TAKUMA CO., LTD.

Since EPC business projects require approximately 3 to 5 years from order receipt to delivery, if materials and construction prices rise significantly during the time lag between estimation and ordering, it may become difficult to pass on the increase to the contract amount, resulting in deteriorated project profitability. This risk is primarily driven by fluctuations in economic conditions and may directly affect operating results and financial position. As countermeasures, the Group monitors and forecasts trends in materials and construction prices, diversifies procurement sources, and strengthens relationships with partner companies from the pre-order stage to eliminate cost increase risks.

If defects in the products and services provided, or problems in design and construction, result in failure to meet performance requirements, delivery delays, or major accidents, the Group may incur substantial repair costs and liability for damages, and its brand value may decline, affecting operating results. In the EPC business, design reviews are conducted at each stage of planning, design, and construction, and risk assessment and monitoring are performed for high-risk projects based on the "Project Risk Management Regulations." In the operation management and operating businesses as well, the Group works to control the occurrence of risks through the development of various regulations and manuals and through education and training activities.

If subsidy programs are reduced due to changes in national policy, or private-sector capital investment contracts due to an economic downturn, demand for new construction and renewal of various plants may decline, affecting operating results. There is also a risk that order prices may fall due to intensified price competition with competitors amid declining demand. As countermeasures, based on the 14th Medium-Term Management Plan, the Group is working to maintain and expand its position as a leading company in the EPC business, while also focusing on strengthening stock-type businesses such as maintenance, operation management, and operation.

If the Group is slow to respond to construction delays and supply chain disruptions caused by more frequent and severe heavy rains and typhoons, or to stricter regulations and policy changes accompanying the transition to a low-carbon and decarbonized society, business costs may increase and demand for new construction and renewal of various plants may decline, affecting operating results and financial position. The Group has set "Contribution to Climate Change Countermeasures" as one of its materiality issues, and is working on the spread of renewable energy and improvement of energy efficiency. In April 2022, the Group endorsed the TCFD recommendations and has formulated and disclosed countermeasures aimed at reducing climate change-related risks and creating opportunities.

While subject to laws and regulations both in Japan and overseas, if a serious legal violation occurs, the Group may incur substantial losses from fines, surcharges, and damages, or lose order opportunities due to administrative dispositions such as business suspension, affecting operating results and financial position. There is also a risk that damage to brand value from a decline in social reputation could spread and affect subsequent operating results. As countermeasures, the Group works to instill and enhance compliance awareness across the Group through continuous awareness-raising and educational activities, and the effective operation of an internal whistleblowing system and CSR awareness surveys.