CHIYODA CO., LTD.

The products handled are subject to various factors such as weather conditions (cool summers, warm winters), changes in fashion trends and customer preferences, and price competition with competitors. If a gap arises between order plans and actual sales results, impairment of merchandise value or valuation losses on inventory due to excess stock may occur, affecting business performance. The Company considers these factors when formulating order plans, but complete avoidance is difficult.

Most of the products handled are produced in Asian countries, including China. Changes in the political situation and legal systems of production countries, sharp fluctuations in exchange rates, large-scale natural disasters, and the spread of infectious diseases such as COVID-19 may affect merchandise procurement and purchase prices. The concentration of production in specific regions carries a risk of vulnerability across the entire supply chain. There is no description in the Annual Securities Report of specific countermeasures such as diversified sourcing.

Since the Company operates stores nationwide, if natural disasters exceeding expectations, such as earthquakes, tsunamis, or river flooding, occur, store operations may be disrupted due to degradation of social infrastructure functions, damage to stores, or contamination of merchandise. In addition, restrictions on business activities due to a resurgence of COVID-19 infections may affect the operation of stores and the head office. These may directly and adversely affect both business performance and financial condition.

The majority of stores are leased properties located along roadsides and within shopping centers, and the Company has provided deposits and guarantee money to landlords upon opening stores, some of which are not refunded until the end of the contract term. There is a risk that part or all of the deposits and guarantee money may become unrecoverable due to bankruptcy of the landlord, among other reasons. The Company assesses the creditworthiness of landlords at the time of contract conclusion, but complete avoidance is not guaranteed.

The Company Group employs a large number of part-time employees, who account for a high proportion of the workforce. Due to legal amendments related to equal pay for equal work and wage increases driven by inflation, labor costs may increase going forward, affecting business performance. Depending on trends in legal regulations and price levels, this could become a continuing upward pressure on the cost structure.

The Company applies the "Accounting Standard for Impairment of Fixed Assets," but additional impairment losses may occur for some business-use assets. If store profitability deteriorates or stores are closed, the recognition of impairment losses will affect financial condition and business performance. There is no detailed description in the Annual Securities Report of the specific scale of target assets or countermeasures.

The Company holds customers' personal information, and if an information leak occurs, it may affect business performance through loss of social credibility and liability for damages, among other consequences. The Company is promoting the strengthening of its internal systems, including the formulation of personal information protection policies and manuals and employee training, but the risk cannot be completely eliminated.

The Company holds shares of financial institutions with which it has business relationships, and valuation losses may occur due to deterioration in securities market conditions or poor performance of investee companies. However, the Annual Securities Report explicitly states that the likelihood of this risk has been reduced as a result of progress in selling cross-shareholdings. The trend in the remaining holdings will continue to determine the degree of impact on finances.

Deferred tax assets related to tax loss carryforwards and future deductible temporary differences are recorded based on estimates of future taxable income. However, if significant changes occur in the estimate of taxable income due to the status of achievement of the business plan or other factors, deferred tax assets may decrease, affecting financial condition and business performance. Since failure to achieve the business plan is a direct trigger, this is a risk that requires ongoing monitoring in conjunction with business performance trends.

As of the end of the current consolidated fiscal year, the Company has tax loss carryforwards. If business performance progresses favorably compared to the business plan and the tax loss carryforwards are eliminated, corporate tax, resident tax, and business tax will be recorded based on the normal tax rate. This may affect the business performance and cash flow status of the Company Group. It should be noted that even during a phase of business recovery, the effects on profit and cash flow may become apparent in the form of an increased tax burden.