KNT-CT Holdings Co., Ltd.

There is a risk that large-scale earthquakes, typhoons, terrorism, conflicts, or serious infectious disease outbreaks occurring domestically or overseas could cause widespread and prolonged cancellations or travel avoidance to affected regions, resulting in the loss of travel demand. As demonstrated during the COVID-19 pandemic, the travel industry is extremely vulnerable to external shocks, and the impact on business performance and financial condition could be severe. The Group has established a risk management framework through its Risk Management Committee, but the occurrence of such events itself is difficult to control.

The Group operates under a wide range of laws and regulations, including the Travel Agency Act, the Act against Unjustifiable Premiums and Misleading Representations, the Consumer Contract Act, and the Antimonopoly Act. If the Group fails to respond promptly to regulatory changes or commits a serious legal violation, it may face a business suspension order from administrative authorities, leading to a decline in net sales. Such events would also damage the Group's brand image, potentially having a significant impact on business operations. The Group has established internal control systems to ensure compliance, but responding to changes in the regulatory environment remains a challenge.

If employees make arrangement errors resulting in failed transportation or accommodation bookings or failure to obtain important tickets, or if outsourcing partners cause accidents or legal violations, the Group may face claims for damages or dispositions under the Travel Agency Act. Default on obligations in outsourced work from local governments and other entities could lead to suspension from bidding, potentially restricting business activities. The Group works to prevent such incidents through the development of operational manuals and planned training, but in the event of a major incident, significant damage to brand image and business performance could result.

Due to the nature of the travel business, the Group handles large volumes of personal information such as customer data. A large-scale information leak could result in claims for damages from customers as well as a significant decline in net sales due to loss of trust. Key subsidiaries have obtained Privacy Mark certification and taken other measures to prevent leaks, but complete prevention is difficult. A significant impact on business performance and financial condition is anticipated in such an event.

The Group is highly dependent on information systems for travel reservations, ticketing, and sightseeing pass issuance, among other functions. A serious system failure could cause business operations to be disrupted for an extended period. If a cyberattack by a third party causes a system outage, data loss, data tampering, or personal information leakage, it could result in business suspension, claims for damages, and a significant decline in net sales. The Group has implemented measures such as cloud utilization, network redundancy, the appointment of dedicated information security personnel, and compliance audits conducted by the Audit Department.

As many of the Group's businesses are labor-intensive, they are affected by labor shortages in the labor market. If the Group fails to continuously secure and systematically develop human resources as planned, there is a risk of declining competitiveness and disruption to business activities. Delays in promoting work-life balance and diverse working arrangements could also lead to employee health issues and turnover. A significant impact on business performance and financial condition is anticipated.

As the proportion of domestic customers in net sales is relatively high, a decline in Japan's population and the progression of the aging society with fewer children pose a risk of medium- to long-term decline in net sales. The Group is addressing this through strengthening its inbound tourism business, expanding its share of educational travel, and deepening demand from active seniors, among other initiatives. However, if these initiatives do not progress as planned, there could be a significant impact on business performance and financial condition.

As the travel business is primarily oriented toward personal leisure spending, it tends to be strongly affected by economic fluctuations. If the economy deteriorates more than expected and personal consumption stagnates, there is a risk of a significant decline in travel demand. The Group seeks to mitigate the impact of the domestic economy through capturing corporate demand, undertaking outsourced work such as regional co-creation projects, and expanding inbound tourism, but a significant impact on business performance and financial condition is unavoidable during an economic downturn.

Most local costs for overseas travel (such as hotel fees) are denominated in foreign currencies such as the US dollar, and significant exchange rate fluctuations pose a risk of impacting business performance and financial condition. The Group hedges this risk through forward exchange contracts and currency option transactions, but complete avoidance is difficult. In addition, a sharp rise in crude oil prices could reduce demand for overseas travel through increases in fuel surcharges, and could also cause price increases in hotels, meals, passenger transportation, and other costs to be passed on to travel prices, potentially leading to a decline in demand.

If human rights violations or various forms of harassment occur within the Group or its supply chain, there is a risk of harm to victims' physical and mental health, as well as a decline in social credibility and damage to brand image. Inadequate response to customer harassment could lead to employee health issues and turnover, potentially disrupting business activities. A significant impact on business performance and financial condition is anticipated.