CUBE SYSTEM INC.

The sales ratio to the Nomura Research Institute group is 48.7%, and the sales ratio to the Fujitsu group is 26.2%, resulting in a highly concentrated structure in which the top two companies account for approximately 75% of total sales. There is a risk that changes in the order trends of these customers will directly impact business performance. As countermeasures, the company is promoting the establishment of direct relationships with end users and the acquisition of new business areas.

Since contracts are principally based on contracted work (ukeoi) arrangements, there is a risk that projects expected to be profitable at the time of order may become unprofitable due to specification changes or additional work. Increasing project difficulty due to DX promotion, as well as price pass-through associated with rising prices and personnel costs, are also factors that pressure profit and loss. In response, the company is thoroughly reviewing processes at system development meetings, strengthening departmental and company-wide QMS, and controlling risk by switching to quasi-delegation (junishoji) contracts.

Employees and business partners operate in an environment with access to confidential customer information, and if an information leak occurs, there is a risk of liability for damages and loss of social credibility. The spread of generative AI and the sophistication of cyberattacks are increasing risks to both internal and development environments. The company continuously implements measures, treating the strengthening and improvement of its information security management system as an important issue.

The information services industry continues to face a chronic shortage of system/network engineers, and if the company is unable to secure personnel as planned or if personnel attrition occurs, there is a risk of lost opportunities for executing highly productive projects and winning new business. Delays in developing professional IT personnel could also affect financial position and business performance. In response, the company continues to conduct planned new graduate and mid-career hiring, build talent development systems, and implement well-being improvement measures.

There is a risk that business performance will be affected by price competition exceeding expectations due to new entrants from other industries and the rise of overseas companies, transformation of customers' business models through DX, and rapid technological innovation. While the information services industry is seeing increased IT investment driven by DX demand and AI utilization, changes in the competitive environment may pressure profitability. The company is addressing this through continued proactive technology investment.

As systems demanded by customers become more complex due to the promotion of DX business, there is a risk of quality defects arising from discrepancies in understanding with customers or insufficient technical capability and management. Since the amendment to the Civil Code that took effect in April 2020 extended the period of non-conformity liability, there is a possibility of facing long-term repair obligations or claims for sales price reductions. The company is implementing countermeasures including strengthened personnel assessments before project participation, confirmation of development readiness, and review of contract forms.

There is a risk that service provision to customers will be interrupted due to a succession of natural disasters and geopolitical risks. If a disaster exceeds expected scale, it may become difficult to provide services at agreed levels, which could affect business performance. The company continuously rebuilds its BCP and reviews its effectiveness and resolves issues.

As overseas business expands, including through overseas subsidiaries, there is a risk that legal systems, business customs, labor relations, changes in economic trends, exchange rate fluctuations, and political and social factors that differ from those in Japan will affect business performance. Responding to diverse country risks is required.

The company holds listed shares aimed at strengthening relationships with business partners, unlisted shares acquired through business alliances, bonds, and investments in investment partnerships, and there is a risk of impairment losses or inability to recover investment amounts if the issuers' business performance deteriorates or they go bankrupt. The company enhances monitoring of the market and investment targets and takes appropriate measures.

If rapid advances in AI technology and technological innovation occur across a broad range of fields, there is a risk that the competitiveness of the Group's existing technologies and services will decline. The use of new technologies, including generative AI, is closely linked to information leakage risk, and delays in technological response could affect business performance. The company is working to discover and incorporate new technologies through continuous technology investment and investments in venture companies.