C'BON COSMETICS Co.,Ltd.

Approximately 70% of new customers cite event promotions as their motivation for visiting stores, and a decline in the customer acquisition power of event promotions could have a significant impact on business performance. As a countermeasure, the Company is strengthening content marketing and Web marketing utilizing beauty service search and reservation sites as new pillars of customer acquisition.

Directly-operated stores account for 93.8% of consolidated net sales, representing a highly dependent structure. If channel development fails to keep pace with the diversification of consumer behavior driven by digitalization, this could have a significant impact on business performance. The Company is addressing this through enhanced information dissemination on product and service value using SNS and other means, and by differentiating the in-store experience.

Given the business's reliance on face-to-face sales and service provision, the outbreak of an infectious disease with significant societal impact could lead to temporary store closures or reduced operating hours, decreasing the number of visitors and significantly affecting business performance. In addition to infection prevention measures through creating hygienic spaces, the Company is also focusing on expanding into business areas beyond directly-operated stores, such as e-commerce.

The frequency and scale of damage from natural disasters such as typhoons, heavy rains, floods, and earthquakes are increasing due to climate change, and this could significantly impact overall business activities through temporary store closures, disruption to the supply of products, and substantial costs for facility restoration. In addition to renovation and regular inspection of aging facilities and disaster prevention education, the Company conducts drills at least once a year based on its "Crisis Management Guidelines" and maintains disaster relief supplies.

Private information such as customers' living conditions, health status, cosmetics purchase history, and skin information is centrally managed in the core system, and unauthorized external access or accidental information leakage could result in a decline in social trust and impact business performance. The Company works to enhance its information security management through the formulation of a basic policy on personal information protection, employee training conducted at least once a year, strict access restrictions on servers, and physical isolation from the internal network.

The in-house developed core system centrally manages information from directly-operated stores, manufacturing, and head office departments; however, if the system structure becomes bloated and complex, leading to legacy obsolescence, this could impact business performance through reduced operational efficiency resulting in lost business opportunities and increased maintenance costs. The Company continues efforts toward renewing its core system while strengthening information security and reviewing business processes, making appropriate decisions through regular reporting to the Board of Directors and the Risk Management Committee.

The Company conducts customer acquisition and sales activities under regulations such as the Act on Specified Commercial Transactions and the Consumer Contract Act, and given the high likelihood of future regulatory tightening from a consumer protection standpoint, any violation or delayed response to legal amendments could impact business performance through administrative guidance, business suspension orders, or a decline in social trust. The Company repeatedly conducts employee training based on its "Sales Guidelines" and implements monitoring from the three perspectives of customers, staff, and the organization, as well as service improvements based on email surveys.

The Company conducts advertising activities under regulations such as the Pharmaceuticals and Medical Devices Act, the Standards for Proper Advertisement of Pharmaceuticals, etc., the Act against Unjustifiable Premiums and Misleading Representations, and the Fair Competition Code Concerning Cosmetics Labeling. Given the high likelihood of future regulatory tightening, any violation or delayed response could result in administrative guidance, surcharges, criminal penalties, and other sanctions, potentially leading to a decline in social trust. The Company has established an advertising law support role within the Compliance Division to review advertisements produced in-house, and thoroughly operates its advertising in accordance with the "Guidelines for Proper Advertisement of Cosmetics, etc." of the Japan Cosmetic Industry Association.

Almost all skincare product production is carried out at a single facility, the Company's own "Production Center" plant in Tochigi Prefecture, completed in 1968. If a substantial increase in production volume accompanying full-scale entry into global markets leads to equipment or personnel shortages, or if aging causes building damage, this could impact business performance. The Company addresses this through regular facility and equipment inspections and timely repairs and capital investment, securing storage space through manufacturing registration of a nearby warehouse, and a production personnel recruitment plan based on its medium- to long-term sales plan.

The Company has three domestic group companies and one overseas group company; if a subsidiary fails to achieve expected performance or results, or if misconduct is discovered, this could impact the consolidated financial performance of the Company's group. In parallel with pursuing synergies through strengthened human and physical collaboration, the Company applies its governance and compliance framework to group subsidiaries as well, working to operate an effective management structure.