THERMAE-YU HOLDINGS CO.,LTD.

The operation of Bathing (Onsen/Spa) facilities depends on essential lifelines such as electricity, water, and gas. If these are disrupted for an extended period due to a large-scale natural disaster or other event, continued operation of the facilities could become difficult. Since the Bathing (Onsen/Spa) business is the core business, disruption of lifelines could have a direct and wide-ranging impact on business performance and financial condition. The Annual Securities Report does not disclose specific details regarding alternative measures or the business continuity plan (BCP).

The Bathing (Onsen/Spa) business inherently carries accident risks related to food hygiene management and bath water quality management. Should an accident occur, it could result in business suspension, the occurrence of damages, and a decline in brand value. In particular, accidents related to bath water quality are directly linked to health hazards for customers, and thus carry significant social impact. While the Company states that it exercises sufficient care in risk management, specific details of the management framework are not disclosed.

The Group's net sales are highly dependent on the Bathing (Onsen/Spa) business, its core business. If the competitiveness of the Bathing (Onsen/Spa) business declines or the external environment deteriorates, the Group's overall business performance and financial condition could be significantly affected. Because diversification of the business portfolio is limited, the concentration of risk in a single business is an important point for investors to note. Although the Company operates a Real Estate Business, the proportion of the Bathing (Onsen/Spa) business in the sales composition remains high.

The Group concentrates its business in the Greater Tokyo area. If an earthquake, other disaster, or market deterioration in this region leads to a decline in occupancy/utilization rates, it could have a severe impact on the Group's overall business performance and financial condition. As geographic diversification has not been pursued, the degree of risk concentration is high in the event of a large-scale disaster such as an earthquake directly beneath the capital. The Annual Securities Report does not mention any diversification strategy through expansion of the business area.

If damage occurs to Company-owned buildings due to earthquakes, fires, terrorism, or similar events, this could result in a decline in Real Estate leasing income and suspension of operations at the Bathing (Onsen/Spa) business. In the event of an outbreak or spread of an infectious disease, expected impacts include a decrease in leasing income due to restrictions on tenants' business operations, a decline in occupancy/utilization rates due to the promotion of new lifestyles, temporary suspension of the Bathing (Onsen/Spa) business, and restrictions on consumer behavior. While the Company implements preservation measures such as regular building inspections, specific measures for responding to infectious diseases are not disclosed.

In the Bathing (Onsen/Spa) business, the Company pursues a differentiation strategy based on the concepts of "nourishing the five senses," "relaxing spaces," and "a base for healing." However, if competition with other companies in the same industry intensifies or consumer needs change, the Company's differentiation advantage could be lost, potentially affecting business performance and financial condition. The Bathing (Onsen/Spa) market has relatively low barriers to entry, and changes in the competitive environment due to new entrants or the expansion of facilities by existing competitors represent an ongoing risk. The Annual Securities Report does not disclose specific competitive countermeasures or information on market share.

The Bathing (Onsen/Spa) business is subject to laws and regulations such as the Public Bathhouse Act and the Food Sanitation Act. Any amendment to these laws or the introduction of new regulations could impose constraints on business activities, potentially affecting business performance and financial condition. There is a risk that stricter regulations could require additional capital investment or changes to the business format. The Company states that its compliance framework is managed through the Board of Directors and regular meetings.

In the Real Estate Business, a downturn in real estate market conditions accompanying a deterioration in the domestic economy could affect business performance and financial condition. There is also an inherent risk that a decline in the creditworthiness of tenants and residents could lead to delayed rent payments, requests for rent reductions, and an increase in vacancy rates due to move-outs, which would reduce Real Estate leasing income. Within the structure of high dependence on the Bathing (Onsen/Spa) business, the Real Estate Business plays a complementary role in earnings, and any deterioration in this business would affect the financial stability of the Group as a whole.

Securing and developing excellent human resources is essential for further growth. However, if the Company is unable to secure or develop the necessary talent due to intensifying competition in the labor market or other factors, this could lead to a decline in service quality and delays in business expansion, thereby affecting business performance and financial condition. Service industries such as Bathing (Onsen/Spa) and Massage rely heavily on customer service and technical personnel, and a shortage of human resources directly affects customer satisfaction and brand value. The Annual Securities Report does not disclose specific recruitment or training measures, or information such as turnover rates.

Some stores have attached accommodation facilities, which anticipate use by inbound foreign tourists. However, a decrease in inbound foreign tourists due to changes in the political and economic situation in Japan and abroad could affect the occupancy rate of these accommodation facilities. In addition, intensifying competition from the entry of new minpaku (private lodging) operators into the accommodation market is recognized as a risk affecting the operation of accommodation facilities. Dependence on inbound demand may be subject to sudden fluctuations due to external factors such as geopolitical risk and infectious diseases.