WITZ Corporation

The automotive sector accounts for the majority of sales, resulting in high dependence on specific clients such as Toyota Motor Corporation and the Aisin Group. If significant changes occur in the profit structure of the automotive industry under global conditions, this could adversely affect the Group's financial position and business results. As a countermeasure, the Group is working to reduce its dependence on specific industries by developing semiconductor-related equipment and expanding its software services business.

While the Group has a diverse customer base spanning automobiles, industrial machinery, and construction machinery, the entire industry could be adversely affected by significant exchange rate fluctuations or global policy and geopolitical factors. The core embedded software development business is centered on product development projects that are several years out, so its sensitivity to near-term economic conditions is low; however, if events affecting customers' medium- to long-term investment plans occur, business results could be adversely affected. The Group seeks to diversify this risk through sales activities targeting various industry sectors.

If securing personnel, particularly engineers, necessary for business continuity and expansion does not proceed as planned, or if personnel, outsourcing, and offshore costs rise due to recruitment difficulties or work-style reform trends, this could adversely affect the Group's financial position and business results. In addition to improving retention rates through revisions to HR and compensation systems and enhanced employee benefits, the Group is promoting a shift from a profit structure dependent on engineer headcount and working hours to one centered on services and product sales.

In software development, engineering services, autonomous driving simulator business, and other operations, there is a risk that damages claims may arise due to quality defects or delivery delays. In particular, automotive-related development is subject to strict quality and delivery requirements, and if the IT liability insurance held by the Group is insufficient to fully cover damages, this could adversely affect the Group's operating results and financial position. The Group mitigates this risk through pre-order screening by the order review committee and quality/progress management by the quality assurance department.

In engineering services, if large-scale or frequent specification change requests from clients, or insufficient cost estimation, lead to substantial increases in development man-hours, unprofitable projects may arise, adversely affecting the Group's financial position and business results. The Group manages this risk by conducting budget, schedule, and quality management across all projects, and by having the order review committee assess technical difficulty, profitability, and human resource availability prior to accepting orders.

The Group invests in research and development and product commercialization to secure technological advantages and create new services; however, if business revenue falls short of the investment amount, or if development progress is delayed or falls short of expectations, this could adversely affect the Group's financial position and business results. The Group diversifies this risk by using internal capital for research projects with short-term payback potential and public funding for research with a high degree of basic research content, and it determines the feasibility of commercialization investments by taking market and social trends into account.

Goodwill arising from business combinations is recorded and amortized as excess earning power; however, if a rapid change in the business environment causes the performance of a group company to fall short of initial expectations, thereby reducing its excess earning power, an impairment loss may occur, potentially affecting operating results and financial position. The Group works to strengthen profitability through the dispatch of officers to target companies, regular monitoring via management meetings, and the creation of synergies within the Group.

If, after completing a corporate acquisition, changes in the business environment cause the acquired company's performance to fall short of initial expectations, recovering the invested amount may become difficult, potentially affecting the Group's financial position and operating results. The Group has established a system to monitor the business and performance of acquired companies through the dispatch of officers from the Group and regular management meetings, and to take measures aimed at achieving planned targets.

The Group is exposed to various litigation risks, including claims of intellectual property infringement from other companies, external leakage of held personal information or customer technical information, damages from product defects, and occupational health and safety or labor issues. If damages are sought, this could adversely affect the Group's financial position and business results. The Group works to reduce these risks by establishing a security committee, strengthening its information management system, conducting security education, developing and operating quality management regulations, complying with the Labor Standards Act, and managing employee health.

If large-scale earthquakes, natural disasters, infectious diseases, or similar events occur, causing human harm to employees and partner staff or physical damage to IT infrastructure, business suspension, lost orders, or development delays may result, potentially affecting the Group's financial position and operating results. The Group is establishing a system for business continuity and early recovery through the development of a safety confirmation system, utilization of telework and online meetings, and BCP operations, while flexibly responding through measures such as workforce shifts by closely monitoring customers' business performance and development investment trends.