Eltes Co., Ltd.

The Group automatically collects big data from social media using software; however, if the operators of social media platforms change their policies and collection is restricted or prohibited, this could lead to a decline in service quality and increased data collection costs. This risk directly affects the data collection infrastructure underpinning the core services, and its impact on business continuity is significant. At present, the securities report does not describe specific alternative means.

The DX-related market utilizing technology has high growth expectations, and new entrants both domestic and international may increase. Intensified competition could lead to price declines and loss of orders for reasons other than price competition, adversely affecting both profitability and market share. The securities report contains limited disclosure of specific countermeasures against competition.

The Group's core business, social risk management, presupposes the widespread and active use of social media. If the number of social media users decreases, the volume of related posts would decline, reducing demand for risk management services and potentially shrinking the business foundation. The fact that the business model is structurally dependent on the continued existence of social media constitutes an essential risk.

IT-related technologies, including generative AI, are evolving rapidly, and industry standards and user needs are changing quickly. If the Group's response to these changes is delayed, its services may become obsolete or ill-suited to market needs, leading to a decline in competitiveness. In particular, the spread of generative AI could transform the very methods used for social risk analysis, making continuous technology investment essential.

The Group's businesses are required to comply with strict laws and regulations, including the Security Services Act, and violations could result in penalties or administrative sanctions such as suspension of business. While the Group strives to maintain compliance through thorough operational management and employee training, the scope of management targets expands as the Group grows, increasing the difficulty of maintaining control.

Competition to acquire DX talent such as data analysts and engineers is intense in the market, and any disruption to recruitment, development, or employment could hinder smooth business operations and sales activities. Similarly, in the security business, difficulty in securing necessary personnel deployment would directly affect business performance. As countermeasures, the Group is engaged in year-round recruitment activities, increasing the number of female security guards, optimizing personnel allocation across the Group, and improving operational efficiency through digitalization.

The Group handles clients' trade secrets and confidential internal information, and may in the future also acquire My Number information. Although the Group has established a management framework based on ISMS certification ('ISO/IEC 27001:2013' and 'ISO/IEC 27017:2015') and internal regulations and manuals, if confidential information were to leak for any reason, it could result in loss of customer trust and legal liability, potentially having a material impact on the business and results of operations.

The Group conducts M&A to expand its business, and if the performance of an acquired company deviates significantly from its business plan, there is a risk of impairment losses on intangible fixed assets such as goodwill or on tangible fixed assets. In the investment business as well, deterioration in the business conditions of investees could result in valuation losses. While the Group addresses this through the establishment of a management framework and rigorous screening, the risk of plan deviation due to changes in the external environment remains.

Founder and Representative Director Takahiro Sugawara is also a major shareholder and plays a central role in formulating and deciding management policy and business strategy, as well as in creating new business models. If he were to become unable to continue his duties, this could cause significant disruption to management direction and decision-making. Although the Group is working to reduce this dependence through delegation of authority and the recruitment and development of executive personnel, the degree of dependence remains high at present.

The Group procures short-term and long-term interest-bearing debt from financial institutions and others, and in a rising market interest rate environment, the cost of new fundraising would increase. In addition, rising interest rates would increase expected yields on real estate transactions, which could also adversely affect the profitability of the Smart City Business. A notable feature of this risk is that changes in the interest rate environment could have a chain-reaction impact across multiple business segments.