NISSEN INC.

Dependence on sales to the Asahi Kasei Homes Corporation group reached 17.9% (net sales of ¥988,572 thousand) in the current consolidated fiscal year, and high dependence on a single customer continues. If the group's advertising policy changes or business relationships deteriorate, this could directly impact the Group's business performance. Although the current transaction relationship is stable, the risk of fluctuations in order volume continues to exist.

The performance of advertising companies is highly susceptible to trends in corporate advertising spending, which are based on personal consumption trends, and the Group tends to be affected by the business conditions of specific industries and companies. During economic downturns, reductions in advertising expenditure by client companies may lead to a decrease in order volume and a decline in order unit prices. Although the Group is working to reduce dependence on specific industries by developing new business partners, it is difficult to completely eliminate risks associated with economic fluctuations.

With the evolution and spread of multifunctional devices such as smartphones, media has become more diversified, and consumer media contact behavior has changed significantly. While the Group is working to secure revenue through conventional print-based advertising methods and is also adapting to marketing methods that leverage internet technology, failure to respond appropriately to such changes could affect the Group's financial position and business results. Delays in responding to digital shift carry an inherent risk of directly leading to a decline in competitiveness.

In the advertising industry, there is a strong tendency toward concentration among large advertising companies with high sales, and the Group is constantly forced to compete with such major players. In recent years, opportunities for competition with new entrants in the internet and smartphone advertising markets have also increased, making the competitive environment even more challenging. If the Group loses its competitive advantage or if fees decline due to intensifying competition, this could affect its financial position and business results.

Cyber-attacks, unauthorized access to systems, and intrusion by computer viruses, among other things, could result in data destruction, tampering, or system outages. While the Group has established a strict management framework and related regulations for information security and conducts employee training, if such an incident were to occur, it could undermine trust and affect the Group's financial position and business results. Coupled with the risk of leakage of personal information and customer information, information management has become an important management issue.

The Group handles operations involving personal information and customer information, and strives to prevent leaks through obtaining Privacy Mark certification and establishing and operating information security-related regulations. However, if an unforeseen leakage incident involving personal information or similar data were to occur, this could affect business results through damages compensation and loss of social credibility. Given the nature of advertising operations, the Group also handles confidential information of client companies, making information management particularly important.

The electric power retail business operated by SCN Denryoku Co., Ltd., an equity-method affiliate, has a cost structure in which expenses precede revenue during the customer acquisition growth phase, and losses are expected to continue until the break-even point is reached. Multiple risk factors exist in combination, including rising electricity purchase prices and falling sales prices due to a surge in new entrants, the impact of spot price spikes on trading gains and losses, and seasonal fluctuation risk. As the customer base grows, the impact of spot price fluctuations will also expand, making risk management through alliances with other electric power companies and securing bilateral power sources a key challenge.

Printing paper accounts for the majority of the Group's raw materials, and if a sharp rise in purchase prices due to market fluctuations cannot be offset through manufacturing cost reductions or price pass-through to customers, this could affect the Group's financial position and business results. In addition, similar risks of rising purchase prices due to market fluctuations exist for outsourcing used in content production, printing, and transportation. Delivery delays or quality issues arising from accidents, poor management, or misconduct at outsourcing partners could also affect business results.

The creative works produced as part of the advertising services provided by the Group are subject to various laws and regulations, including the Act against Unjustifiable Premiums and Misleading Representations, the Copyright Act, and the Trademark Act. While advertisers bear the obligation to comply with laws and regulations, if an advertisement violates the Act against Unjustifiable Premiums and Misleading Representations or similar laws, legal liability may arise between the Group and the advertiser, and the resulting decline in social credibility could affect the Group's business performance. In addition, there is a risk of infringing third-party intellectual property rights during the planning and proposal process, and the possibility of unforeseen disputes arising after service provision cannot be ruled out.

Securing excellent human resources is extremely important for achieving business expansion in the advertising and marketing industry, and the Group conducts recruitment activities on an ongoing basis. However, if the Group is unable to secure the necessary personnel at the appropriate time, or if capable in-house personnel leave, this could disrupt routine business operations and business development, affecting the Group's financial position and business results. As competition for talent in the digital marketing field intensifies, securing and retaining specialized personnel remains an ongoing challenge.