CARE TWENTYONE CORPORATION

The core business of the Group is nursing care services under the Long-Term Care Insurance Act, and is directly affected by the long-term care fee revisions conducted every three years. The April 2024 revision resulted in a fee increase, but if unfavorable revisions such as fee reductions occur in the future, this could affect the Group's financial position and operating results. As a countermeasure, the Group is working to mitigate the impact of care fee revisions by actively entering new businesses centered on peripheral nursing care services.

As of the end of the fiscal year under review, the balance of interest-bearing debt stood at ¥18,545,395 thousand, representing a high ratio of 59.8% of total assets (of which lease obligations amounted to ¥9,191 thousand, representing 29.6%). Due to the Group's policy of actively opening new business locations, substantial and continuing capital needs persist, and if changes in financial conditions make fundraising difficult or interest rates rise, this could lead to revisions of business plans and increased interest expenses. Although initial investment is being suppressed by mainly using long-term lease contracts with landlords for facility buildings, the structural dependence on interest-bearing debt continues.

Paid nursing homes and group homes are operated under individual lease contracts with landlords for each building (mainly for 20 to 25 years), and the balance of guarantee deposits as of the end of the fiscal year under review amounted to ¥3,219 million (10.4% of total assets). If a significant decline occurs in neighboring rents or competitors' occupancy fee levels, resulting in a loss of competitive advantage, or if deterioration in a landlord's creditworthiness makes recovery of security deposits or construction cooperation funds impossible, this could affect the Group's financial position and operating results. Because the contract structure makes it difficult to close facilities or revise occupancy fees in a short period, flexibility in responding is constrained.

In the nursing care industry, the continuing increase in the number of people certified as requiring long-term care combined with intensifying competition has increased demand for qualified personnel such as certified care workers, home helpers, and care managers, making it difficult to secure such personnel. Since laws require that services be provided by employees meeting qualification requirements, if the Group is unable to secure personnel as planned, this could hinder the execution of business expansion plans and legal compliance, and affect the Group's financial position and operating results. The Group is working to improve human resource acquisition and retention rates by reviewing employment conditions and enhancing education and training systems.

Under a wide range of legal regulations including the Long-Term Care Insurance Act, the Act on Comprehensive Support for Persons with Disabilities, and the Pharmaceutical Affairs Act, business operations are required to satisfy staffing standards, facility standards, and qualification requirements, and violations carry the risk of administrative penalties such as revocation of designation or business suspension. In addition, the validity period of designations is six years, and failure to complete renewal procedures could result in loss of effect. The Group strives to develop a legal compliance framework through enhanced internal training and thorough monitoring of staffing conditions, and at present no grounds for revocation of licenses or business suspension have occurred.

Since the introduction of the long-term care insurance system, the number of nursing care service users has increased year by year, accelerating new market entries and business expansion by competitors. If competition intensifies beyond expectations or costs increase for quality improvement in the regions where the Group operates, this could hinder the acquisition of new users and the continued use by existing users, affecting the Group's financial position and operating results. The Group strives to maintain competitiveness by expanding its service menu and improving quality.

Recipients of home-based and residential nursing care services are mainly elderly persons certified as requiring long-term care, and there is a high likelihood of accidents peculiar to elderly persons such as falls and food aspiration, as well as deterioration of physical condition; residential facilities also carry the risk of mass infections and food poisoning outbreaks. If an accident occurs during service provision and negligence liability is found, this could lead to damages claims and loss of social credibility, affecting the Group's financial position and operating results. The Group actively works on accident prevention and emergency response through thorough skill-improvement training at training centers and the development of manuals.

Personal information of nursing care service recipients requires a high degree of confidentiality; if information leakage occurs due to unauthorized external access or inadequate internal management, this could lead to damages claims and loss of social credibility, affecting the Group's financial position and operating results. In addition, if a server failure in the core business system or a natural disaster such as an earthquake causes an inability to go online, this poses a risk of significant disruption to business operations. Although a regular data backup system has been established, complete business continuity in the event of a large-scale disaster is not guaranteed.

With respect to the fixed assets held by the Group, if profitability declines at individual companies, recognition of impairment losses may become necessary, potentially affecting the Group's financial position and operating results. Under the policy of aggressively opening new locations, the balance of fixed assets is structurally increasing, and deterioration in profitability at individual business locations heightens impairment risk. The Group strives to reduce the number of locations showing signs of impairment through detailed scrutiny of the profitability of individual investment projects and stricter profit-and-loss management by business location.

The Group is building a foundation for overseas expansion through an overseas subsidiary established in the Socialist Republic of Vietnam, and plans to develop overseas business into a pillar of growth over the medium to long term; however, various risks are inherent, including changes in local political and economic conditions, changes in laws and tax systems, differences in business customs, occurrence of natural disasters and infectious diseases, and exchange rate fluctuations. If these risks materialize and the business cannot be developed as originally planned, this could affect the Group's financial position and operating results. The Group refrains from hasty overseas expansion, prioritizes local marketing, and strives to grasp local conditions through the exchange of information with consulting firms well-versed in overseas expansion.