AEON CO.,LTD.

In the event of natural disasters such as major earthquakes, typhoons, or tsunamis, the spread of novel infectious diseases, terrorist activities, or system failures caused by computer viruses, sales activities and distribution/procurement activities may be disrupted. The Group has implemented measures based on its business continuity plan, including the development of information infrastructure, epidemic prevention measures, seismic reinforcement of stores, conclusion of disaster prevention cooperation agreements with local governments, and securing of emergency fundraising methods. However, if events occur that exceed these assumptions, there is a possibility of a material impact on the Group's business, financial condition, and operating results.

Due to the tightening of legal regulations related to the environment and rising social demands, energy costs and countermeasure costs exceeding expectations may be incurred. In addition, if climate change or changes/destruction in ecosystems cause significant changes in the quality and yield of agricultural and marine products, this may lead to rising procurement costs or destabilization of product supply. Under the "AEON Sustainability Basic Policy," the Group is engaged in decarbonization, biodiversity conservation, and promotion of resource recycling; however, if these efforts or disclosures are deemed insufficient, this could lead to a decline in social credibility.

The Group stores and manages large volumes of personal information, business partner information, and confidential management information, including information on customers of the Comprehensive Financial Business, and against the backdrop of a sharp increase in cyberattacks, the risks of information leakage, tampering, and unauthorized use are rising. In the event of an incident, in addition to obligations to compensate victims for damages, large-scale service suspensions, and response costs, there is a possibility that a decline in social credibility could affect the Group's business, financial condition, and operating results. The Group has established a Group Information Security Office and is implementing measures such as developing information security systems and regulations and conducting regular checks.

When acquiring or investing in other companies as part of its growth strategy, although the Group conducts detailed prior due diligence, there is a possibility that contingent liabilities or unrecognized liabilities may arise after an acquisition, or that it may become difficult to appropriately apply internal controls to the acquired company, resulting in fraudulent acts or compliance issues. In addition, new goodwill may arise from an acquisition, and increased amortization expenses could expand the financial burden. If the expected results are not achieved due to these factors, there is a possibility of an impact on the Group's business, financial condition, and operating results.

If an accident or foreign matter contamination attributable to PB products occurs, or if manufacturers raise prices or product procurement is disrupted due to rising raw material prices and logistics costs, sharp exchange rate fluctuations, or unfavorable weather, this could lead to a decline in sales, an increase in cost of sales, and damage to the brand. The Group strictly conducts quality inspections of PB products, including TOPVALU, and aims to reduce costs and ensure stable supply through procurement from the best sources domestically and overseas, demand consolidation, and improved logistics efficiency. If efforts related to low environmental impact or respect for human rights are deemed insufficient, there is also a risk of brand damage due to loss of customer trust.

In developing commercial facilities, there are risks such as restrictions on store openings due to laws and regulations including the City Planning Act, the Building Standards Act, and the Act on the Measures by Large-Scale Retail Stores, rising real estate and construction costs, and prolonged construction periods due to labor shortages in the construction industry. In digital and logistics-related investments, given the rapid pace of technological innovation in the IT field, there is a possibility that investment projects may become obsolete or fall behind competitors, and IT talent shortages may occur. These factors could result in delays in opening new stores or providing new services, a decline in competitiveness, costs exceeding expectations, and a longer investment recovery period, which could affect the Group's business, financial condition, and operating results.

Given the high degree of dependence on the Japanese retail market, there is a risk that sales may stagnate due to a deterioration in the Japanese economy, a decline in personal consumption, market contraction due to population decline, and intensifying competition across industries and business formats. Rising procurement costs, utility costs, and labor costs due to exchange rate fluctuations, inflation, and abnormal weather, combined with the difficulty of passing on price increases in a challenging market environment, may put pressure on profitability. Overseas, the Group operates mainly in China and ASEAN, and there are concerns about the impact on sales activities and taxation due to slowing economic growth, instability in political and economic conditions, changes in laws and policies, and war.

Due to changes in the population structure resulting from the declining birthrate and aging population, there is a risk that plans for securing and developing excellent talent may not proceed as scheduled. Tight labor supply and demand and rapid wage increases may increase costs related to employees, and as a retail business operating a large number of stores in particular, rising labor costs directly affect profitability. The Group is promoting diversity, equity & inclusion and health management, but if efforts and disclosures related to human capital are deemed insufficient, this could also affect the Group's business, financial condition, and operating results.

If a decline in store profitability leads to impairment of fixed assets, if market turmoil causes a decline in the value of held assets, or if an increase occurs in doubtful receivables due to customer contract defaults, it may become necessary to record impairment or valuation losses on tangible fixed assets, goodwill, and other assets, as well as additional allowances for doubtful accounts. In addition, after the application of revised accounting standards related to leases, in principle all lease transactions will be recorded as right-of-use assets and lease liabilities on the consolidated balance sheet, which is expected to affect management indicators such as an increase in interest-bearing debt and a decline in the equity ratio. If a deterioration in store performance is expected, impairment losses may also occur on recorded right-of-use assets.

As of the end of the fiscal year under review, interest-bearing debt such as corporate bonds and borrowings amounted to a substantial ¥3,844,400 million (27.8% of total assets), and there is a possibility that the Group may become unable to raise funds in a timely manner on desired terms due to an economic downturn, financial contraction, or a downgrade in credit rating. If long-term and short-term interest rates rise in the future, increased borrowing costs may affect the Group's business, financial condition, and operating results. The Group is considering diverse fundraising methods and has established a system capable of responding swiftly to changes in the financial environment, but given its large-scale business portfolio, including the Comprehensive Financial Business, its sensitivity to financial market trends is high.