GENETEC CORPORATION

In the System Solutions Business, contracted development of embedded systems accounts for more than half of net sales. If client companies revise their development structures or change their business strategies, resulting in changes to their ordering policies, this could have a material impact on business performance. As a countermeasure, the Group is promoting the shift of personnel to other segments and sales activities for new projects, aiming to reduce dependency on the embedded systems domain.

The information services industry is characterized by rapid technological innovation, with new technologies and services continuously emerging. If the Group falls behind in responding to technological innovation, this could result in a decline in market competitiveness or disruption to business operations, potentially affecting its financial position and operating results. The Group is continuously working on the recruitment, training, and internal environment development of engineers.

Securing excellent personnel with specialized information technology and business knowledge is essential to conducting business operations. If recruitment plans are not achieved or a large number of system engineers and other staff resign temporarily, there is a risk of insufficient capacity to respond to contracted projects. The Group is focused on the planned implementation of new graduate and mid-career recruitment, and on human resource development through OJT and training programs.

In the System Solutions Business, if development man-hours increase significantly due to unforeseen circumstances, project-level profitability may deteriorate, potentially affecting the Group's financial position and operating results. The Group aims to reduce this risk by improving the accuracy of man-hour estimates, thoroughly managing project progress, and establishing a system for timely reporting when issues arise.

In the course of business, the Group has opportunities to handle personal information and confidential information of customers and business partners. If an information leak occurs, this could result in loss of trust, leading to decreased sales and the incurrence of damages compensation costs. In addition to security measures such as obtaining and operating ISO27001 certification, entry/exit management, access restrictions, and log acquisition, the Group is also advancing governance arrangements related to the use of AI.

The Group is promoting M&A as part of its growth strategy. However, if the expected business synergies are not achieved after an acquisition, or if the financial condition of an acquired company deteriorates, this could result in additional costs or impairment of goodwill, potentially affecting the Group's financial position and operating results. The Group strives to conduct thorough due diligence and to establish systems and achieve early synergies through PMI (Post-Merger Integration) after acquisitions.

The Group operates across a diverse range of industrial sectors, including the automotive, industrial equipment, and medical equipment manufacturing industries. If customer industries are adversely affected by significant exchange rate fluctuations or global policy and geopolitical factors, or if price competition with competitors intensifies, this could affect the Group's financial position and operating results. The Group seeks to diversify this risk through business expansion into a variety of industries.

In the Engineering Solutions Business, the Group procures products from overseas development companies. If, for any reason, product supply cannot be continued or the terms of supply change significantly, this could affect the Group's financial position and operating results. The Group promotes close collaboration with development companies and strives to build stable, long-term relationships.

If a quality defect attributable to the Group occurs, this could result in additional costs for quality improvement measures and damages compensation, potentially affecting the Group's financial position and operating results. The Group aims to reduce this risk by obtaining ISO9001 certification and thoroughly managing the quality of both software and hardware.

Part of the System Solutions Business is operated under a business license based on the Worker Dispatching Act. If the Group falls under grounds for disqualification or revocation and receives a business suspension order, this could have a material impact on the Group's financial position and operating results. The Group has established a governance system with attention to legal compliance and strives to ensure thorough compliance among officers and employees.