SMS CO., LTD.

In the medical care/nursing care & disability welfare/healthcare and senior life domains, if declines in demand for hiring qualified personnel due to amendments to the Long-Term Care Insurance Act or the Medical Care Act, or tightened fee regulations resulting from amendments to the Employment Security Act, become apparent, this could adversely affect business activities. In the fiscal year under review as well, revenue growth in the career segment was limited due to lengthening lead times for job seekers to be placed and the effect of the abolition of the continued-employment support subsidy. In response, the Group is promoting optimization of the number of Career Partners (CPs) and productivity improvements, while closely coordinating with relevant government ministries and industry associations to reflect legal and regulatory trends in its management strategy.

As the aging-society-related market expands, an increase in new entrants and intensified competition could adversely affect the Group's business activities. In particular, the career segment is expected to continue facing a severe competitive environment against the backdrop of expanding demand for medical and nursing care personnel, requiring ongoing proactive investment. In response, the Group aims to differentiate itself in staffing placement through active CP recruitment and productivity improvements leveraging AI, and in direct recruiting through investment in strengthening its sales structure and brand power.

In overseas business focused on the APAC region, there is a risk that unforeseeable events may occur due to differences in each country's political, economic, legal and regulatory systems, culture, business customs, or natural environment. In the fiscal year under review, overseas revenue decreased year on year due to reduced customer marketing budgets in the Medical Platform business and the impact on healthcare worker travel from the deterioration of the situation in the Middle East. The Group has established a headquarters function in Singapore to build a collaborative framework linking the Japan head office, the regional headquarters, and overseas offices, and has begun a fundamental review of businesses based on criteria such as profitability.

In new business development and M&A/business alliances, there is a risk that expected effects may not be achieved, or that previously unrecognized liabilities or compliance issues may come to light; in the fiscal year under review, the Group recorded an impairment loss of ¥22.9 billion in its overseas business. If the profitability of an acquired company falls significantly short of the original plan due to an economic downturn, exchange rate fluctuations, changes in market conditions, or other factors, additional impairment losses may need to be recognized. In response, the Group conducts monthly business progress meetings and regular reporting to the Board of Directors, along with an annual assessment of whether to continue each business, and has established a framework for the Board of Directors to discuss the Group-wide business portfolio strategy.

Due to the declining domestic working population from the falling birthrate and aging population, increased demand for personnel accompanying global business expansion, and the increasing sophistication of required skills, the Group may be unable to recruit, develop, and retain a sufficient number of diverse and capable personnel. In particular, if it becomes difficult to secure CPs, who are the core workforce of the career business, the Group may be unable to secure sufficient personnel to conduct its business, adversely affecting business activities. In response, the Group is developing competitive compensation, evaluation, and training systems, while also using AI and digital technologies to automate operations in order to minimize the increase in headcount needed to support business growth.

If customer information, including personal information, or confidential information handled in the course of operating each service is leaked, destroyed, or tampered with due to intentional acts or negligence by employees or related parties, or attacks by malicious third parties, this could result in a loss of public trust and adversely affect business activities. In response, the Group has appointed information security managers and established regular management-level meetings to identify risks and implement countermeasures across the Group, introduces security technologies, develops internal regulations, and conducts regular education and training for all employees and outsourcing partners.

If websites or business systems fail to operate normally due to natural disasters, accidents, malfunctions, unauthorized access, or other causes, all or part of the services provided may be suspended or degraded in quality, potentially resulting in a loss of public trust and adversely affecting business activities. In response, the Group designs its business IT infrastructure to have high availability and fault tolerance, and has migrated services that handle important data to the cloud with sufficient security measures in place. The Group also continues to hire personnel with extensive experience in system development and operations and to provide ongoing employee training.

Conducting the Group's core business of paid employment placement services requires a license for paid employment placement business from the Minister of Health, Labour and Welfare; if this license were revoked or business suspended for any reason, it would become difficult to conduct the employment placement business, causing a material adverse effect on business activities. The current license is valid until June 30, 2026, and as of the end of the fiscal year under review, no facts warranting revocation or business suspension have been identified. In response, the Group closely coordinates with relevant government ministries and industry associations to monitor trends related to the Employment Security Act and other laws, and continuously strengthens its compliance framework through the establishment of internal rules and guidelines and the provision of training.

Amid extremely rapid technological innovation, if the Group fails to accurately grasp technology trends and the technological environment changes abruptly due to unexpected new technology adoption, the obsolescence of the Group's existing technologies could adversely affect business activities. In response, the Group continuously invests in new software, systems, and security-related technologies, and has built a framework for adopting advanced technologies such as big data analysis and AI utilization. With respect to generative AI, the Group has established guidelines to raise risk awareness while encouraging active use, and in the career business has already implemented a tool that generates automatic feedback based on analysis of interview recording data.

If the Group suffers human or material damage, or if social conditions change significantly, due to emergencies such as natural disasters or the spread of disease, service provision may become difficult for a certain period, and secondary effects such as disruption to customers' business activities could adversely affect the Group's business results. In response, the Group has established basic business continuity plan (BCP) policies based on three perspectives—employee safety, business continuity, and responsibility to society—and has built a framework to continue business operations to the extent possible even in the event of an emergency.