Decollte Holdings Corporation

The Group's revenue and profit are highly dependent on the Photo Wedding Service, and a slowdown in growth of this market or an unexpected decline in demand would directly affect its financial position and business performance. In addition, the Group has a seasonal profit structure weighted toward the autumn and spring peak seasons, and there is a risk that adverse weather such as typhoons occurring during these periods could significantly impair performance for that period. Because the business model relies on directly employing photographers and makeup artists and has a high ratio of fixed costs such as store rent, deterioration in profitability tends to be amplified when demand declines.

As of the end of the current fiscal year under review, interest-bearing debt stood at ¥5,884,003 thousand (interest-bearing debt ratio of 118.1%), indicating a high level of financial leverage. Of this, the outstanding loan balance of ¥1,747,998 thousand arising from bilateral transactions with Sumitomo Mitsui Banking Corporation and six other banks is under a floating-rate contract in which the interest rate is reviewed every three months in line with market interest rates, and future increases in market interest rates could affect the financial position and business performance. As countermeasures, the Group continuously formulates strategies and conducts management with an emphasis on profitability, and plans capital expenditures and new store openings with reference to operating cash flow.

As of the end of the current fiscal year under review, goodwill recorded amounted to ¥5,635,785 thousand, representing a high proportion of total assets at 45.7%. Under IFRS, amortization is not required, but if an impairment loss arises due to a decline in business earning power, it could have a material impact on the financial position and business performance. At present, an impairment loss would occur if the pre-tax discount rate rose by 160.4% or if the estimated amount of future cash flows decreased by 57.1%, and the Group is working to strengthen earning power through meticulous store opening strategies and customer acquisition techniques.

If competitors surpass the Group in capital strength, service quality, price competitiveness, or other factors, it may become difficult to maintain order levels, which could affect the financial position and business performance. In particular, if competitors offer services of equal or higher quality at lower prices, there is a risk that the Group's measures will fail to achieve the expected effect, resulting in a decline in its competitive advantage. The Group strives to maintain competitiveness through continuous new store openings and improvements in service quality, but the impact could be significant if it is slow to respond to changes in the competitive environment.

As a business operator handling personal information, the Group holds a large volume of customer information. If personal information is leaked due to human error, natural disasters, security breaches by third parties, or unauthorized access, it could result in liability for damages to customers as well as damage to the corporate image and loss of trust, thereby affecting the financial position and business performance. As countermeasures, the Group has established regulations for managing customer information and has implemented safety measures such as locked storage of documents and data and password management, but complete protection cannot be guaranteed given the increasing sophistication of cyberattacks.

Because the business model directly employs specialized personnel such as photographers and makeup artists, securing and developing excellent talent is a prerequisite for business expansion. If the Group is unable to secure the necessary personnel or if key personnel leave, it could lead to delays in store opening plans or disruptions in the operation of existing stores, thereby affecting the financial position and business performance. The Group is implementing measures to improve employee satisfaction, such as enhancing recruitment activities, strengthening education and training, and raising wages, but there is a risk that securing personnel will become even more difficult due to intensifying competition in the labor market.

Many of the Group's customers become aware of its websites via specific search engines such as Google and Yahoo! JAPAN, resulting in a customer acquisition structure that relies on SEO and internet advertising marketing. If search engine algorithms change significantly or if existing methods cease to function effectively for some other reason, the number of customers acquired could decline substantially, affecting the financial position and business performance. The Group strives to maintain and improve its customer acquisition capabilities through SEO enhancement and continuous use of internet advertising.

The Studio Business is subject to the Barber and Beautician Act, and its advertising is subject to regulation under the Act against Unjustifiable Premiums and Misleading Representations. The introduction of new regulations or the strengthening or amendment of existing regulations could have a material impact on the financial position and business performance. Should the Group violate these laws and regulations, there is a risk of loss of social credibility. The Group strives for legal compliance by enhancing its internal management system, promoting internal training, and building a group-wide unified advertising review system.

IBJ, Inc., the largest shareholder, held 32.96% of the Company's issued shares (excluding treasury shares) as of the end of the current fiscal year under review, and changes in its holding policy could affect the liquidity and market price of the Company's shares. Furthermore, as of the filing date of the Annual Securities Report, IBJ, Inc. is conducting a tender offer with the aim of making the Company its consolidated subsidiary, which could affect the Company's management independence and decision-making. The Group's response policy is disclosed as a subsequent event.

The Group regards M&A as an effective means of its growth strategy and plans to invest in photography-related and peripheral businesses. However, if unforeseen events arise after the execution of an M&A transaction that were not anticipated during due diligence, or if business development does not proceed as planned, an impairment loss on goodwill or other assets may occur, affecting the financial position and business performance. There is also a risk that new businesses may fail to achieve the results initially planned due to changes in the business environment. When conducting M&A, the Group seeks to reduce risk by carrying out detailed due diligence on the target company's business, finances, and legal matters.