DCM Holdings Co., Ltd.

Under the Large-Scale Retail Store Location Act, opening or expanding stores with a sales floor area exceeding 1,000 m² requires notification to local municipalities, and regulations concerning parking capacity, traffic congestion, noise, and environmental issues may prolong the period until store opening. In addition, incidental factors such as delays in securing land due to changes in economic conditions or store openings by competitors may also affect store opening plans. As a countermeasure, the Company proceeds with store openings in compliance with laws and regulations while coordinating with local residents and municipalities, and shares progress status as needed at management meetings, etc.

An increase in abnormal weather events due to climate change may have an adverse effect on the entire business, including the product supply system, and a decline in demand for seasonal products due to adverse weather such as a cool summer or warm winter could be a factor causing sales to fall short of sales promotion plans. As a countermeasure, the Company has built a procurement system involving multiple suppliers and is reviewing product appeal enhancement and timing of product introduction. Furthermore, the Company has expressed its support for the TCFD recommendations, set greenhouse gas emission reduction targets through 2050, and is examining countermeasures at the Sustainability Committee chaired by the Representative Director and President.

Amid intensifying competition not only with companies in the same industry but also with other business formats, changes in customer purchasing behavior resulting from competitors' store openings and the revision and enforcement of related laws and regulations may affect business performance. As a countermeasure, the Company is promoting business strategies centered on existing store reform, pursuit of low-cost operations, building a unique BOPIS Service style, deepening the private brand product development structure, and expanding business areas through M&A. Under the long-term business vision of "transformation into a comprehensive enterprise for making life more comfortable," the Company aims to become an indispensable presence in society.

While all stores are covered by comprehensive insurance covering typhoons, fires, flood damage, etc., the Company has not taken out earthquake insurance after weighing coverage content against premium costs, and thus a large-scale earthquake causing building collapse, etc., could have a material impact on business performance. As a countermeasure, the Company has formulated guidelines and emergency response manuals, established emergency contact networks, introduced a safety confirmation system, and conducts regular drills and stockpiles necessary supplies. In the event of a disaster, an emergency response headquarters is established, and a structure is in place enabling group companies to continue business operations in cooperation with each other.

An outbreak of infectious disease may cause disruption to product supply, employee infection, and forced reductions in store operating hours or temporary store closures. If an outbreak becomes prolonged, the impact on business performance could further expand due to stagnation of economic activity and a chilling of consumer sentiment. As a countermeasure, the Company has prepared response guidelines to enable swift and appropriate action when the risk materializes.

Some of the private brand products under the DCM Brand (Private Brand Products) are supplied from overseas, and disruptions in shipping and other factors may make product procurement unstable. In addition, business performance may also be affected if the Company fails to develop products matching consumer needs. As a countermeasure, the Company is working to reduce risk by reviewing production countries, diversifying production regions, building a procurement system involving multiple suppliers, establishing a product development system that incorporates employee input, and commercializing products only after trial sales in small lots.

The Company applies accounting standards related to impairment of fixed assets, and if assets requiring recognition of new impairment losses arise in the future, this may affect business performance and financial condition. As a group that actively expands stores, the scale of fixed assets held is large, and impairment risk could materialize at stores with declining profitability. As a countermeasure, the Company regularly checks for indications of impairment and, where concerns are anticipated, implements initiatives to improve profitability.

A portion of the Company's purchasing is denominated in foreign currency, and if exchange rate fluctuations occur beyond expectations, this may affect business performance. While the impact of short-term exchange rate fluctuations is considered minor, a sharp yen depreciation phase, for example, could pressure profitability through an increase in procurement costs. As a countermeasure, the Company strives to reduce risk through the use of forward exchange contracts.

If a rapid and substantial rise in interest rates occurs, this may affect business performance and financial condition through increases in interest expense, etc. While the Company has established a structure that can flexibly respond to changes in the financial environment through diversification of funding methods, risk varies depending on the outstanding balance of borrowings at floating interest rates. As a countermeasure, the Company combines fixed and floating interest rates as appropriate when raising funds, striving to limit the impact of market interest rate fluctuations.

When the Company carries out corporate acquisitions, business transfers, capital and business alliances, etc., unforeseen contingent liabilities or unrecognized liabilities may materialize, and if the initially anticipated synergy effects are not achieved, this may affect business performance and financial condition. As a countermeasure, when conducting M&A, the Company carries out detailed due diligence on the target company's business plan, financial condition, real estate, and employment contract relationships, and works to reduce risk by having the Board of Directors, etc., examine identified risks along with the reasonableness of synergy effects and acquisition price.