KOZO Holdings Co., Ltd.

Due to deteriorating external conditions such as prolonged yen depreciation, rising raw material prices, and increases in logistics and labor costs, the Company recorded a significant downward revision and losses in the fiscal year under review. Although net sales of ¥19,400 million were recorded for FY2024-2025, profitability has deteriorated, and the Company is promoting the review of unprofitable stores and businesses, fixed cost reductions, and diversification of capital policy. If these measures do not progress as planned, or if the external environment deteriorates further, there is a possibility of a material impact on business continuity.

The Group holds joint and several guarantee obligations of ¥4,694,747 thousand (¥4,694 million) for Toyo Shoji Co., Ltd. If the guaranteed party's financial condition or cash flow deteriorates and performance of the guarantee becomes necessary, a substantial financial burden could arise. The Group continuously monitors the financial condition of the guaranteed party and considers countermeasures, but guarantee risk could materialize due to changes in the external environment, which could have a material impact on the financial position, cash flow, and operating results.

Ingredient procurement prices are rising due to the continued occurrence of highly pathogenic avian influenza, disruptions in maritime logistics and increased transportation costs stemming from the situations in Ukraine and the Red Sea, and foreign exchange fluctuations. As of February 2026, the "food" category rose 5.7% year on year and the "eating out" category rose 3.7% year on year. If increases in raw material prices, logistics costs, and energy costs cannot be sufficiently and promptly passed on to selling prices, gross profit margin could decline. The Company is responding through diversification of suppliers, securing alternative procurement sources, and flexible price revisions, but if supply constraints or price surges exceed expectations, there could be a material impact on operating results, etc.

As the Group operates food service and food-related businesses, if a food poisoning incident or other food hygiene accident occurs at any point in the supply chain including stores, manufacturing sites, logistics, or outsourced partners, this could result in product disposal, business suspension, revocation of licenses, damage compensation, and brand value impairment. As business restructuring and profitability reform continue, reviews of business formats, brands, and store network composition are ongoing, making it increasingly important to maintain uniform hygiene management standards across the Group. Although hygiene standards, employee training, regular audits, external inspections, and supplier management are implemented, complete avoidance of risk is not guaranteed.

The Group holds fixed assets such as store assets, headquarters assets, and business office assets. If stores or businesses fail to secure the originally expected profitability due to changes in consumption trends, intensifying competition, and increases in raw material costs, labor costs, and rent, the Group will need to record impairment losses on fixed assets. During the previous medium-term management plan period, unprofitable stores were consolidated and business structure reform advanced, but similar risks will continue going forward. Recording of impairment losses could have a material impact on operating results and financial position.

The food service and food-related businesses rely on a large number of part-time and temporary employees, and the sense of labor shortage and wage increase pressure in the accommodation and food service industries continues to intensify. The expansion of social insurance coverage for short-time workers is also expected to increase insurance premium burdens, administrative burdens, and labor management burdens. If the Company is unable to secure necessary personnel or absorb rising personnel costs, this could lead to restrictions on business hours, decline in service quality, and deteriorating profitability. While the Company is responding through diversification of recruitment channels and operational efficiency improvements, complete avoidance is difficult.

If a food accident occurs due to foreign object contamination, mislabeling, inadequate allergen management, or quality deterioration, in addition to direct losses such as voluntary product recalls, disposal, damage compensation, and administrative response, brand credibility could decline due to the spread of information via social media, potentially leading to existing customer attrition and stagnation in acquiring new customers. The Company implements quality control manuals, strengthened labeling verification systems, and employee training, but if a serious food accident occurs, this could have a material impact on operating results and financial position.

If personal information such as employee, customer, and business partner data is leaked due to unauthorized access, ransomware, misdirected transmissions, or internal misconduct, this could result in loss of trust, damage compensation claims, response costs, and administrative response. The Personal Information Protection Commission requires responses such as preventing damage expansion, investigating causes, formulating recurrence prevention measures, notifying affected individuals, and public disclosure in the event of a leak, and management costs and reputational risk are becoming increasingly significant. If digitalization and the shift to online customer touchpoints progress going forward, the risk of information leakage could relatively increase along with the increase in the volume of data handled.

In business development through the franchise model, if franchisees experience deteriorating performance, worsening cash flow, or non-compliance with laws and regulations, continuation of contracts could become difficult. If a franchisee becomes insolvent or defaults, this could result in the inability to collect royalties, contraction of the store network, and damage to the brand. While the Company seeks to reduce risk through franchisee screening, regular guidance, monitoring, and receivables management, credit risk and operational risk arising from franchisees cannot be completely avoided.

Even after the change in the legal classification of COVID-19, the emergence of new infectious diseases or the resurgence of existing ones could suppress consumer outings and dining behavior, restrict store operations, increase employee absenteeism, cause logistics disruptions, and create concerns over food supply, potentially leading to decreased store sales and increased business continuity costs. The Group's food service, retail, and food supply businesses are susceptible to impacts from store operations, foot traffic, procurement, and logistics. The Company continues to maintain infectious disease response manuals, hygiene measures, and BCP preparation, but depending on the nature and scale of the spread of an infectious disease, there could be a material impact on operating results, etc.