MS&Consulting Co., Ltd.

Because the Group applies IFRS, periodic amortization of goodwill is not required; however, the Group recorded an impairment loss of ¥398,309 thousand in the fiscal year under review and has failed to meet earnings forecasts for the two most recent consecutive periods. Following the impairment test, the recoverable amount is equal to the carrying amount, so a decline in future cash flows or a rise in the discount rate could result in additional impairment losses. The recovery of business performance to pre-COVID-19 levels has been delayed relative to initial expectations, and the risk of impact on the financial position continues.

In connection with the operation of MSR, the Group holds a large volume of personal information on monitors and also handles a substantial amount of confidential information belonging to client companies. If information leakage occurs due to computer viruses, unauthorized access, or intentional or negligent acts by employees, this could damage brand image, give rise to claims for damages, or result in fee reductions. The Group has implemented measures such as regular employee training, third-party security assessments, and enhanced access monitoring, but the costs of responding to amendments to domestic and overseas personal information protection laws and regulations represent an additional risk.

Rising prices and labor cost increases stemming from labor shortages have led to an upward trend in monitor reward unit prices and report production costs. The Group is pursuing measures such as negotiating price pass-through with client companies, reducing costs through the use of AI, and reducing assignment costs through ID integration with LINE; however, if client companies' tolerance for price pass-through is limited or if price and labor cost increases exceed expectations, this could lead to a further decline in profit margins and adversely affect business results.

The Group operates a single business, the Mystery Shopping Research Business, and its performance is directly linked to client companies' investment in customer satisfaction and training programs. If the market environment cools sharply, there is no other business through which to offset the impact, resulting in a structure in which the effect on business performance is concentrated. The Group is working to expand its service lineup, enhance added value, and diversify its client base, but risk hedging through business diversification remains limited.

The Group's business is affected to a certain degree by trends in client companies' investment in education and training. If client companies' investment appetite declines due to an economic downturn or deterioration in economic conditions, this could result in sluggish acquisition of new clients, decreased orders from existing clients, and an increase in mid-term contract cancellations. Under the MSR terms of use, clients may cancel mid-term or postpone the usage period with three months' advance notice, and a sharp increase in cancellations would directly affect business results. The Group strives to mitigate this impact by monitoring market trends and diversifying its services.

Growth of the Mystery Shopping Research Business requires securing monitors with attributes and in numbers matched to demand across each prefecture in Japan as well as in East Asia and Southeast Asia. If a sharp increase in demand or an imbalance in survey regions or monitor attributes prevents the Group from securing sufficient monitors matched to client needs, its ability to respond to orders may decline, affecting business results. The Group seeks to expand its monitor pool through effective advertising and expansion of its network of partner companies.

The Group utilizes information systems and the internet for conducting surveys, producing and delivering reports, and providing e-learning through MSR and the SaaS product group "tenpoket." If a system failure occurs due to a natural disaster, program defect, unauthorized access, or other cause, this could result in suspension of operations or service provision, or the loss of important data. This could affect the business, business results, and financial position through damage to brand image, incurrence of response costs, or fee reductions. The Group continues to develop its business continuity plan (BCP) and related systems, but its high degree of reliance on systems heightens this risk.

Securing and developing specialized personnel for consulting, report production, systems development, and statistical analysis is fundamental to the Group's business operations; however, with 151 employees (as of February 28, 2025), the organization remains small in scale, and its internal control systems are commensurate with that scale. If the Group is unable to secure and develop the necessary personnel, or if personnel leave for outside opportunities, this could adversely affect business operations and business results. The Group has adopted a policy of strengthening its workforce and enhancing its internal control systems in line with business expansion.

In its business operations in East Asia and Southeast Asia, unpredictable events such as political instability, changes in legal systems, terrorism, or difficulty in securing personnel could cause delays in business plans. Significant foreign exchange fluctuations and a decline in clients due to deterioration in local credibility or corporate image also pose risks that could affect business results. While the Group intends to pay close attention to overseas market trends and respond appropriately, its ability to respond to geopolitical risks and regulatory changes remains limited.

In the MSR business, contracts with monitors take the form of outsourcing agreements akin to web-based membership registration, and future legal amendments or the enactment of new laws could restrict business activities. In addition, the Group faces the risk of becoming a party to lawsuits or other legal proceedings brought by client companies, business partners, employees, or competitors in connection with breach of contract, labor disputes, information leakage, and similar matters, and an adverse judgment or unfavorable settlement could negatively affect the business, business results, and reputation. The Group strives to ensure legal compliance by building internal management systems in collaboration with lawyers and other specialists.