QLS Holdings Co., Ltd

When a new nursery school opens, it takes time to fill capacity in the older-age classes, so the occupancy rate tends to be low for several years from the first fiscal year of opening, and operating losses tend to occur due to increased recruitment and training costs. In addition, since pre-opening expenses are recorded as non-operating expenses, an increase in the number of facilities or their enlargement puts pressure on ordinary income. In FY2026 (ending March 2026), the Company recorded facility development subsidy income of ¥163,276 thousand and a loss on reduction entry of fixed assets of ¥163,276 thousand, and delays in the facility opening plan could also affect the timing of subsidy income recognition.

The Group has made substantial investments in buildings and equipment for childcare and nursing care facilities, and if business results deteriorate significantly, recovery of the investment may become difficult, requiring impairment processing. In FY2026 (ending March 2026), the Company recorded an impairment loss of ¥144,611 thousand, and the potential impairment risk also expands as the number of facilities increases. If facility occupancy rates decline or the number of users continues to decrease, additional impairment losses may occur, potentially affecting the financial condition.

While the Company has established systems to ensure the safety of users in operating childcare and nursing care facilities, if a serious accident were to occur, it could result in a business suspension order from a local government, damage claims from guardians or others, and a significant decrease in users due to reputational damage. No accident having had a significant impact on business results has occurred to date, but the absolute magnitude of risk increases as the number of facilities expands. Since the occurrence of an accident is also linked to the revocation of licenses, a compound impact is a concern.

The Group operates facilities under numerous licenses and designations obtained pursuant to the Child Welfare Act, the Long-Term Care Insurance Act, the Act on Comprehensive Support for Persons with Disabilities, the Worker Dispatching Act, and other laws in its Childcare Business, Nursing Care & Welfare Business, and Staffing Business. If a license or designation is revoked by an administrative agency due to a violation of laws and regulations or improper billing, continued operation of the relevant facility would become impossible, potentially having a material impact on the Group's financial condition and business results. No grounds for revocation have arisen at present, but the importance of risk management is increasing as the number of facilities expands.

Representative Director and President Takeshi Amada is the founder of the Group, and with his deep knowledge of the childcare and nursing care industries, plays a central role in formulating management strategy. While the Company is proceeding with delegation of authority to executives and the development of its corporate governance structure, if he were to become unable to continue performing his duties, this could cause significant disruption to management. Developing successors and establishing an organizational decision-making structure remain important ongoing challenges.

The number of potential shares from stock options granted as incentives to officers, employees, and external collaborators is 259,200 shares, equivalent to 3.5% of the total number of issued shares of 7,485,880 shares. If these options are exercised, new shares will be issued, potentially diluting the value per share and the voting rights ratio. If additional stock options are granted in the future, there is a risk that the degree of dilution will further increase.

The Childcare Business is highly dependent on national and local government policies and subsidy systems, and if restrictions are imposed on the opening of licensed nursery schools by corporations or subsidies are reduced, business expansion would become difficult. In the Nursing Care & Welfare Business as well, if compensation is reduced through periodic revisions of the long-term care insurance system, earnings would be directly squeezed. If unit prices for outsourcing fees or compensation are revised mid-period, there is a possibility of retroactive settlement back to the beginning of the period.

Both the Childcare Business and the Nursing Care & Welfare Business are highly dependent on domestic demographic trends, and the progression of the declining birthrate and aging population affects the business environment. In the Childcare Business, the number of children on waiting lists continues to decline, and while it is expected that an increase in usage rates due to a rising female employment rate and other factors will outweigh the impact of population decline, business results would be affected if usage rates decline more than expected. In the Nursing Care Business, while market expansion is expected due to the aging population, there is likewise a risk that usage rates may fall short of expectations.

The Company procures capital for new facility openings through borrowings from financial institutions and corporate bonds, and as of March 31, 2026, its reliance on interest-bearing debt stood at a high level of 32.5% of total liabilities and net assets. If changes in financial conditions, such as a sharp rise in interest rates, make it difficult to raise funds as planned, this could hinder plans to open new facilities. In addition, if the Company breaches financial covenants attached to loan agreements, lump-sum repayment may be required, posing a risk of a material impact on the financial condition.

As the number of facilities expands, securing and developing qualified personnel such as licensed nursery teachers, child development instructors, and certified care workers remains an ongoing challenge. The Company is expanding transactions with recruitment agencies and diversifying its own hiring channels, but if the securing of personnel fails to keep pace with the rate of increase in the number of facilities, facility operations may not proceed as planned, potentially affecting business results. The shortage of human resources in the welfare and nursing care fields is a structural issue across the entire industry, and competition for hiring with competitors is also intensifying.