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

Risk Map

We conduct periodic risk reviews to identify and assess the risks surrounding our business, taking into account factors specific to our operations and industry. To clearly define the impact of various risks on our company, we develop and disclose a risk map that assesses their potential severity and probability.

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, driven by population growth and climate change, pose a serious threat to the business continuity of Skylark Group as a food service company. We recognize this as a risk with low frequency but extremely high impact. We view the following specific impacts as urgent challenges to be addressed. Impact on Ingredient Procurement Costs and Competitiveness： The diverse menu offered by our Group relies on key agricultural products (e.g., rice, vegetables) and livestock (e.g., chicken, pork), which require vast amounts of water for their production. Worsening water shortages can destabilize harvests and reduce the quality of these ingredients in major production areas, making long-term increases in procurement prices inevitable. We are also considering the risk that alternative sourcing may become difficult, especially for high-quality ingredients dependent on specific regions. This could increase raw material costs, and if it is difficult to reflect these costs in our menu prices, it could pressure our Group's profitability and weaken our competitiveness. Furthermore, disruptions to the stable supply of ingredients could hinder our ability to serve certain menu items, potentially leading to a decline in customer satisfaction. Impact on Overall Supply Chain Resilience and Brand Image： Our Group's supply chain collaborates with numerous suppliers both in Japan and overseas. Water shortages or stricter water-related regulations in the regions where these suppliers operate could directly constrain their production activities, potentially causing delays or suspensions in ingredient supply to our Group. Such water-related issues across the entire supply chain not only increase procurement risks but could also affect our reputation for social responsibility and environmental stewardship among customers, investors, and local communities, potentially damaging our brand image. We recognize that our approach to water resources is extremely important, especially for earning the support of environmentally conscious consumers. Impact on Store Operations and Future Investment Decisions： In the regions where we operate, both domestically and internationally, water scarcity could lead to tighter restrictions on water use and wastewater regulations imposed by local governments. For instance, it is conceivable that specific limits on water consumption for restaurants or stricter wastewater treatment standards could be implemented in certain areas. Such regulations could not only increase the cost of renovating or replacing water-intensive equipment, such as kitchen and dishwashing systems in existing stores, but also constrain site selection for new stores based on water supply infrastructure and wastewater treatment capacity. We recognize that this could affect our business expansion strategies, potentially forcing delays or re-evaluations of future investment decisions and directly impacting our Group's growth strategy. We recognize these as emerging risks that affect the sustainability of our Group's business. As a response to these water risks, we have set targets to reduce our water withdrawal by 10% by 2030 and 20% by 2050 (compared to 2018 levels) and are implementing the following measures. Installation of Water-Saving Equipment in Stores： We are promoting the installation of high-efficiency dishwashers, water-saving faucets, and toilets in all our stores to reduce daily water consumption. Company-Wide Water Conservation Activities and Awareness-Raising： All employees, both in our stores and at our head office, are actively engaged in water conservation, including saving water during hand washing and cleaning, and promptly identifying and repairing leaks. We also regularly publish articles on water conservation in our internal newsletter to continuously raise employee awareness of the importance of water resources and specific conservation methods. Promoting Responsible Water Management in Our Supply Chain： We continuously conduct CSR surveys of our suppliers based on our CSR Guidelines, checking and providing guidance on their efforts to reduce environmental impact, including water resource management. Through this, we promote sustainable water use throughout our entire supply chain. Through these initiatives, Skylark Group will continue to strengthen our resilience to water risks, striving for sustainable business operations and enhanced corporate value.
Forest-Related Risks	Globally, illegal logging is recognized as a critical issue, leading to the strengthening of related laws and regulations. In this context, we recognize forest-related risk as an emerging risk that, although low in frequency, has a moderate potential impact on the sustainability of our Group's business. Specifically, it could affect our business in the following ways: Difficulties in Sourcing Ingredients/Materials and Increased Costs: Stricter procurement standards associated with forest protection could make it more difficult and costly to source forest-derived ingredients and materials, such as coffee beans and palm oil, as well as paper containers and cutlery that lack sustainable forest certification. Damage to Brand Image: If we were to inadvertently handle timber from illegal logging or products derived from it, we could lose the trust of our customers, and our brand image could be significantly damaged. To avoid and mitigate these risks, our Group is promoting the procurement of timber from sustainable forests. As part of this effort, we have set a ratio of FSC/PEFC-certified products as one of our Materiality KPIs and are progressively switching to these certified items.
Air and Soil Contamination Risks	Stricter laws and regulations concerning air and soil contamination represent a serious risk to the sustainability of our restaurant business. We recognize this as a risk with low frequency but very high potential impact. For instance, recent years have seen the strengthening of soil contamination countermeasures and stricter wastewater regulations both domestically and internationally, along with moves to introduce regulations on hazardous substances like PFAS (per- and polyfluoroalkyl substances). If contamination issues arise in major ingredient production areas as a result, difficulty in procuring specific ingredients would force us to change our menu composition, leading to decreased customer satisfaction and a damaged brand image. Rising costs for alternative ingredients could reduce profit margins, and declining confidence in the supply chain might hinder new business partnerships. Furthermore, if a major supplier's factory suspends operations, the disruption to our stable food supply would directly impact sales and could even undermine the stability of our business. For these reasons, we recognize this as an emerging risk. To counter it, we are working to prevent pollution at our stores and factories by ensuring appropriate wastewater management and handling hazardous substances in compliance with laws. We also provide guidance to our suppliers through CSR surveys based on our CSR Guidelines.

Water Risks

Water shortages, driven by population growth and climate change, pose a serious threat to the business continuity of Skylark Group as a food service company. We recognize this as a risk with low frequency but extremely high impact. We view the following specific impacts as urgent challenges to be addressed.

Impact on Ingredient Procurement Costs and Competitiveness： The diverse menu offered by our Group relies on key agricultural products (e.g., rice, vegetables) and livestock (e.g., chicken, pork), which require vast amounts of water for their production. Worsening water shortages can destabilize harvests and reduce the quality of these ingredients in major production areas, making long-term increases in procurement prices inevitable. We are also considering the risk that alternative sourcing may become difficult, especially for high-quality ingredients dependent on specific regions. This could increase raw material costs, and if it is difficult to reflect these costs in our menu prices, it could pressure our Group's profitability and weaken our competitiveness. Furthermore, disruptions to the stable supply of ingredients could hinder our ability to serve certain menu items, potentially leading to a decline in customer satisfaction.
Impact on Overall Supply Chain Resilience and Brand Image： Our Group's supply chain collaborates with numerous suppliers both in Japan and overseas. Water shortages or stricter water-related regulations in the regions where these suppliers operate could directly constrain their production activities, potentially causing delays or suspensions in ingredient supply to our Group. Such water-related issues across the entire supply chain not only increase procurement risks but could also affect our reputation for social responsibility and environmental stewardship among customers, investors, and local communities, potentially damaging our brand image. We recognize that our approach to water resources is extremely important, especially for earning the support of environmentally conscious consumers.
Impact on Store Operations and Future Investment Decisions： In the regions where we operate, both domestically and internationally, water scarcity could lead to tighter restrictions on water use and wastewater regulations imposed by local governments. For instance, it is conceivable that specific limits on water consumption for restaurants or stricter wastewater treatment standards could be implemented in certain areas. Such regulations could not only increase the cost of renovating or replacing water-intensive equipment, such as kitchen and dishwashing systems in existing stores, but also constrain site selection for new stores based on water supply infrastructure and wastewater treatment capacity. We recognize that this could affect our business expansion strategies, potentially forcing delays or re-evaluations of future investment decisions and directly impacting our Group's growth strategy.

We recognize these as emerging risks that affect the sustainability of our Group's business. As a response to these water risks, we have set targets to reduce our water withdrawal by 10% by 2030 and 20% by 2050 (compared to 2018 levels) and are implementing the following measures.

Installation of Water-Saving Equipment in Stores： We are promoting the installation of high-efficiency dishwashers, water-saving faucets, and toilets in all our stores to reduce daily water consumption.
Company-Wide Water Conservation Activities and Awareness-Raising： All employees, both in our stores and at our head office, are actively engaged in water conservation, including saving water during hand washing and cleaning, and promptly identifying and repairing leaks. We also regularly publish articles on water conservation in our internal newsletter to continuously raise employee awareness of the importance of water resources and specific conservation methods.
Promoting Responsible Water Management in Our Supply Chain： We continuously conduct CSR surveys of our suppliers based on our CSR Guidelines, checking and providing guidance on their efforts to reduce environmental impact, including water resource management. Through this, we promote sustainable water use throughout our entire supply chain.

Through these initiatives, Skylark Group will continue to strengthen our resilience to water risks, striving for sustainable business operations and enhanced corporate value.

Forest-Related Risks

Globally, illegal logging is recognized as a critical issue, leading to the strengthening of related laws and regulations. In this context, we recognize forest-related risk as an emerging risk that, although low in frequency, has a moderate potential impact on the sustainability of our Group's business. Specifically, it could affect our business in the following ways:

Difficulties in Sourcing Ingredients/Materials and Increased Costs: Stricter procurement standards associated with forest protection could make it more difficult and costly to source forest-derived ingredients and materials, such as coffee beans and palm oil, as well as paper containers and cutlery that lack sustainable forest certification.
Damage to Brand Image: If we were to inadvertently handle timber from illegal logging or products derived from it, we could lose the trust of our customers, and our brand image could be significantly damaged.

To avoid and mitigate these risks, our Group is promoting the procurement of timber from sustainable forests. As part of this effort, we have set a ratio of FSC/PEFC-certified products as one of our Materiality KPIs and are progressively switching to these certified items.

Air and Soil Contamination Risks

Stricter laws and regulations concerning air and soil contamination represent a serious risk to the sustainability of our restaurant business. We recognize this as a risk with low frequency but very high potential impact.
For instance, recent years have seen the strengthening of soil contamination countermeasures and stricter wastewater regulations both domestically and internationally, along with moves to introduce regulations on hazardous substances like PFAS (per- and polyfluoroalkyl substances). If contamination issues arise in major ingredient production areas as a result, difficulty in procuring specific ingredients would force us to change our menu composition, leading to decreased customer satisfaction and a damaged brand image. Rising costs for alternative ingredients could reduce profit margins, and declining confidence in the supply chain might hinder new business partnerships. Furthermore, if a major supplier's factory suspends operations, the disruption to our stable food supply would directly impact sales and could even undermine the stability of our business.
For these reasons, we recognize this as an emerging risk. To counter it, we are working to prevent pollution at our stores and factories by ensuring appropriate wastewater management and handling hazardous substances in compliance with laws. We also provide guidance to our suppliers through CSR surveys based on 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.

Incentives Incorporating Risk Management Indicators

The achievement of key risk-related targets is also incorporated into the performance-linked compensation (phantom stock) for our directors, excluding outside directors and directors who serve as Audit and Supervisory Committee members.

Risk: Climate Change → Indicator: Reduction of CO₂ Emissions
Risk: Changes in Consumer Preferences → Indicator: Improvement of Overall Customer Satisfaction
Risk: Labor Management → Indicator: Enhancement of Employee Engagement

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

Act with human life as the top priority
Prevent secondary disasters
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
Transfer authority depending on the nature of the emergency
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 the early detection, correction, and prevention of recurrence of violations of laws, regulations, and other misconduct that may be disadvantageous to stakeholders such as customers, investors, and society, our Group has established the "Skylark Group Internal Reporting Desk." With a specialized outside company serving as its point of contact, this desk accepts whistleblowing reports from all of our domestic Group officers, employees, and business partners.
Reports received are shared directly with outside directors and full-time Audit & Supervisory Committee members. Furthermore, the system is operated in accordance with internal regulations, which include periodically reporting on its operational status to the Board of Directors and disclosing this information to officers and employees.

Eligible Parties for Reporting and Consultation

Employees of Skylark Group (full-time, contract, and part-time "crew" members), executives, and their families.
Former employees of Skylark Group.
Employees and executives of Skylark Group's business partners.

Anonymity and Confidentiality

The external contact point is an independent, third-party organization. Reports can be made anonymously and will be treated with the strictest confidence. The privacy of those who report or consult is strictly protected, and information will not be disclosed or leaked to third parties.

Prohibition of Unfavorable Treatment and Retaliation

Individuals who use this reporting and consultation service will not receive any unfavorable treatment from affiliated companies.

Awareness and Training

To ensure awareness, information about the employee consultation service is distributed to all our restaurants every month in the form of posters. We also conduct training on the procedures through our corporate meetings.

How to Report or Consult

Eligible Parties	Service Name	Provider	Method	Scope of Consultation
Employees Employee Families Former Employees	Harassment Consultation Service	External	Phone WEB	All harassment-related issues
	Whistleblowing Hotline			Internal reporting on fraud, legal violations, etc.
	Health Consultation Service			Health, counseling, etc.
	Employee Consultation Service	Internal	Phone	All harassment-related issues
	Next-Generation Support Service			Consultation on child-rearing, childcare leave, etc.
	Global Talent Consultation Service			Consultation for foreign national employees on concerns regarding daily life, work, and employment
Customers	Customer Service	Internal	Phone WEB	General inquiries from customers
Business Partners	Dedicated Whistleblowing Hotline for Business Partners	External	Phone	General inquiries from business partners

*The Health Consultation Service (phone/web) and the web portals for other consultation services are available 24 hours a day, 365 days a year.
*For our overseas subsidiaries, we have established internal contact points that provide support in the local language.

Reports and consultations from our business partners are handled by an independent third-party organization, ”Dial Service Co., Ltd.”

Hours of Operation	Weekdays：12:00 PM - 9:00 PM Saturdays, Sundays, & National Holidays：9:00 AM - 5:00 PM　*Closed from December 29th to January 4th.
Dedicated Phone Number for Business Partners	TEL：0120-330-280 *This phone number is exclusively for our business partners. For customer inquiries, please contact our Customer Service at 0120-125-807 (9:00 AM - 6:00 PM).