Risk Information

Among the matters concerning the status of the Valuence Group (the “Company Group”) business activities, accounting status, etc., the following items may significantly impact investors decisions. Note that forward-looking matters are based on the best judgments of the Company Group as of the date and time of the last update. Not all risks related to business risk or investment in Company stock may be addressed.

1. Merchandise Purchasing System

  1. Purchase of Reuse Goods
    Purchasing reuse goods is the core activity that generates income for the Company Group. However, compared to the purchase of new products, the supply of reuse goods is less certain, depending as it does on the number of goods brought in by customers. To strengthen the stability of its purchasing sources, the Company Group improves SEO, provides outstanding customer support, and offers pre-appraisals via telephone and LINE social media app., to encourage customers to sell goods at buying offices. Efforts are also being made to enhance the purchasing structure, through implementation of delivery buying, in-home buying, and online buying in addition to in-office buying. The Company Group has begun buying merchandise overseas.
    Nevertheless, the Company Group financial results may be adversely affected by challenges in sourcing reuse goods due to changing economic trends, growing competition, changing customer preferences, or changes in the market price of jewelry, precious metals, and bullion.
  2. Purchasing Staff
    With the exception of gold and platinum, whose prices are set by the market, reuse goods lack predetermined market prices. The popularity of luxury brands and the recent increase in market volume for reuse goods requires purchasing staff who are capable of inspecting the authenticity of reuse goods in line with the Company Group standards and providing appropriate purchase prices in accordance with individual circumstances. Accordingly, the Company Group recognizes the importance of developing purchasing staff with specialized knowledge and experience.
    If the Company Group fails to develop sufficient purchasing staff in line with projections, this could hinder buying office operations and opening of new buying offices, which in turn could adversely affect the Company Group financial results.
  3. Risk of Purchasing Counterfeit Goods
    Counterfeit goods of well-known luxury brand items such as bags and watches are broadly distributed and have emerged as a social issue. The Company Group cultivates purchasing staff’s ability to confirm the authenticity of reuse goods to prevent the purchase of counterfeit goods. The Company Group also performs careful inspections to determine the authenticity of reuse goods before sale to provide safe and secure goods to customers (both partners and general consumers). Counterfeit goods mistakenly purchased are returned or disposed of to prevent resale. The Company Group may ask third-party institutions to assess the authenticity of reuse goods.
    The nature of its business—purchasing reuse goods from general consumers through secondary distribution rather than from authorized brand stores—poses the constant risk of buying and selling counterfeit goods. The Company Group financial results may be adversely affected by problems or loss of credibility associated with the purchase and sale of counterfeit goods.
  4. Risk of Purchasing Stolen Goods
    In the event that the Company Group identifies the purchase of any stolen goods, the Company Group attempts to return said items to the rightful owner at no charge within 2 years pursuant to the Civil Code or within 1 year after purchase as permitted under the Civil Code pursuant to the provisions of the Secondhand Articles Dealer Act and when purchased from public markets. The Company Group maintains a firm stance against the purchase of suspected stolen goods in any form and works closely with law enforcement to establish structures to prevent the distribution of stolen goods.
    From the perspective of compliance with the Secondhand Articles Dealer Act and Civil Code, the Company Group has linked its secondhand articles ledger (detailed records of reuse goods purchase) with its business system to facilitate timely and appropriate cooperation with law enforcement investigations in the event the Company Group discovers purchases of stolen goods and to facilitate the return of stolen goods to the owner at no charge. Nevertheless, the nature of its business makes it difficult to eliminate the purchase of stolen goods entirely. The Company Group financial results may be adversely affected by losses of purchases traceable to the purchase of stolen goods and the loss of creditability arising from such events.

2. Expansion and Operation of Stores and Offices

  1. Future Buying Office Opening
    The Company Group secures reuse goods through Nanboya, BRAND CONCIER, and Hakkoudo offices nationwide.
    To achieve further growth, the Company Group must continue to improve its capacity to purchase reuse goods. The Company Group financial results may be adversely affected if the opening of buying offices fails to proceed smoothly and the purchase of reuse goods falls short of plans.
  2. Business Areas
    The Company Group has numerous buying offices in the Special Wards of Tokyo, Osaka, Nagoya, and surrounding areas, all located at the center of 3 major metropolitan areas supporting relatively large markets for reuse goods. The Company Group financial results may be adversely affected by the destruction of operating facilities or constraints on the use of a wide range of infrastructure in the event of large-scale disasters affecting the 3 major metropolitan and surrounding areas.
  3. Closing of Buying Offices Due to Lease Contracts, Rent Increases
    The Company Group leases its buying offices and if for some reason the contract cannot be renewed, or if the rents rise upon contract renewal, the Company Group financial results may be adversely affected.
  4. System Failures
    The Company Group business depends significantly on IT systems to attract customers via the internet; to prevent fraud in cash payout at buying offices; to manage the flow of individual goods; to collect market price data for purchase and sale; and to sell merchandise through online auctions.
    The Company Group business is capable of operating via organizational response for a limited time in the event of system failures. However, the Company Group financial results may be adversely affected by system stoppages that prove more significant than anticipated.
  5. Asset Impairment Accounting
    The Company Group operates buying offices and retail stores. The Company Group financial results may be adversely affected if the profitability of each office decreases due to changes in the management environment, resulting in appropriation or losses associated with the application of asset impairment accounting. The Company Group strives to manage profits at each location to prevent impairment and takes appropriate measures at locations marked by low profitability. Nevertheless, an increase in unprofitable locations or the closure of locations may lead to significant impairment losses.

3. Influence of Changes in the External Environment

  1. Changes in Financial Results Associated With Changes in the External Environment
    The Company Group mainly handles precious metals, watches, bullion, jewelry, and reuse luxury brand goods, as well as antiques and art objects. The Company Group has established a stable business structure that reduces dependence on specific goods. To increase earnings further, the Company Group is expanding its lines of merchandise handled to include motor vehicles, real estate, and other property and will handle a wide range of real assets that will have the same value all over the world.
    However, the prices of some goods may decline due to economic obsolescence associated with changes in trends, exchange rate fluctuations, and changes in market prices of precious metals, bullion, and watches. Additionally, the prices of certain goods may differ significantly depending on the presence or absence of certain popular goods. The Company Group financial results may be adversely affected by sharp fluctuations in exchange rates and stock prices or rapid changes in business sentiment.
  2. Effects of Natural Disasters
    The Japanese government’s declaration of a state of emergency in response to the COVID-19 pandemic had some impact on buying and selling of reuse goods, resulting from the temporary suspension of buying office operations. Currently, sales were based on the migration of Company-operated auctions to an online platform. Buying occurred under the ordinary structure, with due consideration to prevent the spread of the virus and the highest priority on the safety of customers and employees. Nevertheless, another state of emergency may be declared or similar measures taken in the future; a natural disaster may pose grave difficulties in carrying out business activities, including in-office and in-home purchases of merchandise.
  3. Decrease of Sales and Profitability Declines Associated With Changes in Exchange Rates
    The Company Group wholesales purchased reuse goods to reuse goods dealers both in Japan and overseas via its independent auctions. Certain reuse goods dealers participating in the auctions tend to quickly sell goods to overseas purchasers. Structurally, its business tends to be influenced by exchange rate fluctuations. Successful bid prices in auctions are influenced by exchange rates. When the yen is weaker, prices tend to increase; prices tend to fall when the yen is stronger.
    While the Company Group believes this tendency will be diluted by the participation in the auctions of participants from a broader range of countries and regions, the Company Group financial results may be affected by the timing of exchange rate fluctuations and the proportions of partners participating in auctions from specific countries.
  4. Intensified Competition
    The Company Group competes with other companies to purchase goods. The Company Group seeks to improve its competitiveness and promote differentiation from competitors by strengthening its marketing, opening convenient buying locations, improving service at buying offices, and continuing human resource training and education.
    However, the Company Group financial results may be adversely affected if competition increases due to new entries into the reuse goods industry.
  5. Dependence on Interest-Bearing Debt
    The Company Group depends heavily on loans from financial institutions to procure working capital. Accordingly, the Company Group business expansion may be adversely affected if capital procurement fails to proceed as planned due to changes in its financial position. As of August 31, 2023, interest-bearing debt (including lease obligations) was 15.26 billion yen. In addition, although retail sales will be strengthened in the future, the interest-bearing debt ratio may increase due to the growing ratio of retail sales.
    The Company Group secures sufficient liquidity of funds by entering into the Commitment Line Agreements with multiple financial institutions totaling 11 billion yen. In addition, the Company Group recognizes that maintaining and improving stable external financing capabilities is an important management issue and maintains favorable business relationships with major financial institutions. Moreover, if an increase in interest rates increases the cost of capital procurement, the Company Group financial results may be affected by the resulting pressure on profits.

4. Legal Restrictions

  1. Restrictions Imposed by the Secondhand Articles Dealer Act
    The Company Group is a Certified Secondhand Articles Dealer approved by the Local Public Safety Committee and is obligated to comply with the Secondhand Articles Dealer Act. While Secondhand Articles Dealer certification does not expire, violations of the Secondhand Articles Dealer Act or other laws and regulations regarding the secondhand article business, coupled with the inability to immediately identify or prevent the purchase and sale of stolen goods, may result in business suspension or the revocation of certification by the Local Public Safety Committee, in accordance with Article 24 of the Secondhand Articles Dealer Act.
    The Company Group purchases and sells secondhand articles under the said certification and operates a market for the purchase and sale of secondhand articles among dealers and international partners with the permission of the secondhand article market owners. The Company Group complies with the Secondhand Articles Dealer Act by providing detailed internal training and education regarding the said act, confirming the identification of sellers in accordance with the said act, and the careful management of secondhand article ledgers. This strengthens the Company Group’s level of confidence that no problems affecting the Company Group’s business continuity will arise.
    However, the Company Group financial results may be adversely affected if certification is revoked due to the events and conditions referenced above.
  2. Personal Information Management
    The Company Group handles customer addresses, names, occupations, ages, and credit card information, which are recorded and managed in ledgers in written form or by electromagnetic means. The Company Group has established a system that ensures appropriate protective measures for personal information. The Company Group has also acquired Privacy Mark certification and established internal regulations and other rules. It seeks continually to strengthen internal management structures, provide thorough employee training and education, and enhance information system security to improve its personal information protection management. The Company Group also strives to comply with the Act on the Protection of Personal Information to prevent leaks of personal information. The Group also maintains systems to ensure compliance with laws and regulations in other countries, including the General Data Protection Regulation (GDPR), the California Consumer Privacy Act (CCPA), and the Personal Data Protection Act (PDPA).
    Nevertheless, the Company Group financial results may be adversely affected, its reputation and societal standing compromised, and significant costs incurred in the event of a personal information leak.
  3. Laws and Regulations regarding the Prevention of Criminal Proceeds Transfer
    The Criminal Proceeds Transfer Prevention Act applies to the Company Group’s businesses. The Company Group financial results may be adversely affected if the Company Group fails to comply with the said act and is subject to guidance, advice, recommendation, or penalties by government agencies.

5. Overseas Business Expansion

The Company Group continues to develop overseas group businesses to expand its business. The Company Group financial results may be adversely affected in the event of business fluctuations, political and social unrest, changes in laws and regulations, and significant changes in exchange rates in specific countries. In addition, because buying offices overseas are operated by overseas partners using the Company Group’s business name, in the event of negative information or reports related to buying offices operations of local partners, the Company Group financial results and financial position may be adversely affected by a decline in brand image.

6. Share Dilution

The Company Group provides stock acquisition rights to the Company Group directors and employees as incentives. It has adopted the Restricted Stock Compensation Plan and provides shares whose transfer is restricted to the Company Group directors and employees under this program. While the Company Group is considering using these programs in the future as well, the exercise of stock options or the issue of transfer-restricted shares may cause the dilution of shares.

7. Risks Related to New Businesses, Corporate Acquisitions, and Investments

The Company Group aims to improve corporate value through M&A and investments expected to produce synergistic effects to advance into new businesses and strengthen existing businesses. However, the Company Group financial position and business performance may be adversely affected if expected profit growth or synergistic effects are not realized by the companies that went through M&A or investees.

Last Update: November 27, 2023

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