Business Risks

Of matters pertaining to the Happinet Group's business and accounting, the following matters may have a significant impact on the judgments of shareholders and investors.
　Note that matters related to the future involve assumptions made by the Group based on information available at the end of FY2022.

1. Risk Management System

The Happinet Group’s risks are expected to become increasingly diverse as the management and business environment changes and as business activities expand based on the long-term vision and mid-term management plan. For this reason, the Group has established a risk management system led by the president and representative director. The system is in place so that we can understand the risks of the Group and to help us work to mitigate and prevent the risks.
　More specifically, we identify various risks that may affect our business activities, evaluate their importance from the perspective of impact and frequency of occurrence, and select those risks that should be tackled with particular priority as material risks. With regard to the material risks, the department in charge takes the lead in formulating and implementing risk countermeasure plans, monitors progress, and works to make any necessary modifications or improvements.
　Additionally, the status of these risk management activities is reported, in principle, to the Board of Directors at least once a year. The Board of Directors provides appropriate supervision of the progress of risk management activities, as well as direction with regard to awareness of and response to the Group’s issues.

2. Material Risk Selection

In selecting material risks, we first conducted a survey of internal directors and managers, and interviewed the heads of each business division to comprehensively identify risks that could impact the Group.
　With regard to the risks identified, we evaluate their importance using a risk matrix centered on impact and frequency of occurrence, then select material risks that should be addressed with particular priority. We have also reviewed the material risks in FY 2022 in anticipation of changes in the management and business environment and our business expansion to realize our Long-term Vision and Mid-term Management Plan.

• Note: Created based on materials from Tokio Marine dR Co., Ltd.

S "Severe"	:	Risks that should be tackled as a top priority and which require regular status reports to the Board of Directors, etc.; risk reduction measures to be implemented in accordance with necessary instructions
H "High"	:	Risks that should be addressed with secondary priority and which require regular status reports to the Board of Directors, etc.
M "Medium"	:	Risks that are managed by each department while regularly understanding the risk situation and checking the progress of countermeasures
L "Low"	:	Risks that must be managed through proper handling of situations in daily operations and checking progress as appropriate

＜List of Material Risks＞

3. Material Risks and Countermeasures

（A）Growth strategy

①Changes in market environment (risk level: S)

②Business investment / acquisitions (risk level: H)

（B）Reliance on specific suppliers / sales customers

③Reliance on specific suppliers / sales customers (risk level: H)

（C）Inventories

④Excess inventory (risk level: H)

（D）Management of outsourced contractors

⑤Management for outsourced contractors (risk level: H)

（E）Securing and developing human resources

⑥Securing and developing human resources (risk level: H)

（F）IT / information management / digital support

⑦System outage (risk level: S)

⑧Information management (risk level: H)

（G）Accident / disaster response, business continuity

⑨Accident / disaster response, business continuity (risk level: S)

（H）Public relations response

⑩Public relations response (risk level: H)