Systems Engineering Consultants Co.,LTD.

Problem projects accompanied by delivery delays, claims, and excessive workloads often become unprofitable due to the incurrence of substantial costs, and in the case of large-scale projects, directly impact company-wide performance. There is also a risk of reduced or halted transactions due to loss of customer credibility. The Company recognizes this as one of the "risks that could have a particularly significant impact" in its risk inventory conducted by the Board of Directors, and is strengthening its response.

Large-scale projects, which are primarily undertaken on a lump-sum contract basis, absorb the majority of management resources, so the profitability of such projects significantly affects overall company performance. There is also an inherent restructuring risk in which a large number of engineers become simultaneously idle after the completion of a development process, and if the transition to the next project does not proceed smoothly, utilization rates may decline. This is positioned as a particularly significant risk in the Board of Directors' risk assessment.

The Company has experienced drastic changes in demand structure due to technological innovation on multiple occasions in the past, and if the Company fails to respond appropriately to such changes or if innovation stagnates, this will have a material impact on performance. The Company positions the acquisition of new elements through research and development and product development activities as the core of its growth strategy, but there is also a risk that the effects of investment may not be realized as planned. This is recognized as a particularly significant risk in the Board of Directors' risk assessment.

If changes or cancellations occur in the order trends, business plans, or research and development plans of major clients, this will cause significant fluctuations in engineer utilization rates and affect performance. Changes in outsourcing policies due to group restructuring or M&A by clients also pose similar risks. The Company strives to maintain a balance among clients through continuous strengthening of sales activities, but this is positioned as a particularly significant risk in the Board of Directors' risk assessment.

The Company has obtained certifications for information security (ISO/IEC 27001) and personal information protection (JIS Q 15001, Privacy Mark) and has implemented countermeasures; however, if a security incident occurs, it may result in business suspension, loss of credibility, suspension of transactions, and payment of damages, which would have a material impact on performance. Projects requiring high security levels may also require investment in the installation of special equipment. This is recognized as a particularly significant risk in the Board of Directors' risk assessment.

If the intensifying competition for IT talent makes it difficult to acquire and retain excellent personnel, this will result in lost growth opportunities, disruption of technology transfer, and difficulties in project staffing, affecting performance. The Company is strengthening recruitment by leveraging its credibility and name recognition as a listed company and improving working conditions, but there is also a concurrent risk of an increase in employees taking leave or resigning due to mental or physical health issues from a health and safety perspective.

Personnel expenses and outsourcing costs, which account for the majority of cost of sales, are on an upward trend against the backdrop of intensifying competition for IT talent and social demands, and if cost increases cannot be passed on to order prices, profitability will deteriorate. The Company strives to reduce costs through price increases via higher value-added offerings and productivity improvements through QCD improvement activities, but depending on market conditions, such responses may become difficult.

In business areas where many projects involve the implementation of new technologies, there is a risk that estimation errors in lump-sum contracts for highly difficult technologies, which are difficult to estimate based on past experience, could lead to unprofitability. On the other hand, if opportunities to apply new elemental technologies decrease, demand itself may also shrink. This dual-sided technology risk is an inherent factor in performance fluctuations.

The Company promotes compliance-focused management through the acquisition of certifications such as ISO 9001, ISO 14001, ISO/IEC 27001, ISO 22301, JIS Q 15001, and the Privacy Mark; however, if any incident or issue related to financial reporting occurs, it will affect performance and credibility. Although the Company has established an efficient internal control system, complete elimination of such risks is difficult.

If a customer suffers economic damage due to a defect in the technical services provided, there is a risk of being subject to a claim for damages. The Company has taken out liability insurance to prepare for such risks, but if the situation falls under an exemption clause or if damages exceed the coverage limit, the Company will bear the burden, affecting performance.