SATUDORA HOLDINGS CO., LTD.

The Group operates under licenses such as pharmaceutical sales business permits, pharmacy establishment permits, and designation as an insurance pharmacy, and regulatory changes resulting from amendments to laws and regulations directly affect earnings. Deregulation of sales has progressed, including the 2014 liberalization of internet sales of over-the-counter drugs and the 2021 abolition of restrictions on sales hours, lowering barriers to entry from other industries. If further deregulation of sales advances in the future, intensifying competition could affect the Group's earnings.

Dispensing sales are composed of the drug price standard (official pricing) and dispensing fee points, both of which are directly affected by system revisions based on the Health Insurance Act. Various medical system reforms have been continuously implemented in recent years, and further revisions are expected going forward. Depending on the content of such revisions, earnings in the dispensing segment could fluctuate significantly, potentially affecting the Group's overall performance.

The operation of drugstores and dispensing pharmacies legally requires the placement of qualified personnel such as pharmacists and registered sellers, making the recruitment and retention of such qualified personnel a prerequisite for business continuity. If sufficient qualified personnel cannot be secured, store operations could be disrupted, potentially affecting the Group's performance. This is against a backdrop of intensifying competition for qualified personnel in the labor market.

The Group holds customer information through its point card system, patient information associated with dispensing operations, and specific personal information of employees including My Number, encompassing a wide range of sensitive privacy-related information. Should an information leak occur due to computer system trouble or criminal activity, it could lead to damages claims from customers and damage to social credibility. While the Group has established internal management systems to address this, the risk cannot be entirely eliminated.

The Group relies on communication networks and computer systems for core operations such as sales management, product ordering, attendance management, and accounting processing, and any failure would disrupt store operations and management functions broadly. Should system failures or unauthorized access occur in the common point service and electronic payment service provided by the consolidated subsidiary Regional Marketing Co., Ltd., this could lead to economic losses for service users and a decline in the Group's credibility. While the Group addresses this through outsourcing to reliable external data centers, risks from unexpected natural disasters or cyberattacks remain.

The Group procures most of its capital expenditure funds for store openings through borrowings, and the ratio of interest-bearing debt to total assets reached 37.3% at the end of the fiscal year ended May 2025. While the main funding sources are major financial institutions such as regional and city banks with stable business relationships, future interest rate rises could affect performance through increased interest payments.

The Group procures most of its merchandise from wholesalers and manufacturers, and there is a risk that rising raw material and fuel prices could push up procurement costs and pressure earnings. Some private brand products are procured from overseas suppliers, and rising procurement costs due to exchange rate fluctuations could also affect performance. If cost pass-through is difficult, this could lead to lower profit margins.

Natural disasters such as earthquakes, tsunamis, flood damage, and snow damage, as well as the outbreak of infectious diseases, could lead to store closures, delays in product supply, and declines in personal consumption, potentially affecting performance. The Group, with its main base in Hokkaido, has high geographic exposure to snow damage risk. Delays in product supply due to disruption of transportation networks are also a factor affecting performance.

Changes in overseas conditions such as rising anti-Japan sentiment, a downturn in the global economy, and the spread of infectious diseases, as well as large-scale natural disasters within Japan, could lead to a decline in the number of foreign visitors to Japan, resulting in reduced inbound demand. Drugstores are a major destination for inbound consumption, and a decline in demand would directly affect sales. No specific countermeasures by the Group have been disclosed.

In connection with its multi-store expansion, the Group holds numerous fixed assets such as stores, and for stores with declining profitability, impairment accounting must be applied to recognize impairment losses on fixed assets. Recognition of impairment losses could significantly deteriorate performance for the relevant period, with the risk being particularly elevated for stores in areas where competition is intensifying or the trading area population is expected to decline.