CNS Co.,Ltd.

Business expansion and the provision of high-value-added services require securing and developing engineers, technical sales staff, and project managers with advanced technical capabilities. If the Group is unable to secure and develop personnel as planned due to intensifying competition for talent in the IT industry, this may have a material impact on business expansion and results of operations. The Group is focusing on recruitment, education, and capability development, but this risk continues to exist.

In its contracted operations, the Group utilizes business partner companies from the perspectives of technology requirements, efficiency, and profitability for each project, thereby reducing lost business opportunities. As the scale of business expands, strengthening cooperation with partner companies is essential, and if the Group is unable to sufficiently secure partner companies, this may result in lost order opportunities and adversely affect results of operations. The Group is working to continuously secure partner companies and strengthen cooperation with them.

In the fiscal year under review, sales to the NTT DATA Group accounted for 36.3% of total net sales, and sales to the Nomura Research Institute Group accounted for 21.4%, resulting in a high degree of transaction concentration of approximately 57.7% among the top two customers. If the business operations of these major customers are significantly affected by changes in economic conditions or other factors, and transactions decrease sharply, this could have a severe impact on the Group's results of operations. The Group is working to reduce this dependence by expanding transactions with other customers.

The Group builds and operates information systems to improve operational efficiency and facilitate internal information sharing, and has implemented security measures such as ISMS certification, Privacy Mark acquisition, and employee training. If serious trouble occurs due to unauthorized external access, computer virus intrusion, natural disasters, accidents, or other causes, this may reduce operational efficiency and affect the Group's financial position. Depending on the scale of damage, this could have a material impact on results of operations and financial position.

The occurrence of unprofitable projects, in which costs exceed the order amount, is being prevented in advance through Quality Assurance Committee activities; however, such projects may still occur due to unforeseeable factors. If unprofitable projects occur, this may have a material impact on the Group's business and results of operations. Although the likelihood of occurrence is assessed as low, this is recognized as a risk with a significant degree of impact.

The Group's principal business is the contracted development of computer systems and programming for domestic companies, and is therefore susceptible to trends in IT investment among domestic companies. If IT investment demand declines due to a significant deterioration in the economy caused by major political or economic changes in Japan or overseas, wars, or other factors, this may affect results of operations through a decrease in new orders or cancellation of existing contracts. The Group is addressing this by diversifying its service areas.

The information services industry is characterized by rapid technological innovation and change, with new technologies and services emerging daily. While the Group is working to acquire the latest technologies and to recruit, educate, and develop engineers, if the Group is unable to respond appropriately to dramatic changes in the business environment resulting from technological innovation that exceeds expectations, this may affect its business and results of operations. There is an inherent risk that delays in keeping pace with technological change could lead to a decline in competitiveness.

While generative AI contributes to improved productivity in the IT business through code generation and other means, there are also risks such as leakage of confidential information and copyright infringement, as well as the possibility that its use could disrupt the Group's business environment. The Group is working to improve productivity in contracted projects through the use of generative AI and to study and accumulate knowledge for developing new services; however, if the use of generative AI by competitors or customers erodes the Group's business domain, this may affect its results of operations.

The occurrence of natural disasters such as earthquakes, typhoons, or tsunamis, as well as fires, power outages, or the spread of infectious diseases, may seriously affect business operations. In particular, there is a risk that normal business operations would become impossible in the event of a large-scale disaster in the Tokyo metropolitan area, the Group's main business base, and if extensive human or physical damage occurs, business continuity itself could become impossible. The Group is working to strengthen its response capabilities through the establishment of remote work systems and the use of IT tools.

In the course of conducting its business, the Group handles a large amount of confidential information, including customers' corporate information and personal information of partner companies and engineers. Although measures such as ISMS certification, Privacy Mark acquisition, and internal training have been implemented, if information is leaked externally, this may result in a decline in social credibility and the burden of damage claims, potentially affecting the Group's business and results of operations.