SUGI HOLDINGS CO.,LTD.

In addition to the introduction of the registered distributor system and the liberalization of internet sales of OTC pharmaceuticals, relaxation of sales-hour restrictions and liberalization of remote-management sales are under consideration, raising concerns about intensifying competition from new entrants from other industries. Progress in deregulation could affect the business performance of the Group. As a countermeasure, the Group is working to strengthen high-value-added customer service through the development of specialized personnel such as pharmacists and registered distributors, and to expand its e-commerce channels.

The Group's dispensing pharmacy sales are calculated based on the "drug price standards" and "dispensing remuneration points" under the Health Insurance Act, and any negative revisions would directly affect sales and profit. As a countermeasure, in line with the "Vision for Patient-Centered Pharmacies" presented by the Ministry of Health, Labour and Welfare, the Group is promoting centralized management of medication information, 24-hour response, home-visit services, cooperation with medical institutions, health support functions, and advanced pharmaceutical management functions.

Because dispensing operations involve the handling of prescription pharmaceuticals, any dispensing error could cause health damage to patients and, through a loss of social trust, could have a material impact on the Group's business performance. As a countermeasure, the Group conducts training to improve pharmacists' competency, ensures compliance with operational manuals, and thoroughly implements dispensing inspection systems, while building a risk management framework through the establishment of a Risk Committee.

If unauthorized access from outside parties, computer virus attacks, or information leakage by employees or related parties were to occur, this could affect the Group's business performance and social credibility. As a countermeasure, the Group has established an Information Security Committee within the Sustainability Committee, an advisory body to the President and Representative Director, to strengthen Group-wide information collection and management systems and to analyze, evaluate, and address risks.

If store and logistics facilities are damaged by temperature changes due to climate change or by large-scale disasters, this could affect the Group's business performance through constraints on operations and sales as well as impacts on merchandise procurement. As a countermeasure, the Sustainability Committee continuously analyzes, evaluates, and addresses risks related to climate change.

If store profitability declines due to intensifying competition or unexpected changes in trading areas, impairment processing under the "Accounting Standards for Impairment of Fixed Assets" may become necessary, which could affect the Group's business performance through the recognition of extraordinary losses. The Group operates a large number of stores, and a structure exists whereby deterioration in the profitability of individual stores is directly linked to impairment risk.

Changes in the international situation could cause sharp increases in energy and raw material prices, which may affect the energy costs used by the Group and the procurement costs of merchandise sold. There is also a risk that a shortage in the supply of scarce resources could delay equipment installation and new store openings, hindering the execution of growth strategies. As a countermeasure, the Group is promoting low-cost management, securing planned inventory, and diversifying procurement sources and methods to disperse risk.