ZENRIN CO., LTD.

If the Group is unable to respond to rapid technological evolution such as digital twins and AI or to changes in market needs, there is a risk that the Group's reliability and competitive advantage could decline significantly. There is also a risk that malicious use of AI technology could lead to leakage of know-how related to map database development, lowering barriers to market entry, and a risk that inadequate controls over AI utilization could result in incorrect information being reflected in the map database. As countermeasures, the Group is promoting AI utilization, productivity improvement, and cost reduction through continued investment in the information platform "ZENRIN Information Platform (ZIP)."

In the fields of autonomous driving, MaaS, and digital twins, disruptive innovation by technology companies is progressing, and there is a possibility that high-quality or low-priced products surpassing the Company's products may be introduced to the market. Such intensifying competition poses a risk of adversely affecting the Group's market share and profitability. The Group is working to maintain its competitive advantage by enhancing the added value of its map database and evolving its information platform.

The majority of net sales depends on specific automobile manufacturer-related companies, telecommunications carriers, and internet businesses, and there is a risk that changes in management policy, production plans, or deteriorating performance at these business partners could lead to decreased sales volume, requests for price reductions, or contract terminations. While the Group seeks to mitigate this dependency risk by maintaining and strengthening mutually cooperative relationships with business partners and expanding partnerships through business alliances, the structural degree of dependence remains high.

Substantial maintenance costs and capital expenditures are incurred on a fixed, recurring basis each period to keep the map database up to date, creating a cost structure that continues regardless of fluctuations in net sales. If a certain level of sales cannot be secured, these costs may not be fully recovered, potentially adversely affecting the Group's financial position and results of operations. Since the majority of sales depends on the Location Information Services Business, there is a risk that any disruption in this business would directly affect overall performance.

In corporate acquisitions, joint ventures, and strategic investments, if an investee is unable to develop its business as originally planned due to changes in the market environment or a decline in competitiveness, there is a risk of deteriorating performance and financial position and recognition of an impairment loss on goodwill. There are also internal control issues and risks of legal violations that are not apparent at the time of investment, which cannot be completely avoided even through prior due diligence. If such issues arise, they could have a material adverse effect on the Group's financial position and results of operations.

In next-generation social infrastructure fields such as smart cities, autonomous driving, and MaaS, laws and regulations remain uncertain, and there is a possibility that business growth may not proceed as initially expected as regulations develop. In addition, since these initiatives premise co-creation activities with local governments and regional businesses, there is a risk that changes in partners' management policies or stagnation of regional projects could prevent business development from proceeding as planned. If results are not achieved despite the investment of management resources such as funds and personnel, this could adversely affect the Group's business development and financial position.

The Group collects and manages large volumes of personal information, including residents' names and addresses, contained in products such as residential maps, and there is a risk that unauthorized access or operational negligence could result in leakage, leading to liability claims and damage to brand image. While the Group has implemented information security measures such as establishing personal information management regulations, employee training, and access control, complete prevention cannot be guaranteed. There is also a possibility that services could become subject to regulation due to revisions of related laws.

If a major information system failure, cyberattack, or large-scale infrastructure outage involving power or communication lines occurs, there is a risk of business activity suspension, loss of important data, and degradation of service functions. This could adversely affect the Group's financial position and results of operations due to restoration costs and damage to product credibility and brand image. While the Group is working on developing an IT-BCP manual, strengthening backup systems, and improving cyber resilience, it cannot completely eliminate failures of an unforeseeable scale.

Securing and developing DX personnel capable of responding to the evolution of new technologies such as AI and cloud computing, as well as personnel with product planning, system development, and operations management skills, has become a key management challenge. If the Group is unable to secure or develop the necessary personnel amid intensifying competition for talent in the market, this could lead to a decline in product development and business development capabilities. While the Group is addressing this through revisions to its personnel systems, such as base pay increases, raising starting salaries, introducing diverse work arrangements, and providing reskilling support, the certainty of these effects cannot be guaranteed.

If the expected recovery of investment amounts for fixed assets such as tangible fixed assets, software, and goodwill becomes uncertain due to declining profitability, an impairment loss must be recognized, which poses a risk of adversely affecting the Group's financial position and results of operations. As the Group actively pursues M&A, CVC investments, and new business investments, the balances of goodwill and software have been accumulating, and there is a corresponding risk of impairment due to changes in the business environment. Changes in the discount rate used in the retirement benefit plan and changes in the management status of pension assets could also affect the financial position.