International Conglomerate of Distribution for Automobile Holdings Co., Ltd.

In addition to declining consumer purchasing appetite due to rising fuel prices, economic downturn, and higher interest rates, accelerating EV adoption driven by the 2050 carbon neutrality target poses a risk of significant change to conventional sales methods, customer ownership models, and maintenance demand. Intensified reorganization among automobile manufacturers and dealers is also anticipated, and an overall contraction of the market could affect the Group's business performance. In response, the Group is promoting region-focused sales activities and the cultivation of new demand, along with efficient organizational management leveraging its group strategic planning function.

Consolidated subsidiary Honda Cars Mie-Kita Co., Ltd. belongs to the sales network of Honda Motor Co., Ltd., and in FY2026 (ending March 2026), purchases from Honda accounted for 51.6% (¥16,314,829 thousand) of the Group's consolidated total purchases. If Honda's production system were significantly disrupted by a natural disaster or other event, new vehicle procurement would be delayed, directly affecting the Group's business performance and financial condition. While the Group is working to reduce this dependence through strengthening imported vehicle sales, used car sales, and the automobile recycling business, a high degree of concentration risk remains.

Honda Cars Mie-Kita Co., Ltd. has entered into a basic Honda dealership transaction agreement, and Auto Mall Co., Ltd. has entered into dealer agreements with Volkswagen and Audi, with sales areas for both limited to Mie Prefecture. If material changes occur in the terms of these contracts, or if it becomes difficult to continue these business relationships, this could have a material impact on the Group's business performance and financial condition. The Group has also entered into loan agreements containing financial covenants, and any breach of these covenants could also affect its business performance and financial condition.

The Group competes within Mie Prefecture with dealers affiliated with various automobile manufacturers as well as used car sales and buyback businesses, and there is a risk that competition will intensify due to the contraction of the automobile sales market and an increase in the number of competitors. Intensifying competition could affect business performance and financial condition through declines in unit sales and profit margins. In response, the Group is promoting the development of community-focused stores, strengthening after-sales service, and standardizing service quality at a high level through employee training.

In used car sales, there is a possibility of claims arising from defects or malfunctions; in particular, for vehicles obtained through domestic auctions, if a seller makes false or erroneous statements, the successful bidder (the Group) could be held liable for damages. The occurrence of such damages compensation costs could affect the Group's business performance and financial condition. While the Group exercises great care in sales and responds in accordance with auction rules, it is difficult to eliminate this risk entirely.

The Group holds numerous tangible fixed assets such as store facilities, and if profitability declines to the point where recovery of invested amounts is no longer expected, it may be necessary to recognize impairment losses. Impairment losses may also arise if estimates or assumptions regarding future cash flows require revision due to economic uncertainty, potentially affecting business performance and financial condition. Particular attention is required to the risk of simultaneous impairment occurring across multiple stores during a period of market contraction.

If a power outage, disaster, unauthorized access, or other event causes an information system failure or the leakage or tampering of large volumes of customer personal information, this could result in damages compensation costs and adverse effects on sales activities due to a decline in social credibility. As a sales business, the Group holds and manages a large volume of customer personal information, and the impact of an information leak could be extensive. Although the Group has implemented security measures such as establishing regulations, conducting employee training, and improving access control, it remains difficult to completely prevent unforeseen incidents.

Against the backdrop of a declining trend in job seekers due to "waning interest in automobiles," it is becoming increasingly difficult to secure and train the necessary personnel across the wide-ranging fields of mobility sales, service, and automobile recycling. Increased costs associated with securing and training personnel, as well as declining productivity, could affect business performance and financial condition. The Group promotes personnel recruitment and training initiatives based on its sustainability policy, but responding to structural changes in the labor market remains a challenge.

The Group primarily procures funds for land purchases and construction for store development, as well as group financing needs, through borrowings from financial institutions. As of FY2026 (ending March 2026), the balance of interest-bearing debt was ¥2,477,404 thousand, and the ratio of interest-bearing debt dependence was 11.1% (up from 7.4% in the previous fiscal year). If rising interest rates or a decline in creditworthiness force the Group to raise funds at higher cost, or if it becomes unable to secure necessary funds, this could affect its business performance and financial condition. While the Group is working to diversify its funding methods, its dependence ratio has increased compared to the previous fiscal year.

In addition to various laws and regulations such as the Automobile Recycling Law, the Waste Management and Public Cleansing Law, and the Road Transport Vehicle Law, the Group is also subject to regulations relating to insurance, construction, taxation, labor, and the environment. Significant legal amendments or repeals, or violations of the Waste Management and Public Cleansing Law (such as improper storage or false manifest entries), could result in administrative penalties. Furthermore, because the Group's business locations are concentrated in Mie Prefecture, a large-scale natural disaster such as a linked occurrence of the Tokai, Tonankai, and Nankai earthquakes could damage stores and make it difficult to continue operations, potentially having a material impact on business performance and financial condition. The Group is promoting the establishment of a Compliance Committee, the implementation of training, and the formulation of a business continuity plan.