CENTRAL SPORTS CO.,LTD.

Sports club operations bear a heavy fixed cost burden from labor costs, rent, and other expenses, and if customer traffic declines due to changes in the market environment, economic fluctuations, or new store openings by competing clubs, there is a risk that securing revenue and recovering initial investment funds could take a long time. Due to the business model's high fixed cost ratio, fluctuations in sales have a direct and significant impact on profit. Although the company conducts market research at the time of planning, it recognizes the risk of business deterioration if it is slow to respond to changes in the environment.

Since funds required for opening stores, such as security deposits, guarantee deposits, interior fixtures, and equipment, are financed through borrowings from financial institutions and leases, the ratio of interest-bearing debt to total assets remains at a high level. At the end of the consolidated fiscal year under review, the interest-bearing debt dependence ratio stood at 10.8% (down 1.2 percentage points year on year), and while the impact has been limited under the recent low interest rate environment, financial costs could increase in a future rising interest rate phase, potentially adversely affecting business performance. The company is working to reduce its dependence on interest-bearing debt.

The balance of security deposits and guarantee deposits provided under lease agreements amounted to ¥9,900 million at the end of the consolidated fiscal year under review. If the financial condition of a lessor deteriorates, recovery through offset against rent or execution of collateral rights may become difficult, resulting in bad debt losses that could have a material impact on business performance. Depending on the scale of unrecoverable amounts, the impact on the financial condition could be significant, making this a risk requiring continuous monitoring.

In connection with its business activities, the company may become subject to litigation or other legal proceedings, the outcomes of which are difficult to predict due to numerous uncertain factors. While the company currently judges the amounts recorded in the consolidated financial statements to be appropriate, it cannot rule out the possibility that the outcome of legal proceedings could adversely affect business performance in the future. The company is taking appropriate measures such as recording necessary provisions, but the risk of loss from unexpected judgments or settlements remains.

The company obtains and uses a large amount of customer personal information through sports club membership procedures and other processes, and if an information leak occurs, it could result in claims for damages or a decline in credibility, affecting business performance and business development. The company complies with the Personal Information Protection Act and strives for proper management by establishing necessary internal regulations, but the risk of leakage due to cyberattacks or internal misconduct cannot be completely eliminated. This is also an important risk from the perspective of maintaining customer trust.

In the 2011 Great East Japan Earthquake, some facilities and equipment at directly operated and contracted stores were damaged, resulting in temporary closures centered mainly in eastern Japan, and during the spread of infectious disease in 2020, stores nationwide were closed for a certain period and events and tours were canceled, causing material impacts on business performance in the past. If long-term closures or the cancellation of events and tours become unavoidable due to earthquakes, natural disasters, infectious diseases, or other causes, the loss of sales while fixed cost burdens continue would have a severe impact on business performance. The company has adopted a policy of striving to prevent such risks from occurring and to respond appropriately when they do occur.