The principal risks are those outlined below. Please note that forward-looking statements made in this section are, unless otherwise stated, judgments made by Nareru-group Inc., as of January 30, 2025.

1.Economic Trends in the Construction Industry

The Group operates a dispatching business mainly for the construction industry, and we believe that the demand for dispatch in the construction industry will continue to expand due to the shortage of human resources. However, the business performance of the Group is affected to a certain extent by domestic construction investment trends. If construction investment trends change significantly due to a decline in public and private construction due to deteriorating economic conditions, there is a possibility that working hours may be shortened, contract conditions may deteriorate, or mid-term termination of dispatching contracts may occur. As the Group dispatches many full-time engineers, during an economic downturn, the burden of the labor costs for those permanent engineers may become heavier, which could have an impact on the Group’s business performance and financial condition.

Although the Group is developing its business centered on dispatch for the construction industry, we are expanding our business into fields other than the construction industry, such as dispatch for the plant field, BIM field, IT field. Utilizing our know-how and experience, we operate our business in a way that diversifies risk so that it is not significantly affected by the business conditions of specific industries or customers.

2.Securing Engineer Human Resources

Acquiring engineers is the driving force behind the Group’s growth. The Group’s strength in recruiting is the Group’s strength, and the number of engineers hired and the total number of engineers employed are steadily increasing. In addition, in terms of recruitment channels, in addition to the use of traditional recruitment media, we are working to secure technical human resources by diversifying to use of in-house recruitment sites, recruitment agencies, and introductions to acquaintances. .

On the other hand, Japan’s total population is expected to continue decreasing. The supply and demand for engineers in Japan is tight, and depending on future trends in the engineer recruitment market, there is a risk that we will not be able to secure a sufficient supply to meet demand and recruitment costs may increase, which may affect the Group’s business results and it may affect your financial condition.

3.Labor Management

Our group employs approximately 3,000 engineers, and we continue to hire more. As labor management regulations are becoming stronger, such as the introduction of upper limits on overtime work hours in the construction industry from April 2024, our group is taking steps to ensure the quality of our personnel at the time of recruitment, strengthen our education and training system, and improve the management of dispatched technical employees, including labor management that emphasizes compliance. However, in the unlikely event that a violation of laws and regulations occurs due to inappropriate labor management, or a dispute arises between dispatched technical employees regarding occupational safety and health or employment relationships, etc., this could have an adverse effect on the Group’s business operations. As a result, this may have an adverse effect on the business performance and financial position of our group.

In addition, the engineers dispatched by the Group work at various sites at client companies. The Group strives to understand the risks of industrial accidents in the working environment of our dispatch destinations, but if the Group’s employees encounter an unexpected situation, the Group may face burden of damages or loss of social credibility. This may affect business results and financial condition.

4. Licenses and Regulations

The Group operates as a worker dispatching business and paid employment placement business with license from the Minister of Health, Labor and Welfare, etc. The license and notification status of the Group as of the filing date of this securities report is as follows.
　
　

The Group is working to prevent violations of laws and regulations, and as of the filing date of the Securities Report, there have been no events that would lead to the revocation of such permissions or suspension of business. However, for some reason such as construction work that falls under the exemption prohibited by the Worker Dispatch Act according to instructions from the dispatch destination (note that construction management, CAD drawing, construction drawing, etc. carried out by dispatched technical employees of the Group are not included in such work), if the business license is revoked or the business is ordered to be suspended for some reason, this may hinder the Group’s business activities and may affect its business results and financial condition.

Even fee-charging employment placement businesses are prohibited by the Employment Security Act from introducing job seekers for construction work. However, our Group provides job placement services for craftsmen (skilled workers) through the National Construction Human Resources Association, a general incorporated association that holds a license to operate a fee-charging employment placement business for construction work (Article 18 of the Act on the Improvement of Employment of Construction Workers, etc.). In addition, only certified organizations are allowed to introduce craftsmen to the paid job placement business for construction work, and only three organizations nationwide have been certified, including the National Construction Human Resources Association, a general incorporated association.

　In addition, when the Group is entrusted with work such as SES (System Engineering Services) based on a quasi-delegation contract, we comply with relevant laws and regulations such as the “Standards for Classification between Worker Dispatching Business and Business Conducted by Contract (Ministry of Labor Notification No. 37).” If a problem such as fraudulent contracting occurs,the Group’s business results and financial condition may be affected due to a loss of social trust.

5.Large Amount of Debt

The Group has entered into loan agreements with financial institutions as lenders and has borrowed large amounts, with the balance of outstanding borrowings accounting for 23.6% of total assets as of the end of October 2024. The repayment deadline for the 2 billion yen commitment line borrowing established based on the syndicated loan agreement is October 31, 2025.(Note) We will continue to work to reduce our borrowings in the future, but if interest rates on the floating interest portion of our borrowings increase, this could have an impact on our group’s business performance.
　
In addition, the loan agreements entered into by the Group include financial covenants as described in “5. Accounting Status 1. Consolidated Financial Statements, etc. Notes 16. Borrowings and Assets Provided as Collateral” of the Securities Report.
In order to deal with the risk of violating financial covenants, the Group periodically checks various figures related to financial covenants and strives to secure stable profits and funds. If any of the provisions are violated, the borrowings may be repaid all at once, which may have an impact on the Group’s financial position.
　
（Note）Pursuant to the provisions of the syndicated loan agreement, the commitment period may be extended by up to two one-year periods, and if the commitment period is extended, the repayment deadline for the lenders that have accepted the extension will be the maturity date of the extended commitment period. Although the commitment period and repayment deadline were reached on October 31, 2024, the commitment period was extended for one year, and therefore the loan was refinanced for the executed amount of 2 billion yen on October 31, 2024.

6. Impairment of Goodwill

The Group has recorded a large amount of goodwill (goodwill ratio of 59.6 % to total assets as of the end of October 2024 ). The goodwill was mainly generated from the acquisition of shares of World Corporation in November 2019.

As the Group has adopted IFRS, there is no amortization of goodwill each fiscal year. However, if the profitability of the business that is the subject of goodwill declines, there is a possibility that an impairment loss will be recorded. Although we are working to improve the profitability of our business, if we end up recording an impairment loss, this could have an impact on the business performance and financial position of our group.

7.Dependence on Representative

Ryo Kobayashi, the founder and representative director of the Group, indirectly owns our shares through his asset management company. He has extensive experience and knowledge regarding dispatching business for the construction industry, and plays an important role in determining and executing management policies and business strategies.

The Group is working to share information among officers and executives at meetings of the Board of Directors, etc., and strengthen the management organization, and is working to establish a management system that does not rely too heavily on him. If it becomes difficult to continue, the Group’s business results and financial position may be affected.

8.Information Security and Personal Information Management

The Group holds a large amount of personal information on employees, including engineers, and job applicants. The Group recognizes that the proper management of personal information is extremely important, and we instill the proper handling of personal information through continuous education and training for executives and employees. In addition, we maintain and operate personal information protection regulations and take security measures regarding personal information in our information systems.

If personal information were to be leaked, the Group’s business results and financial condition could be affected by claims for damages and loss of social trust.

9.Global spread of infectious diseases

In the event of a global infectious disease outbreak, such as the COVID-19 pandemic that began spreading worldwide in 2020, face-to-face sales and recruitment activities may be restricted. In addition, if client companies in the construction industry, to which we dispatch personnel, suspend construction operations or experience a decrease in construction projects, this could have an impact on the Group’s business performance and financial position.

10.System Failure

The Group strives to operate our information systems stably, but if a major failure occurs in our information systems due to natural disasters, accidents, computer viruses, unauthorized access, or other cyber-attacks, the Group’s business operations and business results may be affected.

11.M&A, Business Alliances, New Businesses, etc.

As part of our growth strategy, the Group may pursue M&A, business alliances, and the establishment of new companies. When implementing these measures, we will conduct sufficient preliminary research and consideration, but if the business deviates significantly from the originally envisioned business plan, there is a possibility that the business results and financial position of the Group will be affected.

12.Natural Disaster

The Group has sales offices all over the country, and the Group’s engineers work at customer sites across the country. In the event of a natural disaster such as an earthquake, tsunami, or typhoon, we will respond promptly and accurately, but if an unexpected large-scale disaster occurs and business operations at our sales offices become difficult or a customer’s construction work is interrupted, the Group’s business operations and business results may be affected.

13.Status of Major Shareholders

The Group receives investments for pure investment purposes from funds which Advantage Partners provide with services (the “AP Funds”), and as of the filing date of the Securities Report, Investment Business Limited Liability Partnership Advantage Partners V, AP Cayman Partners III, L.P., Japan Fund V, L.P., and Advantage Partners Investment Partnership No. 80 hold a total of 1,560,600 shares of the Company’s stock (17.9% of the total number of issued shares). In addition, Takashi Nishimura, an outside director and member of the Audit and Supervisory Committee of the Company, are dispatched by Advantage Partners. The AP Funds sold the majority of the Company’s shares when the Company’s stock were listed, but it continues to hold a certain amount of the Company’s shares even after the listing. The director dispatched by Advantage Partners is expected to retire in the future, taking into consideration the future ownership of AP Fund’s shares in the Company.

We have heard from Advantage Partners that although the timing and method of future disposal of the shares have not yet been determined, they will take a manner that minimizes the impact on the market price, but, depending on their future holding/disposal policies, the liquidity and stock price formation of the Company’s shares may be affected. Additionally, Advantage Partners’ interests regarding management and other matters of the Group may differ from those of other shareholders.