Risk Management

Business Risks and Other Risks

The main risks concerning Skylark Group's business operations, operating results and financial position, etc., which could have a significant impact on investment decisions made by investors are as follows. The forward-looking statements below in this document are judgments made by the Group as of the end of the fiscal year under review. The following are specific examples of risks that the Group anticipates in order to continue its business, but do not constitute an exhaustive list.

Investor Relations (IR) Business Risks

Emerging Risks

Emerging risks are defined as significant long-term (3-5 years or longer) new risks that could significantly affect the business of Skylark Group in the future due to changes in the external environment, as described below. The Group Sustainability Committee monitors these risks on a regular basis, and deliberates on and reviews, as appropriate, the establishment of a system that enables prompt implementation of appropriate countermeasures and the implementation of such countermeasures.

Water risks	Water shortages caused by population growth and climate change are a serious problem that threatens the continuity of the Group's business in the restaurant industry as a risk that occurs infrequently but has a very high impact. In particular, higher costs for the procurement of key raw materials, a tarnished brand image, and limitations on investment due to tighter regulations are direct consequences for the Group. Declining raw material yields drive up costs and weaken competitiveness. In addition, environmental issues within the supply chain can damage our brand image, leading to consumer disengagement and investor uncertainty. We also recognize that tighter water use restrictions and wastewater regulations could impose operational constraints, increase costs, and limit opportunities for future investment—making this one of the emerging risks that could affect the sustainability of our business. To address these risks, we have set reduction targets for water withdrawal: 10% by 2030 and 20% by 2050 (compared to 2018 levels). We are raising employee awareness by installing water-saving fixtures in our stores, promoting company-wide water conservation initiatives, and publishing related articles in our internal newsletters. For our suppliers, we are providing guidance through CSR assessments based on our CSR guidelines.
Forest-related risks	Internationally, illegal logging of forests is recognized as a significant issue, and relevant laws and regulations are being increasingly strengthened. In this context, forest-related risks—such as difficulties in procuring foodstuffs and rising costs associated with forest protection, as well as potential damage to our brand image in the event of unintentionally handling illegally harvested timber—are considered one of the emerging risks that may affect the sustainability of the Group’s business, despite their relatively low frequency and moderate impact. To avoid or mitigate such risks, we have set the ratio of FSC/PEFC-certified products as a materiality KPI to promote the procurement of wood from sustainable forests and are advancing initiatives such as switching to certified products.
Air and soil contamination risks	Stricter laws and regulations resulting from air and soil pollution pose a serious risk to the sustainability of our restaurant business, with a relatively low frequency but a potentially very high impact. For example, if contamination issues arise in regions where key ingredients are produced, making it difficult to procure certain foodstuffs, we may be forced to revise our menu offerings. This could lead to reduced customer satisfaction and a loss of brand image. Rising costs for procuring alternative ingredients may lower profit margins, and declining confidence in the overall supply chain could hinder the development of new business partners. Furthermore, if a major client’s factory were to suspend operations, the stable supply of food ingredients would be disrupted—potentially leading not only to a direct drop in sales but also to a situation that could undermine business stability. We recognize this as one of the emerging risks that may affect the long-term sustainability of our Group’s business. As a countermeasure, we are working to prevent pollution in our stores and factories through appropriate drainage and management of hazardous substances in accordance with laws and regulations, as well as providing guidance to our suppliers based on CSR surveys conducted in accordance with our CSR guidelines.

Risk Management System

Basic Approach

Skylark Group has established Group Risk Management Regulations and laid out a process for responding to risks, for the purpose of preserving its corporate value. In risk management, we begin with an overview of a diverse range of risks, identify risks to be tackled, and work to prevent them from manifesting. When a risk actually manifests itself, we minimize damage by responding swiftly and accurately, evaluate the results of our response, and confirm that measures have been taken to prevent re-occurrences before declaring completion.

Key Risks and Responses Relating to Execution of Business Operations

Occurrence of Food-related Accidents

Our basic policy is to establish and thoroughly manage quality, hygiene management and legal compliance standards with regard to various predicted risks in all processes from procurement of ingredients to processing, distribution, preparation and serving in order to prevent not only cases of food poisoning due to bacteria and viruses but also food-related accidents due to contamination by foreign objects and food allergies, and incorrect labeling.

Response Measure 1: Ensuring thorough washing of hands and health management by employees at central kitchens

We have established—and are thoroughly enforcing—the most effective hand washing procedures as verified in-house to prevent viruses and bacteria on employees' hands from being carried into our facilities. Hand washing is monitored 24 hours a day, and guidance is given to ensure thorough implementation of established procedures.

Response Measure 2: Hygiene guidance and regular in-house bacterial testing by the Quality Management Group

We design our production processes based on ISO 22000 management methods to enable provision of safe products, and check the operational status of each process. Our central kitchens have eight hygiene inspection rooms that perform unannounced monitoring and provide guidance on matters ranging from raw ingredients to central kitchen processing, and the state of store management.

Response Measure 3: Thorough measures to prevent and control the spread of norovirus

Because toilets and kitchens are used by many people, we disinfect them on a regular basis every day. If an employee is unwell, a norovirus test is conducted at the expense of the company, and the employee is only allowed to come in to work if a negative result is confirmed by this high-sensitivity test.

Labor Management Risks

With the diverse range of employment types that exist today, the environment surrounding employees is changing drastically, and continuous optimization of working conditions is essential for continuing to employ excellent human resources in the long term. Skylark is driving work style reforms such as enhancing labor management systems and improving working environments to enable all employees to work energetically and in good health.

Response Measure 1: Initiatives to enhance the labor management system

As a measure to enhance Skylark's labor management system, top-level management figures attend each labor management meeting in order to gain an understanding of the current situation and work to thoroughly improve upon it. We are also creating mechanisms to reflect the content of regular reviews and improvement proposals from the workers' union. We are also improving employee retention rates and working environments by continuously conducting level-specific training to enable employees to improve their skills and level of satisfaction.

Response Measure 2: Initiatives to enhance work-life balance by encouraging employees to take leave

We have increased our number of annual holidays from 108 to 117 days, with the aim of improving work-life balance. At the same time, we have increased the number of successive days of leave per six-month period by two days, from five days to seven days, and are implementing this along with the planned taking of annual paid leave. Additionally, as one aspect of our work style reforms, we abolished 24-hour operation at all stores in January 2020, and shortened late-night operating hours in July 2020 to make closing time 23:30 as the general rule. We aim to create a workplace in which employees can work stably in the long term.

Risk Management System

Under the supervision of the Board of Directors, we have established the Group Risk and Compliance Committee as the organization responsible for overseeing risk management across the entire Group. The committee is chaired by the President and COO, with the Chairman and CEO and all executive officers serving as committee members.
The committee centrally identifies various types of risks and, taking into account the potential scale and likelihood of each, has identified 31 specific risks to be addressed (as of March 2025). For each identified risk, the committee defines the Group’s risk tolerance and designates a responsible department, which implements appropriate preventive and responsive measures.
The potential impact and likelihood of risks are reviewed annually to reflect changes in the business environment. In addition, the methods and processes for identifying, assessing, and managing risks are subject to an annual review by the Internal Audit Office to verify their appropriateness.
In 2024, the Group Risk and Compliance Committee held 11 meetings to review emergency situations that arose within the Group. The contents of the committee’s discussions are shared with outside directors to ensure transparency in the risk management framework. Furthermore, outside directors serve as advisors to the committee, enabling the Group to receive observations and advice from external perspectives.

Skylark has defined Emergency Guidelines under its Group Emergency Response Regulations with regard to particularly serious risks such as natural disasters, infectious diseases and food-related accidents, as issues that should be tackled with the combined power of the company.
Additionally, in order to ensure prompt sharing of the contents of emergency reports with senior management and other related departments in the company, we have established emergency contact routes and rules for reporting to management, and comprehensive efforts are being made to ensure that specific reporting standards and procedures are known within the company.
We have established rules regarding the sharing of information with outside officers, and are working to improve the provision of information on key risks and emergency cases, and the state of our response to them. We have also formulated the Group Business Continuity Planning (BCP) Regulations in order to clarify details of the Group's system for responding to emergencies, details of initial responses, and priority of operations.

The Five Key Policies of the Group Business Continuity Planning (BCP) Regulations

1. Act with human life as the top priority
2. Prevent secondary disasters
3. Ensure that the departments responsible for sales, products/merchandise, production, purchasing and business infrastructure cooperate closely to form an integrated unit, and act in coordination with local communities and government agencies
4. Transfer authority depending on the nature of the emergency
5. 5. Summarize responses and work to prevent re-occurrences once the state of emergency has been lifted

In the past, too, in the event of a natural disaster or infectious disease outbreak, we have established response headquarters based on our Group Business Continuity Planning (BCP) Regulations, and consolidated all information at the headquarters to enable it to make timely and appropriate policy decisions. By disseminating this information to all restaurants and stores, we respond promptly and appropriately to emergencies.

Internal Reporting System

For the purpose of early detection, correction, and prevention of recurrence of violations of laws and regulations and misconduct that may disadvantage stakeholders such as customers, investors and wider society, the Group has established the Skylark Group Internal Reporting Desk, with a specialized outside company as the contact point, accepting whistleblowing reports from all domestic Group executives, employees and business partners. Reports received from whistleblowers are shared directly with independent outside directors and full-time corporate auditors who are qualified as lawyers, and are handled in accordance with internal regulations, such as regularly reporting on the status of operation to directors and corporate auditors.

Dedicated Reporting and Consultation Desk for Business Partners

As one initiative to promote compliance, Skylark Group has established a reporting and consultation desk to enable transparent and fair transactions with business partners. We receive reports regarding organizational and personal violations of laws and regulations with the Group, as well as questions and opinions from our business partners, and work to improve upon any problems.

Content of Report and Consultation

Persons Eligible for Reporting and Consultation

Officers, employees, part-time workers, temporary employees or former employees of Group business partners

Promise of Confidentiality

The contact desk is set up at Dial Service Co., Ltd., a third-party organization. Reports may be submitted anonymously and are handled in strict confidence. We strictly observe the privacy of whistleblowers and persons engaging in consultations, and will not disclose or leak information to third parties.

Method of Reporting and Consultation

Reports and consultations from business partners are accepted by telephone.

Reception hours	Weekdays: noon - 21:00 Saturday, Sunday and national holidays: 09:00–17:00 *Excluding December 29 through January 4
Dedicated phone number for business partners	TEL：0120-330-280 *This is dedicated telephone number for the Group's business partners. For customer inquiries, please contact the Customer Consultation Office: 0120-125-807 (09:00–18:00)

Prohibition on Disadvantageous Treatment

Whistleblowers and persons engaging in consultations will not be treated unfavorably by affiliated companies for using the whistleblowing and consultation desk.

Awareness and Training

Posters concerning the employee consultation desk are distributed to stores monthly to proactively raise awareness.
Furthermore, procedural training is conducted through regular meetings and related forums.

Measures Against COVID-19

We established a response headquarters chaired by the Chairman, President & CEO and, based on our policy of doing everything possible to ensure the safety of our customers and employees, we have implemented infection prevention measures for COVID-19 which exceed the standards set by national and local government, and continued to operate our restaurants and stores as an essential part of food infrastructure.
We are cooperating fully with local government requests and making Group-wide efforts to bring the COVID-19 pandemic under control. Since the pandemic began, we have held more than 30 meetings of our response headquarters and its subcommittees in order to enable swift and detailed decision-making with regard to issues such as preventing infections among customers and employees, responses in the event of actual infections, health management and labor management issues.
In view of the constantly changing situation and various information that is being transmitted, we have clarified our information gathering routes so that information can be gathered and consolidated by the response headquarters. The information gathered is shared constantly with senior management, including the Chairman, President & CEO, as well as with outside officers.

Measures to Tackle COVID-19