AB&Company Co., Ltd.

As of the end of the 8th fiscal year (consolidated), the Group recorded interest-bearing debt of ¥13,477 million (interest-bearing debt ratio of 49.8%), of which ¥6,995 million is linked to market interest rates, exposing business and financial performance to the impact of rising interest rates. Certain borrowings are subject to financial covenants (obligations to maintain net assets, ordinary income, etc.), and breach of these covenants could result in demands for lump-sum repayment. In response, the Group implements profitability-focused management and investment/funding plans that are mindful of financial balance.

As of the end of the 8th fiscal year (consolidated), the Group recorded goodwill of ¥9,713 million and trademark rights (intangible assets) of ¥4,261 million, together accounting for a high proportion of 51.6% of total assets. Impairment losses may arise if the pre-tax discount rate rises by 4.1% or if estimated future cash flows decrease by 24.0%. The Group works to reduce impairment risk by strengthening the profitability of its businesses (securing stylists, WEB customer acquisition, regional expansion).

The Group primarily enters into business outsourcing contracts (individual contractor agreements) with stylists; however, future changes in laws and regulations, judicial precedents, or administrative interpretations could result in labor-related laws (the Labor Contract Act, the Labor Standards Act, etc.) becoming applicable. If applied, this would generate additional costs such as social insurance premium burdens and the establishment of working conditions, which could materially affect the business model and operating results. The Group maintains a system of continuous monitoring of legal and regulatory trends in cooperation with its retained attorney and labor and social security attorney.

The competitiveness of the beauty salon business is directly linked to the quality and quantity of stylists, and failure to secure and train stylists as planned could reduce competitiveness and constrain business expansion. The Group seeks to attract diverse talent through its business outsourcing model, has established training facilities nationwide, and works to prevent the departure of talented personnel through its independent business start-up support program. However, due to the nature of business outsourcing contracts, the Group cannot provide specific individual direction and supervision, which entails a risk of disruption to store operations.

The Group positions M&A, including acquisitions of franchise companies, as a primary means of business expansion, and additional goodwill may be recorded in connection with such acquisitions. If contingent or unrecognized liabilities not identified during pre-acquisition due diligence come to light, or if post-acquisition business development fails to meet plans, impairment of goodwill may become necessary, affecting financial position and operating results. Although the Group has established a system for conducting detailed due diligence and risk assessment, complete elimination of this risk is difficult.

With the WEB reservation ratio accounting for approximately 80% for the full fiscal year ending October 2025, the majority of customer acquisition depends on "HOT PEPPER Beauty," a service provided by Recruit Co., Ltd. Any changes to the service's specifications, fee revisions, or service suspension could significantly reduce customer acquisition capability, directly affecting operating results. While the Group is considering diversifying its reservation channels, the development of alternative means remains in progress at this time.

The beauty salon industry has low barriers to entry and numerous competitors, and insufficient differentiation could affect the Group's business, financial position, and operating results amid intensifying competition. The Group's policy is to establish an advantage through WEB customer acquisition capability and stylist recruitment, but as it operates a single business format (beauty salon chains), it also faces the structural vulnerability of being unable to offset shifts in consumer needs through other business formats.

The Group's business foundation depends on the franchise network operated through B-first Co., Ltd., and withdrawal of franchisees would affect operating results through decreased sales and royalty income. The Group seeks to prevent withdrawal through sharing of success know-how among owners and multifaceted support, but the risk of withdrawal for various reasons cannot be eliminated.

The Group acquires and manages large volumes of customers' personal information, and any leakage would result in a loss of social trust and adversely affect operating results. While the Group has established personal information handling regulations and a management and operational framework, the risk of leakage due to cyberattacks or internal misconduct remains ever-present.

Operating results may be affected if the number of store visitors declines due to the spread of infectious diseases, or if adverse weather such as cool summers, prolonged rain, or typhoons coincides with periods of expected demand growth (March, July, December). The ongoing trend of declining visit frequency due to lifestyle changes also entails a further risk of decreased customer numbers. The Group works to spread out demand through coupon distribution and promotional campaigns, but the effectiveness of these measures may be limited.