SE Holdings and Incubations Co., Ltd.

The Publishing Business adopts a consignment sales system in accordance with industry practice, and an increase in returns beyond expectations could affect operating results through a decline in net sales. As measures to curb returns, the Group is optimizing production and shipment volumes, adjusting distribution, and strengthening online direct sales and e-book sales; however, return risk cannot be completely eliminated amid rising logistics costs. In accounting terms, the impact is absorbed to a certain extent by recognizing refund liabilities in accordance with variable consideration provisions.

Publications are permitted resale price maintenance as an exception under the Antimonopoly Act, but the Japan Fair Trade Commission has indicated a policy of requesting the industry to adopt more flexible operation of the system for the benefit of consumers, and the system is being shaken by the expansion of online sales and e-books. Flexible operation or abolition of this system could lead to intensified competition in publishing and a decline in net sales. The Group is addressing this by strengthening online direct sales and e-book sales.

The publishing market in 2025 declined 1.6% year on year, marking four consecutive years of negative growth, with paper publications continuing to shrink, down 4.1%. Multiple factors, including reduced consumer purchasing power due to inflation, bookstore closures, rising paper and logistics costs, and declining demand for book purchases due to the use of generative AI, could affect operating results. The Group is addressing this by specializing in practical content and offering it across diverse media, including paper media, e-books, and seminars.

While the penetration of generative AI is expected to reduce readers' demand for purchasing books, it is also expected to lower content production costs. The impact on the Group's content and businesses in particular is expected to grow significantly going forward, and if the necessary systems are not sufficiently developed, this could affect operating results. The Group has established a system to continuously review its business content and operations in order to effectively utilize generative AI in its business while avoiding and mitigating negative impacts.

In the Web services field, including game apps and matching services, it is becoming increasingly difficult to produce hit titles, development costs are rising, and market dominance by major game makers is progressing. With many new entrants expected to continue entering the market, if service content fails to meet user needs and the number of users declines, this could affect operating results. The Group is addressing this by diversifying its Web services and promoting and strengthening originality.

Four major business partners, including major distributors, account for 28% of consolidated net sales, and significant changes in the management policies of these business partners could affect the Group's business results. The Group is addressing this through diversification of publication distribution routes and diversification of its business portfolio, but the level of dependence remains high.

The Group invests in domestic and overseas startups, major financial institutions, and general business corporations, but there is no guarantee that investee companies will achieve the performance initially expected. Losses from reassessment of investee valuations, delays in investment recovery, and sudden market fluctuations, among other factors, could affect operating results through the recording of allowances for doubtful accounts or impairment losses. The Group carefully examines risk factors, business plans, and market trends of investees prior to making investments, but such risks cannot be completely eliminated.

The head office, business locations, and book warehouses are concentrated in the greater Tokyo metropolitan area, creating a risk that information systems could become dysfunctional due to a large-scale, wide-area disaster, fire, cyberattack, computer virus, power outage, or similar event. If an information system failure or leakage of confidential information occurs, this could affect the Group's operating results. The Group has implemented necessary measures, including security countermeasures, but recognizes that such risks cannot be completely eliminated.

The Group holds a large amount of personal information for the purpose of developing various businesses and providing customer services, and in the event of a leakage of personal information, significant costs associated with liability for damages and recurrence prevention measures could arise, affecting operating results. Each Group company is working to strengthen its personal information management system through thorough employee training, internal audits, and the development of related regulations.

The Company has adopted a decentralized management structure as a pure holding company, and its policy is to enhance the value of the corporate group as a whole through agile organizational restructuring and the use of M&A. However, depending on the progress of such organizational restructuring, additional costs may arise, which could affect the Group's business results.