HASEGAWA CO., LTD.

As lifestyles and values change, Buddhist altars and gravestones are becoming smaller and lower-priced, while demand is rising for new forms of memorial services such as tree burials, communal graves, and sea burials. There is a risk that declining unit prices and sales volumes of existing products could pressure business performance. The Group is responding by reviewing its product and service lineup and pursuing new business formats, but keeping pace with the speed of change remains a challenge.

The majority of products sold are dependent on imports from China and other Asian countries, and raw materials such as wood for Buddhist altars and stone for gravestones are also concentrated at overseas partner factories. If changes in overseas political conditions, deterioration of the economic environment, sharp yen depreciation, or rising transportation costs cause raw material price increases or disruptions in the supply of components, this could lead to deteriorating product profit margins and lost business opportunities, potentially affecting business performance. Some components are difficult to source from alternative suppliers.

In order to acquire grave construction rights for cemeteries, the Company places business deposits with religious corporations at the development planning stage, and there is a risk that recovery of these deposits becomes difficult if unexpected events occur, such as disapproval or revocation of permission to open a cemetery. Even for already-opened cemeteries, recovery may become prolonged due to changes in customer trends or the environment, and if recovery is judged to be difficult, an allowance for doubtful accounts will be recorded, affecting business performance. The Company considers avoiding business risk prior to placing deposits, but uncertainty arising from the administrative permit system cannot be eliminated.

In consignment sales of indoor cemeteries, under contracts with religious corporations, the Company is obligated to deposit any shortfall as a deposit with the religious corporation if the consignment sales amount falls short of the guaranteed amount. Deposits placed may take a long time to recover depending on customer trends and sales conditions at each facility, and if recovery is judged to be difficult, an allowance for doubtful accounts must be recorded, potentially affecting business performance and cash flow.

Securing cemeteries and gravesites is essential to gravestone sales, but stricter cemetery development regulations by local governments and disputes between developers and neighboring residents have made new cemetery development by religious corporations more difficult than before. Customer needs are shifting toward locations close to daily living areas and memorial formats that place less burden on successors, and if the Company cannot secure sufficient quality cemeteries and gravesites, this could directly affect sales in the Gravestone segment.

The Group's main business locations and product distribution centers are concentrated in the Kanto region, centered on the greater Tokyo metropolitan area, and if distribution channels or store facilities are damaged by a large-scale earthquake, typhoon, infectious disease outbreak, or other event, this could disrupt product procurement and sales. In addition, since developing factories capable of manufacturing products meeting quality standards takes considerable time, if overseas partner factories suffer severe damage, it would become difficult to procure sufficient quantities of price- and quality-competitive products.

The Group owns equipment and other assets at its stores and head office and applies impairment accounting; if profitability of stores deteriorates or the market value of held assets declines significantly, impairment losses may be recorded. As the Group operates more than 100 directly operated retail stores, there is also a coexisting risk of losses such as losses on retirement of fixed assets associated with store relocation and renovation investments. These risks directly affect the Group's business performance.

The majority of the stores operated are leased properties, and there is a risk that lease agreements could be cancelled for reasons attributable to the lessor. In addition, deposits placed with lessors may become partially unrecoverable due to the lessor's bankruptcy or other reasons. Since lease terms are renewed by agreement with the lessor, the certainty of contract continuation depends on the lessor's circumstances.

The Group handles a large amount of customer information and personal data, and if an unforeseen event results in external leakage, this could lead to a decline in social credibility and claims for damages, affecting business performance. The Group has taken measures such as establishing internal regulations, building information system security systems, and raising awareness company-wide, but the risk cannot be completely eliminated.

The Group's net sales are highly seasonal, tending to concentrate in the second quarter (July to September), which includes Obon and the autumn equinox holiday, and the fourth quarter (January to March), which includes the spring equinox holiday. This concentration of sales in specific quarters carries the risk of amplifying the impact of external factors occurring during those periods, such as unusual weather, spread of infectious disease, or natural disasters, on overall annual business performance.