KOEI TECMO HOLDINGS CO., LTD.

Game development is a knowledge-intensive business, and recruitment competition is intensifying due to the accelerating decline in the birthrate and tightening supply-demand conditions in the labor market. The Group is working to improve engagement by strengthening recruitment of new graduates and experienced personnel and promoting human capital management, but if it is unable to sufficiently respond to intensifying recruitment competition and increased labor mobility, this could affect long-term business performance.

The Group strives to protect its intellectual property while also taking care to prevent infringement of third-party rights; however, if disputes or claims of infringement arise, this could affect business performance and financial condition. In recent years, the Group has strengthened its response to infringement and information leakage risks by establishing internal guidelines on the use of generative AI and building closed networks.

The Group holds users' personal information and confidential information regarding content under development, and is exposed to threats such as cyberattacks. Although the Group has taken measures such as establishing internal regulations, introducing the latest security tools, and conducting internal training, if information leakage or system failure occurs due to attacks or natural disasters exceeding expectations, this could affect business performance and social reputation.

In addition to cash and cash equivalents and highly liquid securities held for business investment purposes, the Group invests in composite financial products incorporating stocks, bonds, and derivatives. If stock and bond markets, foreign exchange rates, or economic conditions fluctuate sharply, impairment or valuation losses on held securities may occur, potentially affecting business performance and financial condition. The Group manages such risks in accordance with internal regulations based on internal controls.

Amid the global expansion of download sales and the diversification of consumer values driven by the spread of social media, pursuing expression that is sensitive to all cultural backgrounds may constrain the originality of works. The Group's policy is to maintain consistent expression based on accurate factual recognition, but if unexpected reactions arise from consumers in specific regions or demographics, this could affect business performance, business development, and social reputation.

Alternatives to full-price package games are diversifying and expanding due to significant discount sales of past titles, the rise of high-quality, low-priced content from small studios and individual developers, and the spread of subscription-based services. The Group is responding by challenging itself with new titles in lower price ranges and by offering content to subscription services, but if this trend progresses faster or more extensively than anticipated, it could affect long-term business performance and business strategy.

Game development is becoming more advanced and complex due to graphical evolution and platform diversification, creating risks of prolonged development periods, rising development costs, technological obsolescence, and divergence from market needs. The Group diversifies risk through a business portfolio combining titles of various development scales, but if development delays occur or achieving quality standards takes longer than expected, this could affect business performance and cash flow due to delayed product launches.

As products become more complex, the difficulty of quality management is increasing, and the Group is working to improve quality through measures such as AI-driven debugging automation and stricter internal evaluation systems prior to release. However, if these efforts are insufficient and the quality level demanded by users is not achieved, this could affect business performance and social reputation.

The Group actively conducts overseas business, and since overseas sales account for a large proportion of revenue, it is exposed to geopolitical risks such as changes in laws and regulations in various countries and instability in political and social conditions. In addition, fluctuations in foreign exchange rates, particularly a stronger yen, could directly affect business performance, and the high degree of dependence on overseas markets creates a structure that amplifies this risk.

The Amusement Business is regulated by the Act on Control and Improvement of Amusement Business, etc. (Entertainment Business Control Law) and related government ordinances and local regulations. If there are significant future revisions or repeals of these laws, or if new laws are enacted and enforced, this could affect the business performance of the Group's Amusement Business.