Nagase Brothers Inc.

In addition to a decline in the school-age population due to the long-term decline in the birthrate, the needs of students and parents are changing significantly due to the expansion of recommendation-based admissions and the diversification of selection methods. Intensifying competition in the education industry is increasingly demanding tangible "results," and the ability to respond to education that meets the needs of the times may affect business performance. The Group is implementing various measures aimed at establishing an educational system that "truly improves academic ability."

Because royalty income from the satellite business is concentrated in March, the peak season for student recruitment, March performance has a large impact on full-year results. Depending on sales conditions around the fiscal year-end, revenue recorded in March may shift into April, potentially affecting period profit/loss and earnings forecasts. Quarterly data show years in which an operating loss occurred in the first quarter (¥-169 million in FY2024 (ending March 2024), ¥-291 million in FY2025 (ending March 2025)), indicating that seasonal fluctuation risk has materialized.

In the franchise operations of "Toshin Eisei Yobiko" and "Yotsuya Otsuka NET," among others, each affiliated school is an independent legal entity, creating a risk of contract violations or serious accidents occurring beyond the reach of the Group's guidance. Should such incidents occur, there are concerns not only about the impact on business performance but also on brand image. The Group addresses this by focusing on support for opening new locations, ongoing operational guidance, and quality control.

The Group records tangible fixed assets such as classroom facilities, intangible assets including goodwill acquired through M&A, and shares of affiliated companies, and an impairment loss may arise if profitability declines due to changes in the business environment. Recognition of an impairment loss directly affects business performance. The Group addresses this through continuous monitoring of business profitability.

Because the Group operates locations nationwide, including franchises, a large-scale natural disaster could disrupt operations at some or all locations. The wide geographic distribution of locations increases the risk of an expanded disaster-affected area, raising concerns about the impact on business performance.

Employees, instructors, homeroom assistants, and other personnel are important management resources for the Group, and if rapid changes in the hiring environment make it difficult to secure sufficient key personnel, including temporary staff, business performance may be affected. Securing and developing human resources is positioned as an extremely important factor in achieving sustainable growth and enhancing corporate value over the medium to long term.

The Group holds a large volume of personal information such as names, addresses, and phone numbers of students, parents, and instructors, and if an information leak occurs, the Group could be held legally liable, including for damages. There are also concerns about the impact on business performance due to reputational decline. The Group has implemented measures such as establishing and operating an "Information Management Regulation," raising employee awareness, and setting up a recurrence-prevention committee in the event a leak is discovered.

While the Group works to reduce labor-related risks by complying with the Labor Standards Act and other relevant laws, if a compliance violation related to labor management occurs, business performance may be affected due to reputational decline. The Group recognizes labor management as a key management issue and continues to make ongoing efforts in this area.