NOVARESE,Inc.

According to estimates by the National Institute of Population and Social Security Research, Japan's total population is projected to decline to 87 million by 2070, raising concerns that the overall bridal market will shrink due to a decreasing population of marriageable age and a rising unmarried rate. Should this market contraction materialize, it could have a direct adverse impact on the Group's revenue and number of weddings held in the domestic market. This is a structural and long-term risk for which fundamental countermeasures are limited.

As of December 31, 2025, total borrowings amounted to ¥12,371 million, with the ratio of borrowings to total assets reaching 33.6%. Since 91.1% of total borrowings bear floating interest rates and no interest rate hedging has been implemented, a rise in market interest rates could increase financial expenses, adversely affecting business performance, financial position, and cash flows. While the Group's policy is to reduce borrowings over the medium to long term, a risk remains if such reduction does not proceed as planned.

As of December 31, 2025, the Group recognized goodwill of ¥11,203 million on its consolidated statement of financial position arising from the LBO in December 2016, and also holds other tangible and intangible non-financial assets. If the profitability of the underlying businesses declines, the difference between carrying amount and recoverable amount would be recognized as an impairment loss, potentially having a material impact on the Group's financial position and business performance. Although periodic impairment testing is conducted, there remains a risk of sudden loss recognition due to deterioration in the external environment.

The loan agreements entered into by the Group include financial covenants relating to the maintenance of net assets and profitability. Breach of these covenants, if a demand is made by the lender, would result in the loss of the benefit of time for repayment. Similar risk could also arise if refinancing becomes difficult due to turmoil in financial markets or changes in financial institutions' lending stance, requiring the Group to secure funds for immediate debt repayment, which could seriously affect its financial position and cash flows. As of the filing date of this document, the Group is not in breach of any financial covenants.

Weddings and receptions tend to be concentrated in April–May (second quarter) and October–November (fourth quarter), with fourth-quarter revenue for FY2025 (ended December 2025) standing out at ¥7,858 million (35.7% of the composition). A downturn in the number of weddings held during peak seasons would have a significant impact on full-year performance, undermining the stability of earnings. Measures to smooth out seasonal fluctuations are limited, resulting in a structure that is highly susceptible to external factors.

Securing and developing capable personnel is essential to sustaining continued store expansion and maintaining service standards, and the Group conducts active recruitment activities both domestically and overseas along with OJT and job-specific training programs. However, if personnel acquisition and development fail to keep pace with store opening plans, the Group may be unable to open stores as planned, and the level of customer service may decline, adversely affecting brand value and business performance. Amid the declining birthrate and intensifying competition in the labor market, there is a risk that structural recruitment difficulties will persist.

Unpredictable factors such as geopolitical risk, climate change, natural disasters, and pandemics carry the risk of driving up procurement costs for foodstuffs as well as utility costs. Although the Group responds through measures such as revising wedding plans, if price increases cannot be passed through to selling prices, profit margins would be squeezed through higher cost of sales. Exchange rate fluctuations also affect the cost of overseas procurement of wedding attire, foodstuffs, and other items, compounding the factors driving up costs.

Hotels and specialized wedding halls are entering the guest house wedding market through the renovation of existing facilities, while new entrants from other industries are also increasing, intensifying the competitive environment. If this intensified competition leads to higher customer acquisition costs or a decline in per-wedding revenue, it could adversely affect the Group's business performance. The Group seeks to differentiate itself through its planning and proposal capabilities for wedding styles, but there remains a risk of imitation by competitors.

The Group handles the personal information of a large number of customers, including brides and grooms, and has established countermeasure systems against unauthorized access and computer viruses, as well as its "Basic Regulations for Personal Information Protection" and internal training programs. Nevertheless, should personal information be leaked despite these measures, the Group could face legal liability as well as a decline in social trust, leading to customer attrition and deteriorating business performance. Given the nature of the Bridal Business, the Group holds a large volume of customers' sensitive information, and reputational damage in the event of a leak would be particularly severe.

If social and economic activities are restricted due to the spread of infectious diseases or large-scale natural disasters, weddings and receptions could face concentrated postponements and cancellations, potentially having a severe impact on the Group's business performance. Although the Group aims for agile response through the establishment of a crisis management headquarters and internal communication systems, a heavy financial burden could arise if recovery requires substantial cost and a prolonged period. Past experience with pandemics also shows that the bridal business is an industry directly and highly susceptible to restrictions on outings and gatherings.