NCS&A CO.,LTD.

There is a possibility that lengthened lead times and higher prices for sales equipment caused by semiconductor supply shortages amid expanding demand for generative AI, as well as soaring energy prices triggered by geopolitical risks stemming from the situation in the Middle East, may lead client companies to restrain IT investment. If clients' restraint of IT investment progresses rapidly and persists, it could affect the business performance of the Company's group. As countermeasures, the Company is pursuing differentiation through aggressive investment in proprietary solutions, expansion of the migration business, and creation of new businesses utilizing generative AI.

In system development, where large-scale projects are on an increasing trend, if work volume exceeding the initial estimate arises due to additional specifications requested by clients or changes in development methods, the Company may bear development risk as the contracted party, potentially resulting in unprofitable projects. There is also a risk that unexpected events at outsourcing partners could increase quality-maintenance costs or lead to damages claims from clients. As risk-hedging measures, the Company works on company-wide project control through the establishment of a PMO, periodic reviews of outsourcing partners, and enrollment in liability insurance.

As the Company is an authorized sales agent of NEC, and contracted business from the NEC group constitutes a major pillar of business revenue, a significant change in the NEC group's management policy or business policy in the trading relationship could have a material impact on the business performance of the Company's group. As countermeasures, the Company is clarifying its position within the NEC group's IT services business, aiming to maintain and expand the collaborative relationship, while also striving to expand direct transactions with client companies.

If harassment or other legal violations occur, business performance could be affected through suspension of transactions with business partners, impacts on recruitment activities due to reputational decline, and loss of social credibility. As countermeasures, the Company has established the NCS&A Group Compliance Basic Policy, and implements regular education and training through the Compliance Committee, has set up internal and external whistleblowing contact points, and has strengthened awareness activities through the establishment of

If malicious security breaches or leaks of confidential information or personal information handled in the course of business occur, this could result in loss of social credibility as an information services company and give rise to liability for damages, potentially having a significant impact on business performance. Information security incidents, which have continued to increase in recent years, are recognized as a major threat. As countermeasures, the Company has built an information security management system, conducts regular security education and training, and has strengthened its security framework through acquisition of the Privacy Mark and ISO/IEC 27001 certification.

In the information services industry, where responding to cutting-edge technologies including generative AI is required, if the acquisition of the latest technologies does not proceed and service provision falls behind, this could lead to a decline in market competitiveness and make it difficult to secure a sufficient volume of projects. There are also risks of misinformation generation and intellectual property infringement in providing generative AI. As countermeasures, the Company is strengthening education and training, supporting the acquisition of new technology skills through its startup program, embedding generative AI functions into multiple solutions, and strengthening in-house verification and testing.

In the information services industry, it is necessary to secure excellent project managers, development engineers, and system-building personnel; however, if personnel shortages due to recruitment difficulties or an increase in turnover accompanying declining employee engagement occur, this could lead to reduced order intake and deteriorating project profitability. As countermeasures, the Company is engaged in ongoing work-style reform efforts, including setting medium- to long-term recruitment targets, continuously revising personnel and compensation systems, providing career-plan training for mid-level employees, and offering childcare and caregiving support programs.

If a major business site suffers devastating damage or a large number of employees are affected due to natural disasters such as earthquakes, acts of terrorism, or the spread of infectious disease, this could result in substantial costs for recovery and replacement, significantly affect business activities such as sales activities, and impact business performance. As countermeasures, the Company is engaged in business continuity planning (BCP) activities, including the utilization of data centers and the conducting of drills assuming emergency situations.

Regarding intellectual property rights such as technology, licenses, and trademarks necessary for business operations, there is a possibility that the Company's group could be subject to claims for damages for infringing on the intellectual property rights of other companies, or conversely, that the Company's group's intellectual property rights could be infringed by other companies; in either case, this could affect the business and business performance. As countermeasures, the Company conducts regular internal surveys of license usage status, works to prevent improper use of software licenses, and strives to raise employees' awareness of intellectual property protection through CSR education.