HAKUHODO DY HOLDINGS INCORPORATED

Domestic corporate advertising expenditure tends to be adjusted in line with economic conditions, and since the Group's domestic sales account for a high proportion of consolidated net sales, the Group's structure is susceptible to the impact of deteriorating domestic economic conditions. Although the Group seeks to mitigate this impact by building a customer base spanning a wide range of industries, diversifying services, and expanding overseas, if the recovery of the Japanese economy is slow or the Group's responses are insufficient, this could adversely affect its financial position and operating results.

While mass media advertising is expected to continue to account for approximately 30% of domestic sales composition in FY2026 (ending March 2026), internet advertising continues to grow, and the business environment is undergoing a major transformation due to rapid technological progress. The Group is pursuing business structural transformation aimed at expanding its business by providing value beyond the conventional advertising domain; however, if it is unable to respond promptly and adequately, this could adversely affect its financial position and operating results.

The domestic advertising industry exhibits a strong tendency toward concentration among leading advertising companies, and competition is intensifying due to the entry of internet advertising specialist firms, major overseas advertising companies, and various platform operators. Furthermore, as the Group expands its business domains, new competition from companies in different industries, such as consulting firms, is also increasing. If the Group is unable to maintain its competitive advantage, or if fees decline due to intensifying competition, this could adversely affect its financial position and operating results.

In the internet advertising field, technological advances and diverse advertising methods are being rapidly generated. The Group established "Hakuhodo DY ONE Inc." in April 2024 and made Digital Advertising Consortium (Opt) Inc. a consolidated subsidiary in December 2025, thereby expanding its structure. However, if the Group fails to appropriately respond to the progress of digitalization in marketing or if its business strategies do not prove effective, this could lead to a decline in service quality and adversely affect its financial position and operating results.

In mass media advertising transactions, advertising companies conduct transactions with media companies on their own responsibility, and there is a risk that advertising companies will bear media fees and production costs if receivables become uncollectible due to the bankruptcy or other circumstances of advertisers. In addition, it is common industry practice not to conclude basic contracts, which may give rise to disputes or doubts regarding transaction terms. There is also a risk that Western-style "one company per industry" systems and fee structures could affect the Japanese market.

Laws, regulations, and systems concerning advertisers' advertising activities, the methods and content of advertisement placement and broadcasting in media, and the business activities of advertising companies may be introduced, strengthened, or reinterpreted. If the Group fails to appropriately respond to such regulatory changes, or if advertisers' advertising activities decrease, this could adversely affect its financial position and operating results.

As a basic strategy of its medium-term management plan, the Group is actively expanding its overseas business, including expanding its network of offices and pursuing M&A of specialized marketing services companies. This entails risks associated with overseas business investment, such as foreign exchange risk and country risk, as well as the risk of incurring losses exceeding the amount invested. If the Group is unable to expand its business as planned, this could adversely affect its financial position and operating results.

The Group's business operations, including the management of advertisers' marketing and advertising information, depend on information systems. Should a system failure, unauthorized access, cyberattack, or human error occur, this could disrupt business activities. If information is leaked externally or misused, this could damage the Group's social credibility and adversely affect its financial position and operating results.

The Group has established a system to prevent misconduct, including the establishment of a Group Compliance Committee and the formulation and implementation of recurrence prevention measures by Hakuhodo's "Business Awareness and Behavior Reform Committee." However, despite various initiatives, it is not possible to completely prevent misconduct by officers and employees, and involvement in misconduct by business partners or others could also become an issue, potentially adversely affecting the Group's financial position, operating results, and social credibility.

The Group is composed of seven companies\u2014Hakuhodo, Daiko, Yomiko Advertising, Hakuhodo DY ONE, Soul Dout, Opt, and ENND PARTNERS\u2014as well as business organizations under "kyu," and continues to expand its group company relationships through company establishment, acquisitions, and capital and business alliances. Such business expansion entails risks of losses equal to or exceeding the amount invested, as well as risks of damaging the Group's credibility. Depending on the business activities and operating results of investee companies, this could adversely affect the Group's financial position and operating results.