Operational and Other Risks

The following section outlines some of the main risks relating to the Group's operations that could potentially have a significant impact on investors' decisions.
Statements contained within this section that refer to matters in the future have been determined to the best of our knowledge as of the end of the reporting term.
The Company has a Companywide risk management system in place and assesses and classifies the risks that the Company faces according to potential frequency and degree of effect. The Company implements continuous activities commensurate with each risk to minimize its effect. Moreover, the Company advances these activities at its Group companies.

(1)Economic Trends

The Group is mainly engaged in the operation of convenience stores and general merchandise stores. The Group's business performance and financial position could be adversely affected by various factors, including changes in the business climate, consumption trends, and other economic conditions and changes in competition with convenience stores and other retail formats, in its markets in Japan and overseas (Taiwan, Thailand, China, Vietnam, Indonesia, the Philippines, Malaysia, and Hong Kong).

(2) Natural Disasters

The Group's business performance and financial position could be adversely affected by unexpected events, such as fires, acts of terror, and wars, and natural disasters, such as earthquakes, epidemics, and extreme weather events, in Japan and overseas, leading to the destruction of stores, supply stoppages, and other circumstances disrupting the regular operation of FamilyMart stores.

(3) Franchise System

In its convenience store business, the Group engages franchisees to operate its stores under its proprietary "FamilyMart System." The Group's business performance and financial position could be adversely affected by any acts that disrupt the operation of the system or by illegal or scandalous behavior involving franchisees and business partners that causes the suspension of business transactions or undermines public confidence in the chain.
The Group's business performance and financial position could also be adversely affected by the mass termination of franchise contracts with franchisees following a breakdown in relations of trust between the Group and its franchisees.

(4) Food Safety

As an operator of convenience stores and general merchandise stores, the Group is mainly engaged in the marketing of food products to consumers. The Group's business performance and financial position could be adversely affected by any major food safety incident (food poisoning, contamination, illegal mislabeling, etc.) arising despite its best preventive efforts.
The Group is committed to supplying safe food products through such measures as jointly creating with business partners an integrated quality management system that encompasses everything from production to marketing.

(5) Legal and Regulatory Changes

As an operator of stores in Japan and overseas, the Group is subject to legal and regulatory requirements and has acquired official licensing in such areas as food safety, fair trade, and environmental protection. The Group's business performance and financial position could be adversely affected by unforeseen changes in legal and regulatory systems or licensing requirements for the operation of stores or by differences of opinion with regulators leading to increased costs and operational restrictions.
At the present time, the Group is not involved in any litigation that has the potential to significantly impact the Group's performance. The Group's business performance and financial position could, however, be adversely affected by litigation that has a major impact on its performance or social standing or by a decision that negatively affects the Group or its business.

(6) Handling of Personal Information

In its business processes, the Group collects and stores personal information relating to its customers. The Group's business performance and financial position could be adversely affected by any incidents of leakage of personal information that occur despite its best preventive efforts.
To ensure that no unauthorized access or leakage of personal information occurs, the Group conducts compulsory and appropriate supervision of employees that handle personal information while using organizational, human, physical, and technological safety management measures of proven reliability.

(7) IT Systems

The Group has set up IT systems linking Group companies, business partners of the Group, and its franchised stores.
The Group's business performance and financial position could be adversely affected by failure, misuse, or other unauthorized use of IT systems that lead to disruption of services and operations.
The Group has set up IT system safety mechanisms.