VALTES HOLDINGS CO.,LTD.

If client companies bring software testing in-house due to changes in economic conditions or management policy, outsourcing demand may shrink and affect the Group's sales. Currently, outsourcing needs are expanding against a backdrop of DX expansion and engineer shortages, but a return to in-house development could occur during an economic downturn. The Group strives to promote the benefits of outsourcing through its quality information website and book publications.

The Group's business revenue includes worker dispatch operations, which it operates under a license from the Minister of Health, Labour and Welfare, but revisions to the Worker Dispatch Act could restrict operations or increase the financial burden. While the Group currently recognizes no facts constituting grounds for disqualification or revocation, further legal revisions are expected in response to changes in the labor market environment. Depending on the content of any legal revision, a review of the business model or additional costs may be incurred.

Rapid changes in the IT industry, particularly the rise of new technologies such as generative AI, pose a risk of digital disruption to the existing Software Testing business model. If the Group is unable to adapt to environmental changes or transform its business model in a timely manner, its competitiveness may decline, affecting business results. As countermeasures, the Group is expanding investment in intellectual property centered on generative AI testing tool technology and expanding a diversified business portfolio through M&A.

As the Software Testing market and the IT market expand, competition for talent with other companies is intensifying, which may make it difficult to secure excellent personnel or lead to the departure of existing personnel. The Software Testing Business and Development Business require the constant securing of a large number of employees to meet robust customer demand, and a talent shortage directly leads to lost sales opportunities. The Group is responding by increasing HR staff, securing talent through M&A, and enhancing training content such as Valcare (formerly "Valzemi").

If M&A activities—including the group inclusion of R.S.R Co., Ltd., Mint Co., Ltd., Synfore Co., Ltd., and Tabula Corporation—or new business investments fail to achieve their planned targets, the investment may not be recouped, potentially affecting business results and financial condition. There is also a risk that profit margins could decline if additional capital or personnel investment becomes necessary. The Group promotes M&A after considering profitability, social value, and relevance to existing businesses, but the risk that initial plans may not be achieved due to subsequent changes in the environment cannot be eliminated.

The Group holds personal information, customer information, and confidential information of client companies in the course of its business activities, and unauthorized access or information leakage could significantly damage stakeholder trust and affect business results. The Group has implemented technical and organizational measures such as the introduction of information leakage prevention software, vulnerability assessments, access management, and regular security training, but complete protection is difficult given the increasing sophistication of cyberattacks. The Group has obtained ISMS (ISO/IEC 27001) certification and is working to strengthen its management system.

In contracted projects, if increased man-hours due to specification changes or additional work, costs to address unexpected defects, or damages claims arise, project profitability may deteriorate, affecting business results. Accurate cost estimation for all projects is difficult, and the risk increases particularly for large-scale projects. The Group strives to secure appropriate profits by appointing project managers, requiring weekly progress reports, and monitoring through Software Testing Division and Development Division meetings.

If competitors leverage advantages such as capital strength, brand recognition, and talent acquisition capability to strengthen their service offerings, it may become difficult for the Group to acquire and retain customers. In particular, low-price competition has emerged in the relatively simple mobile application testing segment, and cost-conscious customers may select competitors in some cases. The Group aims to differentiate itself and build barriers to entry by focusing on the enterprise segment and accumulating specialized know-how.

Because clients' service and product releases tend to be concentrated in the second half of the fiscal year, the Group's sales and profits also tend to be weighted toward the second half, and in particular the first quarter may record an operating loss due to concentrated recruitment, education, and training costs. This seasonality reduces the accuracy of full-year performance forecasts and makes it difficult to judge annual performance based solely on first-half results. Investors should note that quarterly performance may appear to fluctuate significantly as a result.

Representative Director Masashi Tanaka, as the central figure in the founding of the Company, plays an important role across the Group's overall business activities, resulting in a high degree of dependence on him. If he becomes unable to continue his duties for any reason, it could hinder the continuity of management policy and the maintenance of relationships with customers and business partners, potentially affecting business results. The Group is working to avoid excessive dependence by strengthening its management structure and promoting the education and hiring of management executives.