CHUCO CO.,LTD.

If regional economic conditions in the areas where the Group's media operations are deployed deteriorate, there is a risk that local advertisers will reduce advertising expenditures, leading to a decline in sales. Corporate advertising spending tends to be adjusted in line with economic conditions, and because the Group's business model is regionally specialized, it is more susceptible to the effects of local economic conditions than to national economic trends. The Group seeks to secure profitability through cost reductions and other measures, but it cannot completely avoid the impact of a decline in sales.

The digital media market is growing significantly in the advertising industry, creating an environment in which advertisers can choose from a variety of advertising methods, and there is a risk that the Group's advertising revenue, which relies mainly on print media, will decline. The Group has set "AI Driven" as the theme for the next fiscal year (49th term) and is working to enhance the value of its proprietary media through advertisement production leveraging operational data and AI; however, if digital media grow beyond expectations and the Group is unable to respond appropriately, this could adversely affect its business performance and financial condition.

Where competing publications exist, or may emerge in the future, in each publication area, there is a risk that the number of advertisements placed and advertising rates will decline, leading to a decrease in sales. The Group strives to secure competitive advantages through four distinguishing features, including "door-to-door delivery," as well as advantages in publication costs, but it cannot completely eliminate the impact of changes in the competitive landscape.

The Group's policy is to increase the number of group companies through base expansion and M&A aimed at expanding the publication areas of regional free magazines; however, if newly launched publications fail to secure advertising placements as planned, resulting in a prolonged period to recover invested capital, or if the performance of consolidated group companies falls significantly short of plans, this could adversely affect medium- to long-term business development. There may also be cases requiring revision of large-scale base expansion plans.

Net sales and operating profit tend to be concentrated in the third and fourth quarters; in FY2026 (ending March 2026), fourth-quarter operating profit accounted for 65.4% of the full-year total. This is mainly due to the fact that the effects of training new graduate employees become apparent in the second half of the fiscal year, and orders from restaurant advertisers during the year-end and New Year party season, as well as from government and private-sector clients, increase in the second half. As a result, first-half performance may not reflect the trend of full-year results, and this seasonality poses a risk of complicating performance evaluation and cash flow management during the fiscal year.

The Group acquires personal information in connection with its advertising business, mail-order sales business, and operation of the "Furimo" app, among others, and there is a risk of personal information leakage due to unauthorized external access or other causes. Although the Group has established a monitoring system involving a personal information protection manager and an audit officer, if a leak were to occur, it could adversely affect business performance through a decline in social credibility and claims for damages, among other consequences.

As of the end of March 2026, interest-bearing debt accounted for 23.6% of total liabilities and net assets. If the Group undertakes flexible fundraising in response to future business development or changes in economic conditions, there is a risk that the interest-bearing debt ratio will rise, increasing the interest burden. If financing rates rise, this could adversely affect business performance through increased funding costs; the Group addresses this by maintaining favorable relationships with multiple financial institutions, but the risk cannot be completely eliminated.

For the aggressive business development centered on the media advertising business, the Group recruits capable sales personnel every year and conducts a year-round training curriculum; however, if recruitment and training do not proceed as planned, or if the Group is unable to secure the human resources needed in line with its business expansion plans, this could adversely affect its business plans and performance.

The Group maintains thorough quality control to ensure that advertisements are placed only when they comply with laws and regulations and meet placement standards; however, it cannot be ruled out that, after placement, an advertisement may be found to violate laws such as the Act against Unjustifiable Premiums and Misleading Representations, or to fail to meet placement standards. In such cases, legal liability may arise or social credibility may decline, adversely affecting business performance.

The mail-order sales business handles health foods, cosmetics, and other products. If products sold violate laws and regulations or have defects that create safety concerns, there is a risk of administrative sanctions by regulatory authorities, costs arising from product recalls and damage compensation, and reduced sales due to a decline in social credibility of the mail-order sales website. These risks could have a direct adverse effect on the Group's business performance.