Prored Partners CO.,LTD.

Because compensation related to cost management is success-fee-based, linked to the client's cost reduction results, if domestic inflation progresses or price surges in direct/indirect materials occur due to exchange rate fluctuations, cost reduction may become difficult, making it impossible to provide sufficient results to clients. This could affect the business and results through a decrease in results achieved or in the number of contracted projects. The company is working to secure stable performance by increasing the number of contracted projects.

Since the Consulting Business is success-fee-based, quarterly performance may fluctuate significantly due to variations in project scale and the number of projects. In addition, there is a risk that the expected compensation cannot be received if the initially anticipated results are not achieved or if a proposal is not adopted by a client. The company is working to improve service quality and clarify contract terms.

Since the consulting industry has no licensing restrictions and low barriers to entry, the competitive environment may intensify due to competing firms introducing success-fee-based consulting or improving service quality. The Group recognizes its extensive experience, track record, in-house know-how, and training systems as competitive advantages, but if these are imitated, it could affect the business and results.

Providing management consulting services requires acquiring, developing, and retaining highly capable consultants. If the company is unable to secure personnel in a timely manner, fails to develop their capabilities, or experiences a large-scale outflow of personnel, this could have a material impact on the business and results. The company is working to enhance the effectiveness of its human capital investment through improving workplace appeal and diversifying recruitment methods and development opportunities.

In the Fund Business, if an investee company's business does not progress as planned and its financial condition deteriorates, an exit may not be achievable, making it difficult to recover invested funds. In addition, the success of an exit and the sale price may fluctuate depending on economic and political conditions and trends in the stock and financial markets, and an exit on favorable terms may not be achieved. Investment decisions are deliberated from multiple perspectives by an investment committee composed of partners, in accordance with the investment committee regulations.

If the financial condition and performance of an investee company in the Fund Business deteriorate and it is determined that there is no possibility of recovery, it may become necessary to record a provision for investment losses or an impairment loss. Recording such losses directly affects the Group's business results and financial position. Even after such losses are recorded, there remains a possibility of an exit at a price exceeding the investment cost.

To support fundraising by investee companies, the Group sometimes pledges its holdings of investee company shares as collateral to fund providers. If an investee company fails to fulfill its debt obligations to the fund provider, the pledge may be executed, resulting in a risk that the Group loses its shareholdings. The details and amounts of such collateral are disclosed in the notes to the consolidated financial statements (consolidated balance sheet related information).

Susumu Saya, the founder and Representative Director, plays a critical role in the company's business activities, including formulating management policies and strategies, building relationships with clients, and conceiving new businesses. If unforeseen circumstances make it difficult for him to perform his duties, this could affect the business and results. The company is working to build an organizational management structure to eliminate excessive dependence on the Representative Director, but the degree of dependence remains high at present.

The Group obtains confidential information and personal information from clients and is bound by confidentiality obligations under non-disclosure agreements and other arrangements. If such information is leaked externally for any reason, it could affect the business and results through a loss of trust. In addition, if a computer virus infiltrates external cloud servers or a system failure occurs due to hackers, this could also lead to damages to clients and harm to the company's brand.

The Group considers domestic M&A as an option for business expansion aimed at enhancing its consulting services, but the initially anticipated synergies and business expansion effects may not be achieved. If performance deteriorates after a company becomes a subsidiary, or if amortization or impairment of goodwill occurs, this could affect business results and financial position. The company works to reduce this risk through due diligence utilizing external experts such as lawyers and certified public accountants.