CREATE SD HOLDINGS CO.,LTD.

The Company operates 787 drugstores, 38 specialized dispensing pharmacies, and 6 supermarkets (831 stores in total as of May 31, 2025), and is pursuing store expansion through a dominant strategy. However, competition for new store locations is intensifying, not only with other companies in the same industry but also with other retailers. If store openings cannot proceed as planned due to delays in negotiations, this may affect the earnings outlook. Although the Company makes store opening decisions with an emphasis on investment payback periods and profitability, the competitive environment continues to become more severe.

Under the Pharmaceuticals and Medical Devices Act and the Pharmacists Act, the placement of pharmacists or registered sales clerks at stores is legally required for the sale of pharmaceuticals and dispensing operations. The recruitment and retention of pharmacists and the training of registered sales clerks have become important challenges across the industry, and the availability of personnel may directly affect future store expansion plans. In particular, as the Company pursues a policy of expanding stores with attached dispensing pharmacies (417 stores), a shortage of pharmacists could become a constraining factor on business growth.

The continuation of the Group's main businesses requires permits under the Pharmaceuticals and Medical Devices Act as well as permits, licenses, and registrations from relevant government authorities. If the Pharmaceuticals and Medical Devices Act is amended in the future, or if any permit, license, or registration is revoked for any reason, the Group's main business activities could be disrupted, potentially causing a material impact on its business performance. Maintaining a legal compliance system is a prerequisite for business continuity.

Regulations on pharmaceutical sales have been progressively relaxed, including the introduction of the registered sales clerk system in 2009, the lifting of the ban on internet sales of OTC drugs in 2014, and the abolition of the “half rule” in 2021. From 2025 onward, major regulatory changes are planned, including changes to the sales methods for over-the-counter drugs, restrictions on sales to young people, and the lifting of the ban on outsourcing dispensing operations. If competition with other industries intensifies as sales deregulation progresses, this may affect the Group's business performance.

As the Company expands stores with attached dispensing pharmacies, the number of prescriptions filled is planned to increase, raising the risk of dispensing errors or defective medications occurring. The Company has introduced a dispensing operation audit system at all stores to prevent errors and has taken out “Pharmacist Liability Insurance” at all stores as a precaution. However, if litigation or administrative penalties occur, damage to social credibility may affect business performance. The Company also continuously provides pharmacist education at its dispensing training center.

Revenue from dispensing operations consists of income from pharmaceuticals and income related to dispensing technical fees, both of which are calculated based on official prices (drug pricing standards and dispensing fee points) stipulated under the Health Insurance Act. Revisions to drug pricing standards, etc. are expected to continue to be implemented periodically, and depending on the content of such revisions, this may directly affect the profitability of the dispensing segment. For the Group, which is promoting the expansion of stores with attached dispensing pharmacies, trends in official pricing are an important factor affecting business performance.

The Group handles a wide range of personal information through dispensing, nursing care, point card, and other services, and the social impact of any information leakage would be significant. In addition to strengthening computer system security, establishing a customer data management system, and continuously providing employee training, the Company has taken out “Personal Information Leakage Insurance” to address such risks. However, if information leakage occurs due to unavoidable system trouble caused by external factors or human error, the Group may face social sanctions, which could affect its business performance.

The Group is actively pursuing investments and business expansion, including M&A, into new businesses with the aim of creating synergies with its existing businesses. Although thorough investment analysis and due diligence are conducted in advance, unexpected outcomes may affect business performance. In addition, if impairment losses are recognized in the future under impairment accounting for fixed assets, this could adversely affect the Group's operating results and financial position.

If a natural disaster such as an earthquake or typhoon occurs in an area including the Company's stores or facilities and causes physical damage, sales, distribution, and procurement activities may become difficult depending on the extent of the damage, potentially affecting business performance. For the Group, which operates 831 stores across a wide area, a large-scale disaster in a specific region carries the risk of simultaneously affecting multiple stores. The annual securities report does not include specific details of a business continuity plan (BCP).

There are concerns over rising energy and raw material prices associated with the intensifying U.S.-China conflict, the war in Ukraine, and the situation in the Middle East, which may affect the Group's procurement costs and store operating costs. In the drugstore and supermarket businesses, an increase in merchandise procurement costs could directly pressure profitability.