NICHIRYOKU CO.,LTD.

The company recorded an operating loss in FY2025 (ended March 2025), and its on-hand liquidity has remained at a low level due to fund management prioritizing debt repayment. Although a third-party allotment of new shares was implemented in May 2025, uncertainty about the outlook has not been dispelled, and it is explicitly stated that circumstances exist which raise material doubt about the going concern assumption. While measures such as stabilizing revenue from urban ossuaries, reforming sales strategy, and stabilizing finances are being pursued, these are still in progress, and material uncertainty remains that, depending on the improvement in earnings and sales conditions, there could be difficulty in securing on-hand liquidity.

There is a risk that, due to changes in financial markets or deterioration of the company's financial condition, financial institutions may change the terms of lending and credit facilities, making it difficult to raise necessary funds on appropriate terms and increasing funding costs. In addition, the syndicated loan agreement contains financial covenants, and if certain specified events occur, the company could lose the benefit of term extension and be required to repay the loan in a lump sum. As countermeasures, the company states it will improve its financial base through business performance improvement, thorough cash management, and the liquidation of tangible fixed assets and other measures.

When religious corporations and others develop cemeteries or ossuaries, funds of typically ¥500 million to ¥5,000 million are required, and the company may bear temporary funding burdens or provide debt guarantees. Since sales typically take 5 to 20 years to complete, recovery of deposited guarantee funds takes a long time, and if sales do not progress as planned, a funding burden arises from the guarantee deposits provided. If financial institutions' lending stance changes due to shifts in the economic environment, or in the case of sluggish sales, the company may be forced to fulfill its debt guarantee obligations, creating a risk of straining cash flow.

Development permits for cemeteries and ossuaries are regulated by the Act on Cemeteries, Burial, etc., the Building Standards Act, municipal ordinances, and other laws, and amendments to laws and regulations can significantly affect development progress. Cemeteries and ossuaries are subject to a permit system limited to non-profit entities such as religious corporations, and since it takes several years from obtaining approval to the start of sales, changes in the environment between the planning stage and the start of sales may cause revenue to fall below the initial plan. Development may also become impossible due to opposition from local residents, and the company states it will address this through selecting good locations and building good relationships with local residents.

The company holds business-use fixed assets, including land and buildings for stores, and if profitability declines or land prices fall due to deteriorating economic conditions or intensifying competition, it may need to recognize impairment losses, which could affect business performance and financial condition. In particular, given the current low level of on-hand liquidity, recording impairment losses risks further worsening the financial base. As a countermeasure, the company states it will accelerate efforts to improve asset profitability and thereby improve cash flow.

In both the Grave Business and the Funeral Business, the company's customers are general consumers, and it faces intense competition from competitors in terms of products, services, and prices. Against the backdrop of the declining birthrate and super-aging population, entry into the elderly market is increasing from both same-industry and different-industry players, making intensifying competition inevitable. If consumers choose competitors and the company's business competitiveness relatively declines, this could adversely affect business performance, and the company states it will address this through meticulous marketing and efficient advertising.

The declining birthrate and super-aging population is a national issue that will certainly continue to progress, and responding to the era of the '100-year life' is considered essential. If the company falls behind in responding to this major social change, combined with increasing competitive entry from same-industry and different-industry players, there is a risk of losing market share. On the other hand, expansion of the elderly market is certain, and if the company can provide plans and services that meet consumer needs, this represents a good opportunity for business expansion.

The gravestones (stone materials) sold by the company are almost 100% denominated in US dollars and are mainly imported from China, so foreign exchange fluctuations caused by geopolitical risk, interest rate hikes by major countries, and trade friction directly affect cost of sales. When the yen depreciates, procurement costs rise, creating a risk of pressure on profitability, and there are particular concerns that if manufacturing and exports are restricted due to measures such as lockdowns in China, switching to domestic procurement could cause a sharp rise in the cost ratio. The company states it will minimize fluctuation risk through appropriate management of its supplier portfolio.

The company holds interest-bearing debt and financial receivables, and interest rate fluctuations affect interest paid and received as well as the value of financial assets and liabilities, potentially worsening business performance and financial condition. Although the company continues efforts to resolve excess debt, an interest-bearing debt balance still remains, and there is a risk that the financial burden will increase in a rising interest rate environment. The company states it will reduce interest expenses through appropriate portfolio management of long-term financing and interest-bearing debt.

The company handles personal information from customers and confidential corporate information, and there is a possibility of external leakage due to misconduct or negligence. In addition, if the company's trade secrets were to leak, this could have a significant impact on its credibility, business performance, and financial condition. As countermeasures, the company states it will promote thorough guidance to officers and employees on information management, strengthen computer system security, and build an education framework.