DAIWA COMPUTER CO., LTD.

Concerns exist that persistently high energy prices, volatility in financial and capital markets, geopolitical risks, the impact of the new U.S. administration's economic and diplomatic policies, and the continued rise in domestic prices could suppress personal consumption and adversely affect corporate earnings. Although IT investment demand in the information services industry remains solid, rapid changes in the technologies handled or in customer needs could affect the operating results of the Group. As countermeasures, the Group is focusing on process improvement based on ISO9001 and CMMI, engineer training, and order-acquisition activities in new fields.

Changes in delivery schedules or acceptance timing beyond the Group's expectations may worsen project profitability or delay revenue recognition. As projects grow larger in scale, cost estimation becomes more difficult, and there is a risk of low profitability or losses if actual costs exceed estimated amounts. As countermeasures, the Group thoroughly manages the development process based on ISO9001 and CMMI, holds timely risk discussions between management and department heads, and records provisions for program warranties.

Although the Group takes utmost care in quality control, unexpected defects could result in claims for damages, impacts on subsequent business activities, or loss of trust from customers or users. Some contracted development projects are outsourced to external partner companies, and disruptions to the outsourcing arrangements could also affect business performance. The Group addresses this through thorough process management based on ISO9001 and CMMI and by recording provisions for program warranties.

The Group's major customers, SCSK Corporation and Otsuka Corporation, accounted for 31.1% and 20.0%, respectively, of the Group's consolidated sales in the fiscal year ended July 2025, totaling 51.1%, indicating a high degree of dependence on specific customers. Business trends at either company could adversely affect the Group's operating results. As countermeasures, the Group is promoting the provision of customer-specific services and development efficiency improvements, multi-skilling of engineers, and specialist development through strategies focused on areas of strength.

The Group handles confidential customer information in the course of its business activities, and any unforeseen leakage of confidential or personal information could damage its reputation and lead to claims for damages, affecting its financial position and operating results. Security risks are increasing due to a rise in information leaks and unauthorized access, as well as the spread of telework. As countermeasures, the Group has obtained ISO27001 (ISMS) certification and Privacy Mark certification, strengthened security in its development and product/service environments, and continuously conducts information security training.

Due to the tight labor market in the information services industry, if the Group is unable to secure the excellent engineers it needs in a timely manner, this could adversely affect its operating results. Continuous recruitment and development of personnel are essential to meet customers' advanced and high-quality needs. As countermeasures, the Group established the "Human Resource Development Center" in February 2022 and is working on developing next-generation managers and leaders, conducting training and job rotation by job level, introducing a talent management system, and enhancing the value of human capital through the "Daiwa Computer Future Project."

In the information services industry, while system investment demand remains solid in response to work-style reform, labor shortages, and automation, efficiency, and labor-saving through digitalization, the technologies handled are rapidly becoming more sophisticated and diverse. Failure to keep pace with advancing technology could lead to a decline in competitiveness and lost order opportunities. As countermeasures, the Group is working to improve productivity and quality through process improvement based on CMMI standards and continuous engineer training.

Some contracted development projects are outsourced to external partner companies, and any disruption to the outsourcing arrangements for any reason could cause delivery delays or quality deterioration in projects, affecting the Company's business performance. Risks inherent from external factors such as the business conditions or personnel shortages of outsourcing partners exist. The Group has established a system in which management and department heads discuss and determine response policies in a timely manner for high-risk projects.