ASAKUMA CO., LTD.

The food service industry is a mature market, and competitive conditions are intensifying due to price competition among companies and the growth of the ready-to-eat market. Barriers to new entry are low, and changes in customer preferences or declines in satisfaction leading to reduced customer visits could affect operating results. The Company is addressing this through differentiation via human resource development, improved customer service, and menu revisions, but risks of increased procurement costs due to fluctuations in food material market conditions and changes in the social environment (such as infectious disease outbreaks) also coexist.

The majority of the Company's revenue depends on the Steak no Asakuma brand, and if any scandal causes brand impairment, it could have a material impact on operating results and financial condition. Although the Company operates multiple business formats, the concentration of revenue on its core brand is high, making the scope of impact from brand risk wide-ranging. There is also a risk of accelerated brand value impairment due to the spread of reputational damage via the internet and social media.

The beef used in the core menu items is procured through domestic meat wholesalers, but there is a possibility that procurement prices could surge due to significant exchange rate fluctuations or sudden increases in domestic and overseas demand. If sharp price increases or difficulties in securing quantities occur for other raw materials as well, procurement costs will increase, affecting operating results. This is also linked to the risk of reduced customer traffic due to price increases, creating a structure in which the limits of cost pass-through put pressure on earnings.

The majority of all employees are part-time and temporary staff, and due to an increase in competitors in store opening areas and difficulty securing employees in some areas, part-time hourly wages have continued to rise, causing labor costs to increase sharply. If amendments to labor-related laws and regulations (such as social insurance and labor insurance) occur, labor-related expenses could increase further. If the Company fails to secure and develop excellent human resources, it will directly lead to delays in new store opening plans, affecting the overall growth strategy.

If store performance deteriorates due to changes in trade area population, traffic volume, competing store conditions, etc., the Company has a policy of recognizing impairment losses on fixed assets, which could affect operating results and financial condition. The occurrence of idle assets due to store closures is also a factor in recording impairment losses. In addition, there is a risk that some or all of leasehold and guarantee deposits may become uncollectible in the event of the lessor's economic insolvency or early termination of contracts.

The Company is subject to a wide range of legal regulations, including the Food Sanitation Act, the Act on Prohibition of Drinking by Minors, the Road Traffic Act, the Act on Control and Improvement of Amusement Business, and the Food Recycling Act, and there is a risk of business suspension or license revocation in the event of a food poisoning incident. Although the Company assigns a food hygiene manager to each store and conducts regular hygiene inspections, any violation of laws and regulations could lead to restrictions on store operations and a decline in social credibility. Strengthening of regulations under the Food Recycling Act could also result in the need for new capital investment expenditures.

If the spread of infectious diseases such as novel influenza or COVID-19 forces people to refrain from going out or requires shortened business hours, a decline in customer numbers could affect operating results and financial condition. If an infectious disease occurs on a global scale, there are concerns about impacts on the entire supply chain, including suppliers, logistics providers, and production plants, as well as risks of delayed delivery of procured goods due to travel restrictions and city lockdowns. As demonstrated by past experience with COVID-19, the impact on the food service industry can be severe.

Information processing for sales management, profit and loss management, food ordering, attendance management, payroll calculation, accounting processing, and other functions is centrally managed by the administrative headquarters, and if unforeseen events such as natural disasters, equipment failures, network failures, or cyber attacks occur, this could disrupt overall operations. There have been cases of delivery disruptions caused by cyber attacks in the distribution industry, and while the Company is working to strengthen security through backups and antivirus measures, the risk cannot be completely eliminated. System failures directly affect core operations such as store management, food procurement, and payroll payment.

Tenpos Holdings Co., Ltd., the parent company, holds a majority of the Company's issued common shares, and could exert influence over fundamental matters such as the election and dismissal of directors, mergers and organizational restructuring, transfer of important businesses, amendments to the articles of incorporation, and dividends of surplus, regardless of the wishes of other shareholders. Although a framework has been established requiring the Related Party Transaction Review Committee to express its opinion and the Board of Directors to approve related party transactions, the risk that the interests of minority shareholders may be impaired remains. Although the Company is working to eliminate related party transactions from the perspective of ensuring independence, breaking away from the group-dependent structure will take time.

The Company's business activities are concentrated in the Tokai and Kanto regions, and if a large-scale disaster such as an earthquake occurs in these areas, damage to operating stores could result in reduced operating days and hours, affecting operating results and financial condition. Reduced opportunities and willingness of consumers to dine out due to bad weather, abnormal weather conditions, disasters, conflicts, etc., are also factors in demand fluctuation. Furthermore, if bad weather affects agricultural products and the Company is unable to procure the desired quality and quantity, this could lead to a decline in customer satisfaction and a reduction in the number of visits.