TOW CO.,LTD.

If clients reduce advertising and promotional expenditures due to economic recession or deteriorating consumer spending, or if a global pandemic or a large-scale natural disaster such as a Nankai Trough earthquake occurs, cancellations, scale-downs, and postponements of events and promotions may occur in succession, potentially causing a significant cooling of the overall advertising market. In particular, a metropolitan-area direct-hit earthquake could cause physical impacts on the Group's bases and clients, as well as a risk of stagnation in overall societal activity. Although no specific individual countermeasures by the Group are explicitly stated, contraction in demand is recognized as a risk that would directly affect business performance.

In FY2025 (ended June 2025), sales to the Group's major customer (a major advertising agency) accounted for 58.5% of net sales, indicating a high degree of dependence on major advertising agencies. In the Japanese market, the practice of organizers and advertisers placing orders through major advertising agencies remains deeply entrenched, and the Group is embedded within this subcontracting structure. As a result, if order volume from advertising agencies is curtailed, business performance may be directly affected. While diversification of order sources is progressing, the structural dependency continues.

In the production process for events and promotions, additional orders, specification changes, and last-minute content changes due to weather or changes in social conditions from organizers and advertisers occur frequently, often resulting in fluctuations from the initially budgeted amount. There is also a risk that orders may be lost due to advertising expenditure cuts or changes in advertising agencies. The Group addresses this by striving to accurately grasp the progress of projects through its internal order management system.

The Group's competitiveness relies on excellent personnel with planning, execution, and production capabilities, and expectations placed on producers and planners have increased due to the diversification of client needs and the sophistication of operations. If the Group is unable to secure and develop the necessary personnel as planned amid intensifying competition in the recruitment market and increasing labor mobility, or if dependence on specific personnel increases, this may affect its operational capability, competitiveness, and business performance. As countermeasures, the Group is working to strengthen human capital management, systematically enhance new graduate recruitment, and improve operational efficiency through the use of AI and digital technologies.

In the promotion operations handled by the Group, the timing and duration of events and promotions may change due to delays in clients obtaining permits/licenses for products and services or delays in product development and production systems. If the completion date of a project is delayed from the initial schedule, revenue recognition for that period may be pushed into subsequent periods, potentially affecting business performance. As a countermeasure, the Group tracks completion dates through its order management system and cross-checks them against work completion confirmation documents.

The Group operates in a business format requiring compliance with a wide range of laws and regulations, including the Subcontract Act, the Freelance Protection Act, the Personal Information Protection Act, the Act against Unjustifiable Premiums and Misleading Representations, the Construction Business Act, the Security Services Act, the Pharmaceutical Affairs Act, and outdoor advertisement ordinances. If a legal violation is found, it could affect the Group's social credibility and financial condition. In particular, due to the increasing speed of information dissemination via social media, the risk that damage to social reputation could have a material impact on business performance is growing. The Group strives for continuous compliance through internal education and the development of management systems.

Significant fluctuations in the composition of sales may occur depending on whether the Group receives orders for large-scale events, anniversary projects, or single-year large-scale events and promotions. Since such special demand is one-off and non-recurring in nature, there is a risk of large swings in business performance between periods in which such orders are received and those in which they are not. No specific measures for smoothing this out are explicitly disclosed by the Group in its securities report.

The Group utilizes various information systems and cloud services for project management, attendance management, and information sharing, and is also advancing the use of cutting-edge technologies such as AI. If systems are halted or information is leaked due to cyberattacks, system failures, or vulnerabilities at outsourcing partners, this could disrupt business continuity and have a material impact on business performance and credibility. Details of specific technical countermeasures are not disclosed in the securities report.

The Group obtained ISMS certification in November 2004 and Privacy Mark (P Mark) certification in August 2005, and works to protect personal information. However, if defects arise in the management system or operations resulting in the leakage or unauthorized use of personal information, this could have a material impact on business performance and credibility. While the Group continues to develop its systems through certification, operational risks remain.

If quality issues or inadequate responses occur in the planning, production, or operation of events and promotions, this could damage trust with clients and stakeholders, potentially affecting future business opportunities and brand reputation. Although the Group strives to grasp project progress through its order management system, quality risks are inherent within the multi-stage production process. Given the business characteristic of frequent specification changes and last-minute content changes, the environment is prone to inadequate responses.