as a Director ofstaff in order to focus on collecting property information, which
we have started before the COVID-19 pandemic.

the Company and President of DIREX. Since assuming theposition of President, I have been working on a growth strategy
that includes an aggressive strategy of opening new storesand strengthening the e-commerce and dispensing pharmacy
businesses to achieve an even more balanced businessmodel. Coincidentally, the year following my appointment, wewere affected by the spread of a mood of self-restraint amongcustomers and the decline in inbound demand due to the
spread of COVID-19. However, we now feel that the measures

Overview of the fiscal year ended March 31, 2022

Although a reactionary decline
in stay-at-home demandaffected results,
we proceeded with planned
store openings and renovations

taken over the past three years are steadily beginning to
produce results.

¥648.7 billion (up 2.3% YoY) and operating profit was ¥34.0

was around 50 stores per year before the COVID-19 pandemic,

billion (down 8.8% YoY). By business segment, the drugstore

has increased from 69 stores to 84 stores in the past two fiscal

business posted increase in sales but decrease in profit, while

years, and expected to reach a triple-digit number of 100

the discount store business posted increases in sales andstores in the plan for the fiscal year ending March 31, 2023.

profit, although lower than planned. In both businesses, sales

Generally, companies in the drugstore industry specialize inat existing stores were impacted by the reactionary decline ineither station-front stores or suburban stores. However, as I

stay-at-home demand related to the spread of COVID-19.

mentioned earlier, our businesses are characterized by a

Hiroshi Sadakata

For the fiscal year ended March 31, 2022, net sales wereAs an example, the number of new store openings, which

Reviewing the drugstore business, in the fiscal year ended

good-balance store development. We exceed in both station-

March 31, 2021, when the COVID-19 pandemic began,front stores and suburban stores, including station-front,

inbound demand from overseas disappeared, especially in

President and Representative Director

13

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SUNDRUG CO., LTD. Integrated Report 2022

14

Value creation by SUNDRUG

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Successful strategy begins
with facing the person in front of you

downtown areas, and sales at station-front stores declined,

Currently, in the market environment for the e-commerce

medical institutions have tended to curb hiring due to thewhile suburban stores experienced an increase in sales ofbusiness, the online sales industry far exceeds the size of the

COVID-19 pandemic, the Company’s stores are performing

food products and infectious disease prevention products suchdrugstore industry. In addition to our SUNDRUG e-shop site,

well in hiring thanks to the fact that pharmacists can choose

as alcohol disinfectants and hand soaps, creating so-called

we already have domestic store sites on major internet

between over-the-counter (OTC) operations and dispensing

I have come to believe that facing the on-site situation is more

“stay-at-home demand.” In the fiscal year ended March 31,

shopping sites such as Rakuten, Yahoo!, and amazon, and weoperations, and the fact that we have established a training

important than anything else, and I feel that this is largely due

2022, sales at station-front stores continued to be weak, andalso sell our products on cross-border e-commerce sites suchenvironment where pharmacists can enhance their skills,

to my experience of concurrently serving as President of ouralthough sales of infectious disease prevention products at

as Tmall Global.

including through e-learning programs.

subsidiary, DIREX, since June 2014. We acquired DIREX in

suburban stores were stronger than before the COVID-19

Furthermore, we have now hired a full-time e-commerce

December 2009 and now operate DIREX discount stores

Recently, there has been a review of basic dispensing fees

pandemic, a larger than expected reactionary decline had abusiness specialist from outside the Company in order tofor large chain pharmacies with more than 300 stores in themainly in the Kyushu area, and also in Shikoku and Chugoku

significant impact on results.

significantly grow our e-commerce business starting in 2023.

same group, and in the future it will be even more important toareas. We are proud to be one of the few cases in the drugstore

In addition to increasing the number of products handled andrespond to the additional fee system for community support

industry that has successfully acquired a company in a

expenses increased from the previous year due to aggressive

sales channels, the Company will increase overallthat evaluates the results of contributions to community

different industry. The factor that made this successful was

opening of new stores, mainly independent suburban stores,

convenience and customer satisfaction by integrating its real

healthcare. It will still take time for us to reach the standard of

simply to implement the pre-acquisition business strategy as

and large-scale renovations, but this increase in selling,

stores with its online sales sites, for example, by allowing

300 pharmacies as we are reaching the standard of 100 in theplanned, together with the subsidiary’s management andgeneral and administrative expenses was within expectations

customers to use the Company’s point service for online sales

current fiscal year, but we will continue to work with local

employees. The purpose of M&A is not for the parent company

and lower than the planned expense figures. Store remodelingand to receive products purchased online at a nearby physicalmedical care from the perspective of creating pharmacies thatto control the acquired company, but to provide better store

expenses decreased to approximately ¥1.4 billion in the fiscal

store. We are also working with major delivery companies toprovide value to customers and maintaining a stable revenue

services to customers. In order to respect and encourage theyear ended March 31, 2021 due to the avoidance of dense

improve logistics efficiency and control delivery costs. It isbase in the dispensing pharmacy business.

motivation and initiative of the subsidiary’s management andcrowding of construction workers and other people due to the

expected that customers will use online shopping even more

COVID-19 pandemic, but returned to normal levels before theroutinely going forward. In the future, we intend to increase

COVID-19 pandemic in the fiscal year ended March 31, 2022

e-commerce business sales to about 20% of total sales andat approximately ¥3.0 billion, and are planned at the samegrow the e-commerce business as one of our strengths.

On the other hand, selling, general and administrative

Promoting sustainable managementlevel for the fiscal year ending March 31, 2023. In addition torenovations due to aging, we are also strengthening our efforts
to renovate the fresh food, frozen food, and other food productsales areas in suburban stores, and in the fiscal year ended
March 31, 2022, we renovated the fresh food sections of

Category

We are systematically hiring andtraining pharmacists and accelerating
the opening of dispensing pharmacies

E

Promotion ofenvironmental
management

approximately 90 stores. Meanwhile, with an eye on the future,
we plan to continue with our well-balanced store openings ofIn the dispensing pharmacy business, we are strengthening

station-front stores and suburban stores.

efforts to meet the demand for dispensing medicine in an
aging society. In terms of demand for pharmaceutical

S

Promotion ofcompliancemanagement

We are working to strengthen
our e-commerce and dispensing
pharmacy businesses froma customer-oriented perspective

pharmacies located right in front of facilities such as hospitals

operates 115 dispensing pharmacies (including 31 standalone
an additional 26 stores, mainly drugstore pharmacies, in thedispensing pharmacy businesses as we pursue our growthfiscal year ending March 31, 2023.

strategy. As we operate our business, we do not believe that

As is the case with store opening staff, the recruitment and

we are in a position to choose our customers, saying that “Wetraining of pharmacists are key to the opening and expansion

want to target these regions and customers,” to strengthen ourof dispensing pharmacies. It takes at least one and a halfbusiness. It is natural that customer needs vary by location,

years for a newly hired graduate pharmacist to be able toresulting in the need for a variety of stores and business types.

prescribe drugs as a full-fledged pharmacist. However, we

Our basic policy is to be sensitive to what our customers reallyhave increased the hiring of pharmacists since I became

want and to support various purchasing channels. The

President, and after about three years, many of ourstrengthening of our e-commerce and dispensing pharmacy

pharmacists have grown to the point where we can add 20 tobusinesses is part of this policy.

40 stores per year. In terms of the hiring of pharmacists, while

SUNDRUG CO., LTD. Integrated Report 2022

Establishment ofsatisfying working
environment

against COVID-19. As of March 31, 2022, the Company

We are currently working to strengthen our e-commerce and15

S

their medications more efficiently, while taking precautions

pharmacies and 84 drugstore pharmacies), and plans to openI ntroduced environmentallyfriendly private brand productsI ntroduce solar power generation andrenewable energy educed food waste, started
R
building a recycling model et targets and implement measures
S
to reduce CO2 emissions withbusiness partners

 stablished the Code ofE
Conduct, Human Rights Policy,etc.

 romote white logistics
PReinforce operation of whistle-blowing
system tarted human rights due
Sdiligence, CSR procurement

an increasing number of customers are moving away fromto supermarket annexed stores, in order to shop and receive

Outlook xpanded training content andEopportunities

dispensing, there has been a change in customer thinking, andBusiness strategy

Progress so far

SContribution to
healthy,rich lives

G

Promotion of
governancemanagementI mproved systems for flexible
working styles(regional employees, variable
Working Hours System) ormulated the Declaration on
F
Health rained supporters for peopleT
who suffer from dementia
I ntroduced buy online pick up in
store (BOPIS) system(4 prefectures in the Kanto region)
 isclosed non-financial informationD(launched new site and provided
related data) onducted analysis of climateCchange risksI nculcate human rights due diligence,
CSR procurement

 ncourage employees to takeEchildcare leave and paid leave nhance women’s advancementE(t raining of managers andcandidates for managerial positions) ork closely with local governments
W/ comprehensive community support
centers
O nline drug administration guidance
 einforce information securityR(policies, training, systems)
Publish Integrated Report

Accelerate initiatives
Promote initiatives in earnest
Establish a promotion framework
Fiscal 2021

Fiscal 2022

Fiscal 2023

SUNDRUG CO., LTD. Integrated Report 2022

16

Value creation by SUNDRUG

Value creation by SUNDRUG

ESG management

Specific strategies for value
creation

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Eruboshi certification as a company that promotes the active

performance and continuously improve corporate value

participation of women, and we are working daily on store

through the implementation of various measures. The dividend

reforms that make it easier for all employees to work, including

policy is to pay stable and continuous dividends, and we havethe digitization of store operations. Going forward, we will

added the policy of aiming for a dividend payout ratio of 50%.

further strive to improve diversity by promoting the use of

For cash on hand, while achieving a balance with investments

childcare leave and paid leave and fostering female managers.

in new store openings, system facilities, and other growth

Our basic stance is to support the daily lives of our customers

In relation to contributing to healthy, rich lives, since many

investments, we will consider share buybacks and otherin an age of the 100-year-life and to solve various issues in aelderly people visit our stores, we are required to protect themeasures that will be beneficial to shareholders, investors andsociety of health and longevity, with the aim of providing

safety and security of our customers in a variety of situations.

other stakeholders as appropriate.

products of value and serving to enrich people’s lives.

For this reason, all store manager-level staff are certified as

When we think about the significance of the Company’s

Meanwhile, we are striving to practice sustainable

dementia supporters. We will continue to further strengthen

existence, we realize that people’s lives are only possible whenmanagement by linking ESG to our business strategies, as we

cooperation with local governments and comprehensive

society and the environment are sustained, and that we aresee increased expectations for the role of corporations incommunity support centers.

needed only then. Currently, the Company is striving to

We are working on important issues
that are truly within reach,rather than taking an idealistic approachsolving environmental and social issues, such as conservation

Compliance management and governance management

strengthen its business strategy and management foundationof the global environment, effective utilization of resources,

have been strengthened and promoted with the cooperation ofwith a view to catching up with and surpassing otherand respect for human rights.

External Officers and outside experts, including thecompanies in the industry, aiming for consolidated net sales ofSpecifically, under the Basic Policy on ESG Activities, weestablishment of the Legal Division with support from External¥1 trillion by the fiscal year ending March 31, 2026. By creating

employees, we need to face them, people who are in front of

established the ESG Promotion Committee, which I chair, toDirectors. Going forward, we will work to address compliancesocial and economic value that contributes to the realization ofus, sincerely. I often use the phrase “reading the atmosphere,”

identify material issues to be addressed and summarize

related to business partners and a wide range of othera sustainable society, we also intend to achieve sustainable

and I feel that I have learned at DIREX to listen to the opinions

related goals and themes to be tackled over the medium- to

stakeholders, including white logistics to reduce the burden on

growth and development and demonstrate our value to society.

of not only those within the Company, but also those outside

long-term. While identifying material issues, we paid particulardelivery drivers, and human rights due diligence and CSR

I would like to ask our shareholders, investors, employees,

the Company and our customers.

attention to building up issues and measures that we can truly

procurement for the supply chain. On the governance front, webusiness partners, and all other stakeholders for theiraddress, rather than unreachable ideals.

will work to strengthen information security.

continued understanding and support of our company.

I believe that there are no shortcuts to success in business,and that the only way to achieve success is to face the reality

As for environmental management, we have completed thein front of you and do what needs to be done. We are

installation of LED lighting in all stores, and are currently

sometimes asked if it will become difficult to operate stores,

installing adjustable fixtures that can reduce in-store lighting togiven that Japan is an aging society and the population isapproximately 30%, replacing refrigerated cases with the

declining. However, operations will not be difficult if you

latest energy-saving types, and managing lighting in restrooms

conduct a careful marketing study to identify the trading areaand break rooms. Amid soaring fuel costs and requests fromand determine the store location, determine the store typeelectric power companies to conserve electricity, we are taking

according to population density, and provide the assortment ofa pioneering approach.

products and services needed by the customers of each store.

One of the initiatives we are considering for the future is theTo our stakeholders

We will come face to face withour customers in front of us andrespond flexibly
While the COVID-19 pandemic of the past few years has

For example, the Higashifuchu Shop, where the headquarters

creation of a system to reflect personal efforts that contributecreated a challenging business environment for us, including

is located, requires services for customers of all ages, fromto ESG, in our employee evaluations. We are considering thethe disappearance of inbound demand, it has also brought

those in their 20s to 40s and elderly customers. We also feelpossibility of evaluating not only initiatives within the Company,

about various insights. Although the number of customers

that if we thoroughly implement the basics, such as offering a

but also initiatives close to home, such as refraining fromvaried from store to store, there was no end to the number ofprofessional pharmaceutical service for customers who comepurchasing bottled water at home. Even if a company sets out

customers asking for food, masks, and disinfectant. We are

to store for dispensing medicine, and speedy service at theits intention to address the environment and other

determined to open stores no matter what the environment,

cash register for customers who are purchasing food and daily

sustainability issues and conducts employee education, I feeland at the same time, we would like to support our customers

necessities, positive results will naturally follow.

that employees may feel that these issues are somewhat

by opening our stores as quickly as possible when they are in

removed from their own personal lives. And so we are aiming

need, such as in times of disaster.

Recently, it seems that many companies are expanding thescale of their business through M&A without any careful

for a system in which the Company encourages employees to

We also live in an era in which we do not know when

consideration. An M&A itself is not something to be denied, butmake environmental contributions that they can implement in

unexpected contingencies will occur in the future, as can be

as long as it is a business, we should carefully consider

their daily lives. Because we do not have a manufacturing

seen in the COVID-19 pandemic and the Russia-Ukraine

whether we can properly recover the acquisition funds andprocess like in the manufacturing industry, the scope of ourconflict. We believe that the important thing is to face ourwhether we can create value through our involvement. We

environmental management is limited to our headquarters andstakeholders, including customers, shareholders, investors,

believe that the most important thing is to face our customers,

stores. Nonetheless, we will continue to examine the scope of

employees, and business partners, be sensitive to the global

rather than being swayed by the current trends of the world.

our environmental management to the extent that we can.

trends, and respond with flexibility.

To create a satisfying working environment, in our case,store staff cannot work from home. However, we have received

17

SUNDRUG CO., LTD. Integrated Report 2022

Please refer to the financial results presentation materials
for details of the Medium-term Business Plan

https://contents.xj-storage.jp/
xcontents/99890/c315f206/b8af/427d/9058/
dfa99126717f/20220602163949239s.pdf

Please refer to our website for more information on
our sustainability initiatives.

https://www.sundrug.co.jp/en/sustainability

The most important theme for returning profits toshareholders and investors is to steadily increase business

SUNDRUG CO., LTD. Integrated Report 202218

Specific strategies for value creation

Sustainability strategy andgovernance structure to support
value creation

Value creation by SUNDRUG

Specific strategies for value
creation

Strengthening
e-commerce business

Accommodating various purchasing channels

Financial and corporate data

Management issues
and Medium-term
Business Plan
Business format strategy
Covering various purchasing channels, trading areas, and customer segments
through the integration of business formats
By integrating our drugstore, dispensing pharmacy, discount store, e-commerce, and digital businesses, we will beable to cover various purchasing channels, trading areas, and customer segments, enabling us to achieve future
scale expansion.

Expansion of e-commerce product lineup /expansion of sales channels
I ncrease number of products
December 2021: Store opened in JRE MALL
S eptember 2021: Sales agent outlet opened in Bibian
online siteS tore opening planned for LAZADA

Sales of the E-commerce business*ImageToward greater growthstarting in 2023

Expand in-store pickup service
Expansion to Hokkaido, Kyushu, and Tohoku areas
L aunched Rakuten Ichiba and PayPay Mall services

Drugstore business
Dispensing pharmacy business

Marketing ealize 1-to-1 marketing by integrating physical andRvirtual channels
D evelop social media presence and new channels

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

Improve customer satisfaction

E-commerce /digital business

Expand target
customer segments

FY3/20FY3/21

FY3/22

FY3/23

FY3/24

FY3/25

FY3/26Sites where we opened storesY okohama / Fukuoka / Sapporo / Saitama / Sendai
Plan to add another distribution site in the Kinki region

Customers of
all ages

Extend trading areas

Integrate businessformats

Improve logistics efficiency

FY3/19 ustomer satisfaction survey using NPSCI mprove website usability[Domestic sites]
SUNDRUG e-shop / Rakuten Ichiba / Yahoo! / amazon /au Wowma! / JRE MALL

[Cross-border e-commerce sites]
Tmall Global / Bibian

Toward greater growth

Discount store
business

Further expand 1-to-1
marketing channels

Strengthening dispensing
pharmacy business

Improve customer
satisfaction
Provide a seamless
shopping experience

Improve productivity /strengthen organization
Combine physical andvirtual channels

Initiatives to capture dispensing demand in Japan’s aged society

Initiatives to open more dispensing pharmacies

Expansion of the numberof store openings

Develop and expand stores in various formats to meet social conditions andcustomer demand

Challenges in store
development
Drugstore businessInitiatives to further increase
the number of store openings

Discount store businessAcceleration of store
openings in eastern Japan
Development of new areas

19

Countermeasures
Strengthening collectionof property information
Increasing store
development staff

Promoting suburban
store openings
Strengthening freestanding stores

Number of standalone
Allocation of personnel
to eastern Japan area
Store openings in easternJapan area

As of March 31, 2021: 37
As of March 31, 2021: 14
As of March 31, 2021: 4
As of March 31, 2022: 41
As of March 31, 2022: 30
As of March 31, 2022: 7
As of March 31, 2023: 53 (plan) As of March 31, 2023: 35 (plan) As of March 31, 2023: 9 (plan)

SUNDRUG CO., LTD. Integrated Report 2022

As of March 31, 2022

*Cumulative total of 38 stores (expected)

pharmacies:

31

Number of drugstore
pharmacies:

84

Strengthening recruitment and promoting training to
expand store openings
Online drug administration guidance
Promoting introduction of online drug administration guidance system
Establishment of follow-up system for drug administration
Confirmation of drug administration status for patients who require it
Strengthening home medical care initiatives
Value of prescriptions received +41.6% YoY,
number of visits +35.4% YoY
Promoting training and education of home-visiting
pharmacists (internal certification system)
Introducing LINE MINI app
Expansion of prescription transmission function

SUNDRUG CO., LTD. Integrated Report 2022

20

Specific strategies for value creation

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Strengthening ofmanagementfoundation
Promotion of digitalization

Productivity improvement

Promotion of further business growth by linking collected data to improve
efficiency and realize optimization

Improve productivity and operational efficiency
Introduction of electronic shelf labelling

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

STEP 1

Number of SUNDRUG Group card members(as of March 31, 2022)

26.1 million

Official
SUNDRUG app

Reduce in-store work of placing special sale sign
cards, etc.
STEP 2

Streamlining of store operations through visualizationof products subject to expiration date checks andvisualization of store inventory, etc.

My Store registration
Number of members: 2.22 million

SUNDRUG card members

Online ads
Expand in-store pickup service

Introduced at

FY3/23

Planned to
be introduced atCapital investment

Estimated totalof roughly

BeaconDigital signage

Prescription
app

LINE
membership

Prescription booking

Electronic shelf labelling

LINE

Increase customer
loyalty

Customer

Digital sales promotion

Higher sales

Digital-related sales

Proportion ofdigital-related sales: (+9.0 ppt YoY)

SUNDRUG
Optimized marketing
Store data analysis

Targeting using
customer IDs

Sales promotion impact /analysis results
Customer*Drugstore business FY3/22 results

Digital sales promotion

Higher sales¥25.0 billion
STEP 2

Promotion

Use retail media
business

Manufacturer

and utilization

Increase customer
loyalty

26.5%

100 stores

Proprietary app

Membership: 900 thousand

Patient medication notebooks*Promotion of non-contact transactions toward the new normal in the ageof living with COVID-19

20 stores

FY3/22

Online sales flyers
SUNDRUG Groupcustomer information

Smartphone apps for
Trial to start inboth customer convenience and
FY3/23productivity improvement
Reduction of waiting time for customers at the cash
register and reduction of product registration time at
the cash register

STEP 1

Digital sales
promotion

SUNDRUG
e-shopRakuten point
card

Self-scan system

Promotion

Increase in
number of orders
Efficientsales promotion

STEP 3

Data utilization methods

Use retail media
business

1-to-1 marketing

Manufacturer

Promoting retail media business

Retail media business[Number of transactions]+75.7% YoY[Net sales]

+314.5% YoY

SUNDRUGStore data analysis
and utilization

Targeting using
customer IDs

Increase in
number of orders

Sales promotion impact / salesEfficientpromotion
analysis results

Data utilization methods

21

SUNDRUG CO., LTD. Integrated Report 2022

1-to-1 marketing

SUNDRUG CO., LTD. Integrated Report 2022

22

Specific strategies for value
creation

Specific strategies for value creation

Value creation by SUNDRUG

Human resources
development

SUNDRUG’s dispensing training

Sustainability strategy andgovernance structure to support
value creation

Financial and corporate data

Dispensing training

Two lines per store system, with two roles
Drugstores that sell pharmaceuticals have a great
responsibility to safely conduct business that concerns
health and life. At the same time, it is also important
for a company to secure profits and pursue growth.
Operations and the pharmaceutical / cosmetics
specialty businesses both require highly specialized
personnel, and each requires a different set of skills.

Therefore, SUNDRUG has adopted a unique twolines per store system in which specialized duties andstore staff are divided into two groups: operations staff
and counseling staff.

OCT + stores withdispensing facilities

Nationwide network of stores Cooperation Extensive OTC knowledge
and high quality counselingskills Family care drugstore
pharmacies

Dispensing pharmacies
located near large hospitals Medical profit-neutral
environment Acquisition of advanced
dispensing techniques Contribution to local medicalcare in cooperation withmedical institutions

Operation policy emphasizing training

The industry’s best training system: 15-year training curriculum
We have a 15-year training curriculum in order to nurture
In addition, after advancing to headquarters staff
true professionals.
positions in the future, training in each specialized
This program is said to be the best training system infield will be provided. As a pharmacist in a nationwide
the industry, with a detailed curriculum designed to meetcompany, employees will be involved in the healthy lives
each individual’s career outlook and proficiency level,of people in Japan in an even bigger way.
ranging from dispensing operations and OTC counselingto communication and management skills.
Store operation positions
Pharmacist positions
The program also covers training for overall
Year 1
operations such as staff management, in addition
Year 1to product knowledge and customer service
Pharmaceutical and health food training
Advanced advisor
Dispensing education
skills. After gaining experience of responsibleroles at stores (on-site), and being assigned
OTC education
Product knowledge training
as headquarters staff at store management
Product knowledge training
Supervisor
departments, product purchasing departments,
Advanced dispensing training
store development departments, etc., training
Advanced advisor
Buyer and product development
programs are provided in order to further refineManagement training
Store development
Leadership training
business skills as professionals in each field.
Management training
As employees progress in their careers from
Leadership training
e-learninge-learning
newcomers to young and mid-career, our ample
Support for acquisition of certification for certified pharmacists
Basics / manager training
training system, which links both mind and body,
Chief seminar
Chief seminar
Section Manager seminar
Section Manager seminar
supports pharmacists and leads them to become
General Manager seminar
General Manager seminar
professionals.
Year 1
Year 1New employee New employee
training
follow-up
New business person businessmanners and basic customer service
Customer service Listening
trainingrole-playing
Registered seller training

In an era when pharmacists work closely with each patient toprovide total health support, it is important for pharmacists
to understand all types of prescriptions and to be able todemonstrate a wide range of expertise in the field of OTC as
well as dispensing.
Before working in a store with a dispensing facility,
SUNDRUG pharmacists learn intensive dispensing skills ina dispensing pharmacy located near large hospitals with anexcellent training environment.

SUNDRUG dispensing pharmacies have an operating
policy that focuses on training. In order to develop
pharmacists who can handle any prescription in
the future, it is essential for them to experience

prescriptions from a wide range of medical specialties.
For this reason, the pharmacies where training isprovided are located adjacent to general hospitals,
medical malls, or medical buildings.

Experience a variety of prescriptions to broaden scope as a pharmacist
Pharmacy operations vary widely depending on the
medical specialties of nearby hospitals and the location of
the store. For this reason, SUNDRUG’s dispensing course
provides pharmacists up to their third year of employment
with store transfers within commuting distance atintervals of six months to one year. Pharmacists who gain
experience in different types of pharmacies and are able
to handle all types of prescriptions can then grow into
pharmacy directors or other positions of leadership who
will supervise junior staff.

Creating an appropriate size pharmacy as a dispensing training institute

New employee New employee
training
follow-up

Traditional herbal medicine, customer service, nutrition, cosmetics, care prevention, mental care, etc.

Body structure, cosmetics, and daily commodities
Seasonal products (antiperspirants, sunscreen, hand cream, etc.), etc.

Cosmetics, contact lenses, nursing care products, etc.

Coaching, store comparison, casestudies, overseas training, etc.

Buying, practical principles of product lineups, practicalmeasures for private label creation, overseas training, etc.
Case studies of business development, store layout,
measures for opening new stores, overseas training, etc.

Traditional herbal medicine, customer service, nutrition, cosmetics, care prevention, mental care, etc.

Pharmacist conferences

Private brand product proposals, academic conferences, physician seminars, etc.

SUNDRUG dispensing pharmacies have devised an environment inwhich pharmacists are assigned so that the number of prescriptions per
pharmacist is held down to an appropriate level, enabling them to work
closely with patients and participate in training. By continuing to nurture
pharmacist professionals, the entire SUNDRUG Group will be able toprovide quality medical care that allows patients to focus on treatment witha peace of mind. “We want to emphasize attentive customer service andtraining.” This desire of SUNDRUG is reflected in our onsite environment.

Regular seminars for systematic and up-to-date knowledge training
Seminars are held on average once a month at the training
center for each proficiency class, providing training
ranging from confirmation of the basics to key points

and the latest information on each subject. Participants
can resolve their concerns on the spot and apply theknowledge to their work at the store the next day.

Linking the mind and body to establish live skills
At SUNDRUG, we emphasize the linkage between grouptraining (Off-JT), in which knowledge is learned in aclassroom setting away from the store, and on-the-job
training (OJT), in which knowledge is learned through workin the store.
The content learned in group training during store
operation training is communicated to store managers by
the education staff to ensure that the knowledge learned
can be put into practice on-site. In addition, the individual’s
training status is constantly monitored by both the store
manager and the education manager, and guidance isprovided according to their growth.
At stores, the store manager, who is responsible for
operations, directly instructs the staff on store practices,and the supervisor instructs the store manager on overall
operations management. By acquiring business knowledge
that is obtained in knowledge education through actual

23

SUNDRUG CO., LTD. Integrated Report 2022

practice, we can create stores that are easy to work in andat the same time easy for customers to shop in.
In the group training that is part of sales knowledge
training, employees will thoroughly learn pharmacology,
physiology, pathology, how to recognize symptoms, how to
select appropriate medicines, how to recommend medical
examinations, how to treat patients, and other subjects.
Furthermore, through discussions with peers, employees
can deepen their understanding and acquire knowledge
that they can apply to actual work.
On-the-job training is aimed at putting such knowledge
into practice. Based on what employees have learned in
the group training, senior pharmacists will guide themon how to apply their knowledge in the field. We nurture
pharmacists who can contribute to patients by linking themind (knowledge education) with the body (on-the-job
training).

Improving operations through employee opinions and ideas“Proposal meetings” to improve operations through employee opinions and ideas
At SUNDRUG, meetings to propose operational improvements to make store
operations more efficient are held 10 times during the year. Employees who
have been with the Company for two years or more and who work at the storesparticipate in these meetings, where they propose improvements they perceivein their daily work, leading to improved work efficiency at all SUNDRUG stores.
If the proposed improvements are recognized at the meeting and verified as
effective, they will be reflected in the Company’s overall operations manual andincorporated as part of operations training. Each store employee, regardlessof how long he or she has been with the Company, is involved in the creation of
new company-wide manuals. At SUNDRUG, we value the opinions and ideas
generated by our stores, and by making improvements based on solid verification,
we aim to create stores that continue to be supported by local customers.

SUNDRUG CO., LTD. Integrated Report 202224

Sustainability strategy and governance structure to support value creation

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

E nv i r o n m e n t
With the aim of providing products of value and serving to enrich people’s lives, the Group is committed to environmental management,
including initiatives for a decarbonized society and the development of environmentally friendly products.

SUNDRUG Group Environmental Policy
1. Basic approach to the environment
Based on the belief that preservation of the global environment
and protection of biodiversity are the foundation of humanlife and the source of our business activities, we have set
environmental management as one of our material issues(materiality) and are promoting it strategically by integrating it
into our management.
To put environmental management into practice, we haveestablished an environmental policy and a voluntary environmental
action plan to serve as the code of behavior for our various efforts.
We take responsibility in all of our business fields and are working
to solve environmental issues through our business activities
while working together with various stakeholders.

(Product development/sales) Environmental consideration in product sales
We will promote planning and sales of products and services thattake the environment into consideration not only in-house but
also through collaboration and co-creation with our suppliers.
(Promotion system) Development of promotion system
Recognizing the impact of our business activities on theenvironment, we will establish environmental objectives andtargets and work on making continuous improvements.
(Education/edification) ComplianceIn addition to familiarizing all employees with the Environmental
Policy, we will raise the environmental awareness of each
employee to ensure compliance*.

2. Environmental Policy*A ggregation and proper disposal of waste, chemical substances containedin products, Energy Saving Act (Act on Rationalizing Energy Use), WarmingCountermeasures Act (Act on Promotion of Global Warming Countermeasures), etc.

(Activity policy/target) Reduce environmental impact
We will use resources and energy efficiently and engage inbusiness activities that have a low environmental impact at every
stage of the supply chain.

(Disclosures) Promotion of communication
We will provide regular internal and external reports on ourenvironmental conservation activities to build good relationships
with our stakeholders.

Environmental Action Plan
1. Basic policy

3. Numerical targets

We aim to manage our business without causing a burden on
the global environment and biodiversity by formulating andimplementing an Environmental Action Plan based on the Group
Environmental Policy.
We will also faithfully respond to new requests arising fromchanges in the times under the supervision of the President andother Directors.

Reduce CO 2 emissions per floor area (total of Scope 1, 2, and 3)
by 30% in the Group (in fiscal 2030, compared to fiscal 2013)

2. Code of conduct
 e will observe environmental laws and regulations, relatedW
agreements, etc.
W
 e will promote energy-saving activities and reduce consumptionof electricity, gas, water, and other energy and wastes.
We will establish and regularly review targets for improving theenvironment and aim as an organization to sustainably reduce
our environmental impact.
We will thoroughly familiarize our employees with this codeof conduct and educate them to be human resources that act
accordingly.

* Targets are being formulated for water and waste

4. Measures to implement
Installation of solar panels
I nstallation of efficient lighting, air conditioning, andrefrigerators and freezers
S trengthen control of temperature settings and other energy
management practices
Consider purchasing non-fossil certificates and renewableenergyI ntroduction of private label products that take into accountenergy, water, and waste
I mproving employee awareness and knowledge of theenvironment and environmental management

Consideration for the environment
1. Protecting forests
Promotion of paperless/digital operations
The Group has, in principle, eliminated the distribution of paper
copies of materials at meetings of the Board of Directors, internal
meetings, and internal training. We are working to reduce
paper consumption by promoting the sharing of digital copies
of materials utilizing notebook PCs and tablets instead. We
have also set to work on going paperless with forms related tologistics and purchasing and are working to increase the numberof cooperating suppliers and penetration rate.

25

SUNDRUG CO., LTD. Integrated Report 2022

Use of certified paper
When preparing business reports and other documents for
General Meetings of Shareholders, the Group uses Forest
Stewardship Council (FSC) or Programme for the Endorsementof Forest Certification Schemes (PEFC) certified paper madefrom products (timber) produced without placing a significant
burden on the environment or society.
 rotection/nurturing of forests and maintenance/
P
conservation of biodiversity
The Group has been planting camellias in Goto City, Nagasaki
Prefecture since 2011 for the purpose of protecting and nurturing
forests, maintaining and conserving biodiversity, and contributing

to the reduction of CO 2 emissions. Since 2013, we have beenplanting cherry blossom trees, maple trees, and chestnut
trees in Kofu City, Yamanashi Prefecture to make SUNDRUG
Forest. Local governments, citizens and Group employees arecooperating in these activities. By continuing to work on these
initiatives, we have raised awareness of social contribution andthe environment among our employees and have also beenable to network with local residents and non-profit organizations
that are engaged in forest activities. Our policy is to continue
expanding the regions and land area of these initiatives as we
look ahead to the future.

3. I ncreasing efficiency of resource use andpromoting effective utilization

2. Controlling and reducing CO 2 emissions* One eco-point is granted for every time a customer shops at SUNDRUG.

Improvement of energy efficiency
The Group is working to create stores that incorporate various
environmentally friendly technologies to reduce energy
consumption. We are in the process of replacing the lights
used at stores with LED lights. As of March 31, 2022, we haveintroduced LED lighting at around 90% of Group stores. Our plan
is to complete the switch at all target stores in the next several
years. In addition, air-conditioning equipment and refrigerators
equipped with inverters that use CO 2 as a refrigerant and arehighly energy efficient are being introduced at new stores. We
are also in the process of updating existing stores where theequipment has become less efficient with age when renovatingthem. We are pursuing the possibilities of environmentallyfriendly stores, such as by installing windows for natural lighting
in the storage and break rooms and using double-glazed glassoffering high heat insulation.
We are working to reduce CO 2 emissions by establishing an
improvement plan to achieve energy savings throughout theentire building.

Management of water resources
The Group uses the water supply efficiently and works to reduceusage by installing water-saving toilets and automatic faucets at
new stores. When renovating existing stores, we switch to thisequipment.
In addition, because we use a significant amount of water toprocess the seafood products, which increasingly more Group
companies are carrying, we are introducing equipment that
adjusts the water to maintain a fixed volume and feeds water
while taking in air. As foamy water contains air and eliminates
splashing during processing, it improves operational efficiency
as well. As such, we are working to save water by establishing acooperative system with our business partners and tenants.

Switch to renewable energy
We have begun reviewing our energy procurement and use,
including installing solar panels on store rooftops, switching
power consumption to renewable energy, and introducing
hybrid vehicles in the fleet of company cars. We are preparing
for full-scale introduction of solar panels while taking into
account the integration into our Business Continuity Plan (BCP)
as it will allow us to continue to operate stores and supply
daily necessities in the event of a power outage caused by anatural disaster or other events as well as the possibility of theintroduction of carbon pricing such as a carbon tax or emissions
trading that are currently under discussion.
Reduction of waste
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, when products near their sellby dates based on internal criteria, we attempt to ensure theysell by marking them down with the optimal discount at the righttiming in order to reduce waste. To improve the accuracy of these
efforts, we work continuously to improve the operational logic of
our IT systems, including automatic ordering systems.
Adoption of business casual dress code
At the SUNDRUG headquarters, we implement Cool Biz
measures in the summer and Warm Biz measures in the winterto reduce CO 2 emissions and improve the working environmentof our employees continuously throughout the year. In October
2021, we adopted a business casual dress code (casual outfits
with no neckties) for the whole year. In combining Cool Biz andWarm Biz, we are working to reduce CO 2 emissions by callingfor proper room temperature control and reasonable means withlight clothing according to each employee’s time, place, andoccasion (TPO).

Reduction of plastic waste
All business operators running retail outlets are required tocharge for plastic shopping bags. This is intended to address
issues such as limiting waste and resource usage, the problemof marine waste, and global warming by reducing excessive useof plastic. At SUNDRUG, we have introduced an original point
system in which customers that bring their own shopping bags
and decline plastic shopping bags are granted eco-points (onepoint)* in order to promote the reduction of plastic.

Utilization of store facilities
The Group refurbishes the showcases, furniture, andrefrigerators from stores that are relocated, rebuilt, or closed andreuses 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 acircular economy.

4. Selling environmentally friendly products
SUNDRUG develops and sells various private brand (PB)
products, including over-the-counter (OTC) drugs, cosmetics,
and processed foods. When developing these PB products,
we always incorporate the elements of sustainability andenvironmental friendliness. We take various approaches,
including using recycled resources in containers and packaging
materials, conserving containers and packaging materials, using
recyclable containers and packaging materials, using natural
materials with little environmental impact, and extending theconsume-by and use-by dates.
With new products, we take the environment into accountfrom the planning stage. As for products that are already being
sold, we gradually switch them out while taking into accountmaterial and product inventories, contracts, and other factors.
We are actively working to ensure that 100% of our products areenvironmentally friendly as quickly as possible.
To reflect the element of environmental friendliness, we
are working to reduce manufacturing costs while maintaining
functional value by applying the concept of value engineering*in the product design stage. Normally, if FSC-certified pulp isused to make the decorative box of a product and vegetable ink
or biomass ink for printing, that will drive the manufacturing costup higher than it was before. For that reason, we are working
to reduce the cost by switching to recycled paper containinga higher ratio of used paper after confirming that there are
no issues with functionality when using it for the outer box ofanother product. Going forward, we will continue to use wisdom
and innovative ideas to balance the value provided to customers
with the economic value to be gained by our Company.
*A method of improving value through a systematic method by ascertaining thevalue of a product or service in relation to the function that it should perform andthe corresponding cost

SUNDRUG CO., LTD. Integrated Report 2022

26

Sustainability strategy and governance structure to support value creation

Value creation by SUNDRUG

Initiatives based on TCFD recommendations

GovernanceObjectives

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

Scenarios

 oth scenarios of (1) a 2°C increase and (2) a 4°C increase in global average temperature by 2100 comparedB
to pre-industrial levels
2 °C increase: Assumption of a decarbonized society with stricter policies than the status quo
4 °C increase: Assumption that current decarbonization policy and CO 2 emission pace will continue

Target businesses

Retail business (drugstores and discount stores combined)

Scope of analysis

 or the time being, SUNDRUG Group (headquarters and stores)FI n the future, the entire supply chain, including business partners

Considerations

 ransition risk: Changes in policies, laws, technologies, and markets as we transition to a low-carbon societyT
aimed at mitigating climate change, which may affect the financial position of a company or its reputation/rating
P hysical risk: Short-term weather-related disasters such as typhoons, floods, and forest fires (acute risk), andlong-term 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 of analysis

I ncrease in electricity prices due to introduction of carbon pricing
Weather-related disasters

Scenario period“Present to 2050” is recommended, but “up to 2030” will be usedCO2 emissions increase along roughly the same path until around 2030 under both 2°C and 4°C increase scenarios

 limate change has a significant impact on the Group’s businessCstrategy as it relates to all of its business activities, including productdevelopment, logistics, store operations, and the products it handles
and their assortments. Identification of risks and opportunities
associated with climate change and appropriate responses basedon an assessment of their materiality are essential
Regarding opportunities and risks related to climate change, the
ESG Promotion Committee identifies Group-wide risks, assesses
those risks, and compiles countermeasures
The risk and opportunity identification process comprehensively
identifies risks and opportunities associated with climate change
for each activity item in the supply chain and identifies material
risks and opportunities
In fiscal 2021, we analyzed climate-related risks and opportunities,
and assessed the impact on business strategies, then reviewed
business strategies and considered various measures to mitigate
and adapt to climate changeSeparately, the Compliance and Risk Management Committee
manages the identification of risks and implementation ofcountermeasures for each functional department (of each Group
company), including products, sales, and logistics

Structure

Board of Directors

Governance

Strategy

Risk management

Indicators and targets

Oversight by the Boardof Directors

Risks and opportunities

Risk identification andassessment process

Indicators used by theorganization

 anagement of Group risksMthrough operation of the ESG
Promotion Committee andthe Compliance and Risk
Management Committee romotion of environmentalPmanagement (organizationbuilding, operation,
education, etc.)

Organizational resilience(toughness, resilience,
tolerance)I ssues and responses
necessary to capture
opportunities and avoid risks
in 2°C and 4°C scenarios

SUNDRUG CO., LTD. Integrated Report 2022

Integration into
comprehensive risk
management
 versight by the Board ofO
Directors
 ollaboration among theC
Board of Directors, ESG
Promotion Committee,
and Compliance and Risk
Management Committee

GHG emissions for
Scope 1, 2 and Scope 3(where appropriate) cope 1, 2, (3) dataS
disclosure tilization and rate ofU
recycling aste management andWemissions (third-party
assurance report)

Goals and performanceas an organization

Other subsidiaries

 xecution of PDCA
E
cycle through the ESG
Promotion Committee andthe Compliance and Risk
Management CommitteeI ntroduction of EVs,
reduction of incinerated
waste, etc.

Other departments

Risk management process ssessment and estimationAof opportunities and risks
under 2°C and 4°C scenarios

Chairperson
President andRepresentative Director

Merchandise Division

Impact on the organization

ESG Promotion Committee

Human Resource Division inking ESG indicatorsLto internal Director
compensation

 xpanding sales ofE
environmentally friendly
products (SKUs andcomposition of sales)

Monitoring and instruction

Administrative Division

 takeholder engagementS
through industry
associations (capturingsocial demands) reenhouse gas (GHG) andG
CO 2 emissions volume

Sales Division oles and activities of theR
ESG Promotion Committee
and the Compliance and Risk
Management Committee

ReportingPresident’s OfficeI dentification of opportunities
and risks in 2°C and 4°C
scenarios overnance on climateGchange (discussions by the
Board of Directors, internal
structure)

27

Assessment and management of risks and opportunities
associated with climate change, and processes for identifying andassessing risks and opportunities associated with climate change stablishment of the ESG Promotion Committee in April 2020E
as an organization under the direct control of the President andRepresentative Director
T he committee oversees sustainability activities aimed atsustainable growth of society and the Group, and is responsible
for formulating implementation plans and managing progressT he committee meets monthly, and the matters and contents
discussed at the committee meetings are reported to the Boardof Directors as appropriate
T he President and Representative Director assumes ultimate
responsibility for issues related to climate change and makes
decisions on the allocation of management resources, thedevelopment of systems, and the implementation of initiatives,
while ensuring consistency between business activities andinitiatives
Promoting environmental management with an Environmental
PolicyA lready introduced a compensation system that links ESG
indicators to internal Director compensation

Contents of disclosure ompany policy and topCmanagement commitment on
climate change

Risk management

Oversight structure of the Board of Directors androle of management related to climate change issues

Response to TCFD recommendations based on the requirements of the Corporate Governance CodeRoles of management

Financial and corporate data

Governance: oversight and risk management structure of the Board of Directors

The Group discloses information in accordance with the framework recommended by
the TCFD, promotes initiatives to address climate change issues, and contributes tothe realization of a sustainable society.

 nvironmental managementE
promotion and guidelines(Environmental Policy)

Sustainability strategy andgovernance structure to
support value creation

Specific strategies for value
creation

Cross-organizational cooperation

 edium-term environmental
Mtargets and performance rogress monitoring basedP
on KPIs

Cooperation

 fforts to save energy andE
reduce CO 2 emissions

Compliance and Risk Management Committee

SUNDRUG CO., LTD. Integrated Report 2022

28

Sustainability strategy and governance structure to support value creation

Specific strategies for value
creation

Value creation by SUNDRUG

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

Recognition of risks and opportunities

Scenario
analysis onduct scenario analysis to understand the risks and opportunities posed by climate change and its financial impact on the Group.
CReferring to multiple scenarios published by the International Energy Agency (IEA) and the Intergovernmental Panel on Climate Change (IPCC),
two scenarios are assumed: the 2°C scenario, which is the goal of the Paris Agreement, and the 4°C scenario, which assumes no advancement indecarbonization.
A nalyze the impact of climate change on the SUNDRUG Group’s business and financial position under two scenarios, and examine the Group’s
resilience to climate change by considering how to respond to the impact of climate change.

Worldview and business environment

Climate-related risks and opportunities+2°C scenario+4°C scenario

Aiming for +2°C but +4°C

Climate world in which the global average temperature byA
2100 increases 2°C above pre-industrial levels (asagreed in the Paris Agreement) world in which the global averageAtemperature by 2100 increases 4°C above preindustrial levels

 °C increase despite efforts to4limit global average temperature
increase to 2°C

Worldview

 olicies are introduced and development ofP
technologies that will facilitate the transition to a
decarbonized society, such as the shift to renewableenergy and adoption of a carbon tax, are promoted
S ociety where changes in the business environment
associated with the transition to a decarbonizedsociety are highly likely to affect businessRegulatory (transition) risks materializeI ncreasingly severe and frequent extreme
weather events due to climate change
increasing the risk of natural disasters,
infectious diseases, etc.
Society where changes in the businessenvironment and consumer behavior due toclimate change are highly likely to affect businessP hysical risks materialize

 arbon tax is introducedCE nergy conservation and renewable energy measures
are further promoted

 arbon tax is not introducedCC urrent energy conservation and renewableenergy promotion measures are maintainedI ncreasing due to cost of environmental measures(forest protection, plastic regulations, introduction ofcarbon tax, etc.)I ncreasing for agricultural, livestock, andfishery products (yield decrease, quality
decline, etc., due to disasters in production
areas, climate change, etc.)
I ncrease in related costs (relocation, closure,insurance) due to higher flooding risk resulting
from increased heavy rainfallC urrent level throughout the supply chain

PolicyProcurement
and logistics

F looding risk is at current level

StoresElectricity
bills
Changes in
consumersI ncreasing through the supply chain with theintroduction of a carbon tax
 stablishment of environmentally friendly lifestyles
EI ncreased demand for sustainable products

Risk items
Introduction/increase of carbon
pricing

Policies and Stricter GHG emission regulations
regulations
Tighter CFC regulations
Stricter plastics regulations
Transition
risks

Establishment of lifestyles to cope with extremeheat
I ncreased demand for disaster prevention andstockpiling products

Transition/physical risks
Item
Policies andregulations
Technologies
Transition
risks
Consumer behavior
and social norms
Litigations andguarantees
Physicalrisks

Acute risks
Chronic risks

Risks
 arbon pricing puts a price on carbon emissions to reduce greenhouse gas emissions
CS upport for carbon sinks (CO 2 sinks) and carbon capture and storage (CCS) technologies that restore forests andoceans, which absorb carbon dioxide (CO 2 ) and other greenhouse gases in the atmosphereI mprovement in automobile fuel efficiency standards and limit of automobile use in urban areas
Renewable energy production and power storage
S pread of electric vehicles (EVs)Transition to renewable energy and materials, purchase of energy-efficient and energy-saving products
Reduced consumption of highly carbon-intensive productsCompanies engaged in operations that negatively impact climate change and companies that are not (or perceived
not to be) proactive in environmental measures underperform in recruiting top talentCorporate brand and reputation risk, criticism and accusations on social media
L itigations against companies and other entities that emit CO 2
L itigations related to healthI mpact of sudden weather events such as heavy rainfall, floods, high tide, droughts, or wildfires on business activities
and financial position
I mpact on financial position of direct damage, such as restoration costs incurred due to damage to a company’s
production bases, and indirect damage, such as a decline in sales due to disruption of the supply chain
I mpact on financial position of long-term climate change, such as rising temperatures, reduced cryosphere, and rising
sea levels

ImpactPhysicalrisks

Assessment

Increased electricity costs for stores and logistics facilities due to introduction of carbon pricing Large
Increased commodity procurement costs due to introduction of carbon pricing (higher
Mediummanufacturer 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
Smallemissions
Failure to reduce GHG emissions incurs the cost of purchasing emission credits
MediumIncreased commodity procurement costs due to stricter emission regulations (higher
Small
manufacturer production and shipping prices)
Increased delivery costs (contractors) due to capital investment to reduce and control GHG
Smallemissions
Increased investment expenses for CFC-free facilities in stores, etc.
Small
Increased procurement costs due to higher prices of alternative materials to meet plastics
Smallregulations

Litigation (environmental
measures, GHG emissions)

Responding to (shareholder and administrative) litigations for inadequate environmental
measures
Increased energy prices due to higher electricity prices (including renewable energy
surcharge)
Increased electricity prices
Increased commodity procurement costs (higher manufacturer shipping prices) due tohigherelectricity prices (including a surcharge on renewable energy)MarketIncreased renewable energy prices Increased energy costs due to higher renewable energy prices
Increased renewable energy prices and electricity prices, and increased logistics costs
Increased logistics costs
due to environmental investments
Changes in consumer lifestyles
Decreased sales due to delayed introduction of environmentally friendly products andservicesand preferences
Deterioration of brand image and a decrease in sales due to delays in environmental
Decline in consumer reputationconsiderations
Reputation
Decreased number of recruitment applications and hires due to the deterioration of brand
Decline in social reputation
image caused by delays in environmental considerations
Decline in valuations by investors Decline in corporate reputation among investors and rating agencies and higher financing
costs due to delays in environmental considerations
and rating agencies
Loss of sales opportunities due to damage or closure of stores caused by flooding, etc.
Loss of sales opportunities due to the shutdown of information system centers
Acute
Increasingly severe disasters
Inventory disposal/shortages and loss of sales opportunities due to flooding, etc. offactories, wholesalers, distribution facilities, etc.
Increased electricity consumption at stores and distribution facilities
Rising average temperatures
Sluggish
Increased insurance costs and relocation costs for stores due to increased risk of flooding
Rise in sea levelfrom high tides and tidal waves
Lower procurement costs due to more efficient business processes and equipment at
Introduction/increase of carbon
suppliers
Policies and pricing
Decreased logistics costs due to more efficient logistics

regulations

Opportunities
MarketRenewable energy technology
development
Changes in consumer lifestyles
and preferences
Rising average temperatures
Improved consumer appreciation
Improved valuations by investors
and rating agencies

Small
MediumMediumMediumMediumMediumMediumMediumSmall
MediumMediumMediumMedium
Small
Small
Small

Decreased energy costs due to the introduction of solar power generation with lower costs Medium
Increased sales due to the development and expansion of environmentally friendly
products and services
Increased sales through development and expansion of products and services adapted torising average temperatures
Improved brand image and increased sales by addressing environmental considerations
Improved corporate reputation among investors and rating agencies and lower financing
costs by addressing environmental considerations

MediumMediumMediumSmall

Indicators and targets
Indicators for assessing climate change-related risks and opportunities

Assessment
indicators

 reenhouse gas/CO 2 emissions (Scope 1 and 2; Scope 3 in the future)GG reenhouse gas/CO 2 emissions per floor area
Waste generation (food: per sales, non-food: absolute amount)N umber of environmentally friendly product items, item composition ratio( 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 associated with climate changeTS et a reduction target for greenhouse gas/CO 2 emissions by 2030 for the SUNDRUG Group to contribute to the realization of a scenario that limits
the global temperature increase to less than 2°C
Risk reduction initiatives
Reduction of greenhouse gas/CO 2 emissions through transition to renewable energy by installing solar power generation systems andswitching to non-fluorocarbon freezing and refrigeration equipment
Promotion 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Capturing opportunities
Proactively developing and introducing environmentally friendly products that contribute to sustainability in response to changes in consumers’
consumption behavior
Further 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 toachieve sustainable growth of the Group29

SUNDRUG CO., LTD. Integrated Report 2022

Long-term goals in the environmental field
Society we aim for
Low carbon
society
Circularsociety

Initiatives
Reduction of CO 2 emissions(Plastic countermeasures)
Promotion of food loss reduction andfood recycling

Society in harmony
Sustainable procurementwith nature

2030 goals
Reduce emissions per floor area by 30% (compared to fiscal 2013)
( 100% reduction of plastic shopping bags, switch to plastic shopping bags made of environmentally friendly
materials (biomass, biodegradable, recycled materials))
Reduction of food waste by 50% per sales (compared to fiscal 2020)(Reduction of non-food waste by 20% per sales (compared to fiscal 2022))
Food waste recycling rate of 30%
100% environmentally conscious private brand (PB) products as a percentage of all PB items in the drugstore
business

CO 2 emissions
Item

Unit

CO 2 emissions*1

t-CO 2CO2 emissions (per gross floor area)*2

t-CO 2 /m2

Fiscal 2016

Fiscal 2017

Fiscal 2018

Fiscal 2019

Fiscal 2020

Fiscal 2021

131,989

150,830

154,193

140,414

142,598

152,795

0.139

0.150

0.146

0.128

0.122

0.121

*1 C O 2 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.

SUNDRUG CO., LTD. Integrated Report 2022

30

Sustainabilit y strategy and gover nance structure to suppor t value creation

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

SocialThe Group aims to “create good cheer and fun in daily life to realize healthy, rich lives for the Japanese people,” which is our corporate
philosophy, through drugstore, dispensing pharmacy, cosmetics store, and variety store operations.
Each and every person working in the Group is to understand and comply with this Group Code of Conduct, and act with sincerity andintegrity in accordance with high ethical standards.

Employee health and workplace safety and health
1. Declaration on Health ne of the most important ingredients for a rich life is “good health.”O
Naturally, our employees are a precious asset and key driving force
for our Company.
Good health is the foundation for employees both while at work andin order to lead long lives after retirement.
By maintaining good mental and physical health as individuals,
employees also contribute to better health and greater fulfilment
for their families and customers.
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 toaffect mental and physical health outcomes in one’s 40s andbeyond. Because the average age 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 and vigorously advancing
health management initiatives in order to promote better mental
and physical health among our employees.
Material issues
Preventing severe illness
We have adopted a thoroughgoing approach to the managementof health examination results, and are bolstering programs toencourage employees to undergo examinations to prevent theonset of severe illness and raise the proportion of employees
receiving specific health guidance.
Promotion of mental health
We are strengthening education programs essential to themaintenance of mental and physical health, and promoting theuse of external counselling 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, and conducting surveys and analysis of employee
motivation.

Promotion of diversity
2. Health initiatives for employees

Initiatives in diversity & inclusion*

Management to safeguard the personal health of diverse workers
is an increasingly important priority in corporate management.
We believe that rather than leaving the maintenance andpromotion of health solely up to individual employees,
their families, and health insurance associations, pursuing
proactive involvement at the company level can help invigorate
our organization and thereby raise the competitiveness of
the SUNDRUG Group, contributing to the achievement ofsustainable growth.
Based on these ideas, we are collaborating with industrial
health professionals such as industrial physicians and publichealth nurses, health insurance associations, labor unions, andemployees to establish organizational structures and deliver
systems and programs in areas including the developmentof healthy work environments for employees, routine healthmanagement to prevent the occurrence of health-related
problems, and ascertainment and provision of support for
employees in poor health.
We believe that health examinations are the cornerstone ofhealth management, and one of our health management goals
is to have 100% of employees undergoing such examinations.
Reservation rates for health examinations are announced in
the Department Managers’ Meeting and Safety and HealthCommittee, which is attended by the President, who personallycontacts departments with low rates to ask for explanations
and request improvements. For our stores, this engagement ishandled by supervisors in charge of overseeing combined groupsof stores. As a result, SUNDRUG has been able to maintain ahealth examination participation rate of close to 100%.
We collaborate with industrial physicians and public healthnurses to follow up with employees on an individual basis
after their health examinations, from recommending further
examinations to receiving examination reports. The results andother details of health examinations are stored in a databaseand rendered visible using a health management system thatenables both employees themselves and health managers toreview data chronologically. We are pursuing further healthpromotion initiatives by cross-referencing our own data on
working conditions with medical treatment and prescription
statements and results from specialized examinations held byhealth insurance associations, etc.

We believe that the purpose of diversity & inclusion is to actively
incorporate and utilize diverse values and diverse humanresources in our business operations without being restrictedby gender, age, or nationality, and we are promoting diversity
throughout the Group. At the same time, we are developing
systems to promote flexible work styles, such as a Monthly
Flexible Working Hours System, and workplace environmentsthat enable a diverse range of individuals to engage in their workwith a sense of motivation.

Promotion of work-life balance
Initiatives to promote work-life balance
The Group is aiming to provide workplaces where each andevery employee feels secure to continue working as they selectfrom a variety of flexible working styles in accordance withdifferent life stages and life events. We are introducing a numberof systems and measures with a view to resolving any issues thatarise, regardless of employees’ nationality and gender.

adopted a number of its own initiatives such as a childcare leaveextension system, options to reduce work hours to facilitate
ongoing work (childcare reduced working hours system), anda returnee follow-up system that makes it easier for employees
to return to work after taking maternity and childcare leave. We
also encourage our male employees to participate actively inchildcare, and have established a childcare leave system for thispurpose.

1. Systems promoting diverse work styles

2. Promoting use of childcare leave

At the Group, responsibilities are allocated on the basis of job
type, not gender. We are continually taking action to provide
women with opportunities for personal growth and self-realization
at work. We aim to create an environment where employees caneasily take maternity and childcare leave, successfully return towork afterwards, and continue working while they raise children.
In addition to the legally mandated systems, the Group has also

Based on an awareness that men’s work styles need to change inorder for women to be empowered in the workplace, we promote
male involvement in parenting by actively encouraging our male
employees to take childcare leave. In fiscal 2020, the proportionof eligible SUNDRUG Group employees taking childcare leave
was 52.3% for men and 96.9% for women, significantly exceeding
the national averages of 12.7% and 81.6%, respectively.

31

SUNDRUG CO., LTD. Integrated Report 2022*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.

1. Appointment of women to managerial positions
As of March 31, 2022 (the end of fiscal 2021), 19.7% ofmanagerial positions in the Group were held by women. We arean organization that allows employees to shine regardless of theirgender, and now we are also pursuing initiatives that proactively
provide opportunities to women and encourage them to take up thechallenge of a managerial role. Two job types with particularly highproportions of women are pharmacist and registered seller*. We
are developing workplace environments open to a diverse range ofindividuals, and designing modes of employment/work and career
paths that are easy to balance with marriage and childbirth andfriendly to employees returning to work after taking leave.
*R egistered seller: A job that mainly involves providing customers with advice
on selection of pharmaceutical products. Registered sellers hold a specialized
qualification for the sale of cold remedies, painkillers, and other nonprescription drugs (Types 2 and 3 only).

2. Mid-career recruitment
With the aim of reliably implementing business strategies andrealizing management objectives, the Group promotes theemployment of individuals with skills and knowledge that are
currently lacking in-house, and those capable of undertaking
specialized work that cannot be performed by members of ourexisting workforce. For this purpose, we provide employees withtraining and career advancement opportunities that are impartial
and not dependent on how they were hired, and systems ofevaluation and employment conditions aligned with individual
abilities and performance. Moreover, we actively promote there-employment* of former employees who resigned owing tochildbirth, parenting, nursing care, and other life events, and there-hiring of returnees who previously worked in the Group andsubsequently pursued careers elsewhere.
* System for re-employment of resigned employees: In the event that former
employees who resigned owing to childbirth, childcare, care duties, or another life
event wish to work for the SUNDRUG Group again, this system enables them tobe re-employed on conditions that take full account of their role and salary levelat the time of resignation in comparison with those employed for the first time. It
also allows them to select modes of work flexibly in light of their circumstances.

Disabilities. We will continue our work to promote the employmentof people with disabilities and the creation of opportunities for their
vocational autonomy and social participation.

4. Variable Working Hours System
The Group has introduced a Monthly Flexible Working Hours
System* that enables employees to plan their work attendanceflexibly and thereby achieve a better balance between theirwork and their duties as parents or carers. We have also madeit easier to take days off in line with periodical fluctuations in thevolume of work, leading to an increase in the number of days of
paid annual leave taken by regular employees, and a reductionin their average monthly overtime hours.
*M onthly Flexible Working Hours System: A system that enables working hours
to be prescribed in excess of the statutory working hours on designated weeks
and days within a specific monthly variation period, provided that the average
working hours per week within that period do not exceed the weekly statutory
working hours.

5. Work attendance interval system
The Group has introduced a work attendance interval system
to enable employees to achieve a better balance between theirwork and their duties as parents or carers, and to make effective
use of time before and after work. This initiative is also designed
to support the mental health of employees and their families.
Used in combination with the Flexible Working Hours System, it
helps the Group alleviate employees’ concerns relating to worklife balance and thereby fulfill its corporate social responsibilities.

6. E
 xternal evaluation of women’s advancement
and childcare support
In August 2018, SUNDRUG was recognized for its good
corporate practices in promotion of work-life balance for womenwith the award of three stars (the highest rating) under the
Ministry of Health, Labour and Welfare’s Eruboshi system,
established pursuant to the Act on the Promotion of Female
Participation and Career Advancement in the Workplace.
Moreover, the Group obtained “Platinum Kurumin” certificationfrom the same Ministry in April 2019 for our proactive support
for parenting. This certification reflects our attainment ofobjectives under an action plan formulated in line with the Act on
Advancement of Measures to Support Raising Next-Generation
Children (hereinafter referred to as “Next-Generation Act”), andrecognizes our initiatives and achievements as models of good
corporate practice. Platinum Kurumin certification is awarded
by the Minister of Health, Labour and Welfare only 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 terms of good practice informulation and implementation of measures toward balancing
work and home life, including male employees taking childcare
leave, continuation of work after taking childcare leave, reductionof overtime work, and provision of diverse working conditions.

3. Employment of people with disabilities
We are taking steps to employ people with disabilities through
SUNDRUG Dream Works, a special-purpose subsidiary underthe Act to Facilitate the Employment of Persons with Disabilities.
Our efforts to develop an environment that empowers people withdisabilities to participate actively in the workplace were recognizedin September 2019 when we received a Bureau of Industrial andLabor Affairs Chief’s Award in the Tokyo Metropolitan Government’s
Excellent Company Awards for Employment of Persons with

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Sustainability strategy and governance structure to support value creation

Respect for human rights
Basic policy on human rights

Initiatives toward respect for 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 believethat respect for human rights is a precondition 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, richlives through our business activities. We have established this
SUNDRUG Group Human Rights Policy (hereinafter referred to as“this Policy”) consistent with the United Nations’ Guiding Principles
on Business and Human Rights, and will advance our activities
toward respect for human rights in accordance with this Policy. This
Policy complements the SUNDRUG Group Code of Conduct, andunder this Policy, the Group will make concerted and united efforts
to promote respect for human rights.

The Group appreciates that respecting human rights is anextremely important social responsibility in business activities.
We are working to ensure that all customers, business partners,
employees, and all others involved in our business activities
conduct themselves responsibly to avoid causing any negative
impact on human rights or being indirectly associated with suchimpact. To do so, we pursue awareness-raising and educational
activities under the Human Rights Policy, Group Code of Conduct,
and Code of Conduct for Business Partners.

SUNDRUG Group Human Rights Policy(1) Basic approach
The Group understands that all business activities have thepotential to impact human rights, either directly or indirectly. We
believe that one of our key responsibilities as a business operator
is to uphold international 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.
(2) Scope of application
The Group applies this Policy to all officers and employees of theGroup, including part-time, contract, and temporary hire employees.
Moreover, the Group requires its suppliers to understand andcomply with this Policy, and expects business partners to support it.
(3) Human rights due diligence
The Group builds human rights due diligence systems, identifies
negative impacts on human rights related to the Group’s business, andpursues initiatives for the prevention and alleviation of these impacts.
(4) Relief
In the event that the Group’s activities are found to have caused or
exacerbated any negative impact on human rights, we endeavor
to institute appropriate and effective relief measures. Moreover, inthe event that the Group is connected with any negative impact onhuman rights as a result of its business relationships, we take steps
toward correction or mitigation.
(5) Education and training
The Group conducts appropriate education and training programs
for all its officers and employees, including part-time, contract, andtemporary hire employees, to ensure that this Policy is incorporated
and implemented effectively in all business activities.
(6) Dialogue and consultation
In the course of implementing this Policy, we make use of the expert
knowledge of independent external organizations, and engage insincere dialogue and consultation with stakeholders.
(7) 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.
(8) Important themes
The Group ensures the prevention of discrimination andharassment, a friendly working environment, achievement of worklife balance, respect for and assurance of privacy.

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SUNDRUG CO., LTD. Integrated Report 2022

(1) 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 of human rights problems that can occur in business activities,
ranging from sexual harassment, abuse of power, and other formsof harassment in the workplace, to discrimination and bias against
people with disabilities, and labor accidents resulting from long
working hours, just to name a few. In addition, As the Group handles
pharmaceutical products, we potentially face specific human rights
problems stemming from the risk of mistakenly selling productsthat have an impact on the health and lives of our customers.
We see human rights management as integral to corporate risk
management, and believe it is crucial to develop systems forrespecting human rights.
In the Group, issues involving human rights such as feedback andcomplaints arising from inadequate consideration for customers,
in-house harassment, and labor accidents are addressed bysharing information at monthly meetings of the Compliance andRisk Management Committee and Safety and Health Committeewith the involvement of all departments, and instituting necessary
countermeasures through the responsible departments. In the eventof a serious incident, we notify related departments and individuals
via the company intranet, and report to the Board of Directors.
(2) Education on respect for human rights
The Group is working continually to ensure respect for diversity,elimination of all kinds of discrimination on the basis of race,
nationality, sex, age, disability, and other attributes, preventionof harassment (including abuse of power, sexual harassment,harassment on the basis of maternity or caregiver duties, andother forms of victimization), promotion of gender equality, andenhancement of working environments and systems. We are taking
pre-emptive steps to avert the occurrence of problems, throughawareness-raising activities for employees including dissemination of
the Compliance 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 andappointment in the Human Resource Division and store managers
responsible for recruiting part-time workers, we have introduced an
employment manual to ensure that appointments are made fairly andwithout reference to attributes such as race, sex, age, and gender
identity. In marketing and promotional activities, we take care notto 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.

Value creation by SUNDRUG

Specific strategies for value
creationrisk is human resource development: training employees involved
in dispensing prescription pharmaceuticals and selling overthe-counter (OTC) pharmaceuticals and cosmetics to become
professionals within their respective fields of work. They need touse their pharmaceutical and product knowledge, communication
skills, and other attributes to the full when consulting withpatients and customers and determining the appropriate useof pharmaceutical and cosmetic products. We have designed
education and 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 makemistakes now and then, we have adopted systematic, automatedrisk mitigation strategies in the form of a Barcode Dispensing Error
Prevention System and Camera Monitoring Guidance Systemfor dispensary staff, and a Quantity Limit System* in the sale of
OTC pharmaceuticals and cosmetics. Employee education isan investment that protects the health and lives of customers
and reduces human rights risks, at the same time as lessening
sustainability risks and raising the Group’s capacity for continued
growth. We will work to make further enhancements to theeducational curricula into the future.
*Q uantity Limit System: A system that triggers an alert at the checkout if thevolume of OTC pharmaceuticals purchased exceeds a specified level

In our drugstore business, we handle sensitive information suchas customers’ medication history and pharmaceutical purchasehistory. We situate proper administration and protection of personal
information as a key issue in management and business, andan 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, theGroup has established a Basic Policy on the Protection of Personal
Information, along with measures such as access restrictions
and access logs to ensure that personal information stored in oursystems can only be obtained by those who require it in order toperform their work duties. Through measures such as these, we
aim to manage our organization so that every employee upholds
the Act on the Protection of Personal Information and other related

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

statutory provisions and internal rules, and performs their work
appropriately while protecting personal information.
(4) Respecting employees’ human rights
We are pursuing human rights awareness-raising activities anddeveloping internal regulations and guidelines in areas such as
respect for diversity, prohibition of all forms of discrimination on
the basis of attributes such as race, nationality, sex, age, anddisability, and prevention of harassments. In addition, we haveestablished 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 allother forms of workplace harassment, early detection of problems,
and their swift resolution. We also engage in ongoing and periodical
consultations with labor unions, in order to tackle a broad range ofissues 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 attendancesystems, PC logs, security records of store entry and exit, and POS
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 of helping employees achieve a
better balance between work and home life.
(5) Respecting human rights in the supply chain
The Group does not manufacture any of the products it sells inhouse: even those products that are sold as SUNDRUG original
brands are manufactured for us by business partners. For thisreason, 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 with business partners and a range of otherstakeholders and putting respect for human rights into practice,guided by the Human Rights Policy and the Group Code of Conduct.

Quality improvement
Initiatives to prevent dispensing errors
We have introduced a unique Barcode Dispensing Error Prevention
System that utilizes barcode, and a Camera Monitoring Guidance
System, the only one of its kind in the industry, to prevent
dispensing errors caused by false assumptions. The Dispensing
Business Division is working to create these systems 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 checked against the same
barcode-controlled medication to prevent human error, such as
Handheld (barcode audit)

mistakenly taking the wrong medication due to false assumptions.
We have also made our own customizations to reduce errors
even further. This system has been implemented in all dispensing
departments of the SUNDRUG Group.

Camera Monitoring Guidance System
From prescription checks to dispensing monitoring and advice
on medication instruction, senior supervisors of pharmacists
dedicated to dispensing and headquarters dispensing managers
provide guidance to on-site pharmacists via high-performance
television cameras installed in the dispensing facilities. Normally,other pharmacists perform checks in stores, but with thedevelopment and introduction of this system, we have established asystem in which multiple pharmacists perform checks in any given
situation. Currently, the system has been installed to all stores withdispensing facilities, and approximately 8,000 to 9,000 camera
monitoring audits are conducted each month.

Camera monitoring audit(3) Respecting customers’ human rights
As the Group is involved in the sale of pharmaceutical and cosmetic
products, there is a risk of mistakenly selling products that havean impact on the health and lives of our customers. We recognize
this as one of the Group’s major risks in the areas of sustainability
and human rights. Our number one focus in order to mitigate this

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Sustainability strategy and governance structure to support value creation

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

Coexistence with local communities
1. Community contribution activities

3. C ontribution to society through the SUNDRUGFoundation

SUNDRUG contributes to the creation of “healthy, rich lives”
by hosting health-related events such as Health/Beauty
Measurement and Consultation Sessions and Health Promotion
Workshops. We also conduct make-up therapy activities, inwhich SUNDRUG beauty experts deliver good health and smiles
by providing make-up services to residents of nursing homes forthe elderly.

2. S upport for child welfare facilities and disasteraffected areas

The Group has established the SUNDRUG Foundation as its
social engagement arm to pursue activities such as support for
victims of disasters and contribution to local communities.
SUNDRUG Foundation
When customers use their loyalty cards, SUNDRUG makes
donations to socially beneficial activities in accordance with
the number of points accumulated by customers. This enables
customers to contribute to the community.

Past initiatives
S aga Scholarship Association support activities
The Saga Scholarship Association, a part of Saga Prefecture’s project
to promote the creation of towns, people, and work, is a foundationthat supports the aspirations of young people and supports their
future success. The association owns a student dormitory in Koganei
City, Tokyo and we made donations to them as we agree with thecontent of the program that supports the success of young people.

Support activities for the Fukushima Earthquake DisasterWe held in-store fund-raising activities and donated the relief money
received from our customers to the Japan Association of Chain DrugStores.

SUNDRUG issues points based on the value of customers’purchases and makes donations to socially beneficial activities
in accordance with the number of points accumulated. This
enables customers to contribute to the community by shopping
at SUNDRUG.

Relief activities for the torrential rain disaster in July 2020
We have held in-store fund-raising activities and donated the relief
money received from our customers to Fukushima Prefecture.

Diagram of the SUNDRUG Foundation

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

 elief activities for damage caused by the Hokkaido
R
Eastern Iburi Earthquake
We held in-store fundraising activities and donated the relief money
received from our customers to Hokkaido.

 elief activities for the torrential rain disaster in westernRJapan
We held in-store fundraising activities and donated the relief money
received from our customers to Hiroshima, Okayama, and Ehime
prefectures.

 elief activities for the torrential rain disaster in northern
R
KyushuThe relief money from in-store fundraising activities and from the Groupwas donated.

 elief activities for the damage caused by the Kumamoto
R
Earthquake
The relief money from in-store fundraising activities and from the Groupwas donated.

Customers use their loyalty
cards for purchases

We donate to sociallybeneficial activities inaccordance with the numberof points accumulated

Points awarded formaking purchases

Recent initiatives
 igned Collaboration Agreement on Health Support withS
Hachioji City, Tokyo.
We dispatch our pharmacists to the Karada Check* project at the
Minami-Osawa Health Center in Hachioji City to provide medication
counseling.
* Karada Check
Hachioji City implements grip strength measurement, vascular age measurement,
body composition measurement, and oral frailty measurement for the purpose of healthpromotion, including frailty prevention. Public health nurses, dietitians, and other healthworkers provide individual guidance and support for health promotion based on themeasurement results.

S upport in response to the Atami Mudslide DisasterWe have started in-store fund-raising activities and donated the relief
money received from our customers to Atami City.

 upport activities for medical countermeasures inS
response to COVID-19
We are collecting in-store donations at each of our Group stores for
doctors, nurses, and others who are working in medical facilities in
response to COVID-19. Donations collected at stores were donatedto local governments in each of the prefectures where Group storesare located that are seeking medical assistance.

 onation of gloves as a countermeasure against theD
COVID-19 infection
As a countermeasure against the COVID-19 infection, we donated126,000 Dunlop Vinyl Gloves to the Ministry of Economy, Trade andIndustry in Chiyoda-ku, Tokyo.
* This activity is made possible by support from loyalty points of customers.

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SUNDRUG CO., LTD. Integrated Report 2022

C reation 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 protecting forests in Japan, promoting CO2 reduction,and raising social contribution and environmental awareness of
employees through participation in volunteer activities.

 isaster recovery assistance for areas affected byD
Typhoon Etau (Kanto and Tohoku)
We held in-store fundraising activities and donated the money
received, as well as money from the SUNDRUG Foundation to fivemunicipalities in Tochigi and Miyagi prefectures.

 isaster recovery assistance for areas affected byD
Typhoon Talas (Kii Peninsula flooding)
We have held in-store fund-raising activities and donated the relief
money received from our customers to Wakayama and Nara prefectures.

 onation of relief supplies to Ishinomaki City, Miyagi
D
Prefecture
The relief money from in-store fundraising activities and from theGroup was donated. In addition, pharmacists participated in support
activities as volunteers at evacuation centers in Miyagi Prefecture.

C amellia planting event
We are holding a camellia planting event for the TSUBAKI Beautify
Camellia Island Campaign in Goto City, Nagasaki Prefecture. We areplanting camellia seedlings with the mayor of Goto City, the winnersof the campaign, and volunteers from Goto City.

C onducting make-up therapy at senior citizen facilities
Beauty advisors visit facilities and work with facility users with a goalof making them smile through make-up.

 onation of goods to child welfare facilities (February
D2015)
We donated our first-aid band-aids (our private brand) and dried
noodles (Goto Udon) to 40 child welfare facilities in Tokyo.

 onation of Prussian masks (high-performance masks)
D(March 2013)
The SUNDRUG Foundation donated 300,000 Prussian masks toseven municipalities in Fukushima Prefecture: Iitate Village, Okuma
Town, Katsurao Village, Tamura City, Namie Town, Futaba Town, andMinamisoma City. All municipalities have evacuation zones, and insome areas, radiation levels are high, and we were given a following
word of thanks: “we would like to distribute these to residents for theirtemporary returns to their homes and during decontamination work.”

D onation of goods to local communities (February 2012)
In response to the flu epidemic, we donated 21,000 alcohol handgels and 490,000 disposable masks to municipalities in Kyushu andthe Tokyo metropolitan area. In March 2015, we donated 2.87 million
masks to local governments in Miyagi and Fukushima prefectures.

 onation of masks to Miyakonojo City following theDeruption of Shinmoedake (Kyushu)
We donated 2.5 million masks to Miyakonojo City as relief supplies.

Participation in Solapetite Kids Camp Charity
A medical care facility was established in Hokkaido to provide children
battling childhood cancer, heart disease, and other intractablediseases with a place to play without worrying about their illnesses ortreatments and the SUNDRUG Group provided Dr. Sundrakko goods.

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Sustainability strategy and governance structure to support value creation

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

D i a l o g u e b e t w e e n o ff i c e r s

We will work with External Officers
to steadily implement reforms
in order to promotesustainability management.

Nobuhiko Sugiura
External Director

Naoki Tada

Chairman and Director

With the aim of providing products of value and serving to enrich people’s lives,
the Group considers corporate governance to be an important management issue.
Chairman and Director Naoki Tada and External Director Nobuhiko Sugiura will discuss
recent initiatives and future issues.

The presence of External Officers is itself a part of risk
management of the company
Tada My position as Chairman and Director is modeled after
Walmart Inc. in the United States. As the Company approaches
its 65th anniversary of its founding, we have been promoting a
new growth strategy led by President Hiroshi Sadakata, whileat the same time striving to carry on the corporate culture ofworking for the customer above all while sometimes fighting
against industry norms, which is the starting point of SUNDRUG
established by the Company’s founder Yukimasa Tada andChairman Tatsuro Saitsu. My role is diverse, including scouting,building a senior management development system, supporting
the Board of Directors and the Nomination and Compensation
Committee, proposing capital policies, proposing medium tolong-term strategies, and serving as the point of contact for
M&As. Strengthening corporate governance is also one of theareas I will focus on.
Sugiura Frankly speaking, the chain drugstore industry gaveme the impression of a group of companies with strong ownerauthority. However, when I became an External Director of
SUNDRUG in June 2014 and looked inside the company, things
were being done democratically, as they should be. I now find it
rewarding to be able to realize various reforms with everyone.
Tada External Directors not only attend meetings of the Boardof Directors, but also provide valuable advice on reforms thatlead to specific governance improvements. Typical examples are
the reform of the whistle-blowing system and the establishmentof a new Legal Division.

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SUNDRUG CO., LTD. Integrated Report 2022

Sugiura What initially surprised me was to hear that there wasvery little whistle-blowing to begin with. Based on my experienceas the head of the compliance department of a foreign financial
institution and as an Outside Director of another company, I
felt that the number of whistle-blowing cases was too small
considering the size of a company as large as SUNDRUG,
and I proposed the need for reform, including the fact that thelabor union was the only whistle-blowing contact point at thattime. The management was frankly aware that they had been
overconfident in their communication with employees and thatthey should respond to the changing times, and they innovatedthe system all at once. Currently, the Legal Division, the Human
Resource Division, and the external lawyers have been added
as whistle-blowing contact points, and the number of reports
has increased to a level that can be considered healthy from ageneral perspective.
Tada The Legal Division was newly established in 2021 as aresult of advice from External Directors. We were given detailed
instructions on specific organizational structures, including thenecessary human resources, and now it is an important divisionin administrative charge of corporate governance, compliance,risk management, etc. In addition, we ask External Directors
and Corporate Auditors to hold seminars on human rights issues
and whistle-blowing systems, and their presence itself can beconsidered a check-and-balance role in the company and a formof risk management.
Sugiura I think it is true that SUNDRUG previously had a weak
governance function for oversight compared to the strength of its
business execution unit. However, under the new management

structure that President Hiroshi Sadakata assumed in 2019, there
is a predisposition to proactively incorporate outside forces, andwe quickly became aware of the importance of governance. It
took time to start from scratch, including the establishment of
the Legal Division, but thanks to the reforms we undertook incooperation with the Internal Officers, I feel that the role of theExternal Officers has become concretely known to them.
I think it is one of the characteristics of SUNDRUG that
External Officers are humble in a good sense, as employees
they have met through forums such as seminars feel comfortableasking them questions.

In-depth discussion of management strategies tofurther raise the bar
Tada External Officers also provided advice to theCompensation and Nominating Committee in its efforts torevise the officer compensation system. Although the reformof compensation was a heavy-handed process due to ourpast history, we proceeded with the creation of specific rules
while recognizing the compensation levels of other companies
based on the experience of the External Officers themselves. In
addition, revisions are made every year if there are areas thatneed to be improved.
Sugiura There may be times when an owner decides on officer
compensation, such as when a company is founded. However,as a company grows, various systems will be questioned as towhether they are appropriate for a stock company. Part of thisis the revision of the compensation system, which requires asystem in which officer compensation is determined by certain
rules, regardless of who the top management is. The system isbeing developed under the leadership of Chairman and Director
Tada, who has also begun working on the compensation system
for Executive Officers following that for Directors.
Tada Sustainability information and ESG/SDGs initiatives,
which the revised Corporate Governance Code requires ofPrime Market listed companies, also remain an issue. To
promote sustainability management, SUNDRUG has identified
five material issues: environment, compliance management,
development of workplace environment, contribution to healthy
and affluent living, and governance management. In the processof deciding on these material issues, we had many discussions

to address ESG/SDGs out in the field, not with idealism. We are
currently working on identifying and compiling specific disclosure
data, from general discussion to specifics. We are bracing
ourselves to get our resolve tested to disclose information in a
speedy and accurate manner from now on. Regarding humanresources, we are actively investing in human capital as a humanresource strategy, not as mere personnel affairs, by hiring midcareer executives and training female executives.
Sugiura I saw the ESG/SDGs policy that was formulated
and felt that it was very meticulously crafted and a powerfuldeclaration that will create the future of SUNDRUG. As the
Chairman mentioned, we will now be tested on our ability to
execute on our goals.
The drugstore business format, which has long been touted
as a success myth, seems to be on the verge of a plateau.
SUNDRUG has the ability to create new business formats, as
it has done in the past with its Group company DIREX, which
has been successful as a discount store. We need to establish
new business styles such as e-commerce business for future
growth. On the other hand, as External Officers, we also have a
responsibility to SUNDRUG’s shareholders. In order to confirm
and oversee the content of the management strategy and help
SUNDRUG become even better, we, the External Officers, arealso asked how much passion and time we devote to getting toknow SUNDRUG.
All of the External Officers, including myself, have been
actively studying the business conditions such as by going to see
the stores and visiting distribution centers, in order to respondto the attitude of the people of SUNDRUG who sincerely andactively listen to the voices of the External Directors.
Tada Amidst a rapidly changing external environment, the levelof demand for ESG compliance and corporate governance isincreasing and speeding up. We are aiming for an exemplary levelas a Prime Market-listed company, and I have a strong senseof urgency that we have not caught up yet to this aspiration.
We intend to continue to improve our risk management andinternal controls to a higher level with the advice of our External
Officers, including External Director Sugiura. To this end, we
will work to create a system that enables in-depth discussions
on management strategies with our External Officers, whose
time, etc. available to us is limited, primarily by establishing an
information sharing system that is as efficient and accurate as
possible.

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Sustainability strategy and governance structure to support value creation

Value creation by SUNDRUG

Specific strategies for value
creation

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

GovernanceCorporate governance
List of officers

Hiroshi
Sadakata

Naoki
Tada

Yoshimitsu
Sakai

President andRepresentative Director

Chairman and
Director

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, DIREX CORPORATION
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)

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, the Company
April 2022 Chairman and Director (to present)

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)

TakashiTada

NobuhikoSugiuraMasatoMatsumotoDirector

External Director

External Director

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, DIREX CORPORATION
May 2019 President and Representative
Director, DIREX CORPORATION(to present)

39

April 1989 Joined The Hongkong andShanghai 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)

SUNDRUG CO., LTD. Integrated Report 2022

April 1979 Joined The Nomura Securities
Investment Trust Sales Co., Ltd.
September 2002 E xecutive Officer, Mitsubishi
Securities Co., Ltd.
(c urrently Mitsubishi UFJ
Securities Holdings Co., Ltd.)May 2010 M anaging 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)

TomokoTsuji

Kazutoshi
Yamashita

TetsuroOzawa

External Director

External Full-time
Corporate Auditor

External
Corporate Auditor

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
June 2007 Executive Director, General Manager of FANCL
Research Institute, 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 ofIngredients 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
CO., LTD. (to present)

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)

KazumaShinohara

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, theCompany (to present)
September 2021 Representative, Shinohara CPA Office(to present)

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 Lawsof the University of Cologne
April 2002 Head, Ozawa General Law Office(to present)
June 2012 External Corporate Auditor, theCompany (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 andResearch 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), TAKAOKA TOKO CO., LTD. (to present)

Skills matrix
Current positions at
Corporate
the Company
management
President and Representative Director
Hiroshi Sadakata
Naoki Tada
Chairman and Director
Yoshimitsu Sakai
Director
Director Takashi Tada
Director
Nobuhiko Sugiura
External Director
Masato Matsumoto External Director
Tomoko Tsuji
External Director
Kazutoshi Yamashita External Corporate Auditor
External Corporate Auditor
Corporate Tetsuro Ozawa
Auditor Kazuma Shinohara External Corporate Auditor
Kishiko Wada
External Corporate Auditor
Name

Industrial
experience

GlobalESG

Finance / Accounting Risk management // M&ALegal affairs

SUNDRUG CO., LTD. Integrated Report 2022

40

Sustainability strategy and governance structure to support value creation

Value creation by SUNDRUG

Basic approach

Board of Directors

The Group has a corporate philosophy, such as “Provide safety,
reliance and convenience,” and “Start immediately from what we
can do right at the moment, try to illuminate even just one cornerof the world, make best decisions for all customers, employees,
shareholders, business partners, communities, society, andthe global environment, and always act with thoughtfulness,”aiming to realize “healthy, rich lives” for the Japanese people andcontribute to “the creation of good cheer and fun in daily life.”
We are aware of our responsibilities for all stakeholders,
including shareholders, position corporate governance,compliance, risk management, etc. as important management
issues, establish a management system to make fair,transparent, and conscientious decisions from a medium- tolong-term perspective, and disclose management strategies andplans in a timely and appropriate manner.
Furthermore, we adapt to changes in the environment,
continuously enhance the significance of the Group’s existence,and strive for long-term, stable, and sustainable growth andhigher corporate value of the Group.

Corporate governance system

General Meetings of Shareholders
Appointment / Dismissal

Cooperation

Appointment / Dismissal

Audit &
Supervisory Board

Consultation

Audit

Board of Directors

Nomination andCompensation Advisory
Committee
Response

Appointment /Dismissal / Supervision
Cooperation /ReportRepresentative Director

The Board of Directors makes decisions on management strategies,
management plans, and other important management matters related
to management in accordance with laws, regulations, the Articles ofIncorporation, and the Regulations of the Board of Directors, with theaim of achieving sustainable growth of the Company and improving
corporate value over the medium to long term. In addition, the Boardof Directors supervises the overall management of the Company
and its subsidiaries and affiliates mainly by ascertaining the statusof the execution of duties by each Director, the status of important
operations at subsidiaries and affiliates, and the operation status ofinternal control systems such as compliance and risk management
at the Company and its subsidiaries and affiliates.
The Regulations for Approval Authority stipulated by the Board of
Directors clearly defines the authority of the Board of Directors, thePresident, each General Manager, each Department Manager, etc.,
and such information is disclosed to all employees. The respective
decision-making bodies and decision-makers make decisions after
deliberation with the relevant Department Managers, etc., andexecute their operations.

Audit & Supervisory Board

Appointment / Dismissal

ReportReport /Supervision

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, andother major meetings, cooperates with the Accounting Auditor andthe Business Audit Office to audit the status of the execution of duties
by Directors and others from an objective and neutral standpoint, andalso works to enhance the audit function through monthly meetingsof the Audit & Supervisory Board, as well as through the sharing of
information and exchange of opinions with other Corporate Auditors
as necessary.

Nomination and Compensation Advisory Committee

Accounting
AuditorReportCooperation

ReportBusiness Audit
Office(Internal control)
Instruction

Corporate
Lawyers
Audit
Consultation
Advice /Coaching

Departments and Offices

The Company is a company with an Audit & Supervisory Board. The
Board of Directors consists of seven Directors, three of which are
Independent External Directors.
With respect to the nomination and compensation of Directors, theCompany has established a voluntary Nomination and Compensation
Advisory Committee to obtain appropriate involvement and advice,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 of External Directors,
which enhances independence, objectivity, and transparency(including gender and other diversity and skill perspectives).
The members of the Nomination and Compensation Advisory
Committee shall be appointed by a resolution of the Board of Directors.
The Nomination and Compensation Advisory Committee shall, in
consultation with the Board of Directors, deliberate and report to theBoard of Directors on the following matters.

Diversity and structure of the Board of Directors

Audit

Management

ReportGroup companies

SUNDRUG CO., LTD. Integrated Report 2022

ESG and SDGs
Promotion
Committee

Compliance andRisk Management
Committee

Audit

41

Specific strategies for value
creation

The Company’s Board of Directors consists of Directors and Corporate
Auditors (the number of Directors is limited to ten and Corporate
Auditors to four as stipulated in the Articles of Incorporation). It is
composed of a small number of elite members to ensure prompt andaccurate information grasping and full discussion and decision-making
with the participation of all Directors.

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

When appointing candidates for Directors, we select Internal
Directors who are familiar with the Company’s business and havea high level of professional knowledge, abundant experience, andinsight, and External Directors who have abundant outside experienceand a high level of professional knowledge, such as management
experience at other 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.

Evaluations of the effectiveness of the Board of Directors
The Company conducts an evaluation questionnaire on theeffectiveness of the Board of Directors for all Directors and Corporate
Auditors who attend the meetings, based on their self-evaluations.
Based on the results of the questionnaire, the Board of Directors
exchanges opinions on the effectiveness and works to make further
improvements.
The contents and results are disclosed on the website.
1. Evaluation method
All Directors and Corporate Auditors, including those from outside
the Company, were asked to complete an evaluation with theirnames on the effectiveness of the Board of Directors, based on
the questionnaire on the effectiveness of the Board of Directors
prepared by the secretariat, and to provide a self-assessment
as well to propose issues in a free column. Based on the resultsof the questionnaire, we exchanged opinions and deliberated
on future measures to share recognition of issues and improvethe effectiveness and functionality of the Board of Directors, andevaluated the results.
2. Summary of the results of the analysis and evaluation of theeffectiveness of the Board of Directors
The size, frequency, duration and other matters of the Board of
Directors meetings were mostly appropriate, with free and vigorous
discussions taking place. With regard to the previously-addressedissue of External Directors visiting operational sites, a distribution
center visit was conducted. In addition, the appointment of a female
External Director to the Board of Directors has helped to ensure
a certain degree of diversity among the members of the Board of
Directors, and the overall effectiveness of the Board of Directors has
been generally evaluated as satisfactory.
However, we recognize that there is room for improvement,
which is an issue for the future, in such areas as (1) deepening
discussions on medium to long-term management strategies throughdebates on current management issues, (2) further improving thenumber, quantity, content, and quality of agenda items, and (3)further promoting the active participation of women through theappointment of female External Directors, as well as the need topromote refinement and examination for further improvement of theeffectiveness of the system.
3. Future response
The Company will continue its efforts to improve the effectivenessand vitality of the Board of Directors, as we continue to deepen
discussions on management issues and strategies that willcontribute to medium-to long-term corporate value enhancement witha view to the future of the industry, including further enhancement,
early provision, and improvement of advance materials andexplanations; making internal conditions known to External Officers,
including reports of various committees at the Board of Directors, toenable them to make appropriate judgments; further efforts to utilize
the insights of External Officers at the Board of Directors; thoroughcompliance and corporate governance; and efforts to identify andtrain successors, including the CEO.

SUNDRUG CO., LTD. Integrated Report 2022

42

Sustainability strategy and governance structure to support value creation

Reasons for appointment of External Directors and Corporate Auditors / Attendance at Board Meetings
Position and name
External Director

Nobuhiko Sugiura
External Director

Masato Matsumoto
External Director

Tomoko Tsuji
External Corporate
Auditor

Kazutoshi Yamashita

Attendance atBoard Meetings

Reasons 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.
We have determined that he 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 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 highlevel of insight and supervisory capability with respect to management. We have determined that he is capable of supervising theCompany’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
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 generalshareholders. 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 andauditing. We have determined that he has monitoring and auditing functions independent of the Company’s management, that he iscapable of auditing from an objective and neutral standpoint, and that there is no risk of a conflict of interest between him and generalshareholders. Therefore, we have appointed him as an External Corporate Auditor and designated him as an independent officer.

100% (17/17)

100% (17/17)

100% (17/17)

100% (17/17)

External Corporate
AuditorAs a Lawyer, Mr. Tetsuro Ozawa has expertise and extensive experience in legal and other matters. We have determined that
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.
Therefore, we have appointed him as an External Corporate Auditor and designated him as an independent officer.

External Corporate
AuditorAs a Certified Public Accountant, Mr. Kazuma Shinohara has expertise and extensive experience in accounting and other matters.
We have determined that he has monitoring and auditing functions independent of the Company’s management, that he is capable
100% (17/17)
of auditing from an objective and neutral standpoint, and that there is no risk of a conflict of interest between him and generalshareholders. Therefore, we have appointed him as an External Corporate Auditor and designated him as an independent officer.

External Corporate
AuditorAs a Lawyer, Ms. Kishiko Wada has expertise and extensive experience in legal and other matters. We have determined that
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.
Therefore, we have appointed her as an External Corporate Auditor and designated her as an independent officer.

Tetsuro Ozawa
Kazuma Shinohara
Kishiko Wada

100% (17/17)

Details of non-monetary compensation
The Company grants stock-based compensation to Directors in order to enhancetheir value sharing with shareholders through shareholdings, thereby continuously
improving the Company’s corporate value. Such compensation comprises stockcompensation-type stock options and the number of stock options granted isdetermined in accordance with the Stock Compensation-type Stock Option
Regulations, with an annual value of ¥30 million and a maximum number of
12,000 shares.

Details of compensation

Officer category
Internal Directors
External Directors
Internal Corporate Auditors
External Corporate Auditors

Number of eligible
officers(persons)
43—
3(Notes) 1. The number of Directors paid of seven includes one Internal Director who resigned in April 2021.
2. The amount of compensation, etc. paid to Internal Directors does not include employee salaries for Directors who concurrently serve as employees.
3. The Company’s officers receive compensation, etc. only from the Company and not from any of its consolidated subsidiaries.

43

SUNDRUG CO., LTD. Integrated Report 2022

The Company makes a distinction between investment shares held forpure investment purposes and investment shares held for purposes
other than pure investment (strategic shareholdings), and acquires andholds such shares as strategic shareholdings when the Company judgesthat such shares will contribute to medium- to long-term enhancementof corporate value, such as building, maintaining, and strengthening
relationships with business partners and business alliances.
The Company’s policy is to reduce its current strategic shareholdings,
which are not cross-shareholdings, as appropriate, taking into
consideration stock prices and market trends.
With regard to strategic shareholdings, the Board of Directors
regularly reviews the rationality and necessity of continued holdings
from a medium to long-term perspective for each individual issue, incomparison with the cost of capital, every year to determine whether or
not to retain the shares.
The rationale for holding the shares is examined with respect to theacquisition process, the nature of the business relationship, the current
and future strategic significance and risk of the holding, the comparison
with the cost of capital, and other items.
Number of issues and balance sheet amount2

Total amount on thebalance sheet(million yen)
1

5

103

Number ofissuesUnlisted stocks
Stocks other than unlisted
stocksMatters related to fixed compensation and performance-linked
compensation, etc.
The fixed compensation for Internal Directors is determined in accordance with
the Officer Compensation Regulations and is commensurate with each position ascompensation for management delegation.
Bonuses are paid to Directors as performance-linked compensation, etc. inorder to further enhance motivation and morale of Directors to improve businessperformance, thereby ensuring a sustained improvement in corporate value.
The method is to determine the total amount of base Director bonuses basedon the payment standards stipulated in the Officer Compensation Regulationsin accordance with the ratio of the increase in consolidated ordinary profit toconsolidated net sales for each fiscal year, etc., and then to proportionally
distribute the total amount to each Director according to their position. The amountis increased or decreased according to the performance evaluation and qualitativeevaluation of each individual Director, and the payment amount is determinedbased on the advice and report of the voluntary Nomination and Compensation
Advisory Committee consisting of all External Directors (3 persons), the President
and Representative Director, and the Chairman and Director.

Total amount of compensation, etc. by type (million yen)
Total amount ofcompensation, etc. Fixed compensation
Variable compensation(million yen)
Basic compensation
Bonuses
Stock options
75
35
35
5
18
18
—
—
—
—
—
—
12
12
—
—

Policy on strategic shareholdings—

Officer compensation system
Matters concerning policy for determining total amount of compensation for Directors andCorporate Auditors and compensation, etc. for individual Directors and Corporate Auditors
The compensation system for Internal Directors consists of fixed compensation
based on their position in the Company and variable compensation in the form of
bonuses and stock options as an incentive linked to business performance andefforts to improve business performance over the medium to long term. In addition,
External Directors and Corporate Auditors receive only fixed compensation.
Regarding compensation for officers, etc., the compensation for Directors isdetermined by the Board of Directors and that for Corporate Auditors is determinedby the Audit & Supervisory Board within the limit of compensation approved byresolution 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 and Compensation Advisory Committee consisting of
all External Directors (3 persons), the President and Representative Director, andthe Chairman and Director.
The Nomination and Compensation Advisory Committee met five times
during the fiscal year under review, and its themes included a proposal for officer
compensation (including bonuses for Internal Directors), a proposal for the designof the compensation system, and a proposal for the selection of candidates for
Directors and Corporate Auditors, and the committee reported the results of its
review to the Board of Directors.
Because the total amount of compensation for Directors and the amount ofcompensation for each individual Director were determined through the above
procedures, the Board of Directors believes that the content of these decisions is
in line with the decision-making policy.
The ratio of fixed compensation, variable bonuses, and stock options is in therange of (63.0 - 33.3) : (21.0 - 57.9) : (5.2 - 7.6), although the ratio of each typevaries depending on performance and achievement of evaluation items.

Specific strategies for value
creation

Value creation by SUNDRUG

Preparing for and responding to risks

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

Audit Office also participate in the Committee to share information
promptly and work in cooperation. Of the contents of deliberations of
the Compliance Committee, important matters are reported at Board of
Directors’ meetings.
2. Compliance education
The Group creates a Compliance Guidebook so that employees canalways refer to it for the latest laws and regulations that are essential
for those engaged in a pharmacy and drugstore business or a retailbusiness, such as the Act on Pharmaceuticals and Medical Devices, theFood Recycling Act, and the Antimonopoly Act. In addition to laws andregulations, the guidebook presents issues, including the prohibition ofharassment, insider trading, and discrimination. The Group thus works
to raise awareness of 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 withconstant revisions to laws and regulations.
3. Establishment and operation of compliance hotlines (a whistleblowing system)
The SUNDRUG Group has established a whistle-blowing system thatallows all officers, employees, and all people working in the Group to
directly report and 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 regulationsof the Group strictly stipulate that confidentiality of whistleblowers
be protected and disadvantageous treatment of whistleblowers beprohibited. In addition, the Group has strengthened activities to makethe above hotlines broadly known in order to raise awareness andunderstanding of them.

Code of Conduct for Business Partners

Concept of risk management
The SUNDRUG Group positions risk management as an importantmanagement issue, and works to identify risks hidden in businessactivities, such as large-scale disasters and customer information leaks,
and strengthen our system to manage them. The Group has establisheda 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 Risk Management Regulations and theGroup as a whole responds to the emergency. As for Corporate Lawyers,
the Group has concluded advisory contracts with four law firms, andwhenever we have a legal issue related to management or operations,
we consult with and get advice from them. The Group thus strives toavoid and mitigate unforeseeable risks as much as possible.

Code of Conduct for Business Partners
The SUNDRUG Group aims to create good cheer and fun in daily
life to realize healthy, rich lives for the Japanese people, which is
our corporate philosophy, through drugstore, dispensing pharmacy,
cosmetics store, and variety store operations. To pursue this philosophy,
we believe it is essential to practice responsible conduct and maintainthe respect of all stakeholders for being a corporate group that is wellequipped to discharge its responsibilities to society. The SUNDRUG
Group has established a Group Code of Conduct to be observed in thecourse of work, as a set of norms for an organization that regulates itself
in relation to society. Based on this approach, we have also establisheda Code of Conduct for Business Partners, in order to contribute to therealization of a sustainable society across the entire supply chain.

Major matters that are deemed to be business risks of the SUNDRUG
Group are as follows. (For details, please refer to the Annual Securities
Report.)(1) Risks related to businesses of managing pharmacies and selling
pharmaceuticals, cosmetics, daily sundries, etc.
(2) Risks related to the financial position and operating results(3) Risks related to legal regulations(4) Risks related to litigation, etc.
(5) Risks related to the business structure

Application of the Code of Conduct for Business Partners(1) We ask our business partners to understand the Code of Conduct
for Business Partners (hereinafter referred to as “the Code”) andpursue their activities in accordance with it.
(2) We ask our business partners to take steps to put the Codeinto practice not only within their own companies but also
encompassing the suppliers that they deal with.
(3) We ask our business partners to cooperate with sharing
information on adherence to the Code with the SUNDRUG Groupas necessary.
(4) We ask our business partners to report to SUNDRUG Group
operating company with which they deal in the event that theydetect conduct in contravention of the Code. In addition, we willtake corrective action promptly, and institute countermeasures toprevent recurrence.

1. Establishment and operation of the Compliance and Risk
Management Committee
In order to identify issues related to compliance and risks and respondto them appropriately, the Group has established the Complianceand Risk Management Committee, which is chaired by the President
and consists of Directors and Department Managers. The Committee
is responsible for reporting compliance cases related to business
operations, formulating and instructing response policies, andestablishing the foundation of the compliance system (promotion andeducation systems, promotion and audit plan formulation, etc.). External
Full-time Corporate Auditors and the General Manager of the BusinessFor details, pleaserefer to the Annual
Securities Report.

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

SUNDRUG CO., LTD. Integrated Report 2022

44

Sustainability strategy and governance structure to support value creation

Business and other risks

Risks related to businesses of managing pharmacies and selling pharmaceuticals, cosmetics, daily sundries, etc.

(2) Dispensing fees and pharmaceuticals used with prescriptions
or guidance (drug prices) related to sales of dispensing
business are set by laws and regulations. Future revisions ofthese dispensing fees and drug prices may impact businessperformance.
The Group focuses on the sustainable implementation of
low-cost operations and the promotion of cost reductions
and the maintenance and improvement of profit margins to
mitigate risks by constructing a further advanced system thatutilizes ever-evolving digital, AI and IoT and by improving
productivity through investments in labor-saving andefficiency-enhancing operations.

(3) Although the Group purchases most of its products fromwholesalers and some from manufacturers, purchase prices
may fluctuate, which may affect sales and gross profit.
In order to respond to market fluctuations and to supportand uncover customer needs, the Group is working to
mitigate risks by strengthening the development of new
private brand products (high value-added products andfunctional, low-priced products).
(4) In the event of a natural disaster such as a major earthquake,an unexpected accident or crime, or a pandemic of a newvirus or bacterial infection at the Group’s headquarters,
stores, or distribution centers, human casualties, physicaldamage, supply chain disruptions, etc. at each location.
This could disrupt business activities and impact businessperformance. To minimize the risk of damage and contributeto the affected areas, the Group conducts training and drills
based on a Disaster Response Manual at the headquarters
and all stores on a regular basis each year. In addition,
the spread of COVID-19 has affected station-front stores
due to factors including the loss of demand from overseas
visitors. Depending on the future course of events, there is apossibility that this will further impact business performance.
The Group is committed to ensuring that customers can use
our services with peace of mind by taking thorough measures
to prevent infectious diseases, prioritizing the safety ofcustomers and employees, and supporting customers
through products and services that prevent infectious
diseases.

Risks related to the financial position and operating results(1) In the drugstore industry, competition from other industries,
in addition to aggressive store openings by other companies
in the same industry, may impact the Group’s businessperformance primarily due to a decrease in the number ofcustomers visiting stores and lower unit sales prices.
In addition, rents and other costs may soar due tocompetition for properties as other companies in the same
industry and other industries aggressively open new stores.
Under these circumstances, as for the Group’s selection of
new store openings, the number of planned new stores may
be subject to change if there are no properties that meet theGroup’s strict criteria for new store openings, and this may
impact the Group’s business outlook.
The Group is mitigating risks by easing criteria for
store openings through strengthening M&As and store
development strategies and improving profitability with more

45

SUNDRUG CO., LTD. Integrated Report 2022

Specific strategies for value
creation

Sustainability strategy andgovernance structure to
support value creation

Financial and corporate data

Risks related to legal regulations

Major matters that are deemed to be business risks of the Group are as follows. Although we proactively disclose items that do notnecessarily fall under the category of business risks, but are considered important for investment decisions, they do not cover all of
the business risks of the Group. The following items are based on our judgment as of the end of the fiscal year under review.

(1) T h e G ro u p o p e r a te s fo u r t y p e s o f s to re s : d r u g s to re s ,dispensing pharmacies, drugstores with dispensing facilities,
and discount stores.
In the dispensing business, which is operated at 115 of all
the Group’s stores, the number of prescriptions received is
expected to increase further as the separation of medical
and dispensary practice progresses. In the future, the Groupmay be subject to lawsuits or administrative penalties due todefects in dispensed drugs, dispensing errors, etc. In suchcases, the Group’s social credibility may be damaged and it
may impact business performance.
The Group is working to improve the skills related todispensing operations and knowledge of pharmaceuticals
throughout the Group supported by the Dispensing Division,and is conducting dispensing operations with the utmost care
under a thorough management system to prevent dispensing
errors. In addition, to prevent dispensing error risks andimprove efficiency, we have installed audit check cameras
and are considering further investment in introducing
dispensing robots to reduce risks. Furthermore, all stores
have pharmacy liability insurance for risk management.

Value creation by SUNDRUG

accurate merchandising and enhanced sales promotion
planning; increasing diversity by recruiting personnel
including talented new graduates and mid-career workers
with expertise and ability to make an immediate contribution;and strengthening the quality of personnel by further
enhancing training programs.
(2) In some cases, the Company deposits or lends security
deposits, guarantee money, construction cooperation money,
etc. to lessors under store lease contracts. However, it may
be difficult to collect such deposits or loaned funds due toreasons such as the bankruptcy of the lessor.
The Group endeavors to collect information on the financial
condition of the lessor and the establishment of security
interests, etc. in order to avoid as much risk as possible.

(1) Legal regulations
In order to sell pharmaceuticals, etc. as defined in the Act on Securing
Quality, Efficacy and Safety of Products Including Pharmaceuticals
and Medical Devices (hereinafter referred to as “Pharmaceuticals andMedical Devices Act”), the Group is required to obtain registration,
designation, and license from each prefecture and make notificationaccording to the details of such sales. In addition, the sale of alcoholic
beverages, food products and the like also requires approval,
registration, etc. by the competent government agencies in accordancewith the relevant laws and regulations. Accordingly, any changes such asrevisions to these laws and regulations may impact store operations, etc.
(2) Deregulation of pharmaceutical sales
The Act to Partially Amend the Pharmaceutical Affairs Act (promulgatedon December 13, 2013, effective June 12, 2014) has effectively lifted theban on online sales of OTC pharmaceuticals. Currently, pharmacists
are required to provide information on pharmaceuticals when sellingType 1 pharmaceuticals. However, further deregulation and intensifiedcompetition from other industries may impact the Group’s business plans
and business performance in the future.
In order to mitigate the risks described in (1) and (2) above, theGroup is taking steps to promptly respond to the revision of the law byfurther refining and providing its training programs, which are focused on
developing human resources to think one step ahead and act half a stepahead as part of its corporate philosophy.

sellers needed to open new stores, this could impact the Group’s plansfor opening new stores and impede growth, and even if pharmacists andregistered sellers are secured, continued increases in labor costs could
impact the Group.
The Group aims to be a company where each and every employee,regardless of gender, can demonstrate their abilities and actively
participate in their work, and we strive to secure human resources
by creating a comfortable working environment and various systems
primarily in terms of working styles and treatment to accommodate
the diversification of work styles, as well as an operational system that
constantly strives to improve employment management while keeping
abreast of external changes.
(Note that the Company received (1) Eruboshi certification of threestars (the highest rating) based on the Act on the Promotion of Female
Participation and Career Advancement in the Workplace and (2) Platinum
Kurumin certification based on the Act on Advancement of Measures to
Support Raising Next-Generation Children from the Minister of Health,Labour and Welfare. Moreover, we have acquired the Tomonin Mark as
a company that supports achieving a balance between work and familycare (nursing care).
In addition, we are working to increase the number of employees
who pass examinations and reduce the risk of a shortage of qualified
employees by enhancing our training system that encourages employees
to obtain various qualifications and our system for granting study time for
examinations.

(3) Securing qualified personnel(4) Protection of personal information

Pharmacies and pharmaceutical sales businesses are required by the
Pharmaceuticals and Medical Devices Act to have a pharmacist or
registered seller at each store, and pharmacists must perform dispensing
operations. Therefore, the number of pharmacists and registered sellers
enrolled is an important limiting factor for new store openings.
In the drugstore industry, competition to recruit pharmacists continues
to intensify due to factors such as the aggressive opening of new storesby other companies in the same industry. As a result, recruitment
costs and other expenses for securing pharmacists are expected tocontinue to rise. In the area of registered sellers as well, there areconcerns that more and more companies from other industries willenter the pharmaceutical sales market, and that registered sales clerks
will be lured away by these other industry companies. Under thesecircumstances, if we are unable to secure the pharmacists and registered

The Group retains information including customer information associatedwith the operation of the point card system and patient and employee
information associated with dispensing operations, which is managed
by computer. In accordance with the Act on the Protection of Personal
Information, we take all possible measures to manage such information.
However, in the unlikely event of an information leak, the Group’sbusiness performance could be impacted by such reasons as loss ofsocial credibility.
In accordance with the Act on the Protection of Personal Information,
the Group has established an information management system, which ismonitored by the Business Audit Office. The Group also takes measures
to mitigate risks through periodic training sessions and status checks by
the Compliance and Risk Management Committee.

Risks related to litigation, etc.
Although the Group has never been sued in connection with its
pharmaceutical sales or dispensing operations and has an internal
system in place to deal with legal risk management, the nature of
the business of prescribing and selling pharmaceuticals makes it
susceptible to litigation.
Depending on the details and amount of litigation, it could havean impact on business performance.
The Group holds regular and ad-hoc meetings of the Complianceand Risk Management Committee to strengthen its systems.

In addition, the Group is working to mitigate risks by having
pharmacists and registered sellers actively participate in internaland external training programs to familiarize them with revisions to
the Pharmaceuticals and Medical Devices Act and to acquire moreadvanced knowledge of pharmaceutical affairs. Meanwhile, we
also dispatch lecturers to industry and other training sessions.

Risks related to the business structure
The President and Representative Director and other membersof the management team play important roles in each businessareas. In the event that these officers are unable to execute theirduties, it may impact our business performance.
The Group has developed a system for officers and candidates
for officers to participate in training programs (e-learning),

providing them with systematic learning, including governanceand compliance. We are also promoting the development of the
management team members by enhancing the training system
to provide employees by position with training programs forcompliance, management, etc.

SUNDRUG CO., LTD. Integrated Report 2022

46

Financial and cor porate data

Value creation by SUNDRUG

Consolidated Balance Sheets(Million yen)

For the fiscal year For the fiscal year

For the fiscal year

For the fiscal year

ended March 31, 2021

ended March 31, 2022

Current assets

Current liabilities

Cash and deposits

86,49589,330Accounts receivable - trade18,414

19,10872,36372,415143

126

Accounts receivable - other

13,095

14,352

Other

3,753

4,209

Allowance for doubtful
accounts(3)(4)

Total current assets

194,262

83,801

94,904(37,018)(39,947)

Buildings andstructures, net

46,782

54,957

8,074

7,639

45,00551,304

Provision for point cardcertificates

7,566

5,199

—

4,301

3,914

—

Other

18,33819,514

Total current liabilities

95,116

96,045

Asset retirement obligations

1,481
4,809

1,696
5,300

Other

1,963

2,133

Total non-current
liabilities

8,254

9,130

Total liabilities(32,693)(36,046)

Net assets

Other, net

12,312

15,257

Shareholders’ equity

77,855

Share capital

103,371

105,175

Other
Total intangible assets

2

5,287

5,951

Retained earnings

5,954

Treasury shares

5,304

Total shareholders’equity300

296Long-term loans
receivable

7,172

7,704

Deferred tax assets

6,375

Investment securities

Deferred tax assets forland revaluation
Leasehold andguarantee deposits
Other
Allowance for doubtful
accounts

3,931

3,931
7,430

200,007

215,145(3,977)(3,939)207,376

222,567

Accumulated othercomprehensive income

992

856

Revaluation reserve forland(2,248)24,73025,207

Remeasurements ofdefined benefit plans

(106)

1,926

(5)

(4)

Total accumulated othercomprehensive income
Share acquisition rights

41,79142,420Total non-current assets

114,265

126,230

308,528

325,768

47

7,414

6,435

2,225

SUNDRUG CO., LTD. Integrated Report 2022

475,760

492,228

Gross profit

158,550

156,506

Provision for point card certificates

325—

Salaries, allowances and bonuses

44,47846,514528

600

Rent expenses

25,97427,578Other49,89647,762

Total selling, general and administrative expenses

121,204

122,454

37,34534,052

Interest income

125

122

Dividend income

56Commission income

99

70

Subsidy income

9633

Gain on receipt of donated non-current assets

345

301

Other

216

159

Total non-operating income

890

693

Interest expenses

6

9

Other

0

0

Operating profit

Total net assets
Total liabilities and net
assetsNon-operating expenses

Total non-operating expenses

7

10

38,22834,734Gain on sale of non-current assets

119

290

Insurance claim income

36—

Penalty income

5—Compensation income

951

National subsidies

73

114

Extraordinary income

Valuation difference on
available-for-sale securities

Total investments andother assets

Total assets

Capital surplus

16

Investments andother assets

Cost of sales

Ordinary profit

Intangible assets
Goodwill

648,734

Non-operating income

Accumulated
depreciation

67,169634,310Retirement benefit expenses
Contract liabilities

Retirement benefit liability

Accumulated
depreciation

Total property,
plant and equipment

67,029Non-current liabilities

Property, plant andequipment

Other

Income taxes payable

65,297

199,537

Non-current assets

Net sales

Selling, general and administrative expenses
Accounts payable - trade

Land(Million yen)

As of March 31, 2021 As of March 31, 2022

Liabilities

Buildings and structures

Consolidated Statements of Income

Financial and corporate data

As of March 31, 2022

AssetsRaw materials andsupplies

Sustainability strategy andgovernance structure to support
value creation

For the fiscal year For the fiscal year
As of March 31, 2021

Merchandise

Specific strategies for value
creation59(2,295)75
205,156

56(1,940)(120)(2,003)
28
220,592

Other

10

3

Total extraordinary income

255

459

Extraordinary losses
Loss related to infectious disease

581—

Loss on sale of non-current assets

15

58

Loss on retirement of non-current assets

92

143

Loss on cancellation of rental contracts

158

147

Impairment losses

229

110

Loss on tax purpose reduction entry of non-current assets

54

29

Other

163

28

1,295

519

Profit before income taxes

Total extraordinary losses

37,18834,675

Income taxes - current

12,338

10,738

Income taxes - deferred

(479)

83

Total income taxes

11,85910,821

Profit25,32923,853

Profit attributable to non-controlling interests
308,528

325,768

Profit attributable to owners of parent——

25,32923,853SUNDRUG CO., LTD. Integrated Report 2022

48

Financial and cor porate data

Consolidated Statements of Comprehensive Income

Profit(Million yen)

For the fiscal year

For the fiscal year

ended March 31, 2021

ended March 31, 2022

25,32923,853

28

(2)

1,011

308

20

(13)

Other 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

1,060

292

26,39024,14526,39024,145——Comprehensive income attributable to non-controlling interests

Consolidated Statements of Cash Flows

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
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
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
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
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

49

SUNDRUG CO., LTD. Integrated Report 2022

Financial and corporate data

Company information
Company
name

SUNDRUG CO., LTD.

Headquarters

1-38-1 Wakamatsucho, Fuchu, Tokyo 183-0005, Japan

Established

April 1965

Capital¥3,931.2 million

Representative

Hiroshi Sadakata, President and Representative Director

Number of
employees

7,450 (including part-time; as of March 31, 2022)

Group
companies

Seikodo Pharmacy Corporation,
Sundrug Plus Co., Ltd.,DIREX CORPORATION,
Daiya Inc.
(Special-purpose subsidiary) SUNDRUG Dream Works Co., Ltd.
(Franchise store) Ichiyamamart Corporation

Description ofbusiness

Drugstore chain operation
Dispensing pharmacy operation
Product provision and business guidance to franchise and voluntary chain stores, etc.

Business sites

748 directly-managed stores, 64 franchise stores, 46 distribution centers nationwide (as of March 31, 2022)

Comprehensive income attributable toComprehensive income attributable to owners of parent

Sustainability strategy andgovernance structure to support
value creation

Specific strategies for value
creation

Value creation by SUNDRUG(Million yen)

For the fiscal year

For the fiscal year

ended March 31, 2021

ended March 31, 2022

37,188
8,663
229
54
124
(16)
325
—
(131)
6
(73)
92
(3,604)(3,582)
(16)
603
273
51
1,306
1,841
43,3366(0)(11,655)73
31,761

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
44,64510(0)(13,083)
114
31,682(15,817)
(658)
(844)
62
(1,456)605
207(17,901)(18,825)(964)(1,248)60(1,177)803
694(20,659)(8,064)——(8,064)
5,795
80,69986,495(8,187)(0)0(8,187)2,835
86,49589,330Stock information
Status of stock (as of March 31, 2022)

Ownership and distribution of shares
Securities companies

Number of shares authorized

536,000,000 shares

119,331,184 shares
Number of shares issued(including treasury shares)
17,430

Number of shareholders

Financial
institutions
19.80%

Other Japanese corporations
37.36%

2.30%

Foreign institutions
and individuals
29.55%

Individuals and others 10.99%

Major shareholders (top 10)
Name of shareholders

Number of shares held
(thousands)

Shareholding ratio(%)

IRYUSHOJI CO., LTD.

43,776

37.44

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

14,124

12.08

Custody Bank of Japan, Ltd. (Trust Account)

4,913

4.20

Naoki Tada

3,112

2.66

BBH for Fidelity Low-Priced Stock Fund

2,936

2.51

Takashi Tada

2,200

1.88

The Chase Manhattan Bank, N.A. London S.L. Omnibus Account

1,809

1.55

JPMorgan Chase Bank 385632

1,797

1.54

OM02 State Street 808424 Client Omni

1,568

1.34

JPMorgan Chase Bank 385047

1,508

1.28

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

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

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

SUNDRUG CO., LTD. Integrated Report 2022

50