RETAIL PARTNERS CO., LTD.

In the areas where the Group operates stores, competition transcending business formats—among major and regional food supermarket chains as well as discount stores, drugstores, convenience stores, and EC operators—is intensifying, creating a risk that the opening of competing stores within a trading area will reduce existing-store profitability. Numerous openings of competing stores within trading areas are planned going forward, and in some areas the impact is already being observed. As a countermeasure, under the Third Medium-Term Management Plan (FY2025 (ending February 2025) to FY2027 (ending February 2027)), the Group has set forth "growth strategy" and "strengthening competitiveness" as basic strategies, and is pursuing proactive growth investment to strengthen existing areas as well as area expansion and the rollout of new services.

The Group is subject to a wide range of legal regulations, including the Basic Act on Food Safety, the Food Sanitation Act, the JAS Act, the Food Labeling Act, the Act against Unjustifiable Premiums and Misleading Representations, and the Antimonopoly Act, and costs may arise in responding to legal amendments. If a regulatory authority identifies a violation, the Group may be subject to administrative dispositions such as business suspension or penalties, and this could affect its financial position and business results through a decline in social credibility and the occurrence of damages compensation costs. As countermeasures, the Group has established the "Group Corporate Code of Conduct" and "Compliance Regulations," works together with retained legal counsel, and operates an internal whistleblowing system to strive for early detection and prevention.

Kyushu, the Group's main area of store operations, is a region prone to frequent natural disasters such as typhoons, torrential rain, and earthquakes, and the Group has in the past experienced loss of merchandise, damage to stores and facilities, and business suspension affecting multiple stores over a wide area. In the event of a large-scale disaster, damage to store facilities or system outages could halt operations, and disruption to the logistics network could impede procurement plans, potentially affecting the Group's financial position and business results through reduced profitability at affected stores and the incurrence of recovery costs. As a countermeasure, each operating company has established a system centered on its General Affairs Department and Store Operations Department to assess damage conditions, and is advancing the concretization of business continuity plans.

As of February 28, 2025, the balance of interest-bearing debt was ¥13,618 million (interest-bearing debt dependency ratio of 10.7% of consolidated total assets), exposing the Group to interest rate fluctuation risk. In a future rising interest rate environment, borrowing costs would increase, putting pressure on management, and if an economic downturn or decline in creditworthiness were to occur, fundraising itself could become difficult. As countermeasures, the Group is working to reduce bank borrowings and, under the Third Medium-Term Management Plan, is considering strengthening its financial base and diversifying its fundraising methods.

The Group holds numerous assets, including tangible fixed assets such as stores and land, goodwill, and securities, and recorded an impairment loss of ¥274 million on tangible fixed assets in the current consolidated fiscal year. If store profitability deteriorates or the market value of held assets declines significantly, additional impairment losses may be recognized, and it is recognized that there is a considerable degree of possibility that this could affect the Group's financial position and business results. As a countermeasure, the Group regularly reviews the value of its held assets and plans and implements individual profitability improvement measures for stores with declining profitability.

With the advancement of IT adoption in society, security damage from cyberattacks and similar threats has tended to increase both in frequency and in cost, and the Group also recognizes cyber risk as a critical management issue that could have a serious impact on its operations. In the event of an incident, business operations could be suspended and opportunities lost due to system outages, customer and business partner trust could decline, damages compensation could arise, and costs for security enhancement and system remediation could be incurred, potentially affecting the Group's financial position and business results. As countermeasures, in addition to security measures such as antivirus software, the Group is advancing the establishment of a unified information security policy across the Group and the development of specific response procedures for when incidents occur.

The Group handles a large amount of customers' personal information, including card member information, through its real estate business, insurance agency business, and merchandise order operations, and legal regulation has been strengthened under the amended Act on the Protection of Personal Information, which came into full effect in April 2022, including mandatory reporting obligations and harsher penalties in the event of a leak. If a personal information leak occurs due to internal management issues or a cyberattack or unauthorized access, this could affect the Group's financial position and business results through the incurrence of response costs, significant damage to social credibility and corporate image, and decreased revenue and damages compensation. As countermeasures, the Group has established a Personal Information Protection Committee, developed personal information protection regulations and a leak-response manual, and reviewed its privacy policy.

The Group manufactures, processes, and sells food products at its stores and process centers, and is obligated to implement sanitation control in accordance with the Food Sanitation Act and HACCP. If consumer trust in food safety and quality declines due to the occurrence of food poisoning or the presence of foreign objects in products, sales in the food division, including fresh food, could decline, potentially affecting the Group's financial position and business results. As countermeasures, the Group has created sanitation control manuals and conducts employee training, and has established store sanitation control plans and work manuals through an HACCP implementation project team.

In its interactions with stakeholders of diverse generations, nationalities, and values, human rights risks such as discriminatory conduct and harassment exist, and if inappropriate conduct by officers or employees occurs, this could lead to a decline in social credibility, employee leave of absence, resignation, and reduced productivity due to a deteriorating work environment, and litigation risk. At present, no significant incidents that have escalated into litigation or the like have occurred, but it is recognized that a certain degree of risk exists given the Group's extensive network of human connections both inside and outside the company. As countermeasures, the Group strives to build a system for prevention and early response by promoting awareness of the "Group Corporate Code of Conduct," establishing harassment prevention regulations and conducting training, and setting up consultation contact points.