DM Solutions Co.,Ltd

In the Direct Mail Business, shipping costs are largely dependent on transactions with Yamato Transport Co., Ltd. and Japan Post Co., Ltd., and shipping costs account for a high proportion of cost of sales. If either company demands significant price increases or reduces or terminates the business relationship, it could have a material impact on the Group's business performance and business development. Because securing alternative means is difficult, the asymmetry in bargaining power constitutes a structural risk.

The Group, whose core business is Direct Mail Sending Agency Service, is entrusted with a large amount of personal information from customers. If information leakage or unauthorized use occurs, it could lead to claims for damages and loss of credibility, affecting business performance and business development. Although the Group has obtained the Privacy Mark (JIPDEC) certification and is working to clarify and thoroughly enforce procedures under its regulations, it is difficult to completely eliminate external threats such as cyberattacks.

The Direct Mail Business is closely tied to the postal system, and depending on the content of system changes, business performance could be adversely affected. While the Group has responded through timely sales measures to date, there is a risk that responding could become difficult depending on the scale and direction of system changes. Because trends in the revision of postal-related laws and regulations directly affect the foundation of the business, continuous monitoring is essential.

Rapid technological innovation, exemplified by the evolution and spread of generative AI, poses a risk that the services and know-how held by the Group could become obsolete. If competitors provide higher value-added services, the appeal to customers may decline, potentially affecting business performance. The Group continuously works to introduce know-how on new technologies and services and to strengthen and expand service functions, but the possibility that it may become difficult to respond to change cannot be ruled out.

Geopolitical risks such as conflicts in the Middle East could cause supply instability and rising procurement costs for petroleum-derived envelope film and printing ink used in the Direct Mail Business, putting pressure on profitability. In addition, in the Apparel Business, the yen's depreciation, rising raw material costs, and increased transportation costs could raise the prices of imported overseas products, affecting business performance and business development. This creates a risk structure in which instability in the global situation simultaneously affects multiple businesses.

In launching new businesses or through M&A and capital and business alliances, contingent or unrecognized liabilities may arise, or changes in the business environment may prevent business development from proceeding as planned. If expenditures such as system investment, acquisition funds, and advertising expenses precede without improving profitability, or if recovering the investment becomes difficult, this could affect financial condition and business results. The Group conducts due diligence to mitigate risk, but unforeseen circumstances cannot be entirely eliminated.

Both the Direct Mail Business and the Internet Business mainly involve supporting customers' promotional activities, and if customers' promotion methods change and the Group fails to respond appropriately, this could affect business performance. There is a risk that demand for conventional direct mail could structurally change due to the acceleration of digital shift and changes in the media environment. Diversifying the business portfolio serves as a countermeasure, but depending on the speed of change, the response may lag behind.

If a system outage occurs due to natural disasters, accidents, development or operational errors, power outages, or if a system failure occurs due to computer viruses or unauthorized access, this could disrupt service provision to customers and internal management, affecting business performance. Although the Group has implemented appropriate security measures, complete defense is difficult given the increasing sophistication of cyber threats. A large-scale disaster affecting the head office and mail center in the greater Tokyo area is also recognized as a risk that could make business continuity difficult.

The Group is subject to a wide range of laws and regulations, including the Personal Information Protection Act and the Warehousing Business Act for the Direct Mail Business, the Consumer Contract Act and the Telecommunications Business Act for the Internet Business, the Customs Act and the Product Liability Act for the Apparel Business, and the Employment Security Act for the staffing business. Insufficient response to the introduction, strengthening, or revision of laws and regulations could affect business performance. While no grounds for revocation of any licenses have arisen at this time, there is a risk of penalties such as business suspension or license revocation if future violations of laws and regulations are found. An increase in the burden of compliance costs could also affect the financial condition.

The number of potential shares from stock options granted as incentives to directors and employees is 369,000 shares, equivalent to 13.0% of the total number of issued shares of 2,849,000 shares. If these stock acquisition rights are exercised, the value of shares held by existing shareholders and their voting rights ratio could be diluted. The Group may issue additional stock options in the future to secure talented personnel, and the dilution risk continues to exist.