HALOWS CO.,LTD.

The Company continues its plan to expand its store network primarily in Hiroshima, Okayama, Kagawa, Ehime, Tokushima, Hyogo, and Yamaguchi prefectures, but if properties matching store opening conditions cannot be found or if various conditions change, there is a possibility that planned store openings will need to be revised or development costs will increase. In addition, new store openings and renovations/expansions exceeding 1,000 square meters of sales floor space are required to be reported under the "Act on the Measures by Large-Scale Retail Stores to Preserve the Living Environment," and changes in review status or regulatory changes may also affect business performance and financial condition. The Company only opens stores at properties that satisfy certain conditions, such as investment payback period and expected profit, based on surveys of location conditions, surrounding population, and profitability.

The Company, which mainly operates food supermarkets, has strong ties with individual consumers and is susceptible to declines in consumer purchasing power due to economic deterioration and fluctuations in sales of seasonal products due to weather factors. Intensifying competition due to entry by competitors or changes in business formats, and deteriorating profitability due to rising procurement costs, may also affect business performance and financial condition. Furthermore, the occurrence of issues that shake food safety, such as food poisoning, avian influenza, and food mislabeling problems, carries the risk of reducing consumer purchasing intent.

The Company pays strict attention to hygiene management, freshness management, temperature management, and labeling management under regulations such as the "Food Labeling Act," and conducts on-site inspections of contracted manufacturing plants and random sampling inspections of in-store products. However, if events beyond the scope of these efforts (such as food poisoning or foreign object contamination) occur, there is a possibility of a significant impact on business performance and financial condition. Although the Company also strives to thoroughly instill hygiene management awareness among employees based on manuals, complete elimination of such risks is difficult.

The Company actively promotes the development of private brand (PB) products and strictly manages quality based on the basic concepts of "appropriate quality," "low price," and "safety, security, and health." However, if products no longer meet consumer needs, or if an accident attributable to a PB product occurs, this could lead to a loss of trust in the Company and sluggish sales, potentially affecting business performance and financial condition. It should be noted that since PB products are directly linked to the Company's brand, the scope of impact when problems occur is broad.

In addition to the personal information of officers, employees, customers, and business partners, the Company has also handled specific personal information (My Number) since January 2016, and bears a duty of safety management under the "Act on the Protection of Personal Information" and the "Number Utilization Act." Although the Company has taken measures such as developing various regulations, raising employee awareness, and strengthening security, if an information leak occurs, it may lead to a decline in social credibility and claims for damages, potentially affecting business performance and financial condition.

The Company is working to build a safety management system for its information systems, but if software or hardware failures occur due to natural disasters or external cyberattacks, this could disrupt store operations and affect business performance and financial condition. Similar risks may also arise if the technical capabilities or profitability of outsourcing partners responsible for critical infrastructure such as logistics and product supply significantly deteriorate, or if it becomes difficult to continue contracts with them.

Amid a tightening labor market due to a declining working population and intensifying competition for hiring among companies, the Company is strengthening efforts to create a comfortable working environment and improve treatment for employees. However, if labor costs increase significantly due to revisions to hourly wages, base salaries, or changes in the social insurance system, this could affect business performance and financial condition. Given the nature of the food supermarket business, which employs a large number of part-time employees, the Company's structure is susceptible to the effects of minimum wage increases.

The Company positions the recruitment and training of excellent personnel as one of its most important issues, and has established incentives such as promotion systems, performance evaluation systems, and bonus systems, as well as various training programs. However, if unexpected changes in the external environment prevent the Company from securing and training personnel, this could lead to a revision of store opening plans and a decline in store management levels and product competitiveness, potentially affecting business performance and financial condition. Securing a broad range of personnel, including part-time employees, is a prerequisite for business expansion.

Since the Company concentrates its store openings in certain regions (Chugoku, Shikoku, and part of Kinki), if a natural disaster such as an earthquake or typhoon occurs, a large number of stores could be damaged simultaneously. In addition, if distribution and procurement of products become difficult due to transportation disruptions caused by disasters or the effects of radioactive materials, this could also affect business performance and financial condition. It should be noted that the region-concentrated store opening strategy has limited risk diversification.

The Company is working to prevent the spread of infectious diseases through thorough public hygiene measures at its stores, distribution centers, and head office, and believes that its large stores centered on the 600-tsubo format and 24-hour business format are suitable for preventing the spread of infectious diseases. However, if various infectious diseases spread domestically, this could affect business performance and financial condition through store closures, dysfunction of the head office and distribution centers, disruption of distribution and procurement activities, deteriorating performance of tenants, and reputational risk that reduces consumer purchasing intent.