EUCALIA Inc.

Services such as home-visit nursing care and care management support are legally required to be provided by qualified personnel such as nurses and care managers, but employment competition with other companies in the same industry and medical institutions continues, creating a risk that securing such personnel will become difficult. If the recruitment of qualified personnel does not progress smoothly, it will directly affect the maintenance and expansion of the business and may reduce service delivery capacity. Measures such as improving salaries and benefits and encouraging qualification acquisition have been implemented, but a fundamental resolution has not been reached amid chronic industry-wide labor shortages.

The Group has entered into various agreements with affiliated medical corporations, including management support, financial support, and construction management support, and there is a risk that deterioration of relationships or changes in management policy could lead to contract termination or non-renewal. If a significant revision to medical fee schedules or a medical accident causes deterioration in the management of an affiliated partner, this could lead to reductions in contract amounts or the inability to recover invested capital. In addition, if provided services are deemed to impair non-profit status due to revisions to the Medical Care Act or similar laws, business continuity could also be affected.

The Group conducts business under numerous legal regulations, including the Money Lending Business Act, the Pharmaceutical and Medical Device Act, the Long-Term Care Insurance Act, the Employment Security Act, the Construction Business Act, and the Building Lots and Buildings Transaction Business Act, with various Group companies holding a wide range of licenses and registrations. If licenses are revoked or renewal is denied in the future, or if laws are amended, abolished, or new regulations are enacted, this could seriously impede business continuity. At present, no grounds for license revocation have occurred, but the large number of licenses held across the Group as a whole also entails a significant management burden.

Due to chronic labor shortages in the medical and long-term care industries and changes in the labor market, there is a risk that recruiting, developing, and retaining excellent personnel will become difficult. The Group primarily operates labor-intensive businesses, and if securing personnel requires greater expenditure than expected or if wage levels rise sharply, the increased personnel cost burden could adversely affect operating results. Although the Group is working on promoting diversity and fostering organizational culture, this is set against the structural challenge of Japan's declining working population.

The Group actively utilizes M&A to complement and strengthen its businesses and expand into new business areas, but there is a risk that issues not previously identified may come to light after the fact, or that management and integration may not proceed as planned. If licenses cannot be obtained after acquiring a business that requires them, or if expected synergy effects are not realized, investment recovery could become difficult, adversely affecting financial condition. Various forms of due diligence are conducted, but regulatory risks specific to the medical and long-term care fields are a factor that complicates integration.

The Group holds business-use fixed assets such as hospitals and long-term care facilities, and impairment accounting may become necessary due to declines in market value or deterioration in future cash flows. Since the recording of impairment losses directly affects operating results and financial condition, risks arising from fluctuations in the real estate market or declines in facility occupancy rates cannot be ignored. Ten long-term care facilities are held under long-term lease agreements, and the sales from these facilities accounted for approximately 15% of consolidated net sales in the fiscal year ended December 2025.

The Group procures products such as contact lenses from overseas companies, and since the majority of purchase amounts are settled in US dollars, a weakening yen leads to increased import costs, affecting operating results. The Group's policy is to hedge risk through derivative transactions within the scope of actual demand, but this may not fully avoid all risks in the event of sudden and significant exchange rate fluctuations. If the recent trend of yen depreciation continues, there is a risk that rising procurement costs will squeeze profitability.

As of the end of December 2025, the consolidated balance of interest-bearing debt (excluding lease liabilities) stood at ¥22,526 million, with the interest-bearing debt dependency ratio reaching 34.6% of total assets. The Group relies on financial institution borrowings for a portion of hospital real estate acquisitions, operating loans in the financial business, and M&A funding, and changes in interest rate levels could affect operating results, financial condition, and cash flows. In a rising interest rate environment, there is a risk that increased interest payment burdens could squeeze profitability.

In providing working capital loans to affiliated medical corporations, there is a risk of credit losses arising from a decline in collateral value due to deterioration in the real estate market or a decline in the repayment capacity of affiliated partners. Loan amounts are determined taking into account the market value of collateral real estate and the transfer of medical fee receivables as collateral, but a significant decline in land prices could result in loans with insufficient collateral. Although risk management is conducted through monitoring of management conditions, sudden changes in the external environment may be difficult to address.

The Group handles confidential information, including sensitive personal information such as customers' medical history, past illnesses, and treatment status, and if an information leak occurs due to cyberattacks, unauthorized access, or system failures, this could lead to a decline in social credibility and adversely affect the business. Measures such as establishing a personal information protection policy, obtaining ISMS certification (excluding some subsidiaries), and providing employee training have been implemented, but complete protection is difficult due to unexpected troubles with communication equipment and the increasing sophistication of cyberattacks. Information leaks in the medical and long-term care fields can have serious effects on users and their families, and thus reputational risk is also significant.