cawachi limited

New store openings or floor space expansions exceeding 1,000 sqm require notification to the prefectural governor under the Large-Scale Retail Store Location Law, along with examination of noise, traffic congestion, waste disposal, and other factors. The Group's policy is to actively pursue new store openings exceeding 1,000 sqm, but depending on the progress of examinations, store opening plans may be changed or delayed. The Group strives to comply with laws and regulations while coordinating with local residents and municipalities.

Business operations are premised on permits and registrations from prefectural governors or public health centers, including pharmacy establishment permits, retail drug store business permits, and permits for the sale of highly controlled medical devices. Related laws such as the Food Sanitation Act and the Long-Term Care Insurance Act also require permits, licenses, or registrations from relevant government authorities, and future legal amendments could affect business performance. The Group operates its business in compliance with relevant laws and regulations.

The June 2014 amendment to the Pharmaceutical Affairs Act effectively permitted online sales of over-the-counter drugs, and further deregulation of sales using information and communication technology is under consideration. As deregulation progresses, competition from new entrants from other industries and online retailers may intensify further, potentially affecting the Group's store operations. Specific countermeasures against changes in the competitive environment are not explicitly stated in the securities report.

Under the Pharmaceuticals and Medical Devices Act, the sale of pharmaceuticals requires the assignment of pharmacists or registered sales clerks, and securing pharmacists is essential for dispensing pharmacies. If qualified personnel cannot be secured as the number of stores expands and dispensing pharmacies attached to stores increase, this could lead to shortened business hours or affect store opening plans. The Group addresses this through active recruitment activities and in-house training of registered sales clerks.

Errors in dispensing operations could lead to harm to patients' health and have a material impact on the Group's business performance and credibility. The Group strives to prevent such errors by establishing guidelines, procedure manuals, and guidance at each store, utilizing inspection systems, and building a support system for dispensing operations; additionally, all dispensing pharmacy stores carry pharmacist liability insurance. Nevertheless, should a dispensing error occur, an impact on business performance would be unavoidable.

Dispensing sales consist of dispensing technical fees, pharmaceutical management fees, and drug charges, all of which depend on the dispensing fees and drug prices set by the Ministry of Health, Labour and Welfare. Ongoing phased revisions aimed at curbing national medical expenses directly affect the Group's business performance through changes in fee schedules. The Group seeks to mitigate this risk by strengthening calculation of dispensing technical fees and pharmaceutical management fees, but the impact cannot be entirely avoided depending on the content of revisions.

As a business handling customers' and patients' personal information as well as specific personal information such as My Number, in the event of an information leak, the Group would be obligated to report to the Personal Information Protection Commission and notify affected individuals, and could face damages claims and loss of social credibility affecting business performance. The Group has established a personal information protection framework and implemented countermeasures, but it is difficult to completely eliminate the risk of leakage.

If the value of held fixed assets declines significantly in the future, or if store profitability declines, impairment accounting may need to be applied, requiring impairment losses on fixed assets. Should impairment losses occur, this would affect the Group's business performance and financial condition. No specific countermeasures are described in the securities report.

In the event of natural disasters such as earthquakes or typhoons, or unforeseen large-scale accidents, damage to store facilities or power outages could interrupt operations and affect business performance. The Group regularly updates emergency response manuals and conducts employee training, and based on hazard maps, deploys early-recovery equipment at core stores in each region. However, in the event of a large-scale disaster in areas where the Group operates, the impact cannot be entirely prevented.

Should the spread of a new infectious disease result in restrictions on business operations, this could affect the Group's business performance. Each store implements infection prevention measures such as mask-wearing, placement of alcohol disinfectant, and installation of droplet-prevention curtains to ensure the safety of customers and employees. However, depending on the type and scale of the infectious disease, the effectiveness of such measures may be limited.