H.U. Group Holdings, Inc.

Because the Group holds large volumes of patient personal information and testing data, if information leakage or service outages occur due to system failures, cyberattacks, human error, or similar causes, the Group's credibility could be undermined, potentially having an adverse effect on its business performance and financial condition. The Group addresses this risk through Privacy Mark certification, ISO/IEC 27001 (ISMS) certification, and continuous review of information security measures; however, complete protection against increasingly sophisticated and advanced cyberattacks cannot be guaranteed. In addition, delays in securing human resources for information system development or increases in development costs could also hinder business operations.

The accuracy of test results is of paramount importance in the clinical laboratory testing business, and if the quality of products or services cannot be assured due to human error or unforeseen circumstances, the Group's credibility could be damaged, potentially having an adverse effect on its business performance and financial condition. The Group has established a quality control system through participation in external quality assessment programs and acquisition of certifications such as CAP, CLIA, ISO15189, ISO13485, and ISO9001; however, given the nature of the medical field, the impact of any errors that do occur could be substantial.

In developing new products and technologies, if the Group fails to secure the necessary human resources or fails to meet regulatory approval standards, among other factors, the expected outcomes may not be achieved, and R&D costs may not be recovered. Furthermore, if competitors advance ahead in technology development or the Group fails to respond promptly to rapid technological innovation, the competitiveness of its products and services could significantly decline, potentially having an adverse effect on business performance and financial condition. The Group is strengthening its management system through the establishment of the H.U. Group Central Research Institute and regular progress reviews; however, the uncertainty inherent in R&D cannot be eliminated.

Due to Japan's declining birthrate and aging population, as well as changes in labor markets both domestically and internationally, it may become difficult to secure outstanding human resources, or attrition of personnel may occur. The Group is promoting improvements to its HR systems, career development initiatives, and workplace environment; however, if these measures do not function adequately or if human resource development does not proceed as planned, business activities could be disrupted, potentially having an adverse effect on business performance and financial condition.

Tangible and intangible fixed assets of ¥42,022 million (15.7% of consolidated total assets) within SRL, Inc.'s clinical laboratory testing asset group have been identified as a risk with a material impact on the financial statements for the following consolidated fiscal year. If the value of these assets declines or expected future cash flows fail to materialize, impairment losses may need to be recognized, potentially having an adverse effect on business performance and financial condition.

As part of its growth strategy, the Group conducts M&A both domestically and internationally; however, if the business environment surrounding an acquired business changes suddenly or unforeseen circumstances arise such that the acquired business does not perform as originally planned, this could have an adverse effect on business performance and financial condition. The Group conducts prior investigations into profitability and investment recoverability and utilizes the advice of external experts such as lawyers and accountants; however, it is difficult to completely eliminate post-acquisition risks.

The Group is subject to the Pharmaceuticals and Medical Devices Act and related laws domestically, and to regulations such as those of the FDA overseas; if laws are amended or regulations are strengthened, this could lead to restrictions on business activities or increased operating costs. The Group continuously gathers information and considers countermeasures regarding regulatory changes; however, changes in the regulatory environment are difficult to predict, and the impact of stricter regulation is particularly significant in the medical field.

Ongoing healthcare system reforms and healthcare cost containment policies in various countries continue to exert downward pressure on market prices, and intensifying competition is further increasing the severity of the business environment. The Group continuously gathers and analyzes information on market and competitor trends, using it to strengthen the competitiveness of existing businesses and to develop new businesses; however, the trend of healthcare cost containment is expected to continue going forward, and this could have an adverse effect on business performance and financial condition.

The Group actively conducts overseas business operations in North America, Europe, Asia, and other regions, where a variety of risks exist, including changes in local political conditions, economic sanctions, changes in laws and regulations, terrorism, infectious diseases, and exchange rate fluctuations. The Group has established a system in which local business sites and relevant departments at the Company work together to continuously gather information and respond promptly; however, if such events occur, they could have an adverse effect on business performance and financial condition.

The valuation of deferred tax assets depends on the achievement of the budget for the following consolidated fiscal year and the medium-term management plan; if performance in the following consolidated fiscal year falls significantly short of budget, deferred tax assets may need to be reduced. Estimates of future taxable income are revised based on past achievement levels; however, in the event of a downturn in performance, the write-down of deferred tax assets could have an adverse effect on business performance and financial condition.