SAKURASAKU PLUS,Co.,Ltd.

Opening new nursery schools requires securing qualified personnel such as nursery teachers, dietitians, and nurses, but there is a risk that talent acquisition may not keep pace with the pace of facility expansion. In addition, if labor costs for necessary personnel rise and are not sufficiently offset by subsidies, this could adversely affect business performance. The Group addresses this through nationwide recruitment activities conducted throughout the year and enhanced training programs, but the shortage of nursery teachers is a structural issue across the entire industry.

The Group's revenue is highly dependent on subsidies based on national and local government policies aimed at eliminating waitlisted children for nursery schools, and if policy revisions lead to subsidy reductions or the disallowance of nursery school openings by corporations, this could have a material impact on business performance. The enactment, amendment, or abolition of related laws such as the Child Welfare Act and the Act on Support for Children and Child-Rearing, as well as changes in administrative interpretation, pose similar risks. The supervisory authorities span a wide range including the Ministry of Health, Labour and Welfare, prefectures, and municipalities, and the scope of impact from policy changes is broad.

The performance of the Childcare and Child-Rearing Support Business (Single Segment), the Group's core business, is directly linked to trends in the number of children, and a rapid decline in the birthrate or market contraction resulting from the elimination of waitlisted children could affect business performance. Since demand for childcare is determined by demographic trends, the risk of long-term market contraction is structural and irreversible in nature. The Group is also working on new business initiatives, but currently remains highly dependent on the Childcare and Child-Rearing Support Business.

All nursery facilities operated by the Group have obtained authorization under the Child Welfare Act, and violations of related laws and regulations, fraudulent claims for benefit payments, or non-compliance with improvement orders constitute grounds for revocation. If authorization is revoked, continued operation of the facility in question would become impossible, which could have a material impact on business performance. As of the date of submission of this document, no grounds for revocation have arisen, but maintaining a compliance system remains an ongoing challenge.

Funds for facilities related to new nursery school openings are procured through borrowings from financial institutions and other means, and the interest-bearing debt ratio remained at a high level, at 34.7% in the previous consolidated fiscal year and 29.2% in the current consolidated fiscal year. If rapid fluctuations in interest rates or changes in financial conditions prevent fund procurement as planned, this could hinder new opening plans. In addition, contracts with some financial institutions include financial covenants, and breach of these covenants would require lump-sum repayment, which could have a material impact on the Group's financial condition and business performance.

Newly opened nursery schools tend to have unfilled capacity for children aged 3 to 5 at the time of opening, with capacity approaching full enrollment as the children's ages progress, resulting in low profitability that worsens operating income for several years from the first year of opening. In addition, because the Group adopts subsidy accounting treatment based on the surplus appropriation method, operating income tends to further deteriorate for several years after opening due to the recording of depreciation expenses. As long as the Group continues its policy of actively opening new facilities, this impact is expected to remain significant for the time being.

While the Group strives to manage food and hygiene and ensure the safety of children in the operation of nursery schools, if food safety issues or other accidents occur, this could affect business performance through business suspension orders from local governments, litigation, or a decline in users due to reputational damage. Given that nursery facilities care for a large number of children, there is a risk that a single accident could lead to significant damage to social credibility. Although the Group has established a rigorous management system, complete prevention of accidents is difficult.

Representative Director and President Yoshitaka Nishio and Director and Senior Vice President Takashi Nakayama are co-founders with expertise in the nursery care industry and the real estate industry, and play important roles in management policy and strategy formulation. Each of them, including their respective asset management companies, holds 24.6% of the total number of issued shares, and if either or both were to become unable to continue executing their duties, this could affect business performance. In addition, if either of them were to sell their shares on the market, or if the possibility of such sales were to arise, this could affect the stock price.

Opening a licensed nursery school requires leasing real estate from property owners and obtaining authorization from local governments, and if obstacles arise in relationships with real estate-related businesses, or if information on optimal properties cannot be obtained in a timely manner, the number of new openings may decrease, affecting business performance. In addition, if opposition movements arise from nearby residents, there is a risk that the number of new openings may decrease due to delays in opening or abandonment of opening plans. The Group addresses this through building relationships with real estate-related businesses and holding explanatory meetings for local communities, but the impact of external factors cannot be completely eliminated.

The Group operates nursery schools and other facilities primarily in the greater Tokyo metropolitan area, and if facilities, users, or employees suffer damage due to earthquakes, fires, or other events, facility operations could become difficult, affecting the Group's financial condition and business performance. If infectious diseases such as COVID-19, novel influenza, or norovirus spread, there is also a risk that facility operations could become difficult due to a large number of absences among nursery teachers and staff. The Group implements infectious disease countermeasures such as regular disinfection, but there are limits to its ability to respond to large-scale natural disasters or infectious disease outbreaks.