Watahan & Co.,Ltd.

Interest-bearing debt reached ¥29,550 million as of March 31, 2026, with capital expenditures such as home center expansions being funded through financial institution borrowings. While relations with financial institutions are currently favorable, a sharp deterioration in operating results or fluctuations in financial conditions that disrupt fundraising, or a rise in interest rates, could materially affect the financial position and operating results. As the Group plans continuous capital investment, managing debt levels remains an important issue.

There is a risk that goodwill recorded through M&A aimed at business strengthening and expansion may need to be recognized as impaired, along with shares of affiliated companies, if post-acquisition performance diverges from the future plans anticipated at the time of acquisition due to deterioration in the external business environment or other factors. Specifically, impairment occurs when the total undiscounted future cash flows fall below the book value of goodwill, or when the substantial value—reflecting net assets per share or excess earning power—declines by 50% or more compared to acquisition cost. As a countermeasure, the performance of each Group company is monitored monthly and compared against future plans, but complete avoidance of this risk is difficult.

In the multi-store retail business, fixed assets are recorded on a store-by-store basis, creating a risk that impairment losses will need to be recognized if profitability declines due to changes in the trading area environment, intensified competition, or significant declines in market prices. Monthly financial results are used to monitor trends in sales, customer count, average spend per customer, and items purchased per customer, with close attention paid to individual store profit and loss, and improvement measures are implemented in a timely manner for stores showing deterioration; however, unforeseen environmental changes may not be fully addressed. Risks also exist of failure to recover capital expenditures associated with store openings and closures, and of non-refund of security deposits.

In the retail business, in addition to competition from other home centers pursuing large-scale store openings, cross-format competition from supermarkets, drugstores, and others is intensifying. While the Watahan Group employs a dominant strategy centered on Nagano Prefecture, an increase in entries by competitors and different business formats into its operating areas could reduce sales and profitability at existing stores. Intensified competition affects both customer count and average spend per customer and is also linked to fixed asset impairment risk.

In the construction business, there is a risk that rising prices of building materials such as construction steel and cement, along with increased outsourcing costs due to difficulty securing skilled workers, will push up construction costs. Where such increases cannot be passed on through contract pricing, profitability is directly squeezed, and unprofitable construction projects may arise when additional costs occur due to design changes or fluctuations in raw material prices. Although income and progress are managed on a per-project basis through monthly meetings, revenue recognition based on construction progress involves accounting estimation uncertainty, meaning risk remains when underlying assumptions change.

The Company operates CAD centers in Myanmar, China, and Vietnam, and handles imported goods and manufacturing outsourcing from various countries, exposing it to country risk arising from regulatory or legal changes by foreign governments and political or economic instability. Although avoidance measures are implemented on a case-by-case basis, complete avoidance is not possible, and if such risks materialize, business continuity and procurement could be disrupted, potentially affecting the financial position and operating results. In particular, political instability in Myanmar remains an ongoing concern.

The trading business primarily conducts import transactions denominated in foreign currencies, exposing it to foreign exchange fluctuation risk. Efforts are made to mitigate this risk through hedging transactions using derivatives such as forward exchange contracts, but there is no guarantee that hedges will function perfectly against unexpected market movements, and a weaker yen could increase import costs, potentially affecting the financial position and operating results. Combined with the risk of dependence on specific countries and suppliers for procurement, this poses a challenge to the earnings stability of the trading business.

The retail business is subject to laws such as the Large-Scale Retail Store Location Act and the Food Sanitation Act; the construction business is subject to the Construction Business Act and the Building Standards Act; and the trading business is subject to the Pharmaceutical and Medical Device Act, among a wide range of applicable regulations across businesses. If a violation of law is determined, there is a risk of penalties such as revocation of licenses or business suspension, and responding to future enactment or revision of laws may also entail additional costs. Although compliance management is treated as a top priority with a compliance framework in place, the complexity of managing across multiple businesses and multiple laws remains a challenge.

As business expands, securing and developing talented personnel has become an urgent priority, and recruitment difficulties may persist against a backdrop of the declining birthrate and intensifying competition in the labor market. While the Company addresses this through active recruitment and enhanced internal training programs, insufficient recruitment and development of personnel could lead to declines in operational quality and lost growth opportunities across businesses such as store operations, construction sites, and trading operations, potentially affecting the financial position and operating results.

In the event of a large-scale disaster such as a major earthquake or wind and flood damage, or an outbreak of a severe infectious disease, there is a risk that asset damage or human casualties could make it difficult to continue normal business activities. Because the Company employs a dominant strategy centered primarily on Nagano Prefecture, there is also a concentration risk that multiple stores and sites could be simultaneously affected in the event of a large-scale disaster in a specific region. The status of business continuity plan (BCP) preparation is not specifically described in the securities report, and details of countermeasures are unknown.