CUC Inc.

The health insurance system is revised once every two years, and the long-term care insurance system once every three years. If unexpectedly large downward revisions occur, revenue would directly decrease in the Hospice, Home-Visit Nursing, and Medical Care Residence segments, while in the Medical Institutions segment, deteriorating performance at client medical institutions could lead to delayed or suspended payment of outsourcing fees. The Group is pursuing diversification of revenue sources and initiatives targeting moderate-to-severe care needs, but it is difficult to completely avoid the impact of system revisions.

The Hospice, Home-Visit Nursing, and Medical Care Residence businesses operate under designations based on the Health Insurance Act, the Long-Term Care Insurance Act, the Act for Comprehensive Support for Persons with Disabilities, and related laws. If fraudulent billing, staffing standard violations, or operational standard violations are found, designations may be revoked or suspended, making it difficult to continue operations. In particular, if a designation is revoked under the Long-Term Care Insurance Act, new designations cannot be obtained or renewed for five years following the revocation. Although the Internal Audit Department conducts focused audits, there remains a risk of delayed response to legal and regulatory changes beyond expectations.

In the Hospice, Home-Visit Nursing, and Medical Care Residence businesses, securing nurses, care workers, and therapists is fundamental to operations, and there is a risk that recruitment will not proceed as planned due to Japan's declining working-age population and chronic labor shortages in the medical and nursing care industries. If recruitment stalls, it becomes difficult to provide services to customers, leading to a decline in service quality and disruption to plans for opening new facilities. The Group is addressing this by concentrating management resources on recruitment activities and enhancing its training system, but there are also concerns that the cost of securing personnel could increase beyond expectations.

The Group operates primarily labor-intensive businesses, and a rapid rise in wage levels directly translates into increased labor cost burdens. In the Hospice business, costs for opening and maintaining facilities are rising due to soaring construction material and other costs and a shortage of construction workers. While the Group is moderating the pace of new openings with priority on investment efficiency, prolonged inflation could adversely affect its operating results and financial condition.

The Group holds tangible fixed assets, goodwill, and intangible assets resulting from M&A activities, and there is a risk of impairment losses arising if future profitability deteriorates or unforeseeable events occur. While the Group conducts appropriate monitoring of businesses with high impairment risk, if impairment losses occur due to inadequacies in the monitoring function or other factors, this could materially and adversely affect its operating results and financial condition.

The Group handles a large volume of customer information, including sensitive personal information such as medical history, illness records, and treatment status. Unauthorized access, data destruction, or leakage resulting from cyberattacks, or information leakage caused by employees or outsourcing partners, could lead to a decline in social trust. The Hospice and Home-Visit Nursing businesses use electronic medical records, and system failures could also disrupt the provision of medical services. While the Group has established personal information protection policies, employee training, and access restrictions, complete prevention cannot be guaranteed.

In the Hospice business, listed competitors such as Ambis Holdings, Japan Hospice Holdings, and Sunwels exist, and competitors are also present in various regions in the Home-Visit Nursing and Medical Care Residence businesses. If competitors expand services on a large scale through acquisitions or alliances, or if existing competitors have a strong customer base in regions where the Group newly expands, the Group's competitive advantage could be undermined, adversely affecting its business expansion.

The parent company, M3, Inc., holds 63.46% of the Company's voting rights, giving it decision-making authority and veto power over ordinary resolutions at general shareholders' meetings (such as the appointment/dismissal of directors and dividends). As a result, the parent company's intentions could strongly influence the Company's management decisions, potentially threatening the interests of minority shareholders. The Company is strengthening governance by limiting concurrent officers/employees of the parent company to one of seven directors and appointing two independent outside directors, but if these measures do not function properly, the risk could materialize. In addition, if the parent company sells its shares in the Company, this could adversely affect the market price through deterioration in supply-demand balance of the shares.

Expansion of the Hospice business requires planned opening of new facilities, but significant delays in opening schedules may occur due to difficulty securing favorable locations, various regulations, shortages of construction workers and materials, and force majeure events. Delays in opening result in lost profit opportunities, and for facilities under long-term lease agreements, if profitability falls short of initial expectations and early termination becomes necessary, penalty payments and other costs may arise, adversely affecting the financial condition.

The Group operates podiatry and vein clinics and OBLs in the United States and other countries, and is exposed to country risks including changes in local laws, tax systems, and policies, changes in the political and economic environment, exchange rate fluctuations, geopolitical risks, and infectious diseases and natural disasters. Some overseas subsidiaries have non-controlling shareholders, and deterioration in relationships could affect decision-making. While the Group seeks to mitigate these risks by strengthening information gathering through locally stationed employees, if such risks materialize, they could affect the Group's overall business operations.