Insource Co.,Ltd.

Since the Group's services relate to human resource development for companies and organizations, they are highly susceptible to economic trends and the earnings conditions of client companies. If clients reduce their education and training budgets due to a deterioration in the economic environment, this may affect the Group's business results. As countermeasures, the Group is promoting the development of innovative services utilizing AI and digital technology, the provision of flexible training formats that combine online and offline delivery, and cost optimization through operational efficiency improvements.

Risks associated with increasingly sophisticated and elaborate cyberattacks are rising, including business disruption and data encryption caused by ransomware, and leakage of personal information or confidential information due to unauthorized access. Should such incidents occur, they may materially affect business results through disruption to business operations, claims for damages, and loss of social credibility. While the Group has implemented security measures, it recognizes that complete protection is difficult to achieve.

In the course of its business operations, the Group holds personal information and confidential information of related parties, and there is a risk of information leakage due to security breaches by third parties, social engineering, or intentional or negligent acts by employees. Should a leak occur, it may result in liability for damages to customers, business improvement orders from regulatory authorities, and adverse effects on social credibility. Although the Group has obtained Privacy Mark certification and established an appropriate information management system, it is difficult to completely eliminate this risk.

Increased use of generative AI may reduce traditional access (session counts) to the Group's webpages, thereby lowering the effectiveness of sales promotion. This is a risk that directly affects customer acquisition via the web, which is the Group's primary sales channel. As countermeasures, the Group is promoting the design of information structures that are easily incorporated by AI (LLMO), organizing information in natural question-and-answer formats, publishing proprietary primary data, and clearly presenting the latest numerical information.

The education and training business for working professionals has attracted numerous entrants, including training companies, consulting firms, and think-tank-affiliated training companies, resulting in an intensely competitive environment. If a company from a different field enters the market with a business model that causes a paradigm shift in training in the future, this could disrupt the Group's sales activities and affect its business results. The Group's source of competitiveness lies in its ability to develop diverse new content and its business support services for HR and general affairs departments, but there is a risk that this competitive advantage may not be sustained.

The Group actively pursues M&A activities (including making subsidiaries, business transfers, and capital participation), but if previously unrecognized issues come to light after an M&A transaction, or if business development does not proceed as planned, it may become necessary to recognize impairment on the stock value of the acquired company or the transferred assets. This poses a risk of affecting business results and financial condition. The Group strives to avoid such risks by conducting detailed due diligence (financial, tax, legal, labor, etc.), but complete elimination of the risk is difficult.

It is difficult to completely eliminate the risk of misconduct by officers and employees, such as embezzlement or breach of trust, violations of laws and regulations including insider trading regulations, human rights violations such as harassment, and corrupt practices including bribery. Should such incidents occur, they may materially affect business results through loss of social credibility, claims for damages, and administrative sanctions. In October 2024, the Group established the "Compliance Code of Conduct" and has strengthened its systems, achieving a 100% completion rate for anti-corruption-related e-learning training.

The Group's services and internal operations are highly dependent on computer and internet technology, with a high degree of reliance on communication network services. If unexpected trouble renders communication networks or servers unusable, the provision of services may become impossible, potentially resulting in claims for damages from customers and loss of social credibility, which could materially affect business results. In addition, if progress on system development is delayed due to difficulties in securing personnel, the efficient promotion of internal operations may be hindered, which could also affect business results.

One of the important factors determining the success of training is instructor quality, making it essential to secure instructors with appropriate skills, knowledge, and experience. If the Group becomes unable to secure instructors of the required standard under appropriate contractual terms in the future, this could seriously impede the implementation of training and affect business results. In addition, if an instructor or e-learning presenter is involved in a scandal or accident, or if reputational damage occurs, measures such as suspending their appearances or use may become necessary, posing a risk to business results and social credibility.

The Group has identified five sustainability risk items: "human rights violations" (financial impact: large), "damage to offices or servers due to large-scale natural disasters" (financial impact: medium), "occurrence of bribery and corruption" (financial impact: medium), "decline in competitiveness due to delays in utilizing generative AI" (financial impact: medium), and "cost increases due to changes in the external environment" (financial impact: small). Human rights violations in particular are positioned as the risk with the largest financial impact, and the Group strives to avoid occurrence and respond appropriately when incidents occur through regular monitoring.