TSURUHA HOLDINGS INC.

As a holding company, the Company has a structure in which sharp fluctuations in the performance of group companies, arising from various factors, directly affect consolidated results. There is an inherent risk that deterioration in the operating environment of subsidiaries could spread to the consolidated financial statements. The effectiveness of the holding company's management oversight system is called into question.

Goodwill recorded at each consolidated subsidiary is exposed to potential impairment risk associated with a decline in future excess earning power. If an impairment loss is recognized, it could have a material impact on the consolidated financial statements. Details of the goodwill balance are disclosed in the financial position analysis (fixed assets) section of the securities report.

The sale of pharmaceuticals and other products requires permits, registrations, designations, licenses, and notifications from each prefecture, and food, tobacco, alcoholic beverages, and other products likewise require permits, licenses, registrations, and other approvals under relevant laws and regulations. Future changes to laws and regulations could affect the performance of the Company's group. There is a risk of increased compliance costs and sales restrictions arising from tighter regulation.

Under the Large-Scale Retail Store Location Act, new store openings and changes to existing stores with sales floor area exceeding 1,000 square meters must be reported to the prefectural governor or other relevant authority and are subject to review regarding noise, traffic congestion, waste disposal, and other matters. If legal restrictions prevent the Company's group from opening new stores or expanding existing stores as planned, this could affect the group's store opening policy. There is a risk that execution of the dominant area strategy could be hindered.

Under the provisions of the Pharmaceuticals and Medical Devices Act and the Pharmacists Act, the placement of pharmacists or registered sales clerks of pharmaceuticals is mandatory, and securing such qualified personnel is a key requirement for sales policy. If the Company's group is unable to secure sufficient qualified personnel, this could hinder the opening of new stores and the operation of existing stores, potentially affecting the overall store opening policy. A chronic shortage of pharmacists in the labor market remains an ongoing challenge.

Directors and executive officers, including the Representative Director, play important roles in the management of the Company's group. If a situation arises in which these management executives are unable to perform their duties, it could affect business performance. The establishment of succession planning and authority delegation systems is important from the perspective of management continuity.

The Company's group has implemented measures such as introducing dispensing error prevention systems, confirming drug names and dosages during medication counseling, and enrolling in pharmacist liability insurance at all Dispensing Pharmacy stores. However, if the group is subject to litigation due to defects in dispensed medications, dispensing errors, or other issues, it could damage the group's social credibility and adversely affect business performance. The Group Pharmacy Affairs Department, as the responsible department, is also actively working to improve pharmacists' skills.

The Company's group has adopted a dominant area strategy aimed at improving regional brand recognition and market share while curbing management costs. However, if it becomes difficult to secure store locations or if forming a dominant area takes time, store profitability could deteriorate, affecting business performance. Intensifying competition with other companies over store locations could become an obstacle to executing this strategy.

The Company's group holds personal information, including customer data associated with its point card system and patient data associated with dispensing operations, and manages such information under internal rules established by information managers. If an incident such as a computer malfunction or cyberattack occurs, it could damage the group's social credibility and adversely affect business performance. Given the nature of personal information, the impact of a leak would extend to both customers and patients.

Global climate change may lead to increased costs, such as the introduction of carbon taxes accompanying stricter government environmental regulations, price increases due to rising demand for renewable energy, and higher resource procurement costs. The Company's group supports the TCFD recommendations and manages climate change risk as one of its company-wide risks. Damage to facilities and human casualties at the head office, stores, and distribution centers caused by natural disasters (such as large-scale earthquakes) is also recognized as a risk that could affect business performance.