Mitsubishi Research Institute,Inc.

As the Group handles a large volume of personal information and confidential customer data, there is a risk of information leakage, loss, or destruction due to cyberattacks, unauthorized access, natural disasters, inadequate information management associated with the expansion of remote work, and the establishment of overseas offices. If such risks materialize, they could lead to claims for damages from customers and loss of trust, potentially affecting business performance. As countermeasures, the Group implements entry/exit management, security measures for network equipment, regular training, incident response drills, and individualized measures for overseas locations.

System Development within Think Tank & Consulting Services and IT Services is carried out on a project-by-project basis. Due to increasingly sophisticated customer requirements, growing project complexity, and changes in the business environment, there is a possibility that profitability cannot be secured due to increased man-hours even for projects that were expected to be profitable at the time of order receipt. This is particularly likely in projects utilizing new technologies or involving new customers and business fields, where work exceeding initial estimates tends to occur; if this coincides with quality deterioration or unexpected events, business performance could be affected. As countermeasures, the Group conducts risk checks based on company-wide common standards, automatic alerts, and monitoring by line managers.

Sales to government agencies accounted for 28.7% of consolidated net sales in the current consolidated fiscal year, indicating a high degree of dependence on a specific customer segment. If the Group fails to respond promptly to the increasingly complex and sophisticated business content associated with the promotion of DX by government agencies, or if competition for orders with competitors intensifies, this could affect business performance. In addition, inappropriate responses to prohibitions on anti-competitive conduct or to the transparency of accounting procedures could also affect business performance, and the Group therefore continuously conducts compliance training and maintains manuals.

Sales to the financial industry accounted for 44.7% of consolidated net sales in the current consolidated fiscal year, making it the Group's largest sales segment. While transactions have been progressing steadily against the backdrop of active investment in regulatory and institutional compliance and security, a sudden change in the business environment, changes in customers' management conditions, or changes in customers' information systems investment policies could have a material impact on business performance. As a countermeasure, the Group aims to strengthen business development in areas that leverage the Group's strengths and to achieve sustainable growth in line with its medium-term management plan.

As generative AI becomes more widespread, there is a risk that customers themselves will be able to perform the research and analysis work currently outsourced to the Group, resulting in a loss of business opportunities and competitiveness. There are also risks such as leakage of confidential information, copyright infringement, and damage to the credibility of research findings due to misuse of generative AI. As countermeasures, the Group has established "Generative AI Guidelines" and strives to maintain its competitive advantage by proposing and providing projects to customers that make maximum use of generative AI.

As new businesses and operational/capital alliances increase with the promotion of VCP management, unexpected changes in the business environment, changes in partners' circumstances, or service suspensions due to system failures, among other factors, could lead to business interruption, claims for damages, or loss of trust. In AI-related businesses, there are risks of insufficient response to fairness, transparency, and safety requirements, while new businesses involving on-site work carry risks of occupational safety and health incidents. As countermeasures, the Group verifies business forecasts, profitability, and risks through an internal review process, and conducts business development based on the "New Business Creation Process Standards" and the "AI Business Promotion Guidelines."

Securing and developing personnel with advanced expertise, originality, and creativity is key to sustainable growth. However, if the Group is unable to secure sufficient personnel due to difficulties in recruitment, increased labor market mobility, or deterioration in working conditions, business performance could be affected. As countermeasures, the Group implements multifaceted human resource measures, including enhanced recruitment and training, promotion of diversity, enhanced welfare programs such as childcare support systems, and harassment prevention. For personnel engaged in overseas operations, the Group also strengthens safety measures, diversifies information gathering channels, and provides alerts to travelers.

With subsidiaries and affiliated companies under the Group, if governance of subsidiaries does not function adequately and incident response is delayed, business performance could be affected. In particular, the core subsidiary DCS has a capital relationship with MUFG (20.0% equity interest), and MUFG Bank is a major customer accounting for approximately one-quarter of DCS's sales, making the management of conflicts of interest among related parties important. As countermeasures, the Group promotes organizational and cultural reform through the development of internal controls across the Group, personnel exchanges, and mutual cooperation on compliance awareness initiatives.

In the information services industry, entry from other industries and the falling cost of procuring IT resources are accelerating price competition and technological development competition. If price competition intensifies, quality deteriorates, or the Group falls behind in responding to technological innovation, business performance could be affected. In addition, in information processing services, since investments in data center renewals and new investments are structured to be recovered over multi-year contracts, changes in the economic environment or customers' management conditions could make it difficult to recover such investments. As countermeasures, the Group has established an integrated service provision structure spanning consulting, System Development, operations, and BPO, and is working to enhance its proposal capabilities as well as quality and productivity.

Due to the impact of government agencies' fiscal years, many projects are ordered in the third quarter and delivered by the second quarter of the following year, resulting in a tendency for performance in the first and second quarters to be better than in other quarters. In the third and fourth quarters, where sales are lower, personnel expenses and selling, general and administrative expenses are incurred at roughly even levels, which can result in an operating loss; in the third quarter of the fiscal year ending September 2025, the Group recorded an operating loss of ¥186 million. This seasonal fluctuation is a structural risk that affects the accuracy of full-year performance forecasts and cash flow management.