VALOR HOLDINGS CO.,LTD.

Changes in the external environment—such as deterioration of economic conditions, intensifying price competition, progress of competition with companies in the same and different industries, changes in consumer-related tax systems, climate change, geopolitical risk, and international affairs—may affect business performance and financial condition. Because the Group's core business is retail centered on supermarkets, drugstores, and home centers, sensitivity to fluctuations in the external environment is high. No specific countermeasures are disclosed in the securities report.

The Group has set as its growth strategy the deepening of dominant-area formation and store expansion through M&A, as well as accelerated expansion into the Kansai and Kanto areas. However, there is a risk that store openings may not proceed as planned due to difficulty in securing suitable properties or legal restrictions. If performance in new areas does not progress as planned, this may affect business performance and financial condition. The notification obligation under the Large-Scale Retail Store Location Law could also be a factor delaying store opening plans.

The Group aims to be a "manufacturing retailer" that handles everything from procurement to sales in an integrated manner, managing a wide-ranging food distribution route from manufacturing/processing facilities to retail stores and restaurants. Should a food safety issue such as food poisoning occur, it could have a material impact on business performance and financial condition. While thorough quality control efforts are underway, the scope of risk expands as the manufacturing retail model is expanded.

Since many of the Group's stores are located in the Tokai region, a Nankai Trough earthquake could cause partial suspension of business activities and have a significant impact on business performance and financial condition. While measures such as developing infectious disease response manuals and disaster response manuals, and conducting evacuation drills, have been implemented, the impact of a large-scale disaster on business continuity and merchandise procurement cannot be avoided. Voluntary business suspension due to the spread of an epidemic could also affect performance.

The Group utilizes borrowings and corporate bonds to fund capital expenditures such as new store openings, and the consolidated balance of borrowings and corporate bonds at the end of the fiscal year under review reached ¥147,940 million. Going forward, if interest rates rise, this could affect business performance and financial condition through increased funding costs. No specific hedging measures against interest rate fluctuation risk are disclosed in the securities report.

The Group recognizes the acquisition and development of excellent human resources as a key challenge for achieving growth, and is focusing efforts on employee reassignment, new graduate and mid-career hiring, and the acceptance of foreign technical intern trainees. If human resource acquisition and development do not proceed as planned due to the declining birthrate, an aging population, or intensifying competition in the labor market, this may affect business performance and financial condition. A shortage of personnel could also directly hinder store operations and the execution of new store opening plans.

The Group operates core systems, logistics management systems, and store operation support systems via communication networks, and holds a large amount of customer personal information through mail order sales, credit cards, electronic money, point cards, and other services. If a system outage or leakage/tampering of information occurs due to a disaster, power outage, computer virus, cyberterrorism, unauthorized access, or similar cause, this may affect business performance and financial condition. Although appropriate security measures have been implemented, complete defense against events exceeding expectations is difficult.

The Group strives for thorough management of personal information through strengthening the security systems of information terminals, developing internal regulations, and providing employee training. However, if personal information is leaked externally due to an unforeseen event, this could lead to a decline in social credibility and affect business performance and financial condition. Costs of compliance with legal regulations such as the Personal Information Protection Act also continue to be incurred. The broad customer base heightens the risk, as the scope of impact in the event of a leak would be large.

The Group applies impairment accounting, but additional impairment losses may need to be recognized for low-profitability stores and similar assets in the fiscal year following the year under review and beyond. In addition, depending on future land price trends, a decline in the value of owned real estate could affect financial condition. Given the Group's characteristic of operating numerous stores, the risk that deteriorating profitability at individual stores will lead to recognition of impairment losses persists on an ongoing basis.

The Group is subject to a wide range of legal regulations, including the Large-Scale Retail Store Location Law, the Building Standards Act, the Antimonopoly Act, the Pharmaceuticals and Medical Devices Act, food safety-related laws and regulations, and environmental recycling-related laws and regulations. If a violation of laws or regulations occurs, business activities may be restricted, and future legal amendments or the enactment of new laws may increase compliance costs. Amendments to the Building Standards Act that lengthen examination periods and increase store opening costs could also affect store opening plans.