FALCO HOLDINGS Co., Ltd.

The Clinical Laboratory Testing Business requires licenses and permits such as registration as a sanitary testing facility and registration as a manufacturer/marketing authorization holder of in-vitro diagnostic pharmaceuticals under the Act on Clinical Laboratory Technicians, etc. If business suspension or revocation results from a violation of laws or regulations, it could have a material impact on the Group's business results and financial position. Risk is being mitigated by having each responsible department regularly confirm the status of licenses and permits and obtain information on relevant legal amendments at an early stage.

The Dispensing Pharmacy Business requires multiple licenses and permits, including pharmacy establishment permits, designation as an insurance pharmacy, and narcotics retailer licenses, based on the Act on Securing Quality, Efficacy and Safety of Pharmaceuticals, Medical Devices, etc. and the Health Insurance Act. If business suspension or revocation results from a violation of laws or regulations, it could affect the Group's business results and financial position. This is addressed through management of license expiration dates and early awareness of regulatory amendment information.

Medical service fee points related to clinical laboratory testing are determined by the Ministry of Health, Labour and Welfare, and annual reductions have become customary. If medical service fee points are further reduced due to future amendments to the Health Insurance Act, this could directly affect the performance of the Clinical Laboratory Testing Business. As a countermeasure, the Group continuously works to obtain early information on legal amendments and strengthen its revenue base by restructuring its testing and sales systems.

Drug prices and dispensing fees related to the Dispensing Pharmacy Business are determined by the Ministry of Health, Labour and Welfare, and reductions resulting from amendments to the Health Insurance Act could affect business performance. Risk is being mitigated through continuous efforts to reduce pharmaceutical purchase prices and improve store operation efficiency. As with medical service fees, early response to institutional reforms is key to maintaining revenue.

When incidents caused by cyberattacks occur while using operational systems, information networks, cloud services, etc., information leakage, data corruption, system outages, and other issues could significantly affect business activities, financial position, and business results. Although measures such as access authority management, endpoint monitoring, vulnerability management, and evaluation by external experts are implemented, it is recognized that avoiding all risk is difficult due to the increasing sophistication of cyberattacks. In the event of a major incident, mid- to long-term corporate value could also be affected.

The Clinical Laboratory Testing Business and Dispensing Pharmacy Business handle a large amount of personal and customer information, and if an information leak occurs, it could affect business results and financial position due to loss of trust and liability for damages. The Group continuously implements a Personal Information Protection Policy and Information Security Policy, appropriate supervision of outsourcing partners, and education and training for all officers and employees.

If testing errors occur in clinical laboratory testing or dispensing errors occur at dispensing pharmacies, this could affect business results and financial position due to loss of trust and liability for damages arising from litigation. The Group mitigates this risk through a quality control system based on standard operating procedures in clinical laboratory testing and by introducing a dispensing error prevention system at dispensing pharmacies.

If the value of held fixed assets declines significantly or the profitability of stores, etc. declines, the application of impairment accounting could affect business results and financial position. In addition, if the market value of securities with market prices declines significantly, the difference from the acquisition cost must be recorded as a loss for the current period, and impairment processing due to a decline in the excess earning power of subsidiary shares acquired through corporate acquisitions, etc. could also affect financial position.

The Group may plan business expansion through investments, including corporate acquisitions and capital participation, but there is no guarantee that the expected profits or synergy effects will be obtained. Additionally, consolidation of subsidiaries carried out to strengthen competitiveness could affect the financial position. Regarding deferred tax assets, if business results deteriorate significantly, it may be determined that there is no prospect of recovery, requiring a write-down.

If large-scale natural disasters such as typhoons or earthquakes, or serious industrial accidents or equipment accidents occur, operations at each business site could be disrupted, affecting business performance. Although a system has been established to immediately set up a response headquarters in the event of a natural disaster, it is difficult to completely eliminate the impact on business continuity.