Prestige International Inc.

If the progress of outsourcing slows, the growth of the Company Group may be constrained. There is also a risk that business opportunities as an independent BPO operator could be lost due to large corporations bringing operations in-house or through industry consolidation and M&A. As countermeasures, the Group is promoting the creation of new business models through collaboration with client companies, efficiency improvements through IT investment, and strengthening of its business foundation through the establishment of multiple BPO sites in the Tohoku and Hokuriku regions; however, this also carries the risk that upfront investments may not be recovered.

The Company Group extensively utilizes information technology networks and systems that handle confidential data and personal information, and there is a risk that systems could be halted or compromised by increasingly sophisticated cyberattacks, infrastructure failures, or failures/specification changes at cloud service providers. If data destruction, tampering, information leakage, or system outages occur, this could cause serious disruption to business continuity and could have a material impact on operating results and financial condition due to loss of trust from client companies or claims for damages. As countermeasures, the Group implements technical measures such as network monitoring, enhanced endpoint security, and multiplexed data backups, as well as organizational measures such as establishing an early incident recovery framework and conducting employee training.

The Company Group is entrusted with vast amounts of customer information by major companies such as non-life insurance companies and automobile manufacturers, and if employees or related parties misuse information for personal purposes or leak it externally, there is a risk of termination of outsourcing contracts with client companies or claims for damages from client companies or end users. The Group has established personal information protection regulations and information security management regulations and conducts ongoing security training, and has obtained ISO certification at major sites; equivalent standards are also applied at operation at smaller sites that have not obtained certification.

The Company Group is promoting the use of AI technologies, including generative AI, in its operations for the purpose of improving operational efficiency and service quality; however, if unintended leakage or deletion of client information, serious operational errors due to inaccuracies in AI output, or suspension of services by AI vendors occur, this could disrupt business operations and have a material impact on operating results and financial condition due to loss of trust or claims for damages. The Group works to reduce these risks by establishing and operating AI usage guidelines, thoroughly conducting internal training, and establishing a quality verification process for AI output.

Against the backdrop of a chronic labor shortage in Japan, there is a risk that hiring numbers at regional BPO sites could fall significantly short of plan, and significant wage increases due to inflation and other factors could affect business activities. As BPO operations become more diversified, sophisticated, and globalized, failure to conduct appropriate personnel management could lead to a decline in operational quality and efficiency and to the termination of outsourcing contracts with client companies. The Group addresses this by conducting core operations at regional BPO sites, where hiring is relatively more stable than in the greater metropolitan area, but this has not resolved the structural labor shortage.

In the rent guarantee program, if a guarantee client defaults, the Company Group makes a subrogated payment, but a portion of the resulting receivables may become uncollectible. If a significant deterioration in the economic environment or other factors causes an increase in advance payment receivables and the allowance for doubtful accounts and provision for guarantee obligations are recorded in excess of expectations, this could affect the Group's financial condition and results of operations. In addition, the credit card issuance business for Japanese expatriates in the United States also carries risks of a large amount of delinquent receivables arising and increased interest costs due to rising U.S. dollar interest rates.

The Company Group's overseas sales were ¥3,337 million (5.2% of consolidated net sales) in FY2025 (ended March 2025) and ¥3,674 million (5.2% of consolidated net sales) in FY2026 (ending March 2026), and since most of this is denominated in foreign currencies, fluctuations in exchange rates may affect operating results and financial condition. In the Global Business's advance payment service for overseas travel insurance claims, there is also a risk that foreign exchange gains or losses could arise if exchange rates fluctuate significantly between the time of advance payment and collection.

Roadside assistance service fees have a fixed-plus-variable cost structure, and if natural disasters such as typhoons, heavy snowfall, or earthquakes occur more frequently than in a typical year, the number of breakdowns and accidents could increase substantially, temporarily worsening business performance. Additionally, in the extended automobile warranty and maintenance program guarantee business, if breakdowns occur beyond expectations, this could affect financial condition and business performance due to increases in reinsurance fees and other factors. Contracts with client companies include provisions for after-the-fact compensation of costs exceeding expectations, which serves as a mechanism to mitigate the impact of deteriorating performance to a certain degree.

In the rent guarantee industry, social issues have arisen due to excessive relocation practices by some operators, and industry self-regulation and legal regulation are being considered. The Company Group provides its rent guarantee program through affiliated companies (Intrust Corporation and Premier Life Co., Ltd.), and if legal regulations or self-regulation beyond expectations are introduced, this could make it difficult to advance the business and affect business performance. Although the Group maintains a policy of thorough legal compliance in conducting its business, uncertainty regarding regulatory trends continues to exist.

As overseas sites increase along with the expansion of the Global Business, there is an inherent risk that monitoring by the head office may not function sufficiently due to geographic and psychological distance, making misconduct more likely to occur. In addition, in the Overseas Travel Insurance Claims Agent Service within the Global Business, determinations of liability may not always be appropriate, and there is also a risk that advance-paid medical expense receivables may become uncollectible. As countermeasures, the Group has established a dedicated overseas division at the head office to strengthen monitoring, and is enhancing governance by expanding its internal audit structure and increasing the frequency of on-site audits at overseas locations.