HOTMAN Co.,Ltd.

The Company is a mega-franchisee operating multiple franchises including Yellow Hat and TSUTAYA, and reputational damage to the franchisor or other franchisees, changes in merchandising policy, or deterioration in their business conditions could lead to a decline in the number of customer visits or a decrease in average spending per customer. Given the structure in which operational policy is entrusted to the franchisor's management policy, there are limits to the Company's own independent response. As a countermeasure, the general manager of sales, sales department managers, and merchandising department managers participate in the monthly meetings hosted by each franchisor, establishing a system for early detection of signs of emerging risk.

The Yellow Hat Business, the Company's core business, is based on a group store agreement with Yellow Hat Co., Ltd., and the proportion of purchases from that company reaches 69.7% of the Company's total. The agreement stipulates that Yellow Hat Co., Ltd. may terminate the contract in the event of a breach of contract, fraudulent conduct, significant deterioration in financial condition, or similar circumstances, and if terminated, this would cause material disruption to the continuation of business. As of the end of the current fiscal year, no event constituting grounds for termination has occurred, but store openings also require prior consultation with Yellow Hat Co., Ltd., and there could be an impact on business performance if store openings and closings cannot proceed as planned, or if a competing Yellow Hat store is opened.

The Company's Yellow Hat Business operates mainly in snowfall regions (Miyagi, Iwate, Ibaraki, Fukushima, Nagano, Tochigi), and demand for studless winter tires in the third quarter accounts for a particularly large share of annual sales. If a warm winter results in little snowfall, sales of studless tires and winter products may decline, which could have a material impact on business performance. As a countermeasure, the Company focuses on Vehicle Inspection & Maintenance Services and other car maintenance services to secure a minimum level of profit during off-peak seasons.

The Company applies the "Accounting Standard for Impairment of Fixed Assets" to its fixed assets, and may recognize impairment losses in the event of a significant decline in asset prices, a change in the scope of use, a decline in profitability, or similar circumstances. The recognition of impairment losses could have a material impact on the Company's business performance and financial condition. At the monthly management meeting, the general manager of the administration division and the general managers of each business division exchange views on store-level profit and loss results, full-year profit and loss forecasts, and improvement plans, in an effort to identify impairment risk at an early stage.

The Company raises capital expenditure funds through borrowings for the acquisition, development, and renovation of land, buildings, and other assets. Although the majority of interest-bearing debt is at fixed rates, fluctuations such as rising interest rates could increase future funding costs. Continued increases in interest rates could have a material impact on business performance and financial condition through higher financial expenses. As a countermeasure, the Company minimizes new long-term borrowings and proceeds with repayments to reduce interest costs.

Securing and developing excellent personnel is essential to business expansion and improving performance, and failure to do so in a timely and appropriate manner could affect future business development. This is set against a backdrop of intensifying competition for hiring amid a severe economic environment. The Company focuses on recruiting both new graduates and mid-career hires, while also enhancing its post-hire training and education programs to support human resource development.

The Yellow Hat Business handles products subject to safety standards, and if the Company engages in or assists in illegal modification through improper sales or installation methods, its designation as a designated factory or certified factory could be revoked. Revocation of such qualification, in addition to damaging the Company's social credibility, would lead to the suspension of vehicle inspection and maintenance operations, potentially having a material impact on business performance and financial condition. Compliance risks are regularly shared with the general managers of each business division at management meetings, where preventive measures are discussed.

The Yellow Hat, TSUTAYA, Car7, UP GARAGE, and Kaitori Daikichi businesses each handle personal information such as membership information, sales and purchase documents, and purchase records, and are subject to regulation under the Act on the Protection of Personal Information. Should a leak or unauthorized use of personal information occur, it could have a material impact on business performance and financial condition through loss of social credibility and potential claims for damages. The Company works to prevent such incidents through regular sharing of compliance risk information at management meetings.

The purchase and sale of used goods in the Yellow Hat, UP GARAGE, Car7, TSUTAYA, and Kaitori Daikichi businesses are subject to regulation under the Secondhand Goods Business Act, and violations could result in an order of business suspension. In particular, since the purchase and sale of used goods constitutes the core operations of the Car7 Business, UP GARAGE, and Kaitori Daikichi Business, the impact on business performance in the event of a business suspension would be significant. The Company shares compliance risks at management meetings and provides employee training to promote compliance with laws and regulations.

Natural disasters such as earthquakes and typhoons, or accidents, could cause damage to stores, injury or death of officers and employees, and interruption of business activities. The Company has a track record of store damage from the Great East Japan Earthquake and the earthquakes of 2021 and 2022, and its store network is concentrated in the Tohoku and Kanto regions, which carry high risks of snowfall and earthquakes. The Company has established a system for coordination with internal and external parties by securing emergency communication networks, with a policy of achieving early recovery.