AIN HOLDINGS INC.

Revenue from the Pharmacy Business depends on drug prices and dispensing fees set by the Ministry of Health, Labour and Welfare, which tend to be revised periodically as part of measures to curb national medical expenses. There is also a structural risk in which, if consumption tax rate revisions are not adequately reflected in drug prices, the consumption tax burden on procurement costs would directly impact the cost of dispensing sales. As a countermeasure, the Group formulates business strategies in anticipation of changes in related regulations and monitors the external environment.

Under the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices, only pharmacists may sell drugs requiring guidance and Class 1 OTC drugs, but depending on the direction of deregulation, entry into this business by companies from other industries could be promoted, potentially significantly changing the competitive environment. For the Group, which operates both drugstore and dispensing pharmacy businesses, there is a risk that the advantage of its sales channels could be undermined. The Group addresses this through analysis of competitors and monitoring of regulatory trends.

The Pharmacy Business operates under numerous laws and regulations, including the Health Insurance Act, the Pharmacists Act, the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices, and the Narcotics and Psychotropics Control Act. If fraudulent conduct or legal violations occur in fee billing, there is a risk of administrative sanctions such as business suspension orders or license revocation from regulatory authorities. Corrupt acts such as bribery or human rights violations could also damage social credibility in addition to affecting financial position and business results. The Group addresses this through training centered on the Compliance Committee, an internal reporting system, and strengthening of internal audit functions.

In the Pharmacy Business, pharmacists handle prescription drugs that affect the human body, and the company itself considers it a top-priority issue that a medical accident caused by a dispensing error could severely damage social credibility. In addition to establishing training systems for new employees and ongoing training, the Group implements measures utilizing ICT technology, such as deploying dispensing error prevention systems developed jointly with dispensing equipment manufacturers and automating dispensing operations. A dedicated Safety Countermeasures Department has been established, and internal audit functions are also being strengthened.

Dispensing pharmacies are required under the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices and the Pharmacists Act to have pharmacists assigned, while stores handling OTC drugs are required to have registered distributors assigned. Amid a policy of continuing aggressive multi-store expansion, if it becomes difficult to secure pharmacists and registered distributors, there is a possibility of delays in store opening plans and adverse effects on business results. The Group works to secure human resources through recruitment, training and evaluation systems, as well as measures to improve employee engagement.

The Pharmacy Business has a policy of continuing multi-store expansion centered on dispensing pharmacies, and the success or failure of store opening policies, including M&A, as well as the store opening trends of competitors, directly affect business results. Amid a changing competitive environment, including entry by companies from other industries due to deregulation, continuous verification of competitive advantage is required. The Group addresses this through consideration of diversified store opening approaches, including M&A, and by tracking competitor trends.

The spread of telework and increased opportunities for cloud and mobile use have heightened the risk of cyberattacks, which are also becoming more sophisticated. If information security measures or employee awareness of risks are insufficient, leakage, destruction, tampering, or system outages involving important information could occur, potentially affecting not only business results but also social credibility. The Group addresses this by building multi-layered defenses, undergoing vulnerability assessments by third-party organizations, and conducting training and drills for officers and employees.

The Pharmacy Business holds patient information such as prescriptions and medication history, while the Retail Business holds customer information via various official apps and e-commerce sites. If a personal information leak occurs due to an accident or criminal act, it could have a significant impact on business results and social credibility. Ain Pharmaciez Inc., the Group's main operating company, has obtained the "Privacy Mark for the Healthcare, Medical and Welfare Sector," and the Group addresses this through operation of a Group-wide personal information protection management system (PMS) and undergoing Privacy Mark renewal reviews once every two years.

In pursuing an aggressive M&A strategy, if post-acquisition plans are not achieved, valuation losses on subsidiary shares or impairment losses on goodwill could occur, potentially adversely affecting business results and financial position. In addition, depending on market interest rate trends, procurement at variable interest rates may become necessary when raising funds for large-scale M&A, and at the end of the current consolidated fiscal year, the balance of short-term and long-term borrowings stood at ¥38,621 million, while the balance of cash and deposits stood at ¥26,881 million. The Group addresses this through thorough due diligence, appropriate PMI, monitoring of interest rate trends, and use of hedging.

With multiple stores deployed nationwide, if a large-scale earthquake, typhoon, heavy rain or other natural disaster occurs, or if a serious infectious disease spreads, damage to stores and business locations, a decrease in the number of prescriptions due to reduced outings, and a decline in the number of customers visiting Retail Business stores could affect business results. In the event of an infectious disease outbreak, a complex set of effects is anticipated, including an increase in the average prescription value alongside a decrease in the number of prescriptions in the Pharmacy Business, and a decline in inbound demand in the Retail Business. The Group addresses this through regular development and updating of its BCP, and by conducting safety confirmation drills and evacuation drills.