Nalnet Communications Inc.

In connection with the acquisition of shares of former Narunet Communications Co., Ltd. through an LBO scheme, the Company recorded goodwill and customer-related assets of ¥3,922,647 thousand as of the end of the fiscal year under review. If future profitability declines due to a sharp deterioration in economic conditions, changes in the competitive landscape, changes in laws and regulations, or other factors, impairment may be recognized, which could have a material impact on business results and financial condition. Through regular monitoring and the formulation of business improvement scenarios, the Company has determined that the recoverable amount exceeds the book value, but the risk is continuously managed.

The business relies heavily on a scratch-developed core system, and a renewal project is currently underway. If the project is interrupted or incurs additional costs beyond expectations, the anticipated revenue generation and cost reduction effects may be impaired, potentially necessitating impairment. Large-scale system failures caused by human error or equipment malfunction could also have a material impact on business operations. Countermeasures include project management based on PMBOK, adoption of a phased replacement approach, and utilization of cloud services with regular backups.

Head office functions are concentrated in Kasugai City, Aichi Prefecture, and if the head office becomes dysfunctional due to a natural disaster or the spread of an infectious disease, significant disruption to business operations could result. The Company has established a remote work system, enabling continuation of critical operations through sales offices and work-from-home arrangements in the event the head office becomes non-functional. The Company intends to continue formulating and periodically reviewing its BCP.

Inflation, exchange rate fluctuations, geopolitical tensions, natural disasters, and other factors may cause price surges in engine oil, tires, and automotive parts, as well as supply chain disruptions. There is a structural challenge in that maintenance fees fixed at the time of lease contracts cannot be changed during the lease period, creating a risk that rising outsourcing costs will directly lead to expanded losses. Countermeasures include procurement from multiple companies, early securing of inventory, and price increase negotiations with unprofitable business partners.

If a major lease company client adopts a policy of reducing its outsourcing ratio, this could significantly affect orders for the Maintenance Outsourcing Service. Additionally, if an industry-wide platform led by energy trading companies is fully implemented, there is a risk that projects from some partner companies could migrate to that platform. Since the majority of maintenance outsourcing contracts are multi-year contracts coinciding with the lease period, the immediate impact is expected to be limited, but there is concern about future effects on business results and financial condition.

Securing human resources necessary for improving service quality, developing information systems, and supporting operations in new service areas is essential, but there is a risk that the necessary personnel cannot be secured due to intensifying competition for talent. The Company is working to enhance employee benefits and strengthen recruitment and training centered on fostering innovation, job rotation, and promoting women's advancement, but if sufficient personnel cannot be secured, this may affect business operations, business results, and financial condition. The Company continues to implement long-term hiring plans and measures to improve retention rates.

The Company handles a large amount of personal information in the course of its business, and if an information leak occurs, it could result in a loss of public trust and liability for damages, potentially affecting business operations, business results, and financial condition. The Company obtained Privacy Mark certification in 2009 and has established a strict management system in response. Continued maintenance of security measures is required.

Mobility & Maintenance Japan Co., Ltd. (whose parent company is ITOCHU Corporation) holds 35.6% of the Company's voting rights and has a certain degree of influence over matters requiring shareholder approval, including the election and dismissal of directors. If the group sells its shares in the Company, depending on the scale of the sale and market conditions, this could adversely affect the liquidity and market price of the Company's shares. In addition, the group may have interests that differ from those of general shareholders, creating a risk that the exercise of its voting rights could conflict with the interests of general shareholders.

The Company is subject to a variety of laws and regulations, including the Subcontract Act, the Secondhand Articles Dealers Act, and the Insurance Business Act. If these laws and regulations are not complied with, or if new laws and regulations that have a material impact on the business are enacted, revised, or abolished, this could affect business performance. The Company promotes thorough awareness of legal compliance, primarily through its Risk Management and Compliance Committee.

Since the Company raises funds through interest-bearing debt, a rise in interest rates could increase funding costs and affect business results and financial condition. The Company strives to review funding terms as needed based on its policy for transactions with financial institutions. While the likelihood of occurrence is recognized as high, the degree of impact is assessed as low.