ITbook Holdings Co.,LTD.

As business scale and scope expand, strengthening the management control structure for group companies has become an important challenge. If the development of the group management structure and coordination with each company do not function sufficiently, management efficiency may decline and management costs may increase, potentially affecting business performance. In anticipation of the planned transition to an operating holding company structure from FY2027 (ending March 2027), the Group is working to enhance its group management functions.

Securing advanced digital talent such as IT consultants, project managers, and system engineers in the consulting and system development business is key to sustainable growth. Competition for talent has intensified amid the spread of AI technology and growing DX demand, and if personnel are not secured and developed as planned, or if excellent talent is lost, this could affect business performance. The Group is promoting stronger recruitment activities, reskilling support, enhanced education and training programs, and improvements to personnel systems.

In the ground survey and improvement business and the guarantee inspection business of the construction and civil engineering segment, if unforeseeable defects or construction/survey errors due to gross negligence occur, the Group may face substantial claims for damages or warranty claims. Although the Group employs quality control standards compliant with laws such as the Building Standards Act and the Housing Quality Assurance Act, as well as systematized rigorous inspection criteria based on JIS standards, risks that cannot be foreseen even with current survey technology remain. If claims for damages or warranty claims arise, this could have a material impact on business performance.

The system development business holds important technical and business information of clients, while the construction/civil engineering and guarantee inspection businesses hold customer information including personal data, creating a risk of information leakage. Although the Group is working to strengthen its response to increasing threats such as cyberattacks and ransomware in recent years, if unauthorized access or information leakage occurs, this could affect business performance through claims for damages from customers or a decline in social credibility. The Group implements measures such as developing information management regulations, employee training, access authority management, and management of outsourced vendors.

Funds for capital equipment acquisition and working capital are mainly procured through borrowings from financial institutions, and the ratio of interest-bearing debt to total assets stood at a high level of 57.9% at the end of the consolidated fiscal year under review. If market interest rates rise, financial costs may increase, affecting business performance, and if borrowing becomes impossible for any reason, this could disrupt business activities. Maintaining relationships with financial institutions and diversifying fundraising methods are important challenges.

The ratio of trade receivables to total assets was generally high at 32.4% at the end of the consolidated fiscal year under review. If trade receivables become uncollectible due to the financial condition of business partners, this may affect business performance through an increase in the allowance for doubtful accounts and other factors. Continuous monitoring of the creditworthiness of business partners is an important management issue.

The construction and civil engineering business uses cement and construction steel materials as key raw materials, and purchase volumes have been increasing along with business expansion. If material prices surge due to supply-demand tightness and it becomes difficult to pass on the cost increase to construction order prices, this could affect business performance through a decline in profit margins. The Group is working to reduce unit purchase prices through regular negotiations with suppliers.

The Group is actively considering and implementing M&A and investments to realize its "on-site digital provider" strategy, but issues that could not be identified in advance or fluctuations in the performance of investee companies may result in the recognition of valuation losses on held securities or additional expenditures. If business profitability declines due to market trends and it is determined that target assets cannot generate sufficient cash flow, recognition of impairment losses may become necessary. Although the Group conducts investment economic evaluations and risk scrutiny through its "Investment Committee," it is not possible to completely eliminate these risks.

In the system development business, the timing of revenue recognition may be delayed relative to plan due to delays in acceptance testing and related timing. This may result in the failure to achieve profit plans, with uncertainty regarding revenue recognition increasing particularly toward the end of the fiscal period. Strengthening project management is an important measure for stabilizing business performance.

In the event of large-scale natural disasters such as earthquakes, tsunamis, or floods, or a global pandemic of infectious disease, business operations could be disrupted due to damage to infrastructure such as electricity and gas, as well as broad impacts on the supply chain, including raw material procurement and logistics. Such impacts could affect any of the regions in which the Group operates. Although the Group has established measures to prevent disasters and accidents based on the goals of ensuring operational safety and business continuity, it is difficult to completely avoid such risks.