HANATOUR JAPAN CO.,LTD.

Over 40% of travelers handled by the Company are visitors from Korea. If travel demand declines due to changes in Korea's political and economic conditions, foreign exchange rate fluctuations, natural disasters, terrorism, or other external environmental changes, this would have a direct and significant impact on the Group's business results. Concentrated dependence on a specific country is a structural issue that amplifies demand volatility risk, and this vulnerability will persist unless diversification progresses.

The parent company, HANATOUR SERVICE INC., holds 54.4% of voting rights, and 3 of the 6 directors concurrently hold positions at the parent company. Arrangement services for inbound tours marketed by the parent company group constitute the Group's primary revenue source. Since the transaction terms based on the "Memorandum on Travel Product Pricing" can be terminated with one month's prior notice, changes in the parent company's management policy or transaction terms could have a material impact on the Group's financial position and business results. In the current consolidated fiscal year, net travel product sales to the parent company were ¥394,727 thousand, with an outstanding accounts receivable balance of ¥608,434 thousand at fiscal year-end.

As the Group's core business is inbound travel, some travel payments are settled in foreign currency, directly exposing the Group to fluctuations in the Korean won against the yen. During periods of yen appreciation, the yen-denominated value of won-denominated sales decreases, squeezing gross profit, while at the same time, higher travel costs in yen terms lead to weaker travel bookings from Korea—a dual adverse effect. Foreign exchange fluctuations also affect period profit or loss through the translation of financial statements of overseas consolidated subsidiaries.

If war, conflict, terrorism, infectious disease outbreaks (including entry/exit restrictions and requests to refrain from travel, as seen with COVID-19), or large-scale natural disasters such as earthquakes or typhoons occur, there is a risk that the Group's business results will deteriorate significantly due to a decline in inbound visitors and a sharp drop in travel demand. During the past COVID-19 pandemic, the Travel Business suffered devastating damage due to entry/exit restrictions imposed by various countries, and the impact of a recurrence could be substantial.

In addition to the expansion of direct internet sales by accommodation facilities and optional tour operators, new service companies utilizing generative AI and other new technologies are expected to enter the market, potentially threatening the Group's significance as a travel intermediary. The Company is countering this by expanding FIT-oriented products through its proprietary online platform "Gorilla," but if the number of travelers preferring direct sales increases, this could lead to a decline in sales and profit. The travel industry has low barriers to entry, and the expansion of C to C transactions poses a risk of transforming the industry structure.

The Group finances capital expenditures for the Hotel & Facility Operation Business through borrowings from financial institutions and lease contracts. As of the end of the current consolidated fiscal year, the ratio of interest-bearing debt (borrowings and lease liabilities) to consolidated total assets reached 37.9%. If interest expenses and other costs increase due to rising market interest rates, this could adversely affect the Group's financial position and business results.

Fixed assets held in the Bus Business and Hotel & Facility Operation Business may require the recognition of impairment losses if their cash flow generating capacity declines due to sluggish earnings or falling market values. In particular, as the Hotel Business is considering expanding new operation contract projects, the risk of asset value impairment is heightened by the overlapping risk of temporary earnings deterioration due to opening costs and other expenses.

The Group utilizes its proprietary reservation and management system for accommodation facilities and tourist tickets, as well as the travel product reservation, arrangement, and settlement management system operated by the parent company, HANATOUR SERVICE INC., for core operations. If a serious failure occurs due to communication network outages, program defects, computer viruses, hacking interference, or other causes, this could significantly disrupt operations and result in substantial recovery costs. There is also a risk of system development delays at the Vietnamese subsidiary, HANATOUR JAPAN SYSTEM VIETNAM COMPANY LIMITED.

The Group holds a large volume of customers' personal information across its Travel Business, Hotel Business, and other operations. Although management systems based on the Personal Information Protection Act and internal regulations are in place, if a data leak occurs, this could lead to damages claims and reputational damage, affecting the Group's financial position and business results. Given the business characteristic of primarily serving inbound travelers, compliance with international personal information protection regulations is also required.

In the Bus Business, securing drivers is a prerequisite for business continuity, and if recruitment does not proceed as planned due to changes in employment conditions, this poses a risk of reduced operational capacity or business contraction. In the Hotel & Facility Operation Business as well, as the Company considers expanding new operation contract projects, securing the human resources necessary to maintain service quality is a challenge. If the Group as a whole fails to recruit and retain excellent personnel as planned, this could disrupt business activities.