Youji Corporation

The Company's core business, physical education instruction for young children, targets children enrolled in and graduates of kindergartens, nurseries, and integrated early childhood education and care centers, and faces the challenge of a declining birthrate leading to fewer births. If differentiation and quality-enhancement measures fail to function effectively, growth in the number of contracted facilities and members may stagnate, potentially affecting business performance. The Company seeks to mitigate this impact by promoting differentiation from other providers and offering high-quality services.

Event planning operations (excursions, camps, etc.) are concentrated within limited periods during spring, summer, and winter vacations, and may be forced to be cancelled due to unforeseen factors such as inclement weather or disasters. Such events could directly affect the Company's business performance. The Company seeks to mitigate this risk by establishing alternative means such as online video instruction.

The Company is subject to regulations including the Travel Agency Act, the Act for Securing the Proper Operation of Worker Dispatching Undertakings and Improved Working Conditions for Dispatched Workers, and the Employment Security Act. If changes in these regulations result in unforeseen measures affecting licenses and permits, this could affect the Company's business performance and operations. The Company's responsible department monitors relevant laws and regulations by regularly utilizing services such as the legal database service of the Ministry of Internal Affairs and Communications.

In the physical education instruction business and consulting-related business for young children, the introduction, amendment, or abolition of laws and regulations related to early childhood education, such as the School Corporation Act and the Social Welfare Corporation Act, could have a material impact on the Company's business performance and operations. In addition to monitoring by its responsible department, the Company has established a system for gathering information from school corporations and social welfare corporations that it has established or taken over in previous years.

As the Company's core business involves hands-on instruction, there is a possibility that children may fall, collide, or be injured during regular curricular physical education instruction, extracurricular physical education instruction, events, camps, and similar activities. If negligence on the part of the Company's instructors is found, this could result in financial burdens such as liability for damages, potentially affecting the Company's business performance and operations. The Company has established a Risk and Compliance Committee and a response framework in cooperation with legal counsel and non-life insurance companies.

Due to the nature of its business, the Company holds and manages personal information of children and their guardians. If a violation of the Personal Information Protection Act occurs, the Company could be subject to recommendations, orders, and penalties, and could suffer reputational damage or face claims for damages, potentially affecting its business performance and operations. The Company has established a system to collect PC operation logs of all employees and control the removal of data to external media, and conducts strict audits through internal auditing.

If a significant system failure occurs due to external factors such as computer virus intrusion or unauthorized access, or due to operational issues with the system, this could affect the Company's business performance and operations. As some causes of failure are unpredictable, complete prevention is difficult. In addition to daily server monitoring and automatic backups, the Company has established a system for rapid recovery by outsourcing function restoration work to third parties in the event of a failure.

If an epidemic disease such as COVID-19 or a novel strain of influenza spreads nationwide or regionally, it is customary for the Company's key customers—kindergartens, nurseries, and integrated early childhood education and care centers—to immediately implement facility closures. If the situation becomes prolonged or severe, this may result in the cancellation of physical education instruction without makeup arrangements, potentially affecting business performance. The Company is pursuing business continuity by establishing telework systems, formulating employee conduct guidelines, and improving operational efficiency through office consolidation.

Funds contributed for the establishment of or provision of capital to school corporations or social welfare corporations must, under accounting treatment, be recorded in full as a donation expense rather than as an operating investment, meaning that such establishments or capital provisions could have a material impact on the Company's business performance. The Company has established or taken over four school corporations and four social welfare corporations in previous years, and as a policy generally does not provide new capital, instead aiming to establish new facilities within the premises of existing corporations.

The regular curricular physical education instruction contracts that the Company concludes with kindergartens, nurseries, and integrated early childhood education and care centers include restrictive clauses that allow a contracted facility to designate up to four neighboring facilities with which the Company is prohibited from entering into similar contracts, which could affect the Company's business performance in the future. The Company limits the impact on new business development by adopting a policy of not including such restrictive clauses for new facilities other than those under special contracts.