CMC CORPORATION

In R&D and business development aimed at business transformation, if development is abandoned due to judgments on investment returns or the emergence of competing products, or if developed products cannot be brought to market, recovery of development costs may become difficult, potentially affecting business performance. As a countermeasure, the Company operates based on an R&D activity scheme, conducts regular progress management at management planning meetings, and has strengthened its business development promotion structure through organizational restructuring.

If the development and retention of human capital supporting business transformation does not proceed as planned, this may affect business performance. In particular, as demand grows for talent with both AI technology utilization skills and business design capabilities, a shortage of personnel with the necessary skills could lead to a decline in competitiveness. As a countermeasure, the Company is redefining the human capital and skills needed and working to systematize recruitment and training.

As the manner in which information is delivered changes rapidly due to technological innovations such as generative AI, if the Company Group fails to adapt to such changes, this may lead to a decline in the competitiveness of existing services and affect business performance. In an environment where the experiential value of information is increasingly heightened, delays in response could threaten the business foundation. As a countermeasure, the Company is committed to maximizing the use of generative AI technology in its R&D efforts.

If infrastructure failures, cyberattacks, or similar incidents result in the suspension of business activities, loss or leakage of data, or suspension of product/service functions, this may have a material impact on business performance. As countermeasures, the Company thoroughly conducts employee training and targeted phishing email drills, external network vulnerability assessments, remote data backups, enhanced security measures utilizing the cloud, and regular security audits.

The Company is pursuing capability acquisition through M&A and alliances in connection with business transformation; however, if a significant deviation from the initial business plan occurs due to sudden changes in the business environment or other factors, this may result in impairment losses on subsidiary share valuations or goodwill, affecting business performance. As a countermeasure, the Company has strengthened its corporate functions for M&A and alliances and conducts multifaceted examinations of profitability and the likelihood of investment recovery.

The proportion of sales to Toyota Motor Corporation remained high, at 34.0% in FY2024 (ended September 2024) and 26.7% in FY2025 (ended September 2025), indicating a continued high level of dependence on the company for sales and profit. If transactions with this company were to be discontinued, this could have a severe impact on business performance. As a countermeasure, the Company continues to work on business expansion into markets outside mobility.

Since domestic sales account for 85.8% of total sales (FY2025, ended September 2025), in-house development shifts or budget cuts by major domestic client companies in response to economic fluctuations may directly affect business performance. The high degree of dependence on the domestic market increases earnings vulnerability during economic downturns. As a countermeasure, the Company strives to build a business structure less susceptible to economic fluctuations, including deepening existing businesses, expanding into adjacent areas, and entering global markets.

If defects occur in delivered goods and cause significant damage to client companies, this may affect business performance through loss of trust and damage compensation, among other factors. Quality issues could also affect the continuation of business relationships, potentially harming the business foundation. As a countermeasure, in addition to enhancing the inspection system for delivered goods, the Company works to prevent defects by systematizing inspection functions through its systems.

If new laws or various regulations affecting the Company Group's business areas or the services it provides are adopted or strengthened, this may affect business performance through increased compliance costs or business restrictions. As a countermeasure, the Company has strengthened its corporate functions for keeping abreast of various laws and regulations and strives to establish a structure capable of responding appropriately.

If large-scale natural disasters such as earthquakes, typhoons, or heavy rains, or a pandemic, cause client companies to change their business plans, damage the Company Group's business facilities, or delay or halt business activities due to employee illness, this may affect business performance. As a countermeasure, the Company has taken measures such as establishing a BCP (Business Continuity Plan).