Business Risks

According to the future population projections by the National Institute of Population and Social Security Research, a national research institute under the Ministry of Health, Labour and Welfare, the population of men and women in Japan of what is generally considered marriageable age is expected to decline in the future. If the domestic market contracts as a result, it may have an impact on the Group’s business performance in the Japanese market.

Although the Group endeavors to plan and propose wedding styles that can arouse potential customer interest and match their preferences by keeping track of contemporary needs and fashion trends, the Group’s business performance may be affected if it is unable to respond to changes in awareness and preferences regarding wedding styles.

The Group’s business performance may be affected if hotels and specialized ceremony halls enter the guesthouse wedding business through the renewal of existing facilities, or if competition with other companies in the industry intensifies, due to factors such as market entry by new competitors from different industries.

The Group’s business performance may be affected, such as by the hindrance of business operations and store development, in the event of a violation of legal regulations relating to the Group’s business in Japan—namely regulations under the Food Sanitation Act, etc., regarding the provision of food and beverages, regulations under the Consumer Contract Act, etc., regarding contracts with customers, laws and regulations such as the Building Standards Act, regarding the construction and renovation of wedding & banquet facilities and dress shops, or other regulations under various ordinances—or in the event of large-scale revisions to such laws and regulations.

The Group’s business performance may be affected in the event of any large-scale political upheavals, changes in economic conditions, revisions to relevant laws and regulations, war, terrorism, or natural disasters, etc., occurring overseas, affecting the Group’s overseas business operations, or the wedding business as a result of the suspension of imports of products, etc.

The Group believes that securing and developing talented human resources is of the utmost importance to continuously open stores and enhance services. In addition to actively recruiting personnel in Japan and overseas, the Group systematically conducts OJT training for the personnel it hires at each workplace, and implements various training programs according to job type and position. However, the Group’s business performance may be affected if the Group’s rate of securing and developing human resources cannot keep up with its store opening plans, making it difficult to open stores as planned and maintain the level of service to customers.

Since the Group tends to hold more weddings and receptions during the second quarter (which includes April and May) and the fourth quarter (which includes October and November), the Group’s revenue tends to be concentrated around the same time. If the number of couples holding weddings during these periods is sluggish, then the Group’s business performance may be affected.

The Group has recorded goodwill of ¥11,203 million, primarily arising from the LBO conducted in December 2016, on the consolidated statement of financial position, as well as other tangible and intangible non-financial assets. If the profitability of the businesses associated with these non-financial assets declines in the future, the Group may be required to recognize an impairment loss equal to the difference between the carrying amount and the recoverable amount of the relevant non-financial assets, which may adversely affect the Group’s financial position and business performance.

In the procurement of food ingredients and utility costs for utilities used at store locations, the Group may experience uncertainty or instability in procurement of food ingredients or soaring prices due to factors that are difficult to predict—such as geopolitical risks, climate change, natural disasters, and pandemics. In such cases, the Group’s business performance may be affected due to a resulting increase in the cost of sales. Although the Group responds to these risks by reviewing wedding plans, etc., the Group’s business performance may be affected if the Group is unable to pass on such price increases to selling prices.

The Group procures some of its wedding costumes and food ingredients from overseas. These transactions are affected by foreign exchange rate fluctuations. Although the Group reviews selling prices as necessary, the Group’s business performance may still be affected as a result of significant fluctuations in exchange rates.

When opening a new wedding & banquet facility or dress shop in Japan, the Group considers factors such as store profitability, securing human resources, and investment plans on an individual basis, taking into account the target customer base and expected unit price based on factors such as the surrounding environment and specific regional characteristics, to determine candidate locations. However, the Group’s business performance may be affected if we cannot find a candidate location that meets the requisite conditions for opening a store, if we are unable to secure the expected profitability for a new store opening, or if the profitability of existing stores declines significantly due to the deterioration of facilities over time, etc.

The Group has obtained business licenses from the relevant public health centers in accordance with the Food Sanitation Act and assigned food sanitation managers to all wedding & banquet facilities and restaurants in Japan. To prevent incidents such as food poisoning, etc., we have also formulated a food hygiene manual and thoroughly manage employee hygiene, including regular fecal examinations and management of daily physical condition. We also conduct regular hygiene inspections through specialized organizations. Despite the implementation of these hygiene management measures, the Group’s business performance may be affected if a hygiene problem occurs at one of our facilities. In addition, since business licenses must be renewed for a certain period of time, failure to renew them may also impede the continuation of business and affect the Group’s business performance.

In the event of such occurrences, the Group will also establish a crisis management headquarters as necessary, to collect information on damage and give direct instructions and orders to each facility to ensure business continuity, or to resume and restore business operations as soon as possible. However, the Group’s business performance may be affected if the occurrence of such events hinders the operation of the Group’s wedding & banquet facilities, dress shops, and restaurants, if the costs of restoration are high, and/or if restoration takes a long time.

The Group handles the personal information of many customers, including brides and grooms, in the course of conducting its business. To maintain this personal information and ensure its security, the Group has established a system that can prevent unauthorized access from the outside or intrusions by computer viruses, etc., and monitor and detect information leaks from the inside. We have also established a set of Basic Regulations on the Protection of Personal Information and procedural manuals, thoroughly educate personnel, and operate and manage internal information appropriately. However, despite these measures, there is still a risk of legal liability if personal information is leaked. Even if the Group is not held legally liable, the Group’s business performance may still be affected due to a decline in social confidence in the Group.

The Group finances its business operations primarily through borrowings from financial institutions, including under loan agreements such as syndicated loans. Although the Group plans to reduce its borrowings over the medium to long term, if such reduction does not progress as planned, the Group’s financial position and business performance may be affected by the amount of borrowings and the recognition of finance costs and interest expenses.
Most of the Group’s borrowings are subject to variable interest rates. However, in light of current interest rate trends and other factors, the Group does not hedge against fluctuations in interest rates. Accordingly, if the Group’s borrowing rates fluctuate due to an increase in market interest rates or other factors, this may affect the Group’s business performance, financial position, and cash flows.

These financial covenants set general numerical standards for maintaining net assets and profits. Currently, the Group’s performance does not conflict with financial covenants. However, if there is some conflict in the future and a claim is made by the lender, the Group will lose the benefit of time with respect to contractual deadlines. Additionally, if refinancing becomes difficult, such as due to turmoil in financial markets or changes in the stance of financial institutions on lending, the Group will lose the benefit of time with respect to contractual deadlines at the end of the contract period. In the event of any of these circumstances, it will be necessary to secure funds to repay debts immediately, which may affect the Group’s financial position and cash flow.

Due to the impact of restrictions on economic activities—such as the prohibition of the provision of alcoholic beverages and requests for shorter business hours—due to the declaration of a state of emergency issued in response to the COVID-19 pandemic and subsequent priority measures to prevent the spread of disease, some weddings and receptions have been postponed. The Group will give top priority to ensuring the safety of customers, employees, and other stakeholders in accordance with requests from local government and guidelines of industry groups in response to infectious disease epidemics or pandemics, such as the COVID-19 pandemic, or the occurrence of large-scale natural disasters. However, the Group’s business performance may still be affected if social and economic activities are restricted due to such events.

The Company has adopted a stock option plan using stock acquisition rights as an incentive for its directors and employees. The Company is also considering continuing to utilize the stock option plan in the future. If the stock acquisition rights currently granted, as well as those that may be granted in the future, are exercised, the value of shareholders’ holdings may be diluted.

The market may be affected by a decline in future orders if private-sector capital investment contracts due to factors such as the ongoing downward trend in public investment and an economic downturn in Japan resulting from an increase in the consumption tax rate or other factors. In addition, if construction material prices, labor costs, and other expenses increase significantly beyond expectations after the conclusion of construction contracts, and it is difficult to reflect such increases in the contract prices, this may lead to higher construction costs and adversely affect the Group’s business performance.

If business partners, including clients, subcontractors, and joint construction companies, experience financial difficulties due to a contraction in the construction market resulting from an economic slowdown or other factors, the Group’s business performance may be affected by the inability to collect receivables, delays in construction work, and other consequences.

Furthermore, if a serious accident or defect occurs in terms of technology or quality during the design or construction stages, resulting in significant costs for repairs or constituting a material defect, the Group’s business performance may be adversely affected.