SHINKO Inc.

The core of the Company's business is human-based services, and securing and developing highly skilled engineers is a critical issue that determines the continuity and development of the business. If the Company fails to secure and develop highly skilled personnel, this could lead to a decline in service quality and the loss of order opportunities, potentially affecting business results and financial position. The Company works to secure and develop personnel through budgeting based on recruitment plans and the enhancement of education and training.

If information entrusted by customers is lost or leaked, or if confidential information is disclosed, this could lead to substantial damages claims and loss of credibility, significantly affecting business results and financial position. There is also a risk that system destruction or incapacitation caused by viruses or external hackers could result in business suspension or delays. The Company strives to maintain the confidentiality, integrity, and availability of information assets through information security management activities based on ISO/IEC27001.

If a serious quality defect occurs in the services provided, this could result in damages claims from business partners and a decline in orders due to loss of credibility, affecting business results and financial position. Since the Company's business is primarily based on work and services provided at customer sites, the impact of work errors is directly reflected in customer satisfaction. The Company strives to standardize work quality through manual-based education via work training and meetings, along with thorough communication of precautionary matters.

Customers using products of Wiemecs Co., Ltd. and PHC Corporation account for 57.3% of net sales in the Maintenance Service Business, while purchases from these two companies account for 32.3% of cost of purchases. If the relationship with these two companies deteriorates, net sales could decline significantly, materially affecting the Company's business results and financial position. The Company strives to maintain its relationship with both companies by maintaining and improving service quality.

In the Staffing Service Business, KDDI Corporation accounts for 34.5% of net sales and NEC Fielding Corporation accounts for 46.1%, with these three companies, including Wiemecs Co., Ltd., accounting for a highly concentrated 37.7% of consolidated net sales. If these major customers reduce or terminate transactions due to changes in management policy or disagreements over quality or pricing, there is a risk that net sales could decline significantly. The Company strives to reduce its dependence on specific companies through the active development of new business partners.

Staff dispatched under the Staffing Service Business are employees with indefinite-term employment contracts, and personnel expenses are incurred on a fixed basis. Consequently, there is a risk that profitability could deteriorate if requests for staffing or services decrease due to changes in the business conditions or policies of client companies. There is also a risk that business results could be affected if the Company is unable to secure personnel capable of meeting customer needs. The Company strives to secure personnel through the development of new client companies, expansion of contracted work orders, mid-career hiring, and in-house education and training.

If a serious compliance violation or legal violation occurs, this could lead to damages claims or litigation from business partners, affecting business results and financial position. In addition to establishing compliance regulations and raising employee awareness through education and training, the Company has established internal and external reporting channels to identify and prevent compliance violations.

In a market characterized by rapid technological innovation and change, if the Company fails to provide attractive new services, or if competitors offer services utilizing new technologies, demand for the Company's services may decline. There is also a risk that demand for on-site maintenance may decrease due to the progress of cloud migration; however, the Company forecasts that the need for immediate response will continue among medical institutions, its major customers. The Company strives to secure its competitiveness through the gathering and acquisition of information on new technologies and through operational efficiency improvements.

In the Solutions Business, work completion timing and equipment delivery dates tend to be concentrated at fiscal year-end. If work completion or equipment procurement is delayed due to internal or external circumstances, delivery may be pushed into the following fiscal period, potentially affecting the current period's business results and financial position. The Company strives to detect work delays early through thorough progress management and to ensure on-time delivery through diversification of partner companies and procurement sources.

The Company conducts business under multiple laws and regulations, including the Act on Pharmaceuticals and Medical Devices, the Construction Business Act, and the Worker Dispatching Act. If the Company falls out of compliance with laws and regulations due to the resignation of qualified personnel or responsible officers, business operations could be disrupted due to business suspension or revocation of licenses. Numerous licenses and permits must be maintained across the Maintenance, Solutions, and Staffing business segments. The Company is strengthening its system for maintaining licenses and permits by securing sufficient qualified personnel and responsible officers and thoroughly educating employees on legal compliance.