ProjectHoldings, Inc.

Securing, developing, and retaining excellent personnel with high specialization and broad industry knowledge is an important requirement for business continuity; if intensifying recruitment competition prevents securing personnel meeting hiring standards, or if the turnover rate remains high, important KPIs such as the number of employees and managers in the DX business may not be achieved, potentially having a significant impact on business performance and financial condition. This risk is recognized as having a possibility of materializing, and the Company is strengthening the functions of the HR department, actively recruiting, revising salary tables and personnel evaluation systems, and promoting measures to improve engagement.

The DX market has a short history and the number of entrants is still increasing; if the Company's services fail to achieve sufficient differentiation or if competition intensifies further, this may affect business performance and financial condition. It is recognized that this risk may become apparent over the medium to long term. As countermeasures, the Company is preparing to build a portfolio through service diversification, reassign personnel to growth areas, and reconsider service content.

Rapid technological change, including generative AI, is causing customer needs to change daily; if the Company is slow to respond to new technologies or if generative AI substitutes for Consulting Service, competitiveness may decline and business performance and financial condition may be affected. The Company is promoting employees' catching up on new technologies and acquiring specialized personnel, but identifying areas where value can be delivered even as generative AI becomes widespread, and advancing strategy accordingly, remains a challenge.

If project quality management by each manager does not function sufficiently, the level required by customers may not be met, potentially leading to liability for breach of the duty of care. This could damage social credibility and affect business performance and financial condition through damages claims or deterioration of customer relationships; the same risk exists where issues arise at outsourced partners and cooperating companies. Although the likelihood of this risk materializing imminently is low, it is recognized as always present.

In the consolidated fiscal year under review, NTT DATA Group Corporation, a major customer of the DX business, accounted for 19.5% of net sales, and SBI Holdings, Inc. group accounted for 14.9%, together representing approximately 34.4% of net sales. If sales to these major customers decrease significantly due to changes in their policies or other factors, this may affect business performance and financial condition. As a countermeasure, the Company conducts transactions so that sales to each company or corporate group do not exceed a certain proportion of total company-wide sales, and actively works to develop projects with other customers.

Business operations depend to a certain extent on the specialized knowledge and experience of specific officers and managerial employees; if such individuals become unable to continue their duties, this may affect business performance and financial condition. Although the likelihood of this risk materializing imminently is recognized as low, the Company is working to minimize the risk by developing its organizational structure and promoting knowledge sharing.

As the business expands, continuous development of the internal management system is required; if the Company is unable to respond sufficiently to such expansion, this may affect business performance and financial condition. Although the likelihood of this risk materializing imminently is low, it is recognized as always present, and the Company has continuously developed its internal management system since its founding.

The Company may become a party to litigation or other legal proceedings brought by business partners, employees, or others in connection with various contracts, laws and regulations such as the Subcontract Act and the Freelance Protection Act, labor issues, and intellectual property rights matters. If an unfavorable judgment or settlement occurs, this may adversely affect social credibility and business performance and financial condition. The Company builds an internal management system through monitoring of legal amendment trends in coordination with its retained attorney and identification of business operation risks by the Risk Management Committee.

Should officers or employees engage in any act in violation of compliance, this may affect social credibility and business performance and financial condition. Although the likelihood of this risk materializing imminently is low, it is recognized as always present, and the Company is working to establish a code of conduct and thoroughly foster compliance awareness.

In business development through M&A, the initially expected synergies or business expansion effects may not be achieved, and deterioration in performance after making a company a subsidiary, or amortization or impairment of goodwill, may affect operating results and financial position. When conducting M&A, the Company performs due diligence including advice from external experts, and after completion, it has established a system to continuously manage the performance of group companies and report to the Board of Directors on a regular basis.