Business and Other Risks

Matters deemed potential major risk factors in the Group's businesses as of the end of November 2023 are described below. In addition, to ensure the proactive disclosure of information to investors, matters considered to not necessarily pose risks in the Group's businesses but deemed important for investment decision-making or understanding the Group's business activities are described below. While the Group's policy is to strive to avoid such risks and to address them if they do arise, based on recognition of their possibility we believe the following business risks should be carefully considered before making decisions related to investments in Company stock.

1. Business permits

The Group's Temporary Staffing Services are licensed by the Minister of Health, Labour and Welfare of Japan as a worker dispatching business under the Act on Securing the Proper Operation of Worker Dispatching Businesses and Protecting Dispatched Workers (“Worker Dispatching Act”). To ensure the appropriate operation of worker dispatching businesses, the Worker Dispatching Act provides for cancellation of the business license of a company operating a worker dispatching business or ordering the suspension of its business in whole or in part if it no longer qualifies as an operator of such a business or violates the Worker Dispatching Act or the Employment Security Act or any order or disposition based on the provisions of those acts. The license has an expiration date: in the case of the worker dispatching license of S-Pool Human Solutions, Inc., this date is November 30, 2022. S-Pool Human Solutions, Inc. has established a section in charge of facilitating the renewal of the business license. It strives to manage legal and regulatory risks by maintaining internal flows that ensure compliance in its everyday business operations and a structure for checking on the state of compliance.
As of the date of submittal of the securities report, no grounds have arisen under which this license may be canceled. However, if the case of violation of laws or regulations were to arise for any reason, resulting in the cancellation of the worker dispatching business license, suspension of the business, in whole or in part, or nonrenewal of the business license upon expiration, then the Group would no longer be able to operate the worker dispatching business, which in turn would have significant repercussions for Group business operations.
In addition, the Employment Security Act stipulates provisions regarding fee-charging employment placement businesses similar to those of the Worker Dispatching Act, providing for the cancellation of the business license of a company operating a fee-charging employment placement business or ordering the suspension of its business in whole or in part, in the event that it no longer qualifies as an operator of such a business or grounds arise for the cancellation of such license. The license has an expiration date: November 30, 2022 in the case of the fee-charging employment placement business license of S-Pool Human Solutions, Inc. and April 30, 2026 in the case of the fee-charging employment placement business license of S-Pool Plus, Inc. The Group has established sections in charge of facilitating the renewal of business licenses for individual companies holding business licenses. It strives to manage legal and regulatory risks by maintaining internal flows that ensure compliance in everyday business operations and a structure for checking on the state of compliance.
As of the date of submittal of the securities report, no grounds have arisen under which this license may be canceled. However, if the case of violation of laws or regulations were to arise for any reason, resulting in the cancellation of the business license, suspension of the business, in whole or in part, or nonrenewal of the business license upon expiration, then the Group would no longer be able to operate the fee-charging employment placement business, which in turn would have significant repercussions for Group business operations.

2. Legal restrictions

We anticipate that the Labor Standards Act, Industrial Safety and Health Act, Worker Dispatching Act, Employment Security Act, Industrial Accident Compensation Insurance Act, Health Insurance Act, Employees' Pension Insurance Act, Act on the Protection of Personal Information, and other applicable laws and regulations may be subject to amendment or reinterpretation in accordance with changing social conditions related to labor markets. Any systemic changes may also affect Group businesses.

3. Social insurance and employment insurance

Temporary staff employed by the Group in its businesses are covered by social insurance (health insurance and employees' pension insurance) and employment insurance in accordance with their contractual forms and work records, based on operational policies established by the Group within the scope stipulated in the Health Insurance Act and the Employees' Pension Insurance Act.
While the Group complies with all applicable laws and regulations, its business results may be affected by changes in applicable laws and regulations, interpretations thereof, or instructions based on judgments by relevant authorities.
In addition, factors such as amendments of applicable laws and regulations or changes in social conditions may increase the cost to the Group of social insurance and employment insurance, in turn affecting Group business performance.

4. The Act on Employment Promotion etc. of Persons with Disabilities

The Group's Special Needs Employment Services provides solutions to the various issues related to employment facing companies that seek to employ people with special needs. Demand for such services is determined to an extent by the Act for Promotion of Employment of Persons with Disabilities, which sets requisite employment ratios for persons with disabilities. While the government intends to continue raising this statutory employment ratio over time, the Group's business operations may be seriously affected should future legislation relax or eliminate the obligation.

5. The Special Needs Employment Services business model

The Group's Special Needs Employment Services are based on a business model developed by the Group independently, one intended to create employment opportunities for those with intellectual disabilities to support their economic independence. For this reason, the Group sections in charge of this business and legal sections work together to achieve thorough compliance with applicable laws and regulations. However, legal amendments, new regulations, administrative guidance, or other developments may constrain or otherwise affect its business activities.
In addition, while the Group takes care in its business activities to avoid incidents such as violations of laws and regulations, based on its strong desire to help realize solutions to social challenges, there are possibilities that the reputation of the Group's business model could be harmed or that the Group could suffer from a markedly unfavorable image as a result of copying by competitors or other causes.
In such cases, it may prove impossible to undertake business operations as planned, resulting in significant repercussions for Group business performance.

6. Farms operated by the Special Needs Employment Services business

The Group's Special Needs Employment Services business operates rental farms for use by companies seeking to employ people with disabilities. Two types of farms are available: outdoor and indoor farms. While the Group operates these facilities with great care with regard to construction and maintenance and has established sections specializing in placing orders for construction work and managing progress, natural disasters such as typhoons or earthquakes, human errors, accidents, equipment-related issues, unlawful acts by third parties, and other issues may affect operations of these farms.
Such events may result in loss of trust in the Group or damage to its reputation, making it difficult to secure and retain customers and affecting the Group's businesses and performance.
In addition, building new rental farms for companies to operate is essential to growing the Special Needs Employment Services business. Group business performance may be impacted, should internal or external factors make it difficult to secure land or buildings suitable for such farms.

7. Management of personal information

In conducting its businesses, the Group retains personal information on temporary staff and other individuals managed centrally by backbone business systems. For the handling of such personal information, the Group has established rules for protecting personal information. Additionally, the Group has thorough management structures, under which it strives to comply with the Act on the Protection of Personal Information. It also invests proactively to strengthen the security of its backbone business systems and implements rigorous security measures to prevent unauthorized access, destruction, and alteration of such information.
Employees working in Group businesses and temporary staff assigned to call centers and other facilities may have the opportunity to come into contact with personal information and trade secrets under customer management. To manage customer trade secrets and prevent leaks, the Group requires all employees and temporary staff to sign a confidentiality pledge upon hiring. It also conducts periodic training and education in group training sessions and online training to ensure understanding of the importance of appropriate handling of such information.
Leakage or misuse of personal information occurring despite these measures may result in significant impact on Group businesses and performance due to damage to the Group's reputation or other consequences.

8. Establishing new businesses and new services

As a medium-term management policy, the Group promotes management based on a balanced portfolio, designed to be resistant to environmental changes. It plans to continue developing new businesses and new services flexibly in accordance with environmental changes. While new businesses and new services are developed based on careful prior analyses of environmental, market, and other conditions, there can be no guarantee that events will unfold as anticipated once business development has commenced. Thus, factors such as unforeseen developments may impact Group business performance.

9. Business investments

To adapt to environmental changes, the Group proactively examines and implements acquisitions of and investments in companies or businesses in the same or related business fields. We proceed with acquisitions and business investments with great care based on prior due diligence and other studies of business conditions and market trends. Following the incorporation of a company or business into the Group, we strive to improve its business performance by sharing information and existing sales networks in the same manner as with existing subsidiaries. However, due to internal and external factors, progress in accordance with plans is not assured. Group business performance remains vulnerable to impairment of goodwill or fixed assets, or revaluation losses of shares in affiliates due to downgrading of assets acquired or reduced profitability.

10. Impact of large-scale natural disasters, infectious disease, and other events

The Group operates business facilities across Japan. Natural disasters, infectious disease, and other events can impede its business activities. Socioeconomic activity at this time is returning to normal due to the fading impact of COVID-19, resulting from the lower risk of aggravation, etc. Nevertheless, the Group's business performance may be affected by future epidemics, depending on the degree of impact on socioeconomic activities. In addition, Group business performance may be affected if rental farm facilities operated by the Group's Special Needs Employment Services business are rendered nonoperational for extended periods by typhoons, earthquakes, heavy snowfall, torrential downpours, or tornadoes.

11. Information system failures

In many of its business administration activities, the Group relies on computer systems and networks to facilitate the smooth operation of its business facilities across Japan, and to safeguard against their failure the Group has set up backup servers. It subcontracts operations to external data centers to safeguard against earthquakes and other disasters. However, computer system downtime or network damage due to unforeseen problems or other events may affect Group business performance.
While we plan to enhance the operational stability of our computer systems and networks through proactive investments in information systems, these investments do not necessarily correlate with growth in profits. If the resulting profits are lower than the amounts invested this would naturally pose a risk to recovery of the funds invested.

12. Securing human resources

Securing and training highly capable employees and temporary staff are key factors in the Group's continued growth. In our recruiting activities, we promote more diverse approaches to recruitment, including organizing our own unique recruiting events, implementing internship programs, and presenting multiple career path options for our employees, as well as increasing the number of recruitment facilities and adopting a web-based interview system for temporary staff recruitment. In addition, for the purpose of employee training and retention we implement training programs by rank, job rotations, and promote health management and other measures. However, failure to make progress as planned on securing and developing human resources due to the failure of these measures to fully demonstrate their effects may significantly affect the Group's business performance.