Pasona Group Inc.

Domestic and overseas business cycle fluctuations, technological innovation, and rapid changes in employment conditions may cause demand for staffing, BPO, recruitment placement, and other businesses to decline. Over the long term, labor shortages and market contraction due to Japan's declining population are also anticipated. In response, the Group is diversifying risk by building a diverse business portfolio and developing and expanding new businesses and services.

The staffing business is licensed by the Minister of Health, Labour and Welfare under the Worker Dispatching Act, while the recruitment placement and outplacement support business is licensed under the Employment Security Act. If violations of laws or regulations occur, there is a risk of license revocation or a business suspension order, which could make it impossible to continue the relevant business. In addition, in the BPO business for government agencies and local municipalities, violations of laws and regulations, including by subcontractors, may result in dispositions such as suspension from bidding. In response, the Group has established guidelines, thoroughly implements employee training, and monitors compliance status through internal audits.

The Group cannot completely eliminate the possibility of becoming a party to various lawsuits, disputes, or claims for damages, or the risk of scandals, defamation, or slander. If such events occur, they may lead to a decline in social credibility and corporate image, potentially affecting business performance through reduced sales, among other effects. While the Group promotes business activities that emphasize legal and regulatory compliance, it recognizes that completely eliminating this risk is difficult.

To respond to changes in the business environment and achieve sustainable growth, securing and developing talent who can create the future is essential. If the Group is unable to secure necessary personnel in a timely and sufficient manner, this may affect its operating results. Since its founding in 1976, the Group has promoted the utilization of diverse talent regardless of age, gender, nationality, or disability, and details of its human capital management are disclosed in its sustainability-related disclosures.

The Group holds large volumes of personal information and confidential information relating to dispatched staff, job seekers, client companies, and others, and is subject not only to Japan's domestic personal information protection laws but also to overseas regulations such as the GDPR, creating a risk of increased compliance costs. If an information leak occurs due to intentional acts, negligence, or unforeseen circumstances involving employees or others, this could result in claims for damages and a loss of social credibility, affecting the Group's financial position and business performance. In response, the Group has established a personal information protection policy, implemented technical and organizational security control measures, and thoroughly trains all officers and employees.

Business operations depend heavily on computer systems and communication networks, and the importance of this risk has increased further with the expansion of remote work. If systems become inoperable due to increasingly sophisticated and complex cyberattacks such as ransomware and targeted attacks, human error, natural disasters, or issues at outside vendors, this could halt business operations and services and undermine reliability, thereby affecting the Group's financial position and business performance. In response, the Group has established PASONA-CSIRT, complies with the Ministry of Economy, Trade and Industry's cybersecurity guidelines, and implements technical measures along with regular employee training and drills.

The Regional Revitalization and Tourism Solutions segment continues to record operating losses, and it faces inherent risks such as substantial funding burdens and upfront fixed costs associated with the opening of new commercial facilities, declines in visitor numbers due to weather, disasters, or pandemics, and the risk of business suspension due to facility accidents. If visitor numbers fall short of plan, revenue may fall below plan or additional investment may become necessary. While the Group is implementing thorough safety management and measures to enhance appeal, this remains an ongoing factor pressuring short-term profitability.

The Group records tangible and intangible fixed assets on its consolidated balance sheet, including real estate related to commercial facilities in the Regional Revitalization and Tourism Solutions business, goodwill, and software, and these may become subject to impairment accounting if future cash flows deteriorate. Because future projections involve uncertainty, if businesses do not progress as expected, recording impairment losses could affect the Group's financial position and business performance. Similar risks of goodwill amortization and impairment also exist in connection with corporate acquisitions.

Financial covenants are attached to commitment lines and certain long-term borrowings, and if these covenants are breached due to deterioration in business conditions or changes in financial conditions such as rising interest rates, the Group may become unable to obtain necessary financing or may be required to immediately repay debt. Increased financing costs are also recognized as a risk that could affect business execution and performance. The Group seeks stable fund management through the introduction of a Group cash management system (CMS) and by securing multiple financing channels with financial institutions.

The Group has group companies and business locations nationwide, and if a large-scale natural disaster or pandemic occurs, this could affect business operations, financial position, and business performance. Since September 2020, the Group has been decentralizing its head office and headquarters functions, with a phased relocation to Awaji Island in Hyogo Prefecture, and has implemented measures such as formulating BCP manuals and distributing information system functions. However, if a disaster or other event occurs on a scale far exceeding expectations, responding effectively may prove difficult.