SKYLARK HOLDINGS CO., LTD.

Ongoing inflation both domestically and internationally, abnormal weather and natural disasters, geopolitical risks, and foreign exchange fluctuations (currently unhedged) may cause procurement instability and price surges for raw materials, which could adversely affect performance through rising cost ratios. Food ingredient procurement in particular spans multiple regions worldwide and involves many foreign-currency-denominated transactions, so a sharp yen depreciation would directly increase costs. As countermeasures, the Group is implementing geographically diversified procurement, a multi-supplier system, long-term contracts, and securing alternative supply routes.

With the nationwide weighted average of regional minimum wages reaching a record high of ¥1,121 following the FY2025 revision, continued increases in minimum wages and stricter labor-related regulations such as overtime caps and equal pay for equal work are expected to raise personnel costs and make it more difficult to secure talented human resources. Violations of laws and regulations could also lead to business improvement orders and litigation risk, raising concerns about impact on brand image. The Group is implementing concrete measures such as providing weekly labor data, holding monthly labor improvement meetings, and shortening business hours.

The Group holds substantial borrowings from financial institutions, and if it breaches financial covenants attached to syndicated loan and commitment line agreements, it could lose the benefit of the term and be required to make immediate repayment. If funds cannot be secured, the loss of the benefit of the term could spread to other borrowings, potentially adversely affecting the Group's continued existence. Financial stability is being maintained through regular monitoring by the Board of Directors and obtaining prior waiver agreements with financial institutions when there is a risk of breach.

As of the end of December 2025, the Group recorded ¥230,208 million of property, plant and equipment, ¥162,683 million of goodwill, and ¥14,495 million of trademark rights on its consolidated statement of financial position. If events occur that significantly affect outlooks such as major inflation, estimates of future cash flows could deteriorate, potentially resulting in impairment losses. Given the particularly large scale of goodwill, there is a high risk of significant one-time losses being recognized in the event of a business downturn. The Group addresses this through strengthened profitability management of businesses and stores and monitoring of progress on the medium-term plan.

If a serious food safety incident such as mass food poisoning occurs, it could result in significant impacts including administrative sanctions, civil litigation, damage to brand image, reduced sales, and response costs. The expansion of delivery and takeout increases the risk of improper food handling outside the Company's control, while the expansion of mail-order and external sales businesses increases the risk of product recalls. The Group has established a rigorous quality control system, including ISO22000 certification at all in-house central kitchens, approximately 100,000 sample inspections annually, and hygiene management based on HACCP.

Due to worsening labor shortages caused by the declining birthrate and aging population, along with rising wages and recruitment costs, the Group may be unable to secure the necessary number of part-time and temporary staff at appropriate cost for stores and merchandising centers. If the labor shortage becomes severe, there is a risk not only of increased personnel costs but also of the need to revise store opening plans or temporarily suspend operations at some stores. The Group is addressing this through measures such as an employee referral program, employee point programs, a spot-crew system, and DX initiatives such as serving robots and new POS registers to improve operational efficiency.

Overall operations including food ingredient procurement, delivery, food processing, store operations, and order-taking depend on information systems. If a system failure occurs due to a cyberattack, computer virus, or program malfunction, it could disrupt timely food provision, cause loss of important data, and incur response costs, thereby affecting the business, performance, and brand image. The risk of supply disruption due to ransomware attacks on business partners has also materialized. The Group has built a defense system through system redundancy, establishment of an in-house specialized department, and support from external experts.

The Group holds a large amount of customer personal information through mobile apps, delivery, takeout, and payment services. If a leak of information due to unauthorized access or a violation of laws and regulations occurs, it could result in damage to brand image, response costs, regulatory sanctions, and customer litigation. Amid continued strengthening of personal information protection regulations, it is difficult to completely eliminate this risk. The Group has established an in-house specialized department and built a system for preventing external attacks and responding promptly with support from external experts.

Transition risks such as the introduction of carbon taxes and rising electricity prices may increase procurement and energy costs, while acute risks such as typhoons and floods causing factory, logistics, and store shutdowns, and chronic risks such as declining food ingredient quality and price surges due to rising average temperatures, may affect performance. There is also a risk of damage to brand image if the Group is perceived as lacking environmental consideration. The Group addresses this through energy usage reduction, promotion of renewable energy, development of environmentally conscious stores, and a deliberation system through the Group Sustainability Committee.

As the Group pursues M&A both domestically and internationally, if acquired businesses fail to develop as planned or expected synergies fail to materialize, goodwill impairment losses could occur, affecting performance and financial condition. The current goodwill balance is substantial at ¥162,683 million, and the risk of impairment when multiple M&A deals overlap carries a significant financial impact. The Group addresses this through detailed due diligence and thorough consideration of market trends and the target company's performance, financial condition, and risk analysis.