LIBERTA CO.,LTD.

At the end of the fiscal year under review, the balance of interest-bearing debt stood at ¥4,120,702 million (converted from the original figure denominated in thousands of yen: ¥4,121 million), representing 52.8% of total assets, with an equity ratio of 20.3%, indicating a high level of financial leverage. Should interest rates rise or financial market conditions change, the resulting increase in interest payment burden could affect operating results. No specific countermeasures are currently disclosed, and this financial structural vulnerability warrants continued monitoring.

Inventory at the end of the fiscal year under review was ¥2,379 million (original figure in thousands of yen: ¥2,379,337 thousand), up 30.4% year on year, accounting for 30.5% of total assets. Should a sharp economic downturn or demand fluctuation result in excess inventory, a significant decline in inventory valuation could affect operating results. The company is working to maintain appropriate inventory levels, but the increasing trend is expected to continue going forward.

Purchases are concentrated with two major suppliers, Shoei Corporation (14.3% of purchases) and Siam Health Group Co., Ltd (13.0% of purchases), together accounting for approximately 27.3% of total purchases. As there is no capital relationship with either company, the continuity and stability of transactions are not guaranteed, creating a risk that changes in management policy or trading terms at these suppliers could make stable procurement difficult. The company is working to secure a stable procurement framework through sales permission agreements and tripartite agreements.

In September 2023, an error in ingredient labeling was found in some products of the oral care brand "Dentiss," resulting in a suspension of shipments and a voluntary recall. Should a similar incident recur, costs associated with compensation, customer refunds, product recalls, and ingredient formulation changes could affect operating results. There is also a risk that reputational damage could have a similar impact even in the absence of an actual quality problem.

The company is subject to a wide range of legal regulations, including the Pharmaceutical and Medical Device Act, the Health Promotion Act, the Act against Unjustifiable Premiums and Misleading Representations, the Specified Commercial Transactions Act, the Food Sanitation Act, the Product Liability Act, and the Personal Information Protection Act, and future amendments or new legislation could restrict business activities. The company utilizes external consulting organizations, operates internal checklists, and maintains oversight through a Risk and Compliance Committee. Delayed response to changes in the regulatory environment could directly affect operating results.

The company holds licenses for cosmetics manufacturing and sales business and quasi-drug manufacturing and sales business (both issued by Tokyo Metropolitan Government, valid until October 2027), which could be revoked in the event of violations of the Pharmaceutical and Medical Device Act or disqualification of officers. Should a license be revoked or fail to be renewed, this could result in suspension of product sales and a decline in credibility, causing a material impact on business and results of operations. The company states that the risk of legal violations due to unforeseen human error cannot be completely eliminated.

In the fiscal year under review, export sales accounted for 7.3% of total sales, and overseas imports accounted for 18.6% of total purchases, exposing the company to foreign exchange fluctuation risk through foreign currency-denominated transactions. Sharp fluctuations in exchange rates could affect both selling prices and purchase prices, potentially worsening operating results. The company works to mitigate this risk by utilizing yen-denominated transactions in some cases and by setting internal exchange rates that anticipate unfavorable conditions.

Sales of Luminox products are based on a license agreement with Mondaine Watch Ltd, and should the relationship with that company deteriorate or its management policy change such that the license lapses, sales of the relevant products would become impossible. As Luminox is a core brand operated through directly managed stores, a suspension of sales could directly affect sales and earnings. Currently, the company maintains a favorable relationship and intends to continue sales.

Should competitors with greater capital strength, store networks, and brand recognition strengthen sales of products with concepts similar to the company's targeting the same customer segment, intensified competition could lead to price declines and affect operating results. The group operates in multiple categories, including cosmetics, toiletries, and functional apparel, and faces competition from major competitors in each category.

The company holds personal information such as customers' names and addresses, and should an unforeseen event result in information leakage or unauthorized use, this could affect operating results through a decline in social trust and the burden of monetary compensation. The company has established and operates a personal information management system compliant with JIS Q 15001:2006 and enforces thorough management, but the risk cannot be completely eliminated.