HIKARI TSUSHIN, INC.

The Group conducts business with multiple business partners in the procurement, sale, and customer management of products and services, and continuation of transactions may become difficult due to changes in partners' management policies, deterioration or bankruptcy of partners, changes in relevant laws and regulations, or the occurrence of natural disasters, war, or terrorism. This could result in the suspension of the Group's service provision, potentially affecting the foundation of its recurring revenue model. As a countermeasure, the Group has established a diversified transaction system with multiple business partners.

There is a risk that the recoverability of accounts receivable from domestic and overseas customers, as well as incremental costs capitalized for contract acquisition, may decline due to customers' credit concerns, increased cancellations resulting from a decline in competitive advantage, or loss of customer information due to cyberattacks or system failures. This could result in the recognition of substantial allowances for doubtful accounts or impairment losses, potentially having a material effect on business results and financial position. Personal information leaks and reputational deterioration are also explicitly cited as factors that could increase cancellations.

In the electricity business, electricity for customers is procured mainly from the market, and procurement prices are affected by fluctuations in fuel prices and exchange rates. Fluctuations in market prices or changes in business partners' management policies may increase procurement prices and customer retention costs, raising the cost of contract fulfillment. This risk directly pressures profit margins within the Group's recurring revenue model.

As the Group's main business base is in Japan, the domestic market may contract due to fluctuations in the domestic economy, population decline, the falling birthrate and aging population, natural disasters, or the spread of epidemics, potentially reducing business opportunities. Although the Group strives to build a structure that does not depend on any specific target (business, product, customer, business partner, etc.), the risk of concentration in the domestic market structurally remains. Market contraction affects revenue through greater difficulty in acquiring new customers and increased cancellations among existing customers.

The Group considers corporate acquisitions and capital investment as options for business expansion, and adopts a policy of investing funds within objective numerical criteria. However, if unforeseen circumstances such as poor business performance occur, recovery of invested funds may become difficult. If recovery becomes impossible, this would affect the financial position through the recognition of impairment losses and similar items.

The Group is subject to a wide range of laws and regulations, including those related to electricity, telecommunications, food sanitation, insurance, finance, and labor, and unforeseeable changes to or new enactment of laws and regulations may affect business results and financial position. In addition, violations of laws and regulations by business partners such as suppliers, sales agents, and financial institutions pose a risk of disrupting the Group's business operations. The business structure, which requires compliance across a wide range of regulatory areas, leads to broad-based regulatory risk exposure.

In the course of business activities, the Group may incidentally become subject to lawsuits or claims that do not rise to the level of litigation, which could affect business results and financial position. Given the nature of the business model, which involves broad customer acquisition activities through sales agents, there is an inherent risk of claims arising from consumer disputes or agent conduct. No specific countermeasures are described in the securities report.

The Group holds marketable securities such as stocks (including foreign-currency-denominated assets) and foreign currencies, and there is a risk that their valuation may decline due to fluctuations in interest rates, exchange rates, and stock prices, or due to deterioration or bankruptcy of the issuer. This could result in valuation losses on securities and foreign exchange losses, potentially affecting business results and financial position. Holding foreign-currency-denominated assets also creates compounded exchange rate risk.

The Group raises funds through bank borrowings and bond issuances, and some contracts include financial covenants. Changes in financial market conditions, a decline in credit ratings, or loss of social credibility may make it difficult to raise funds or increase the cost of financing. While the Group strives to strengthen its financial base through diversifying financing methods, extending maturities, and fixing interest rates, there is also an inherent risk of breaching financial covenants.

The Group records deferred tax assets for tax loss carryforwards and future deductible temporary differences, and there is a possibility that deferred tax assets could be impaired or additional tax burdens could arise due to deterioration in business conditions, tax law revisions, or differences of opinion with tax authorities. Write-downs of deferred tax assets directly affect financial position through a reduction in net assets. The risk of tax law revisions remains an uncertainty outside the Group's control.