AHC GROUP INC.

The Welfare Business is subject to the Act on Comprehensive Support for Persons with Disabilities and the Child Welfare Act, while the Nursing Care Business is subject to the Long-Term Care Insurance Act, the Act on Social Welfare for the Elderly, and other applicable laws. Downward revisions to compensation resulting from system reforms implemented once every three years, as well as revocation of business designation or suspension of operations by prefectural governors and other authorities, directly affect the Group's financial position. In particular, strict standards have been established regarding over-capacity usage, which can be subject to compensation deductions or designation revocation, and there is also a risk of changes in operational practices by local governments. The Group strives to comply with laws and regulations by strengthening its internal management system, but its capacity to respond to system changes is limited.

As of the end of November 2025, the ratio of interest-bearing debt to total assets stood at a high level of 69.0%, with the Group relying on borrowings from financial institutions and others for working capital and capital expenditures for new openings. If current interest rate levels fluctuate or fundraising as planned becomes difficult, there is a risk that the pace of business growth will slow. The high degree of financial leverage means that a rise in interest rates would have a significant impact on earnings and financial position.

The Welfare, Nursing Care, and Foodservice businesses are all primarily reliant on human resources for service provision, and in particular, the Welfare and Nursing Care businesses require securing qualified personnel with specialized knowledge and instructional skills. The hiring environment is deteriorating due to the continuing decline in the working population, and recruitment costs are rising year by year in the Nursing Care and Foodservice businesses. Difficulty in recruitment or a higher-than-expected number of resignations directly affects plans to open new business locations, constraining business expansion.

The balance of fixed assets is increasing year by year due to the opening of new Welfare and Nursing Care business locations and Foodservice outlets based on the business plan. If unprofitable business locations or outlets increase, or if closures become concentrated, losses associated with the application of impairment accounting and disposal costs may arise, potentially having a material impact on the Group's financial position and operating results. The Group thoroughly manages profitability at each business location and outlet and takes proactive measures at locations with poor profitability, but the total amount of risk is also increasing as the number of locations expands.

In the Welfare Business, recent revisions to ministerial ordinances have tightened standards regarding the assignment of qualified personnel and service provision hours, raising the barrier to new entry; however, further business expansion by competitors could affect the acquisition of users. In the Nursing Care Business (Day Care Service), as of October 2024 there were 43,506 business locations nationwide, in a competitive environment characterized by a mix of new entrants, withdrawals, and M&A activity. Intensifying competition to acquire users poses a risk of pressuring earnings through a decline in utilization rates.

The Foodservice Business operates in a mature market and faces a harsh competitive environment characterized by intensifying price competition, increasingly selective personal consumption spending, expansion of the prepared foods (nakashoku) market, and a steady stream of new entrants due to low barriers to entry. Further deterioration of the market environment could put downward pressure on both the number of customers and average customer spend, potentially affecting the Group's financial position and operating results. The Group is responding through format conversions, store renovations, and menu development, but the risk of structural market contraction remains ongoing.

In connection with the provision of various services, the Group holds personal information of users and others, and faces risks of leakage, tampering, or unauthorized use due to intentional or negligent acts by internal parties or attacks by malicious third parties. If an information leak occurs, in addition to a loss of social trust, financial burdens such as claims for damages and costs to overhaul security systems may arise. The Group responds through the development of regulations such as the Basic Regulations for Personal Information Protection, but risk arising from increasingly sophisticated cyberattacks continues to exist.

The Group utilizes information systems and networks for sales management, customer management, personnel management, accounting operations, and other functions, and a system failure would cause delays in business operations. In particular, if a failure occurs in the billing system for the Welfare and Nursing Care businesses, billing delays would lead to delayed receipt of payments, directly affecting cash flow. The Group responds through continuous operational monitoring and the development of regulations, but the significance of this risk is increasing along with the growing degree of reliance on systems.

Since many business locations and outlets are concentrated in the greater Tokyo metropolitan area, if a large-scale natural disaster such as an earthquake or typhoon, or an outbreak of an infectious disease such as influenza occurs, there is a risk that operations at business locations and outlets could be suspended due to users being unable to visit, employees being unable to come to work, or disruption of infrastructure. This geographic concentration embeds a structural vulnerability whereby a single disaster event could simultaneously affect multiple locations. A decline in revenue resulting from a decrease in users could affect the Group's financial position and operating results.

The Welfare, Nursing Care, and Foodservice businesses are all services provided to individuals, and are therefore susceptible to reputational effects arising from word of mouth, internet postings, and media coverage. If a scandal occurs at a Group business location or at a business location operated by a trademark licensing partner using the same brand, the resulting decline in brand strength could lead to a decrease in users, potentially affecting the Group's financial position and operating results. The Group responds through its internal audit system, enhanced patrols by the quality control department, and monthly tiered training programs, but the difficulty of managing brand integrity, including at trademark licensing partners, remains high.