SHIP HEALTHCARE HOLDINGS,INC.

The Total Pack Produce Business and Medical Supply Business are subject to regulation under the "Act on Securing Quality, Efficacy and Safety of Pharmaceuticals, Medical Devices, Regenerative and Cellular Therapy Products, Gene Therapy Products, and Cosmetics." If grounds for revocation of permits or filings arise, this could materially affect core business activities and results of operations. The nursing care, meal service, and dispensing pharmacy businesses are also subject to multiple laws and regulations, including the Long-Term Care Insurance Act, the Medical Care Act, and the Food Sanitation Act, and face risks whereby revocation of licenses or administrative sanctions would directly impact business continuity. While each business is working to establish a legal compliance framework, delays in responding to regulatory changes could have wide-ranging effects.

Reductions in prices of specified insured medical materials could affect the performance of the Medical Supply Business, and in the Dispensing Pharmacy Business, revisions to medical fees, drug prices, and reimbursement amounts due to medical fee schedule revisions could affect store opening plans and business results. Healthcare system reforms are continuously implemented as a matter of policy, and if price pass-through does not proceed sufficiently, this could lead to a decline in profitability. The Group is working to improve the efficiency of its management framework through function consolidation within the Group.

The balance of interest-bearing debt at the end of the current fiscal year under review was ¥31,896 million, and interest-bearing debt may increase further in connection with future investment plans, including M&A. If fundraising conditions are unfavorable to the Group, this could constrain business expansion. The opening of new facilities in the Life Care Business also requires substantial capital expenditure, and if fundraising becomes difficult, this could significantly hinder business development.

The Group holds fixed assets such as leased assets, rental real estate, buildings, land, lease assets, and goodwill. If a decline in market prices or changes in the external environment result in lower estimates of future cash flows, impairment losses may need to be recognized, potentially affecting operating results and financial position. As this includes goodwill acquired through M&A, deterioration in the performance of subsidiaries increases impairment risk. The Group continuously monitors the fair value and recoverability status of held assets and thoroughly verifies investment plans at the time of acquiring fixed assets.

The Group positions M&A as one means of business expansion, and substantial funds may be required for this going forward. If the anticipated business development or contribution to performance is not achieved after a company becomes a subsidiary, this could adversely affect business results. The Group addresses this through risk identification and price negotiation via due diligence prior to M&A, deliberation by the Board of Directors, and strengthening of Group collaboration and thorough performance management after a company becomes a subsidiary.

Securing specialized personnel is a prerequisite for business expansion in each business, including consulting personnel for the Total Pack Produce Business, care workers for the nursing care service business, registered dietitians and cooks for the meal service, and licensed pharmacists for dispensing pharmacies. If securing and developing personnel as planned is hindered, or if enrolled personnel leave for outside opportunities, this could lead to a decline in the quantity and quality of services and constrain business expansion. Each business is working to establish recruitment and training systems.

The Group handles highly private personal information, such as patient information and customer information held by medical institutions. In the event of a leak, business results could be affected by substantial damages payments, administrative sanctions, and loss of social credibility. In the development of Medical Information Systems, there is also a risk of computer virus infection, and if responses to new types of viruses are not fully adequate, the Group could face claims for damages resulting from the spread of infection to client medical institutions. The Group has implemented security measures through system construction, but technological threats are constantly evolving.

In the Total Pack Produce Business, schedule delays, changes, or cancellations of large-scale projects could adversely affect business results, and there is a tendency for sales recognition to concentrate from January to March due to the budget execution timing of medical institutions and other clients, creating a risk of seasonal skew in performance. There are limits to the assignment of dedicated personnel required for large-scale projects, which could constrain business expansion. The Group is working to gather information on trends in relocation, new construction, and renovation/expansion of medical institutions and to secure and develop dedicated personnel.

Client medical institutions face potential bad debt risk due to recent healthcare system reforms and changes in the external environment, and given the life-critical nature of their operations, it may be difficult to suspend or reduce transactions with them. In addition, the Group may provide economic support to business partners, such as fund lending or deferred payment installments for construction fees, and if the counterparty experiences difficulty repaying funds, this could affect operating results and financial position. The Group addresses this through strengthened credit and receivables management, but the difficulty of suspending transactions unique to medical institutions is a factor that heightens this risk.

In the event of a natural disaster such as a large-scale earthquake, an accident such as a fire, or an outbreak of an infectious disease such as novel coronavirus, damage to the head office, sales offices, warehouses, factories, or stores, or difficulty for employees to work, could disrupt ordinary business operations. Sales and procurement activities could also stagnate due to the impact on client and supplier medical institutions, potentially leading to inventory buildup and delayed collection of receivables. If business activities are restricted due to requests or guidance from government authorities, this could affect economic activity broadly.