Operational and Other Risks

(As of May 29, 2020)

The Group develops convenience store business. Depending on changes in economic situations such as business conditions, consumption trends and other factors, or changes in the situation of competition with competitors within the Group's own industry or with retail companies from other industries, in Japan and abroad where the Group operates the businesses, the Group's execution of its businesses, operating results, financial conditions, etc. may be affected.

In Japan and abroad where the Group operates the businesses, if natural disasters including plague, earthquake and extreme weather, in addition to unexpected fire disasters, acts of terrorism and wars, cause any damage to stores, suspension of commodity supply to stores, and other situation that disturbs the continuation of operation of stores, the Group's execution of the businesses, operating results, financial conditions and others may be affected.

The Group has adopted the franchise system in the convenience store business, one of its principal businesses, and provides "FamilyMart System," which the Company has developed and owns, to franchisees. In the event that any act that infringes this system, or legal violation, misconduct or other act by a franchisee or business partner brings a suspension of transactions, disrepute to the chain, or the like, the Group's execution of the businesses, operating results, financial conditions and others may be affected. In addition, if erosion of a trusting relationship between the Group and franchisees causes a situation where franchise agreements with many franchisees are terminated, the Group's execution of the businesses, operating results, financial conditions and others may be affected.

In the convenience store business, the Group principally sells foods to consumers. In the event that a severe product-related accident, etc. including food poisoning, product tampering and mislabeling occur, the Group's execution of the businesses, operating results, financial conditions and others may be affected. In addition, other than foods, the Group also offers products for consumers' life such as clothes and daily necessities. In the event that any serious accident, including recall, occurs in these products, the Group's execution of the businesses, operating results, financial conditions and others may be affected. The Group ensures safety and security of foods and other products by setting quality control standards, establishing the consistent quality control structure from manufacturing to sales together with business partners, and other means.

In Japan and abroad where the Group operates the businesses, the Group applies company acts, financial instruments and exchange acts, tax laws, labor standards acts (including other laws and regulations, etc. concerning labor management), food-related laws, anti-monopoly acts and subcontracting acts, and laws and regulations, etc. concerning environments and others, and has obtained administrative permits and approvals, etc. Based on the recognition that legal compliance is an extremely important corporate responsibility, the Group ensures legal compliance by strengthening the compliance structure. However, even if such measures are taken, the Group may not be able to avoid compliance-related risks or the risk that its social credibility may be damaged, including personal misconduct of an officer or employee. If any unexpected change in these laws and regulations and permits and approvals, etc. related to operation of stores and others, difference of opinions with authorities, or the like result in an increase in expenses to respond to the change or restrictions on operation of stores, among others, in the future, the Group's execution of the businesses, operating results, financial conditions and others may be affected. In addition, although any lawsuit, etc. that have a material impact on the Group's operating results have not been brought at present, if a lawsuit, etc. that have an impact on operating results or a material social impact occur and a decision adverse to the Group and its business is made, the Group's execution of the businesses, operating results, financial conditions and others may be affected.

The Group collects and possesses personal information on customers and others in the course of business. In the event that an accident related to the leak of personal information or the like takes place, the Group's execution of the businesses, operating results, financial conditions and others may be affected. To prevent unauthorized access to personal information and leakage of personal information among others, the Group takes organizational, personnel, physical and technical safety control measures that are generally considered highly reliable, and exercises necessary and appropriate supervision over employees handling personal information.

The Group has built an information system among the Group, business partners and stores. If a failure of this information system, an abuse of the system or similar improper act causes a situation that disturbs execution of operations, etc., the Group's execution of the businesses, operating results, financial conditions and others may be affected. The Group has established security measures for the information system.

In Japan and abroad where the Group operates the businesses, human resources for execution of the businesses, including communicating with customers and other various stakeholders, are essential. In the event that it becomes difficult to acquire appropriate human resources due to fiercer competition for personnel in each business, among others, the Group's execution of the businesses, operating results, financial conditions and others may be affected.

The Group provides deposits and guarantees to lessors in the course of business. In the event that it becomes difficult to collect these deposits and guarantees due to deterioration in a lessor's financial conditions or the like, the Group's execution of the businesses, operating results, financial conditions and others may be affected.

The Group holds a large amount of non-current assets such as property, plant and equipment and goodwill related to stores. If an impairment loss is recorded due to inability to recover the carrying amount of each store resulting from a decline in the store's profitability, the Group's execution of the businesses, operating results, financial conditions and others may be affected.