GAKKYUSHA CO.,LTD.

The decline in the school-age population due to the falling birthrate directly leads to a decrease in the number of exam-taking students, posing a structural risk that threatens the foundation of the tutoring school business. The Group operates a variety of brands including ena (group instruction), ena Kobetsu (individualized instruction), ena Online Class, and Katei Kyoshi Camp (home tutoring), attempting to mitigate the impact by responding to diverse educational needs. Expansion into specialized fields such as ena Dentistry/Pharmacy/Nursing and ena Art is also positioned as part of this diversification.

The tutoring school industry has low barriers to entry, with new school openings, closures, and industry restructuring occurring frequently, while the Group remains constantly exposed to risks such as poaching of instructors and imitation of teaching material know-how. The Group differentiates itself through preparation for entrance exams to Tokyo metropolitan integrated junior-senior high schools and elite high schools, but if its admission track record declines relative to competitors, or if the number of applicants to target schools decreases, business performance may be adversely affected. The Group aims to build a resilient business foundation capable of absorbing such risks by pursuing higher-quality instruction and stronger admission results to expand student numbers and the number of school locations.

Securing capable employees and part-time instructors is essential for providing high-quality instruction and expanding new school locations, and is positioned as the most critical issue. If the Group is unable to secure sufficient personnel due to the shrinking working-age population caused by the declining birthrate and intensifying competition for talent within the education industry, business performance may be affected. The Group is addressing this through the use of diverse recruitment channels, systematic training programs, and improvements to the working environment, but complete elimination of this risk remains difficult.

The Group holds personal information on a large number of students, and if an information leak were to occur, it could significantly impact business performance through a loss of trust. The Group works to prevent such incidents through the establishment of a basic information security policy, internal regulations, and awareness activities for officers and employees, but the risk of external leakage cannot be reduced to zero. Given the nature of educational services, personal information concerning students and guardians is particularly sensitive, and the risk of reputational damage is directly linked to business continuity.

Large-scale earthquakes or other disasters, or outbreaks of infectious disease, in regions where school locations are operated could make it difficult to carry out some or all business operations. If an event on a scale far exceeding expectations occurs, such as the COVID-19 pandemic, the impact on business performance could be particularly significant. The Group strives to maintain appropriate preparedness, but complete readiness for disasters or infectious diseases of unforeseen scale is difficult to achieve.

Changes to the education system by administrative authorities, such as revisions to entrance examination systems and the curriculum guidelines, occur frequently, and the Group's response to these changes directly affects its competitiveness. Delayed response to system changes could lead to a decrease in student numbers and adversely affect business performance. The Group continuously reviews and revises its entrance exam preparation and instructional approach in response to system changes.

Operated school locations are concentrated in the greater Tokyo area, particularly Tokyo, making the Group structurally susceptible to adverse population trends or intensifying competition in that region. The Group plans to expand into Chiba and Saitama prefectures going forward, but if suitable properties cannot be secured at the appropriate time, there is a risk that school opening plans could be delayed. This geographic concentration is also linked to natural disaster risk, and the impact on business would be particularly significant in the event of a large-scale disaster in Tokyo.

In addition to tangible fixed assets such as school facilities and real estate held for lease, the Group recognizes goodwill arising from corporate acquisitions, and an impairment loss may occur if there is a significant decline in business profitability or a marked drop in real estate market prices. The recognition of an impairment loss would have a direct adverse impact on the Group's business performance and financial condition. Given the Group's business model of continually expanding its school network, the balance of fixed assets is expected to keep increasing going forward, making this risk increasingly significant.

In connection with the operation of numerous leased school locations, the Group has deposited substantial security deposits with lessors, and if collection becomes difficult due to deterioration in a lessor's financial condition or other factors, business performance may be affected. Lease terms are set at levels that take profitability into account, referencing local market rates, and the Group works to periodically review lease terms and monitor the creditworthiness of lessors. As the number of school locations expands, the total amount of deposits also increases, continually raising the importance of asset protection and management.

The Group operates businesses in North America and Europe, and business performance may be affected by deterioration in the economic environment of the regions in which it operates, exchange rate fluctuations, natural disasters, force majeure events such as war or terrorism, and similar factors. Although the proportion of overseas operations in consolidated net sales is currently low, geopolitical risks and exchange rate fluctuations are difficult to predict, and responding to sudden changes in the business environment poses a challenge. In addition, with regard to investment securities held as highly rated bonds, there is a risk that valuation losses could arise if market interest rate or exchange rate fluctuations cause a significant decline in fair value.