NEXON Co., Ltd.

In FY2025 (ending December 2025), the three titles Dungeon&Fighter, MapleStory, and EA SPORTS FC™ account for a certain high proportion of consolidated revenue, resulting in high dependence on specific franchises. If changes in user preferences, system failures, intellectual property disputes, or similar events occur, this could have a direct and material impact on revenue. The Group is promoting portfolio diversification through new title development and license acquisition, but cultivating alternative titles takes time.

China has established laws regulating the game business operations of foreign companies, and the minor protection regulations that took effect in January 2024 impose detailed obligations on game operators regarding minors' game usage time and spending. If review criteria for the game license (publication approval) system change, or if the regulatory draft disclosed in the latter half of 2023 (restricting reward mechanisms, spending practices, etc.) is reintroduced, this could adversely affect development plans, monetization, and content updates. The Group seeks to minimize the impact through partnerships with local partners, but the predictability of such regulations is low.

The Group manages the personal information of a large number of users on its servers, and personal information leaks due to external hacking have actually occurred in the past. The Group must simultaneously comply with multinational regulations, including the GDPR (fines of up to 6% of worldwide annual revenue for violations), the UK Online Safety Act (fines of up to £18 million or 10% of worldwide annual revenue), China's PIPL and Data Security Law, and various U.S. state privacy laws, and the risk of sanctions for violations is high. The Group has implemented security enhancement measures such as the Global Security Center and obtaining ISMS certification, but complete prevention is difficult due to the increasing sophistication of hacking techniques.

Gambling regulations on loot boxes/gacha are already applied in Belgium and Slovakia, and in the Netherlands the legislature is seeking to pass a bill to make loot boxes illegal. In Korea, the revised Game Industry Promotion Act, which took effect on March 22, 2024, mandates disclosure of probability rates for probability-based items, and from August 1, 2025, businesses will be subject to punitive damages liability of up to three times the amount for violations. For the Group, whose main revenue source is item-based monetization, tighter regulation could affect the fundamental structure of its revenue.

In the EU, legislative deliberation on the Digital Fairness Act (DFA) is progressing, and regulations on dark patterns and designs that increase dependency are expected to be strengthened; violations of the DSA carry fines of up to 6% of worldwide annual revenue. Under the UK Online Safety Act, assessment deadlines have been set for March and July 2025, and non-compliance could result in fines of up to £18 million or 10% of worldwide annual revenue, as well as potential criminal liability for executives. The Group is proceeding with responses such as DSA pages and transparency reports, but compliance costs are expected to increase as regulations continue to become more sophisticated.

There are numerous competitors in the PC online game, mobile game, and console game markets, and beyond gaming, the Group competes with video and music streaming services and others for users' discretionary time. If new services or revenue models developed by competitors gain acceptance among users, this could lead to a decrease in the Group's user base or reduced appeal. The Group promotes differentiation by leveraging its brand and development know-how built up over years of PC online business, but responding to changes in the competitive environment will affect business performance.

The Group operates globally in Japan, Korea, China, the United States, and elsewhere, and since its consolidated financial statements are denominated in Japanese yen, it bears translation risk and transaction risk primarily from fluctuations in the Korean won, U.S. dollar, and Chinese renminbi exchange rates. Since Korea and China are particularly major revenue sources, fluctuations in the exchange rates of these currencies against the yen directly affect business performance. The annual securities report does not explicitly describe specific countermeasures such as foreign exchange hedging.

The Group actively utilizes M&A targeting game development and operating companies, and intends to continue M&A and investment activities to secure competitive IP and development personnel going forward. If contingent liabilities arise or previously unrecognized liabilities are discovered during the PMI stage, if PMI is delayed or fails due to changes in market conditions, or if impairment of the investment value of target companies becomes necessary, this could have a material impact on business performance and financial condition. In addition, if business alliances such as the exclusive license agreement for Dungeon&Fighter in China are terminated or the license agreement is not renewed, the impact on business performance would also be significant.

The Group's services depend on network systems, and if a system failure occurs due to natural disasters, computer viruses, hacking, or similar causes, this could result in service suspension or data loss/leakage. In the past, a server of a U.S. subsidiary was actually hacked by an external party, causing an abnormal increase in the in-game currency of certain users, and fraudulent activities such as real-money trading continue to be identified. The Group has established a recovery system including 24-hour monitoring and the use of cloud services, but the methods of fraudulent activity are diversifying beyond expectations, making complete prevention difficult.

The execution of the Group's management policy and business strategy is heavily dependent on certain individuals, including some officers and key game developers, and if these individuals resign or become unable to continue their duties, this could affect business development and performance. In addition, if important officers or employees move to competing companies or establish competing businesses, there is a risk of business know-how leakage. Delays in recruiting external talent or developing internal talent to respond to the rapid expansion and diversification of the business could also lead to insufficient development of internal control systems.