Renet Japan Group, Inc.

In the purchasing of used goods that determine the profitability of the Reuse Business, there are concerns that the primary distribution market for media/software such as CDs, DVDs, and game software will shrink due to the expansion of the online distribution market, and competition in purchasing with other companies in the same industry is intensifying year by year. Given the nature of used goods, where adjusting purchase volumes is difficult, if stable procurement of goods cannot be ensured in both quality and quantity, this could have a material impact on business performance. The Group is diversifying its procurement channels through measures to increase repeat purchasing customers and business alliances with major partners.

Under the Secondhand Articles Dealer Act, if stolen or lost goods are included among purchased items, there is an obligation to return them free of charge to the victim within one year, creating a risk of loss equivalent to the purchase amount. In addition, amid the social problem of counterfeit brand-name goods circulating in the market, if the handling of counterfeit goods is discovered, this could lead to a decline in the credibility of all handled products and affect business performance. The Group addresses this by establishing a system for training and guidance by employees with specialized knowledge to check authenticity.

The Group's used goods purchasing and sales business is subject to regulation under the Secondhand Articles Dealer Act, and if a corporate officer is sentenced to imprisonment or a greater penalty, among other grounds for revocation, the business permit may be revoked or business suspension may be ordered. At present, no grounds for permit revocation have occurred, but if such a disposition were ever imposed, it would have a significant impact on business performance. The Group has established a compliance system and a framework to properly carry out free-of-charge returns to victims.

The operation of Type B Continuous Employment Support Offices and Group Homes for People with Disabilities (Communal Living Support) is subject to regulation under the Act for Comprehensive Support for Persons with Disabilities, and if there are legal amendments, abolitions, new regulations, changes in application standards, or conflicts with the law, this could affect business development and performance. In addition, since the main source of revenue is compensation from the national government, if the compensation revision made every three years results in a downward or unexpected revision, this could have a material impact on business performance. The revocation of designation or business suspension at each office would also affect business performance.

The Small Home Appliance Recycling Business operates based on certification under the said act, and if an officer, including at an outsourced company, is subject to a fine or other penalty that constitutes a disqualifying condition, the certification could be revoked, making it difficult to continue operations. Revocation of certification could have a direct impact on business performance and financial condition. In addition, since the act is a relatively new law, if amendments due to changing circumstances or the enactment of new recycling-related laws prove unfavorable, this could also affect business performance.

The Group relies heavily on borrowings from financial institutions for much of the funds necessary for its growth strategy, and the ratio of interest-bearing debt to total assets is at a considerable level. There is a risk that, due to an economic downturn, financial contraction, decline in creditworthiness, or other factors, timely fundraising on desired terms may not be possible, and if market interest rates rise more than expected, this could affect business performance and financial condition. The Group seeks stable fundraising by maintaining good relationships with partner financial institutions and diversifying its fundraising methods.

The Group has consolidated subsidiaries overseas, and is affected by exchange rate fluctuations when translating foreign-currency financial statements into yen. Although risk hedging is implemented through forward exchange contracts, if abnormal exchange rate fluctuations occur, this could affect business performance and financial condition. In particular, the Group operates a leasing business, microinsurance business, and human resources dispatch business in Cambodia, and there are also compound risks from changes in local politics, economy, and law.

The Group's businesses are highly dependent on internal IT systems and internet communication systems, and if system troubles due to natural disasters, unexpected computer failures, or damage to important data due to malware intrusion occur, this could affect business performance. In addition, if a personal information leak occurs, this would require dealing with a decline in sales due to loss of social trust and responding to claims for damages. The Group addresses this through the ongoing implementation of maintenance operations and security measures, as well as the establishment of internal regulations and employee training.

The Group depends on delivery contractors for its collection and delivery operations, and in particular, the Recycling Business is premised on the continuation of the business alliance with Sagawa Express Co., Ltd. If delivery is interrupted or suspended due to natural disasters such as typhoons and earthquakes or other reasons, or if contract changes unfavorable to the Company occur and no alternative measures can be taken, this could affect business performance. Since major business locations are concentrated in Obu City and Nagoya City, Aichi Prefecture, there is also a business continuity risk in the event of a large-scale disaster.

The operation of Type B Continuous Employment Support Offices and Group Homes for People with Disabilities (Communal Living Support) urgently requires securing personnel with specialized knowledge and guidance skills for people with intellectual and mental disabilities. If the securing and development of human resources cannot keep pace with the speed of opening new locations and developing services, this could affect business performance. The Group is continuously working on recruitment promotion and human resource development, but specialized personnel in the welfare field are in short supply across the entire market, resulting in intense competition.