HAPPINET CORPORATION

Consumer behavior and lifestyles are changing due to the declining birthrate, diversification of consumer needs, and digitalization, and the business performance of the Group is susceptible to trends in personal consumption. Significant changes in the market environment or deterioration of economic conditions may affect operating results and financial position. In response, the Group is promoting faster decision-making through the in-house company system (introduced in April 2020), and expanding its business domains, product lineup, and overseas operations.

While promoting investments and acquisitions aimed at expanding business domains and overseas operations, if investment recovery or the business performance of acquired companies deteriorates, this may affect operating results and financial position. In response, the Group conducts regular monitoring of business plans, has established criteria for business investment and withdrawal decisions, and regularly reviews its overall business portfolio.

Top business partners account for a high proportion of both purchases and sales, and significant changes in the market environment or business conditions of major suppliers or customers may affect operating results and financial position. In response, the Group continues to work on expanding its business domains, product lineup, and overseas operations, and on expanding its intermediary distribution share by developing new customer segments.

While promoting overseas expansion as a strategy, insufficient identification and handling of region-specific risks, or inadequate management systems for overseas subsidiaries, may result in losses or lost growth opportunities, affecting operating results and financial position. In response, the Group identifies risks related to the social and economic conditions and laws and regulations of the countries and regions it enters, develops management systems for overseas subsidiaries, and conducts awareness activities regarding overseas transaction risks.

As the Group's directly operated stores rapidly expand based on the downstream strategy of the 10th Medium-Term Management Plan, if the management system is inadequate, fraud or scandals may occur, leading to a loss of social trust and substantial costs from damages, which may affect operating results, financial position, and business development. In response, the Group thoroughly trains store staff, reviews operational rules and manuals, and strengthens measures against theft and harassment prevention.

If sufficient human resources cannot be secured due to recruitment difficulties from a shrinking labor force, or due to the outflow of personnel resulting from decreased workplace comfort and motivation, the Group's future growth may be hindered. In response, the Group supports the development of specialized expertise through an established learning framework, promotes DEI&B (Diversity, Equity, Inclusion & Belonging), and engages in proactive recruitment activities.

Since the Group's business is centered on the intermediary distribution function, inventory tends to be high, and if demand forecasting and optimization of distribution inventory do not proceed smoothly, this may affect operating results and financial position. In response, the Group works to achieve appropriate demand forecasting by timely collection of market conditions and store-by-store sales data using information systems, and to clarify the purchasing decision processes and standards in each business division.

If an information security incident occurs due to a cyberattack or malware infection, extensive system downtime or leakage of important information may result, leading to a loss of social trust and substantial costs from damages, which may affect operating results, financial position, and business development. In response, the Group is building a robust security system, including the establishment of a company-wide security committee, 24/7 monitoring with automatic blocking and isolation, regular system audits, and the establishment of rules to prevent misdirected emails.

If sales activities, logistics, or communication networks are halted for an extended period due to natural disasters such as major earthquakes, typhoons, or torrential rain, or accidents such as fires or power outages, this may affect operating results and financial position. In response, under a basic policy prioritizing the safety of human life and facilities based on the risk management regulations, the Group develops its BCP (Business Continuity Plan), builds a system for establishing an emergency response headquarters, and formulates, reviews, and trains on BCP manuals including system recovery.