EPCO Co.,Ltd.

Because the Group's major customers are housing companies, fluctuations in the economy, interest rates, employment conditions, tax systems and other factors directly affect order intake. In particular, if a significant rise in interest rates or deterioration in employment conditions reduces homeowners' willingness to purchase housing, causing a substantial decline in orders received by housing companies, the Group's business performance could be adversely affected in a chain reaction. Given the business structure's high dependence on the housing market, sensitivity to changes in the external environment is high.

Customers and business partners are subject to regulation under various laws such as the Building Standards Act, the Architect Act, the Electricity Business Act, and the Act on Specified Commercial Transactions, and the Group must also conduct its business with an understanding of these laws and regulations. If regulations are strengthened or new regulations are enacted in the future, business activities may be restricted and compliance costs may increase. Although not a direct regulation on the Group itself, changes in the business environment of business partners resulting from regulatory changes could indirectly affect the Group's performance.

The Chinese subsidiary Ebisu Architectural Equipment Design (Jilin) Co., Ltd. serves as an important production base functioning as a CAD center that produces design drawings for Japanese customers. Risks inherent to this operation include legal amendments and regulatory tightening, social disruption caused by terrorism, war or infectious disease, and rising prices such as local labor costs; if these risks materialize, they could affect the Group's financial position and business results. Under the policy of expanding operations in China and other overseas markets, risk exposure may increase going forward.

The Group generates income and expenses denominated in Chinese yuan and Hong Kong dollars, and also holds foreign-currency-denominated assets and liabilities. Although risk is hedged through forward foreign exchange contracts, sharp fluctuations in foreign exchange rates could affect the Group's financial position and business results. While hedging measures are in place, complete avoidance of impact during sudden fluctuations is difficult.

Design services and maintenance services are labor-intensive businesses employing large numbers of operators in Tokyo, Okinawa, Ishikawa and Jilin, making the recruitment and development of personnel a key challenge. If the Group is unable to secure or develop the necessary personnel, or if labor costs rise sharply domestically or overseas, business operations and performance could be adversely affected. As countermeasures, the Group continuously conducts diverse recruitment activities, tiered education and training programs, and reviews of business processes along with automation and efficiency improvements through systems.

Business operations depend on internet connectivity and internal and external computer networks; equipment or software malfunctions, human error, computer viruses, malicious interference by hackers, and system failures caused by natural disasters could adversely affect business operations, financial position, and performance. The Group has implemented redundancy for equipment and communication lines, data backups, and various security measures, and has obtained ISO/IEC 27001:2022 (JIS Q 27001:2023) certification, but there is no guarantee that all failures can be avoided.

Given the nature of its business, the Group receives personal information on numerous homeowners from its customers and operates its business by sharing and utilizing this information with customers, which inherently carries the risk of information leakage or unauthorized use. Should a leak or unauthorized use occur, it could affect performance through claims for damages or loss of social credibility. The Group enforces strict information management through the establishment of security rules, continuous education and training for all employees, and acquisition of Privacy Mark (JIS Q 15001) certification.

Three companies — TEPCO Hometec Co., Ltd., Guangdong Liansu Ebisu Housing Equipment Design Service Co., Ltd., and Shenzhen ABICO Construction Engineering Technology Co., Ltd. — are accounted for using the equity method, and each operates its business under its own independent management policies. If the performance or financial position of these equity-method affiliates deteriorates, it could also adversely affect the Group's performance and financial position. These joint ventures are conducted with major companies as part of strategic business alliances, creating a structure in which the Group is also affected by the management trends of its partners.

The Group has a policy of actively promoting the creation and cultivation of new businesses both domestically and overseas for the purpose of achieving sustainable growth and diversifying revenue sources; however, unforeseeable risks may arise, including risk factors specific to new businesses and sudden changes in the business environment. If the Group is unable to achieve its initial business plans, its business activities, financial position, and business results could be materially affected. Due to the nature of new businesses, it is difficult to identify and quantify risks in advance, requiring a management framework different from that used for existing businesses.

If unforeseen events such as earthquakes, heavy rain, floods and other natural disasters, infectious diseases, or terrorism and riots occur, business operations could be disrupted due to damage to employees, business locations, equipment, and systems. In addition, there are risks of increased disaster risk due to abnormal weather associated with worsening climate change, as well as increased costs due to carbon pricing. The Group has implemented measures such as formulating disaster response manuals and business continuity plans, earthquake-resistance measures, disaster prevention drills, and coordination with domestic and overseas locations, but there is no guarantee that all damage and impact can be avoided.