KANDA TSUSHINKI CO., LTD.

If customer companies' capital expenditures are curtailed due to economic downturn, planned projects may be postponed or cancelled, potentially affecting business performance. The Group seeks to diversify risk by building a broad customer base and avoiding dependence on specific business partners; however, the impact of economic fluctuations cannot be entirely eliminated.

The PBX market, which is the Group's core business, is on a relatively shrinking trend due to the spread of cloud-based systems and high-speed, high-capacity communication environments. A significant decline in contracts could materially affect business performance. On the other hand, since there remains a need for continued utilization of existing equipment and maintenance of functionality, the Group maintains a policy of continuing to engage in new installation, maintenance, and support of equipment. A scenario in which market contraction accelerates sharply represents the greatest risk.

The development of new solutions utilizing AI and sensing technologies requires substantial upfront investment and continuous allocation of management resources, and involves high uncertainty due to the rapid pace of technological innovation and the formation of market needs. If the anticipated market does not materialize as expected, or if the Group is unable to secure a competitive advantage over rivals, it may fail to sufficiently recover invested funds and management resources, which could adversely affect business performance and financial condition. This is positioned as a mid- to long-term strategic risk associated with the transition away from the existing business structure.

The Group is promoting development of the smart building market utilizing the Multi-Gateway; however, standardization of smart building implementation is expected to occur only after 2030, creating a risk that business development could be significantly delayed. Although the Group is promoting market formation through the "Smart Building Co-Creation Organization," which collaborates with general contractors, telecommunications carriers, developers, and others, delays in standardization could have a material impact on the expansion plans for the Lighting Control Business.

If physical damage occurs to facilities such as branches and sales offices due to natural disasters such as earthquakes or typhoons, or if accidents occur affecting business partners or the procurement and distribution network, business plans and performance may be affected. This risk applies across the entire area of the Group's operations, and a wide-ranging impact, including ripple effects on the supply chain, is anticipated.

The Group holds ISMS certification (obtained September 2009) and the Privacy Mark (obtained January 2012) and is committed to personal information protection; however, if any non-conformance occurs in the management of personal information protection, it could affect social trust and business performance. Given the nature of the business, which handles customers' communication infrastructure, maintaining information security is a fundamental risk area underpinning business continuity.

For contract work such as telephone exchange equipment construction and lighting control system construction, the Group adopts revenue recognition based on percentage of completion, and changes in work content after construction commencement, or fluctuations in equipment and material prices or subcontracting costs, may affect business performance. The Group continuously reviews total estimated costs for each construction project and works to maintain appropriate cost management; however, there are limits to its ability to respond to sudden changes in the external environment.