Material Group Inc.

Corporate marketing budgets tend to be closely linked to economic trends, and if domestic business sentiment deteriorates significantly, the Group's sales could be directly affected. The likelihood of this materializing is high, and it is recognized as a risk that could arise at any time. As a countermeasure, the Group is diversifying risk by expanding transactions across various industries.

In the PR consulting business, which is the Group's core business, new entrants continue to increase, and if differentiation is insufficient, the client base and market share may fluctuate, affecting business performance. The Group positions its entry barriers built through long-standing relationships with media and PR-related businesses, combined with a comprehensive solution provision system integrating its digital marketing business and PR platform business, as a competitive advantage.

Because clients' fiscal year-ends are concentrated in March, there is a structural seasonal fluctuation in which sales and operating profit are concentrated in the third quarter (ending March). If factors impeding business coincide during this period, there is a risk that the impact on performance would be greater than in other quarters. The Group aims to reduce the magnitude of this fluctuation by expanding continuous order-based projects throughout the year.

Due to the nature of its operations, the Group has opportunities to handle confidential information of client companies prior to public disclosure and personal information related to consumer campaigns. If leakage or unauthorized use occurs, it could lead to claims for damages, loss of client trust, and damage to social credibility. As countermeasures, the Group has built an information management system under a policy of obtaining ISMS certification (ISO27001), and conducts regular internal training and internal audits.

Securing excellent human resources is essential for sustained stable growth, but intensifying competition for talent may make it difficult to secure and develop personnel commensurate with business expansion. A shortage of personnel could directly lower service quality and constrain business expansion. The Group is working to create an environment conducive to employee retention, including a fair personnel system, flexible working arrangements, and personnel exchange among group companies.

As part of its services, the Group casts talent and influencers, and if these individuals post inappropriate information on social media, etc., the resulting so-called "backlash" could impair service effectiveness and lower clients' evaluation of service quality. Even in cases of backlash in which the Group is not directly involved, there is a risk that critical reputation could spread to the Group. The Group maintains a careful casting system by establishing casting guidelines tailored to the nature of each project.

If laws, regulations, systems, or their interpretations relating to advertising expression and activities are introduced, tightened, or changed, and the Group is unable to respond appropriately, or if clients' advertising activities decline as a result, this could affect business performance. This is recognized as a risk that could arise at any time, and the Group responds through cooperation with retained legal counsel, information gathering, and internal training.

The consolidated balance sheet as of the end of August 2025 recorded goodwill of ¥753,553 thousand. If, due to changes in the business environment following M&A or other factors, sufficient future cash flows are judged unlikely, an impairment loss may need to be recognized, which could affect business performance. In addition, for shares of subsidiaries without a market price, if the substantial value declines significantly, impairment treatment may be required in the non-consolidated financial statements. The Group strives for early risk identification through careful profitability scrutiny at the time of M&A execution and regular performance monitoring.

The Group's policy is to actively pursue new business development and M&A with the aim of expanding business and improving profitability, but if unforeseen circumstances prevent results from being achieved as planned, this could affect business performance. The Group seeks to reduce this risk through thorough market analysis, business planning, and various due diligence processes.

AP Fund, operated by Advantage Partners, Inc., holds 44.47% (4,392,824 shares) of the total issued shares, and the fund's holding and disposal policy could affect the liquidity of the shares and their price formation. In addition, the fund's interests may differ from those of other shareholders. The Group has been informed by the fund that it will respond using methods that minimize the impact on market price as much as possible, and it is anticipated that the director dispatched by the fund will step down in the future.