GAKKEN HOLDINGS CO., LTD.

The Group operates a diverse range of businesses centered on education and medical/welfare services, and is subject to various laws and regulations in each business field. Amendments to laws, changes in interpretation, or the introduction of new regulations may affect operating results. In particular, the Senior Housing Business is operated in accordance with related laws such as the Long-Term Care Insurance Act, the Act on Housing for Elderly Persons, and the Act on Social Welfare for the Elderly, and is directly susceptible to the impact of social security system reforms. As a countermeasure, the Group conducts regular compliance training for all employees to strengthen its legal and regulatory compliance system.

In the Senior Housing Business, Dementia Group Home Business, and childcare support business, since users include the elderly and infants, there is a possibility of life-threatening incidents such as accidents, food poisoning, and outbreaks of infectious disease. Should such issues develop into litigation or reputational damage, they could have a significant impact on operating results. The Group strives to create a safe and secure environment at each business site and facility through the establishment of guidelines and manuals and the provision of training.

The Group holds a large amount of personal information throughout the entire process of planning, producing, and selling products and services. In the event of an unforeseen leakage of personal information, damage to the Group's reputation and impact on operating results would be unavoidable. In addition to strengthening measures against unauthorized external access, the Group has established internal rules, guidelines, and manuals to thoroughly ensure compliance with relevant laws at each stage of acquiring, storing, using, and disposing of personal information.

Many of the Group's businesses depend on information systems and communication networks. If system outages, loss, leakage, or falsification of information occurs due to power outages, disasters, software defects, computer virus infections, unauthorized access, or similar causes, business operations could be disrupted, potentially affecting operating results. As countermeasures, the Group is promoting system and security enhancements for stable operation, server operation at highly secure data centers, and server decentralization through the use of cloud services.

In the Publishing & Content Services Business, the declining trend in sales of books and magazines continues, and advertising revenue is also susceptible to economic fluctuations. In addition, under the publishing industry's consignment sales system (sales with return conditions), an increase in returns beyond expectations could affect operating results. In addition to efforts to improve the accuracy of market forecasts and reduce return rates, the Group aims to maximize revenue by expanding businesses beyond e-books and print publications.

The Japan Fair Trade Commission indicated in March 2001 its intention to abolish the resale price maintenance system for copyrighted works. Although abolition has been postponed for the time being, if this system is abolished in the future, it could affect the operating results of the publishing industry as a whole and the Group. In addition, the risk of disputes (such as publication injunctions and damage claims) over intangible property rights such as copyrights and portrait rights related to publications and other content cannot be completely avoided.

In the Classroom & Tutoring School Business and the nursery/school business, the declining birthrate could have a significant impact on business scale. On the other hand, challenges include responding to needs for improved childcare environments and higher-quality early childhood education, as symbolized by the establishment of the Children and Families Agency, and to the spread of non-subject-based and cross-curricular learning such as inquiry-based learning driven by university entrance exam reforms. The Group is working to adapt to these market changes by developing content that leverages its strengths and expanding its products and services.

The head office and major business sites are concentrated in urban areas centered on Tokyo, while the Senior Housing Business, Dementia Group Home Business, and Classroom & Tutoring School Business operate nationwide. As a result, natural disasters such as earthquakes, tsunamis, typhoons, and floods, as well as the spread of infectious diseases, could halt or significantly disrupt business activities. Even if the Group's own facilities and systems are unaffected, similar risks could arise depending on the damage suffered by business partners. The Group is working to develop response manuals, business continuity plans (BCP), and information-gathering systems for emergencies.

In overseas businesses such as publishing, tutoring schools, nursing care, and ODA consulting, if political, social, or economic instability, natural disasters, infectious diseases or epidemics, or the establishment or amendment of laws and regulations materialize in the countries or regions where the Group operates, this could affect operating results. The Group continuously gathers information and monitors the situation regarding legal reforms and administrative trends in the relevant countries and regions, and strives to strengthen its systems accordingly.

The Group holds securities for purposes such as business expansion, but if stock values decline sharply amid an uncertain economic and market environment, valuation losses may occur and affect operating results. In addition, if the business environment changes after an M&A transaction and does not proceed as originally planned, there is a risk of goodwill impairment losses or valuation losses on securities. When conducting M&A, the Group makes decisions based on detailed due diligence covering the target company's finances, legal matters, and business operations, as well as an analysis of its normalized earning power.