DENSAN CO.,LTD.

In FY2026 (ending March 2026), the Public Sector accounted for an extremely high 80.5% of sales, with systems for local governments forming the core of earnings. There is a risk that order opportunities and revenue levels for the Group could decline significantly due to the progress of shared use of information systems among local governments and government-led standardization of business processes and systems. As a countermeasure, the Group is shifting management resources gained in the Public Sector to the Industrial Sector to pursue new customer development, but the high degree of dependence remains a structural vulnerability.

Shinetsu Broadcasting Co., Ltd. holds 39.3% of voting rights (including indirect holdings), and TOPPAN Edge Inc. (now TOPPAN Inc.) holds 15.9%, together holding voting rights close to a majority. There are concurrent officer appointments and business relationships with both companies; in FY2026 (ending March 2026), transaction amounts with Shinetsu Broadcasting totaled ¥126,818 thousand, and combined raw material purchases and outsourcing with TOPPAN Edge totaled ¥694,170 thousand. Although there is currently said to be no constraint on business strategy, personnel affairs, or capital policy, the possibility that these major shareholders could influence policy decisions cannot be ruled out.

In contracted software development, there is a risk that increases in development man-hours or work delays could result in costs far exceeding initial estimates. A dedicated department responsible for quality and productivity improvement has been established to address this, but failures in project management directly pressure profits. The occurrence of unprofitable projects could have a material impact on business results and financial condition.

In information processing and system development operations, the Group handles large volumes of customers' personal and confidential information, and any leakage could lead to damages claims and loss of corporate credibility. Although preventive measures have been taken through ISMS and Privacy Mark certification, risks such as cyberattacks and internal misconduct cannot be completely eliminated. Since reliability is fundamental to an information services company, the impact of an incident on business continuity could be severe.

Although the Group operates its own data center equipped with seismic isolation structure, there is a risk of unpredictable system failures caused by natural disasters such as earthquakes and fires, hardware or communication failures, computer viruses, and other factors. In the event of a failure, service provision would be significantly disrupted, potentially leading to damages claims and loss of customer trust. Given that system operation and management services are a core business, the impact of a failure could be far-reaching.

Intensifying competition for talent in the information services industry creates a risk that it will become difficult to secure engineers with the knowledge and experience necessary for operations. The Group promotes year-round recruitment and planned development of talented personnel, but if it cannot secure sufficient personnel or if internal talent departs, constraints on business development may arise. Similarly, with respect to succession planning, the departure of candidate personnel or delays in development could affect the continuity of management.

Price competition is intensifying across the information services industry as a result of customers' growing demands for cost-effectiveness and the entry of overseas information service companies. The Group is responding by providing value-added services focused on specific industries and business types and by improving productivity, but if order unit prices decline more than expected, profit margins will fall. In particular, given the revenue structure's high dependence on the Public Sector, the impact of falling unit prices tends to spread readily to overall business performance.

Procurement costs, including electricity charges, IT-related equipment, outsourcing expenses, personnel costs, and various materials, are rising due to inflation, soaring energy prices, and exchange rate fluctuations. The Group is pursuing productivity improvements, reviewing procurement methods, and passing costs on to customers, but if cost increases cannot be adequately passed on or if cost burdens exceed expectations, profitability will deteriorate. Given the business structure, which includes data center operations and equipment sales, the Group is particularly susceptible to the impact of energy and equipment costs.

The rapid advancement of new digital technologies such as DX, AI (including generative AI), IoT, and RPA creates a risk that a delayed response could lead to a decline in competitiveness. The Group continuously conducts research, investigation, and evaluation of new technologies, but the pace of technological change is fast, and there is a possibility of existing services becoming obsolete or delays in responding to customer needs. In particular, in situations where standardization trends in the Public Sector overlap with digital technology innovation, there is a risk that the Group could be forced to transform its business model.

The Group has set nationwide expansion focused on Yamanashi Prefecture, the Greater Tokyo area, and the Chukyo region as a growth strategy, but there is a risk that order intake could fall short of plan if efforts to strengthen sales capabilities and expand business partnerships do not proceed as planned. Brand recognition and track record outside the Nagano and Niigata regions remain limited, requiring the establishment of sales and operational structures different from the existing regionally focused business model. If the plan is not achieved, the Group may fail to generate returns commensurate with growth investments, potentially affecting business results.