Hakuyosha Company, Ltd.

In the cleaning business, the market size has been on a mid-to-long-term declining trend amid the casualization of clothing, improved performance of household washing machines, and the spread of remote work. In the rental business, sales are highly concentrated among major corporate clients such as hotels and restaurants, creating a risk that sudden market shifts such as a pandemic could lead to declines in hotel occupancy rates or termination of transactions. In response, the company is promoting the closure of unprofitable stores, consolidation of bases in the Tokyo metropolitan area, integration with the rental business, and diversification of client industries through strengthened sales structures and collaboration with companies in other industries.

Under the three-year medium-term management plan starting in FY2024, whose pillars are "completion of structural reforms," "improvement of profitability through marketing," and "optimization of the business portfolio," if progress is delayed due to delays in structural reforms or other factors, it may adversely affect business results and financial condition. The company has established a monitoring system in which progress on figures and action plans is shared at monthly meetings attended by executives and division heads, and reported to the Board of Directors twice a year.

Natural disasters such as earthquakes and storms/floods could damage the Group's facilities and equipment, halt production activities due to difficulty in power or gas supply, incur restoration costs, and have a significant impact on client hotels and other business partners. As part of BCP strengthening, the company conducts initial response training including equipment measures assuming natural disasters, safety confirmation drills, and establishment of an earthquake response headquarters, while lowering the break-even point through flexible production adjustments at factories and converting costs to variable costs through use of outsourcing.

The company operates petroleum-based cleaning and drying equipment at dry cleaning factories, and in the event of a fire, there is a risk of significant damage including personal injury accidents, spread of fire to neighboring areas, loss of cleaning items, and equipment damage. The company implements fire and explosion prevention safety measures, maintains manuals based on relevant laws and regulations, conducts daily and periodic inspections using checklists, holds disaster prevention drills, and administers written examinations on the safe management of petroleum-based equipment and solvents.

The company relies partly on borrowings from financial institutions for business funds, and there is a risk that timely fundraising on favorable terms could become difficult due to economic downturns, financial contraction, or a decline in creditworthiness resulting from deteriorating business performance. In addition, rising long-term and short-term interest rates could increase borrowing costs, adversely affecting business results and financial condition. The company aims to strengthen its financial base by ensuring cash flow through close communication with financial institutions and reducing borrowings through improved profitability based on the medium-term management plan.

If soil improvement measures based on the Soil Contamination Countermeasures Act become necessary upon the closure of cleaning facilities, the associated countermeasure costs could adversely affect business results. There is also a risk that tightening or new introduction of environmental laws and regulations could disrupt operations or increase compliance costs. The company works to prevent environmental pollution in advance through solvent maintenance management and employee education based on the Group's environmental policy and environmental conservation regulations, installation of oil pans on dry cleaning machines, application of resin coating to floors to prevent solvent penetration, and voluntary wastewater measurement.

If external cyberattacks or ransomware infections result in the leakage of confidential or management information or the shutdown of core systems (such as HACS), this could lead to leakage of know-how, suspension of service provision, decline in social credibility, and compensation costs, adversely affecting business results and financial condition. In addition to technical measures such as installing security software, encrypting data, and managing server access, the company works to improve employees' IT literacy through regular targeted phishing email training.

Against the backdrop of a declining working population due to the low birthrate and aging population and intensifying recruitment competition, securing human capital responsible for customer service, work techniques, and specialized knowledge may become difficult. Delays in skills succession and declining retention rates could lead to a decline in service quality and stagnation of business operations, adversely affecting business results and financial condition. The company promotes planned recruitment of new graduates and mid-career hires, skills succession through in-house qualification and training systems, improved engagement through revisions to evaluation and compensation systems, and productivity improvements through investment in operational efficiency.

If, due to declines in market value or profitability, recovery of the investment amount for fixed assets including business real estate is no longer expected, impairment processing may become necessary, adversely affecting business results and financial condition. In addition, if it is determined that deferred tax assets are not recoverable based on future business trends, the deferred tax assets would be written down, resulting in a similarly adverse impact. The company continuously implements profitability improvement based on the medium-term management plan, appropriate asset valuation, and management of business plan execution to ensure proper management.

If human rights violation issues such as discriminatory treatment in employment practices or workplace harassment occur within the Group or at outsourcing partners, this could lead to decreased employee motivation and productivity, adverse effects on business operations, decline in social credibility, and compensation costs. In addition, the emergence of human rights issues in the supply chain could lead to a decline in corporate value or termination of business relationships. The company conducts human rights due diligence through the formulation of a human rights policy and harassment response policy, regular human rights training, establishment of internal and external hotlines, and sustainability questionnaires to major partner companies.