DENTSU GROUP INC.

Following the recognition of goodwill impairment losses of ¥396,074 million in EMEA and Americas, the Company recorded a valuation loss on shares of affiliated companies of ¥286,714 million and a provision for allowance for doubtful accounts of ¥171,858 million in its non-consolidated financial statements, resulting in negative net worth on a standalone basis and giving rise to material doubt about the going concern assumption. While the Company has determined that there is no concern regarding business continuity based on the Group's overall cash flow position and diverse funding sources, urgent efforts are required to strengthen the balance sheet through the review of underperforming businesses and the rebuilding of the management foundation under the Mid-Term Management Plan. In addition, a gain on the sale of fixed assets of ¥27.0 billion is expected to be recorded in the following fiscal year, following the transfer of fixed assets carried out in January 2026.

The rise of major players such as media platforms, and massive investments in AI and other technologies by technology companies and consulting firms, are intensifying the competitive environment both within and outside the industry, creating a risk that the Group's relative position may decline. This could affect the retention of existing clients and the acquisition of new clients, potentially leading to failure to achieve strategic and financial targets, loss of market share, decline in the value of sponsorship rights, broadcasting rights, and content, and financial losses. Under the Mid-Term Management Plan for 2025-2027, the Group has set the recovery of competitive advantage and profitability as goals, and is working on focusing business strategy, rebuilding the management foundation, and reviewing underperforming businesses.

If the organizational transformation under the "One dentsu Operating Model" introduced in January 2024 does not proceed as planned, it may adversely affect business performance. In addition, if structural reform fails to keep pace with rapid changes in the business environment, there is a risk that weaknesses in internal controls and deficiencies in the management system may become apparent. The Group is promoting a transformation toward a simplified organizational structure that enables faster decision-making, clearer accountability, and delegation of authority, but the execution risk associated with this remains an ongoing challenge.

Given the nature of the business, which frequently involves receiving undisclosed client information in the course of operations, there is a risk that information leaks, external cyberattacks, or insider threats to the confidentiality, integrity, and availability of critical business systems and data could result in serious operational, regulatory, financial, and reputational issues. The Group has established a Group Security function that unifies domestic and overseas network security divisions, continuously assesses the severity of evolving threats, and has obtained international certification for its information security management system.

As the Group provides marketing services utilizing personal data, revisions to laws and regulations such as the Act on the Protection of Personal Information and the EU General Data Protection Regulation (GDPR) could impose restrictions on the use of data, potentially making it difficult to provide certain services. In addition, if a personal information leak incident occurs, it could damage trust and adversely affect business performance. The Group has established common "Global Data Protection Principles" and has put in place a system to respond promptly to revisions in laws and regulations in each country.

For the Group, which espouses the philosophy that "people are capital," failure to sufficiently acquire and retain the necessary talent, particularly in overseas markets with high talent mobility, could make it difficult to provide advanced services to clients and adversely affect business performance. The Group conducts an annual "People Discussion" to visualize talent and discuss countermeasures for issues, while promoting recruitment efficiency through the use of technology in hiring operations and the establishment of a dedicated team for senior-level recruitment. "dentsu Leadership Attributes" has been established as the backbone of talent management, and investment in leadership development continues.

If a violation of laws, regulations, or company policy occurs, whether intentional or due to negligence, it could lead to reputational decline and significant impairment of corporate value. Under the "dentsu Japan Reform Committee" established in response to matters related to the Tokyo 2020 Olympic and Paralympic Games, all 17 measures were completed by December 2024, and since January 2025, the Group has been promoting the "Awareness and Behavior Reform Project" to establish an organizational culture that prioritizes integrity and to thoroughly enforce a high standard of compliance.

If the brand image is damaged due to negative media coverage, social media scandals, public relations failures, or other factors, it could trigger a chain of adverse effects, including loss of client trust, decreased revenue, reduced employee morale, increased turnover, and difficulty in new hiring. This risk was newly identified in the 2025 risk register update, and consideration of its impact and countermeasures has begun.

Advertising and marketing expenditure tends to fluctuate in line with economic conditions, and uncertainty in the global economy, including the materialization of geopolitical risks and concerns over renewed inflation, directly affects the Group's business performance. In addition, failure to appropriately respond to increasingly sophisticated and complex client needs, such as the use of generative AI and digital transformation, could adversely affect medium- to long-term business growth. The Group is working to strengthen its capabilities in providing customer experience design services utilizing data and technology across the entire organization.

In strengthening business operations and enterprise technology toward the realization of the "One dentsu Operating Model," failure to execute appropriate investment in technology solutions, or failure to properly implement IT management as a Group, could adversely affect business management and growth. The Group aims to achieve an agile and flexible organization through investment in and expansion of IT infrastructure, but integration and implementation on a global scale entail commensurate execution risk.