CYBERLINKS CO.,LTD.

In the Distribution Cloud Business, contraction of the food distribution industry due to the declining birthrate, aging population, and population decrease; in the Government Cloud Business, transformation of the business model driven by the promotion of standardization and commonization of local government systems; in the Trust Business, sluggish growth in demand for digital certificates; and in the Mobile Network Business, a decrease in unit sales due to rising device prices and lengthening replacement cycles, may all affect business performance. In particular, the standardization of core local government systems based on the "Priority Plan for Realizing a Digital Society" carries the risk of significantly transforming the business model of the Government Cloud Business. The Group is addressing these risks by pursuing attractive services in each business, closely monitoring policy trends, and leveraging the strengths of its physical stores.

Rapid technological innovation, the emergence of alternative technologies or competing products, and changes in the technology standards or platforms on which the Group depends, may cause the Group to miss the optimal timing for launching new services, or delay its response to customer needs, resulting in a loss of competitiveness. In addition, if major specification changes or unforeseen defects occur during development, development man-hours may increase substantially, leading to deteriorated profitability. The Group is strengthening its development structure and pursuing flexible responses through the adoption of AI-driven development methods combined with M&A.

The Group holds a large volume of personal and corporate information. If this information is leaked due to equipment malfunction, loss, operational error, or cyberterrorism such as ransomware attacks, the Group may incur liability for damages, suffer a loss of social credibility, or face contract terminations with customers and suppliers, which could affect business performance. As countermeasures, the Group has obtained ISO27001 certification and the Privacy Mark, established a CSIRT, and strengthened continuous monitoring systems; however, these measures cannot completely eliminate the risk.

If procurement costs for equipment, licenses, servers, and other items increase due to rising prices, and these increases cannot be fully absorbed through cost-reduction efforts such as operational efficiency improvements, the Group may be forced to revise service fees (pass on costs to customers). If such fee revisions reach a level unacceptable to customers, widespread customer attrition may occur, affecting business performance. The Group prioritizes cost reduction through operational efficiency while striving for stable business operations by implementing gradual price pass-throughs as necessary.

The Group competes with SI vendors and service providers in the Distribution Cloud Business, with major and mid-tier SI vendors in the Government Cloud Business, with electronic application and e-contract service providers in the Trust Business, and with other carriers' agencies and other NTT docomo agencies in the Mobile Network Business. If the Group's service capabilities relatively decline due to intensifying price competition or improvements in competitors' technological and service capabilities, this may result in lost sales opportunities and decreased sales volume. Under its policy of aiming to be the No. 1 player in each industry and regional segment, the Group strives to maintain and enhance its competitive advantage through concentrated capital investment.

If the securing and development of excellent human resources does not proceed as planned, or if a large number of excellent employees leave the Group, the Group may be unable to adequately provide services to customers or develop new services, resulting in lost sales opportunities, decreased sales volume, and delays in implementation work or service development, which could affect business performance. The Group is working to secure and develop human resources through continuous improvement of employee treatment, accommodation of diverse working styles, and thorough employee training and support for obtaining qualifications.

If the Group's systems fail to operate normally, or customer data is lost, due to natural disasters such as earthquakes or fires, computer virus infections, cyberterrorism, or failures in network infrastructure such as public lines, this may result in degraded service quality, liability for damages, loss of social credibility, and contract terminations with customers, which could affect business performance. As countermeasures, the Group has obtained ISO27001 and ISO20000 certifications, operates multiple data centers distributed across three regions in Japan including a backup center, and has taken out IT business liability insurance.

Nearly 100% of the procurement and sales in the Mobile Network Business depend on the NTT docomo brand, and if the agency agreement with Connexio Corporation is terminated or changed, this could impair the continuity of the business. In addition, "Retailpro" in the Distribution Cloud Business depends on Retail Pro International LLC of the United States for nearly 100% of its procurement, with the top two customers accounting for approximately 40% of sales, while Minami Osaka Electronic Computing Center, a subsidiary in the Government Cloud Business, depends on NEC Corporation for most of its procurement. Although the Group currently maintains good relationships with each of these suppliers and business partners, there is a risk that changes in their policies could affect business performance.

If unforeseen issues arise after an acquisition, such as the emergence of contingent liabilities or previously unrecognized liabilities, causing the acquired company's business plan to fall short of targets, an impairment loss on goodwill may occur. In addition, impairment losses may also occur on owned tangible fixed assets or software if profitability declines due to significant changes in the business environment. When conducting M&A, the Group performs due diligence and analyzes normalized earning power before making decisions through its governing bodies, while also thoroughly managing the performance of acquired companies.

The majority of the Group's head office, business offices, and stores are concentrated in Wakayama Prefecture, and if a large-scale earthquake occurs in the Tonankai region, physical and human damage could make it difficult to continue business operations. The Group has implemented measures such as formulating a business continuity plan, constructing earthquake- and seismic isolation-structured data centers, establishing backup centers across three regions in Japan (Wakayama, Tokyo, and Osaka), and promoting region-independent recruitment through the use of telework. Despite these preparations, in the event of a disaster, the Group may still incur liability for damages, suffer a loss of social credibility, or face contract terminations with customers.