HITO-Communications Holdings,Inc.

In FY2025 (ending August 2025), the Outsourcing Business accounted for a high 40.6% of sales composition, with transaction concentration observed among clients in the telecommunications and airport sectors. If demand for this business contracts significantly, it could have a material impact on the Group's overall business performance. While diversification is being pursued through enhanced business expansion into logistics, tourism, store services, inbound demand, and other areas, resolving this dependence will take time.

In the staffing services business, securing excellent staff is fundamental to business continuity, and if personnel matching client needs cannot be secured due to changes in the employment environment, it may affect business performance. While incentive measures such as friend referral campaigns are being implemented, intensifying competition in the labor market remains an ongoing risk factor.

The general worker dispatching business (Worker Dispatching Act) and the fee-charging employment placement business (Employment Security Act) carry the risk that if disqualifying events occur or laws are violated, business licenses may be revoked or business operations suspended. In addition, the maintenance business and ramp business conducted by FMG Co., Ltd. require securing qualified personnel, and a shortage of qualified personnel would also affect business performance. The Company strives to prevent such occurrences through employee training and monitoring by the Internal Audit Office.

The Outsourcing Business and Staffing Business are subject to the Labor Standards Act, the Worker Dispatching Act, the Employment Security Act, the Industrial Accident Compensation Insurance Act, the Health Insurance Act, the Employees' Pension Insurance Act, and other laws, which may be amended or reinterpreted from time to time in response to changes in social conditions. If the response to legal amendments is insufficient, in addition to a negative impact on business performance, there is a risk of unexpected cost outlays due to large-scale modifications to management systems. Risks related to regulatory changes such as the Act on Specified Commercial Transactions and the Product Liability Act also exist in the EC & TC Support Business and Wholesale Business.

Stable system operation is a prerequisite for business continuity in the EC & TC Support Business, and if system failures occur due to communication network disruptions caused by large-scale natural disasters or cyber threats such as ransomware and targeted attacks, this could have a material impact on business performance. While technical countermeasures, response rule development, and employee training are being implemented, complete defense is difficult due to the increasing sophistication and diversification of threats.

The Outsourcing Business and Staffing Business handle large volumes of staff information and consumer information, while the EC & TC Support Business and Wholesale Business handle personal information associated with service provision. If a leak occurs, there is a risk of claims for damages and a decline in sales due to loss of social credibility. While management systems such as Privacy Mark certification, internal study sessions, and monitoring through internal audits have been established, complete prevention cannot be guaranteed.

Numerous competitors, including listed companies, exist in the Outsourcing Business and Staffing Business, and functional and price competition is also intensifying in the EC & TC Support Business. If service superiority is lost due to entry by major companies or the emergence of operators with entirely new business models, this could affect business performance. The Company is addressing this through differentiation as a "results-driven sales support company" and service enhancement through the utilization of know-how, but the risk of changes in the competitive environment continues to exist.

The Group, which has business locations nationwide and provides diverse staffing services, faces the risk that if global climate change, large-scale natural disasters, or novel infectious diseases occur and lead to prolonged closures of client stores or extended requests to refrain from going out, sales support activities utilizing staffing services could be broadly restricted. While the Company is building an "omni-channel sales support" system through a diverse business portfolio, it is difficult to completely avoid the impact of nationwide events.

As of the end of the current consolidated fiscal year, goodwill of ¥6,106 million and software of ¥857 million are recorded on the consolidated balance sheet, including amounts related to the acquisition of shares of BBF Co., Ltd., SALES ROBOTICS Co., Ltd., FMG Co., Ltd., and fmg Co., Ltd. If the profitability of Group companies declines significantly, it may become necessary to record an impairment loss to reduce the book value to the recoverable amount, which could have a material impact on business performance. Given the policy of positioning M&A as a pillar of growth strategy, the balance of these assets may continue to increase going forward.

The Company has established Shanghai Bulanqi International Trading Co., Ltd. in Shanghai, China, to expand the Wholesale Business overseas, and is exposed to a wide range of risks including geopolitical risks such as war and terrorism, unpredictable changes in laws and regulations, intellectual property risks, foreign exchange risks, and risks related to underdeveloped social infrastructure. If the response to these risks is insufficient, it could affect the Group's business performance.