BELLUNA CO.,LTD.

In connection with its domestic and overseas business operations, the Group is exposed to legal proceedings and litigation risk involving regulatory authorities. If new laws or regulatory changes impose new obligations or costs, or if a court ruling unfavorable to the Group is handed down, this could damage the Group's corporate image and adversely affect its business performance and financial condition. The Group addresses this risk through the establishment of internal control and management systems and thorough legal compliance; however, the risk may materialize if these measures fail to effectively prevent violations.

Given the nature of its mail-order business, the Group holds a large volume of customer personal information. Should an information leak occur, it could significantly damage the Group's corporate image and result in response costs, thereby affecting business performance and financial condition. The Group addresses this through compliance with the Personal Information Protection Act, strengthened management systems including those covering outsourcing partners, regular internal training, and acquisition of the Privacy Mark certification; however, it is difficult to completely eliminate threats from both internal and external sources.

As nearly all of the Group's operations depend on computer processing, unauthorized external access or system outages/malfunctions caused by computer viruses could result in losses and response costs, affecting business performance and financial condition. The Group addresses this through the latest security measures, strengthening of its IT infrastructure, and ensuring backups of critical systems; however, complete defense cannot be guaranteed given the increasing sophistication of technological threats.

The Group's syndicated loan and commitment line agreements contain a financial covenant requiring consolidated total net assets to be maintained at 75% or more of the amount at the end of the previous fiscal year. Breaching this covenant could result in the loss of the benefit of time on borrowings. In addition, a downgrade in credit rating could increase fund-raising costs and reduce the Group's ability to raise funds in the public bond or private placement bond markets. The Group is working to stabilize its financial structure through diversification of funding methods and efficient utilization of funds within the Group.

As some of the Group's products are imported from overseas and denominated in foreign currencies, significant fluctuations in exchange rates could increase procurement costs and affect business performance and financial condition. The Group seeks to mitigate this risk through hedging instruments such as forward exchange contracts; however, complete hedging may be difficult during periods of sharp rate fluctuations.

The Group holds tangible fixed assets, primarily in connection with its property business, and changes in economic conditions, land price trends, and the financial environment could result in impairment or valuation losses on held real estate, affecting business performance and financial condition. In addition, if sufficient future cash flows cannot be expected due to changes in the surrounding environment or other factors, recognition of impairment losses may become necessary. The Group has established a monthly performance monitoring system to enable prompt responses in the event of a significant performance decline.

While the Group is pursuing M&A to strengthen its group businesses, if previously unrecognized liabilities are discovered after an acquisition or if the initially expected effects are not achieved, this could adversely affect business performance and financial condition. The Group seeks to reduce this risk through due diligence conducted by external lawyers and accountants, explicit warranty provisions in contracts, and post-M&A placement of its own personnel; however, complete elimination of the risk is difficult.

The Group formulates sales plans based on seasonal product trends, but unusual weather conditions such as a cool summer, warm winter, or extended rainy periods could lead to decreased product sales and excess inventory, affecting business performance and financial condition. The Group works to curb both lost sales opportunities and excess inventory by diversifying order frequency; however, the increasing frequency of abnormal weather events poses a risk of expanding the impact.

In connection with its direct overseas procurement of products and overseas property business operations, changes in political and economic conditions in production countries and countries of business operation, unexpected changes in laws and regulations, terrorism, war, natural disasters, and similar events could affect business performance and financial condition. The Group continuously gathers information on local political and economic conditions to detect, reduce, and avoid risks at an early stage; however, the impact may materialize amid heightened geopolitical risk.

The Group operates hotel, restaurant, apparel store, and kimono store businesses. If a severe infectious disease outbreak leads to restrictions on movement or travel, this could significantly reduce the number of hotel guests and store visitors, affecting business performance and financial condition. In the event of such an emergency, the Group has established a system to set up an emergency response headquarters that prioritizes the safety of customers and employees while minimizing the impact on business performance.