HEIAN CEREMONY SERVICE CO.,LTD.

The population aged 20 to 39, the main user segment of the Ceremonial Occasions Business, is projected to decline from 26,052 thousand in 2024 to 21,482 thousand by 2045, a decrease of 4,570 thousand (17.5%), which is expected to result in a long-term decline in the number of wedding ceremonies performed. The progression of the declining birthrate, delayed marriage, and non-marriage trends may accelerate this trend, creating a risk that the revenue base of the Ceremonial Occasions segment will structurally contract. The securities report does not provide specific countermeasures and recognizes demographic change as an unavoidable risk.

While the population aged 65 and over is projected to increase from 36,243 thousand in 2024 to 39,451 thousand by 2045, expanding potential demand for the Funeral Services Business, the proportion of single-person households aged 65 and over in Kanagawa Prefecture has risen sharply from 2.6% in 1990 to 10.9% in 2020. The increase in elderly single-person households may lead to a sharp decline in the number of mourners and a shift toward simplified cremation-only funerals, creating a risk of declining unit prices and profitability. Lifestyle changes such as the trend toward nuclear families, non-marriage, and the choice not to have children may reinforce this trend.

The Ceremonial Occasions Business shows seasonal concentration in spring and autumn; according to 2022 Kanagawa Prefecture data, marriage registrations in November accounted for 11.0% of the annual total and March for 10.9%, while April accounted for only 5.5%. The Funeral Services Business also experiences monthly fluctuations in the number of deaths, with December accounting for 9.8% of the annual total and January 9.2%, concentrated in the winter season. Such seasonal fluctuations directly affect the monthly revenue of each segment and also impact the operating efficiency of personnel and facilities.

Opening new funeral halls requires securing land with favorable access conditions and available parking, and since fixed-term land leases are the principle used, searching for candidate properties takes considerable time. If landowners or nearby residents show resistance to funeral facilities, additional time and cost are incurred for explanation and negotiation, creating a risk that facility construction progress will be delayed. Delays in expansion plans may directly affect the growth strategy of the Funeral Services Business.

The Ceremonial Mutual Aid Association (Prepaid Specified Transaction) business operated by the consolidated subsidiary Heian Co., Ltd. falls under prepaid specified transactions as defined by the Installment Sales Act, and is subject to regulations such as licensing by the Minister of Economy, Trade and Industry, the deposit of business security funds, and the obligation to preserve an amount equivalent to one-half of advance receipts. If the net asset ratio falls below 90%, an order prohibiting the conclusion of new contracts is triggered under the system, creating a risk that deterioration in financial condition would directly threaten business continuity. Although no improvement order has been received to date, if the operation of legal regulations changes, improvement measures such as adjustments to the income-expenditure ratio may become necessary, potentially affecting operating results and financial condition.

Heian Co., Ltd. has implemented preservation measures for an amount equivalent to one-half of the prepaid specified transaction advance receipts received from consumers, through the deposit of cash and securities and a deposit entrustment agreement for advance receipt business security funds with a designated trust institution. Preservation costs may fluctuate depending on changes in the balance of advance receipts and financial conditions, and failure to fulfill the preservation obligation carries the risk of leading to administrative sanctions. This preservation obligation creates a restriction on funds commensurate with the scale of the business, affecting financial flexibility.

Hearse transport, part of the Funeral Services Business, is subject to regulation under the Motor Truck Transportation Business Act, with its business area limited to Tokyo and Kanagawa Prefecture, and constraints also apply to the number of hearses held. Because expanding operations outside the designated business area is institutionally difficult, geographic growth opportunities are limited. Changes to the regulatory content may necessitate a review of business operations.

The consolidated subsidiary Heian Co., Ltd. operates a Nursing Care Business based on the Long-Term Care Insurance Act, and if reforms to the long-term care insurance system change fee schedules or operating standards, business performance may be affected. Long-term care insurance business establishments operate under a designation and renewal system, and if an appropriate operating structure cannot be maintained, there is a risk of administrative sanctions such as revocation of establishment designation or denial of renewal. The costs of responding to system reforms and the loss of establishment designation would directly affect the profitability of this business.

The Group holds a large amount of customer information through its Ceremonial Occasions, Funeral Services, and Nursing Care businesses, and recognizes the prevention of damage from information leakage or destruction as an extremely important risk. While no leakage, alteration, or destruction of important customer data has been recognized to date, should an information leak occur, it could affect business operations, performance, and financial condition. Specific details of security measures are not disclosed in the securities report.

Male average life expectancy is projected to extend from 82.17 years in 2025 to 84.71 years by 2045 and 87.70 years by 2070, while female average life expectancy is projected to extend from 88.22 years in 2025 to 90.76 years by 2045 and 93.72 years by 2070. The extension of average life expectancy pushes back the timing of deaths, which may suppress the short-term pace of increase in the number of funerals performed in the Funeral Services Business. In addition, combined with the increase in elderly single-person households accompanying longer life spans, the trend toward smaller and simplified funerals may further advance.