Risk Factors

SMS's Mission is “to improve people's quality of life by providing information infrastructure for an aging society.” The markets for medical care, elderly/disability care, healthcare, and senior life, which are our business domains, are growing every year. The volume of information on these business domains in an aging society is increasing rapidly, and that information is becoming diverse and complex. We need to address these changes in a timely and appropriate manner to realize our Mission and increase our corporate value over the long term. In light of this environment, we consider all uncertainties that may hinder the realization of our Mission to be risks. We will sustain our growth and realize our Mission by controlling the negative impact derived from these risks as much as we can.

The Executive Committee, an advisory body to the Representative Director and President (CEO), determines the risk management policy and system for the entire SMS Group as well as priority measures to be taken and periodically confirm the progress. The department responsible for risk management oversees all the risk responses across the organization in the Group and implements specific measures with related departments.

As of the end of March 2026, our management recognized the following risks that may negatively impact the Group's financial position, business performance, and cash flows. Among these risks, those with a particularly large impact on management and a significant impact on the continuation of corporate activities or the sustainable growth of the company are listed as "1. Significant risks," and the risks other than these are listed as "2. Other risks."

The forward-looking statements are based on information available to us as of the end of March 2026 and certain assumptions we consider reasonable.

1. Significant risks

(1) Market environment

Risks

We operate businesses in medical care, elderly/disability care, healthcare, and senior life—fields subject to significant change. If we fail to recognize the changes in the market environment, or fail to respond to them in a timely and appropriate manner, our business activities may be adversely affected. Certain effects have already emerged in the Career Business, including longer lead times until candidates begin employment in the recruiting agent services and the discontinuation of "continuous service allowances" in the direct recruiting. Other risks have not yet materialized. In the Career Business, for example, if the Long-Term Care Insurance Act, the Medical Care Act, or other legislation is amended to relax requirements that operators employ a minimum number of certified professionals such as care managers and nurses, operators' hiring demand for these certified professionals—the focus of our services—could decline. In addition, regulation tightening on commissions and refunds, such as amendments to the Employment Security Act, may inhibit free competition, decreasing the amount of commissions we receive. In the Elderly/Disability Care Operators Business, the business environment for us and our client elderly care operators may change significantly depending on amendments to the Long-Term Care Insurance Act.
If these changes in the market environment materialize, or if we are unable to address them in a timely and appropriate manner, there is a possibility that our business activities may be adversely affected.

Countermeasures

We aim to achieve continuous growth by optimizing the number of career partners and improving their productivity in response to changes in the market environment within the Career Business. Looking ahead, we shape our long-term business strategy by anticipating potential market shifts and regulatory changes. Through close partnership with authorities like the Ministry of Health, Labour and Welfare, and industry groups, we stay ahead of key legal frameworks such as the Medical Care Act, the Long-Term Care Insurance Act, and the Employment Security Act, ensuring our strategy remains both resilient and forward-thinking.

(2) Competition

Risks

We define our business domains in an aging society as Medical Care, Elderly/Disability Care, Healthcare, and Senior Life. These markets are expanding year after year, creating enormous business opportunities for us. However, if the number of new entrants to such attractive markets increases and the competitive environment intensifies, our business may be adversely affected. In the Career Business, we expect demand for medical and care professionals to continue expanding and the competitive environment to remain intense. In light of this, we will need to continue investing actively to sustain our growth.

Countermeasures

In the recruiting agent service within the Career Business, we aim to maximize revenue by actively hiring career partners year-round in areas with substantial room for growth, while working to improve productivity and maximize the value created by career partners through the utilization of AI. In the direct recruiting service, we will make proactive investments in strengthening our sales organization and in awareness-building initiatives to build our brand. By applying the expertise developed in our recruiting agent service, we will differentiate ourselves from competitors and establish a distinctive position in the market.

(3) Country risk

Risks

We provide services in many countries and regions, especially in APAC, where the needs for medical care and healthcare are rapidly expanding due to population growth and economic development. In such overseas business operations, there may be events that are difficult to anticipate in advance, arising not only from global trends but also from country-specific factors such as politics, economies, societies, laws and regulations, tax systems, differences in culture and business practices, and natural conditions.
Failure to respond to these events in a timely and appropriate manner may adversely affect our business activities.

Countermeasures

We have established a regional headquarters in Singapore to oversee our overseas businesses and assign management and corporate administration personnel from our head office in Japan to this regional headquarters and to our individual overseas locations, thereby realizing a structure for appropriate coordination among our head office, the regional headquarters, and other local offices. Through this structure, we collect information on global trends as well as on country-specific factors, including politics, economies, societies, laws and regulations, tax systems, differences in culture and business practices, and natural conditions, and we implement the measures required in response. In the Overseas Business, we are currently executing a fundamental review of our business, centered on future growth potential and profitability.

(4) Natural disasters

Risks

In a natural disaster, an epidemic, or other emergencies that damage our employees and assets or significantly change social circumstances, it may become difficult to provide all or part of our services for a certain period, adversely affecting our business activities. In addition, the occurrence of a large-scale natural disaster could have a secondary impact, such as the interruption of our client’s business activities, which may adversely affect our business performance.

Countermeasures

We have established a basic policy for business continuity plans (BCPs) for natural disasters, epidemics, and other contingencies from the three perspectives of employee safety, business continuity, and social responsibility, and strive to ensure our business continuity as much as possible even during an emergency.

(5) Business development and M&A

Risks

To realize our Mission and increase our corporate value over the long term, we are developing and cultivating new businesses and expanding existing businesses through M&A and business alliances with other companies, in addition to organic growth by developing new businesses on our own. Launching a new business may require a certain amount of upfront investment or involve risks due to factors specific to the business. In addition, M&A and business alliances with other companies may not produce the expected effects and fail to achieve their strategic objectives, or unknown liabilities or compliance issues may be identified after an acquisition. There is also a risk of impairment loss if the profitability of a company acquired through an M&A transaction declines significantly from the initial plan due to economic recession or sharp fluctuations in FX rates.

In such a case, we may not be able to develop and nurture new businesses or expand existing businesses as strategically intended, adversely affecting our business activities and performance.

Countermeasures

We aim not for stable growth in the short term but for exceptional growth over the medium to long term. After identifying promising areas from the perspective of market potential, growth prospects, and synergies with our other businesses, we will invest actively through programmatic M&A, capital alliances, and new business creation. In areas where growth is expected, we will pursue agile and strategic business development, including possible expansion into adjacent areas. All businesses, including new businesses, are reported on and discussed as appropriate at monthly business review meetings and at meetings of the Board of Directors, with business continuation decisions formally evaluated on an annual basis. Portfolio strategy decisions, including business continuation or exit determinations, are reviewed and discussed by the Board before we begin formulating the following fiscal year's business plan.

(6) Human resources and organization

Risks

The market related to an aging society, which is our business domain, is expected to expand continuously and create enormous business opportunities for us. In order to realize our Mission, we must capture these opportunities ahead of others, which makes it critically important that we hire and develop people who respond earnestly to the needs of society and take the initiative in adapting to change. In the Career Business in Japan, which is our core business, we need career partners who serve as intermediaries between medical/elderly care operators and job seekers to communicate appropriate information. However, we may not be able to recruit, train, and retain the necessary number of diverse and capable human resources for a variety of reasons, including a decrease in the working population due to the low birth rate and aging in Japan, an increase in demand for human resources due to the expansion of business regions globally, changes in and advancement of required skills, and a lack of competitive working conditions. In such a case, we may not secure sufficient personnel to carry out our business, adversely affecting our business activities.

Countermeasures

We believe that continuing to provide our employees with opportunities to grow as our Group grows will strengthen our ability to hire and retain talent in an increasingly competitive labor market. We are also working to offer compensation that is competitive in the labor market, a performance appraisal system that appropriately evaluates employees' abilities, training programs that help employees build their skills, and attractive career paths. In addition, we are making active use of AI and digital technologies to enhance and automate our business processes. By improving productivity on an ongoing basis, we aim to minimize the additional headcount required to grow our businesses. Through these efforts, we aim to mitigate the risks arising from changes in the recruitment environment and the decline in the working-age population, while building a structure that concentrates our limited human resources on high-value-added areas.

(7) Information security

Risks

We handle customer information, including personal information and other confidential information, in the process of operating each of our services. Such information may be leaked, destroyed, or altered due to the intentional or negligent actions of our and subcontractors' employees or related parties, malicious attacks by third parties, or other unexpected events.

In such a case, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

To prevent the leakage, destruction, and falsification of customer information that we deal with, we conduct company-wide monitoring of information security, respond to incidents, and consider and implement drastic measures at regular meetings under the information security management system led by the management.

• Establishment of information security management system

  In addition to assigning a person in charge of information security management, we systematically identify information security risks for the entire SMS Group at regular management-level meetings and promptly implement necessary measures.

• Introduction of information security technology

  We strive to implement information security measures to prevent unauthorized access, leakage, falsification, loss, destruction, or interference with the use of our information assets.

• Development of internal regulations

  We have established internal regulations regarding information security, and have a clear policy regarding the appropriate handling of all information assets, including personal information. We also ensure that all employees are fully aware of the policy.

• Continuous improvement

  To ensure that we comply with laws and internal regulations in business operations, internal audits are conducted regularly or whenever there is a significant change. In addition, we continuously improve our information security measures by reviewing our internal regulations.

• Education for employees

  We regularly conduct education and training on information security, such as personal information protection, for all employees, including contract employees, part-time employees, and temporary employees, as well as subcontractors, to raise their awareness and literacy.

(8) System failure

Risks

Many of our services are provided through websites and IT systems offered by ourselves or our business partners. All or part of our services may be suspended or their quality may deteriorate if the website or IT system is unable to operate normally due to a communication network failure, malfunction, or system failure caused by a natural disaster or accident; an operational error by employees or related parties or our business partners; or destruction or falsification caused by a computer virus or unauthorized access by a third party.

In such a case, in addition to making it difficult to provide all or part of our services, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

The IT infrastructure for our business is designed to be highly available and fault-tolerant to secure service reliability and transaction security. For services that handle important data, we take measures, such as using cloud computing, to provide services even in the event of an emergency, following sufficient security measures. In addition, we continue to strengthen our systems by hiring personnel with extensive experience in system development and system operation and by proactively providing system-related training to our employees.

(9) License

Risks

To carry out the recruiting agent business, which is our main business, a license for fee-charging employment placement is required, and we have been licensed by the Minister of Health, Labour and Welfare as a fee-charging employment placement business provider. If the relevant license is revoked or the business is suspended for some reason, it may become difficult for us to carry out our recruiting agent business, which may adversely affect our business activities.

The reasons for revocation of the license and suspension of business are stipulated in Article 32-9 of the Employment Security Act. To the best of our knowledge, as of March 31, 2026, we are not subject to any of these reasons. Our license information is as follows:

Countermeasures

We work closely with the Ministry of Health, Labor and Welfare, other government agencies, and industry organizations to keep abreast of amendments to the Employment Security Act and other business-related laws. We are also making continuous efforts to strengthen our compliance system. For example, we have established rules and guidelines to comply with the Employment Security Act and conduct training to ensure that all officers and employees are familiar with them.

2. Other risks

(1) Technological innovation

Risks

We provide various information-based services to professionals, business operators, and end users, and the software, systems, and security-related technologies that support these services are extremely important to our business operations. The pace of technological innovation in recent years has been remarkably fast, and to maintain and enhance our competitiveness, we need to invest in and introduce technologies timely and appropriately while keeping an eye on future changes in technologies. There is a possibility that we may not be able to grasp trends in technological innovation accurately, and our technologies may become obsolete due to rapid changes in the technological environment caused by the unexpected spread of new technologies.

In such a case, our business may be adversely affected.

Countermeasures

We continuously invest in new software, systems, and security technologies, as appropriate, to ensure that our technologies do not become obsolete. We are also developing a framework to introduce cutting-edge technologies, including analytics applied to the large volumes of data generated by our business activities and AI. We are working to continuously improve our technologies and to introduce these technologies into our business. With respect to generative AI, we have established guidelines to thoroughly inform employees of the associated risks, while encouraging active use of the technology within these rules. In the Career Business, we have already deployed a tool that analyzes recorded data of consultations between career partners and job seekers and automatically generates feedback on those conversations, which has improved the precision of the job opportunities we recommend.

(2) Dissemination of information

Risks

We provide a wide range of information in medical care, elderly/disability care, healthcare, and senior life through the Internet and other media.

In the event of social criticism regarding the legality, accuracy, or appropriateness of such information, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

In disseminating various information, we have established a system to carefully check the legality, accuracy, and appropriateness of such information both internally and externally, including advice from our legal counsel and supervision by experts.

(3) Laws and regulations

Risks

We operate in a wide range of business fields in Japan and overseas, and must comply with the laws and regulations of each country/region. Due to the rapid expansion of our business in the future, we may not be able to build an appropriate compliance system, which may result in violations of laws and delays in responding to new laws, law amendments, and changes in interpretation by the authorities, and loss of business opportunities caused by such violations and delays.

In such a case, our social credibility could be damaged, adversely affecting our business activities.

Countermeasures

We are making continuous efforts to strengthen our compliance system to comply with the social norms, laws, and regulations of each country where we operate. We have established rules and guidelines necessary for compliance, and conduct training to ensure that all officers and employees are familiar with them. These rules, guidelines, and training include content regarding compliance with laws and regulations closely related to our business, such as the Act on the Protection of Personal Information and the Employment Security Act, the blocking of relationships with antisocial forces, and the prevention of corporate fraud.

(4) Litigation

Risks

If in the course of our business activities, litigation or other legal proceeding is brought against us regarding deficiencies in the services that we provided, labor-management of employees, leakage of personal information, infringement of intellectual property, and a judgment or decision unfavorable to us is made, our social credibility may be damaged, or we may be obligated to pay a large amount of compensation. In such a case, our business may be adversely affected.

As of the end of March 2026, no litigation has been filed that would significantly impact our business activities of performance, and we are not aware of any possibilities of such litigation.

Countermeasures

We are working to strengthen our compliance system to ensure that our business is conducted appropriately in compliance with social requirements, laws/regulations, and other various rules so that we will not be involved in unreasonable disputes. In preparation for the unlikely event that litigation is filed, we have established a system to ensure prompt and reliable reporting on the filing and status of important litigation on a global basis. At the same time, we have built a system to respond to litigation and other legal proceedings in cooperation with personnel of our subsidiaries and law firms in each country.