KOZO KEIKAKU ENGINEERING HOLDINGS Inc.

The Engineering Consulting business, which accounts for approximately 60% of net sales, primarily consists of contract work. Deficiencies in contract terms or project management could result in increased man-hours and reduced quality, potentially leading to significant deterioration in profitability, damages to customers, and lost opportunities, which could have a materially significant impact on business performance. System development and structural design work are said to have particularly large impacts, and the Company has established a PM Quality Assurance Center and a Structural Quality Assurance Center to implement quality control at each stage of the process, from the proposal and sales stage through to final delivery. In recent years, the Company has also focused on quality risk management prior to project orders, and continues to strengthen internal management systems for engineer training and confidential information protection.

As a company engaged in intellectual activities, the Company holds information assets such as customers' confidential information. If information leakage, loss, destruction, or tampering occurs due to computer virus infection, cyberattacks, natural disasters, or other causes, this could lead to a loss of trust and affect business results. In addition to the risk of unauthorized external intrusion, protection of information assets under internal management is also a challenge. The Company implements measures from technical, educational, and physical perspectives, and is working to strengthen and ensure thorough information management and information security, treating information assets related to all activities under group management as subject to protection.

Because delivery of deliverables is concentrated from the end of March to the end of June, coinciding with the fiscal year-end of many customers, net sales and billings tend to be weighted more heavily toward the second half of the fiscal year compared to the first half. If bank borrowing becomes difficult due to worsening economic conditions or other factors, there is a risk that cash flow could deteriorate in the first half of the fiscal year. In particular, the concentration of completion timing for large-scale projects during this period creates a structure prone to seasonal revenue skew. As countermeasures, the Company is working to appropriately clarify the timing of revenue recognition for large-scale, long-term projects, and is expanding the subscription-based business model in the Products & Services business to spread out the timing of sales.

If the yen continues to depreciate due to interest rate differentials arising from divergent monetary policy directions among Japan, the US, and Europe, this could increase the cost of investments in overseas partners and the procurement of overseas products and royalty payments in the Products & Services business, potentially affecting various business operations. Prolonged yen depreciation could become a structural factor pushing up procurement costs. As countermeasures, the Company has revised selling prices and fixed exchange rates through lump-sum advance payment of procurement costs and royalties, and works to reduce foreign exchange fluctuation risk by promptly converting funds into foreign currency after institutional decisions are made for large investment projects and lump-sum payments.

If an increase in overall labor market fluidity or a deterioration in the working environment leads to the departure of talented personnel, or if employees are unable to work due to physical or mental health issues, this could have a significant impact on medium- to long-term growth and business results. In addition, if the quality of recruitment and talent development declines, leading to a decline in service quality, this could have a material impact on competitiveness, social credibility, financial position, and business results. As countermeasures, the Company is implementing multifaceted measures aimed at retaining talent, maintaining health, and ensuring quality, including improved compensation, onboarding initiatives, an occupational physician consultation system, an in-house training gym, and the establishment of a harassment consultation desk.