The Kodensha, Co., Ltd.

At the wholly owned subsidiary in Beijing, China, there are concerns about a slowdown in construction demand due to exchange rate fluctuations, rising labor costs, and restrained investment by Japanese companies. Should unforeseen circumstances arise, such as changes in legal regulations, differences in business customs, or labor issues, this may affect the Group's operating results and financial condition. The Group strives to prevent and avoid such risks through early problem recognition and appropriate responses based on information gathering in collaboration with overseas subsidiaries.

Changes in the scale of the construction market due to increases or decreases in private capital investment and public investment, as well as declines in gross profit margin due to intensified order competition, may affect business performance. If significant changes occur in economic conditions in the construction industry, there is a risk that order competition will intensify further. The Group strives to strengthen its sales foundation by keeping abreast of and analyzing the current state of public and private capital investment, enhancing proposal capabilities through design and technical collaboration, and promoting collaboration with other companies.

Mitsubishi Electric Corporation, the parent company, holds 51.5% of the Company's voting rights. In the current consolidated fiscal year, the Company received orders worth ¥13,222 million from the parent company, accounting for 32.8% of total orders received. Fluctuations in the parent company's business results and capital investment conditions may directly affect the Group's operating results. The high degree of dependence on the parent company is a risk factor for the stability of earnings.

The Company holds assets such as real estate and securities for operational necessity, and if their market value declines significantly or the profitability of business-use real estate deteriorates significantly, this may affect business performance and financial condition. The Company regularly conducts investigations into the management status and market value of held assets and confirms their operational significance, as well as verifying the asset value of business-use real estate. Should a significant decline or similar event occur, it will impact operating results and financial condition.

Although the Company conducts credit management and periodic surveys of business conditions in accordance with the financial condition of business partners, unexpected uncollectible receivables may arise due to a sudden deterioration in a business partner's financial condition or similar events. The occurrence of bad debts directly affects the Group's business performance. The Company strives to prevent the occurrence of bad debts through thorough credit management and periodic surveys of business partners.

The electrical equipment construction business is subject to regulation under various laws such as the Construction Business Act, the Electrical Construction Business Act, and the Electrician Act. Changes in laws or the introduction of new regulations that result in legal violations or deviations from social norms may lead to penalties, litigation, or social sanctions. The Company strives for continuous compliance practice through the establishment of a Compliance Committee and thorough internal education. Responding to unforeseeable regulatory changes remains a challenge.

The occurrence of large-scale earthquakes such as a Tokyo metropolitan area earthquake or a Nankai Trough earthquake, or natural disasters such as wind and flood damage from typhoons, may affect the Group's operating results and financial condition. Because business locations are concentrated in the Tokyo metropolitan area, exposure to risks such as a Tokyo metropolitan area earthquake is high. Specific countermeasures are not described in detail in the securities report, but this is recognized as a risk.

The electrical equipment construction business procures a large amount of construction materials, and a sharp rise in construction material prices may affect business performance. The Company continuously monitors trends in domestic and overseas raw material prices, building material prices, and delivery times for made-to-order products, while also striving to reduce risk through effective price stabilization measures via centralized purchasing by its materials department. International fluctuations in raw material prices are a direct factor causing cost increases.

In the electrical equipment construction business, a large amount of construction work is outsourced, and if unit subcontracting costs rise due to labor shortages or other factors, this may affect business performance. Labor shortages across the construction industry as a whole have become chronic, and upward pressure on subcontracting costs continues. The Company works to build a stable construction system by regularly understanding and managing the construction systems of its subcontractors and strengthening relationships with them.

If a talent shortage arises due to the chronic decline in new graduate hires resulting from the declining birthrate and intensified recruitment competition with other companies in the same industry, construction and sales activities may decline, affecting business performance. Securing and expanding technical personnel is a prerequisite for business expansion, and the Company conducts annual new graduate recruitment as well as active mid-career hiring activities. The Company strives to enhance corporate value and secure talent by promoting comprehensive welfare benefits throughout the employee life cycle from hiring to retirement and by creating a comfortable working environment.