Serverworks Co.,Ltd.

Because the Group handles confidential information and personal information of client companies in the course of AWS/Google Cloud implementation and operation and cloud service provision, unauthorized external access, human error, or intentional acts by employees could result in information leakage, loss, or falsification, potentially causing reputational damage or losses from damages claims. The Group recognizes that this risk always exists, including in the coming fiscal year, and is working to strengthen its information management system through the development and operation of regulations and manuals based on its ISO/IEC 27001 certification and thorough access authority management.

If cloud services are suspended or delayed due to natural disasters, power outages, communication failures, cyberattacks, human error, or other causes, reputational damage or loss of business opportunities may result. System failures at AWS or Google Cloud themselves pose similar risks, and the Group recognizes that this risk always exists, including in the coming fiscal year. The Group seeks to minimize impact through the formulation and operation of business continuity management regulations, implementation of operational tests, and strengthening of daily system monitoring systems.

In Cloud Integration projects, unforeseen circumstances not anticipated at the time of estimate preparation could cause a significant increase in man-hours, worsening project profitability. In addition, if it becomes difficult to win projects, there is a structural risk that this could not only reduce Cloud Integration revenue but also spread to slow growth in Resale and MSP. The Group addresses this through thorough progress management for each project and improved accuracy in man-hour estimation.

The Group's revenue growth is highly dependent on the market expansion of AWS and Google Cloud, and if the public cloud market driven by these two companies contracts, it could have a material impact on the Group's business and financial condition. In addition, if the contract with Amazon Web Services, Inc. is terminated, it would become difficult to continue the AWS Resale business. As countermeasures, the Group continuously gathers information on market trends and maintains a system for appropriate management decision-making.

If corporate IT investment stagnates due to deteriorating economic conditions or business trends, growth in the cloud market may slow, potentially affecting the Group's business and financial condition. The Group is working to strengthen its revenue base by expanding stock-type businesses centered on Resale and MSP and improving profitability, but recognizes that a corresponding level of risk exists in the coming fiscal year as well.

In the cloud market, there are multiple competitors of various sizes, and competition is intensifying with companies that surpass the Company in capital strength, technological capability, and sales capability. If differentiation becomes difficult due to the progress of low-price competition, sluggish revenue and deteriorating profit levels may result. As a countermeasure, the Group seeks to differentiate itself through its proprietary AWS operations automation service "Cloud Automator" and by improving technological capability and service quality.

In the cloud industry, changes in the market, customer needs, and technology occur very rapidly, and since AWS frequently changes service specifications and adds new services, the training of AWS engineers is becoming a longer-term, higher-difficulty undertaking. A delayed response to technological innovation could lead to a decline in service competitiveness, and expanded additional investment to address this could lead to worsening profitability and lower profits. The Group is actively engaged in continuous information gathering on the latest technology trends and knowledge acquisition.

The Group's services depend on the continuous services of employees, primarily in technical departments, and if the Group is unable to secure and retain appropriate personnel at the appropriate time, or if labor costs rise sharply, business operations and business performance could be affected. The Group recognizes that a corresponding level of risk exists in the coming fiscal year as well, and is implementing measures such as utilizing diverse recruitment channels, enhancing educational systems, and promoting an attractive compensation system and remote work.

Because transactions with Amazon Web Services, Inc. in AWS Resale involve AWS monthly usage fees calculated in US dollars, sudden foreign exchange rate fluctuations could affect business performance and financial condition. While the impact on profit "margin" is considered neutral, there is a risk that sudden fluctuations could cause large changes in the absolute amounts of revenue and cost of sales. The Group seeks to minimize foreign exchange risk through the use of forward exchange contracts.

In its M&A strategy, unexpected contingent liabilities arising after an acquisition or changes in the business environment could prevent the Group from achieving anticipated synergies, potentially resulting in impairment losses. In addition, the Group holds listed shares of TerraSky Co., Ltd., its major shareholder, and of TerraSky's subsidiaries (BeeX Inc., Monstar Lab Holdings Inc., WingArc1st Inc., etc.); if valuation losses arise due to stock market fluctuations, this could affect business performance and financial condition. For M&A, the Group addresses this through rigorous due diligence, and for held shares, through periodic verification by the Board of Directors of the appropriateness of continuing to hold them.