CANDEAL Co., Ltd.

The Company has borrowed substantial funds from multiple financial institutions, and the loan agreements include financial covenants such as not recording a consolidated ordinary loss and maintaining a certain level of consolidated net assets. If changes to the repayment plan arise due to rising interest rates or failure to achieve the business plan, or if the borrowings must be repaid in full due to a breach of financial covenants, this could have a material impact on the financial position. Although the Company has indicated a policy of working to reduce its borrowings, the progress of concrete reduction plans is key to financial soundness.

As a result of past M&A activities and group reorganizations, the Group carries substantial goodwill on its books. If the future earning capacity of the acquired businesses declines, an impairment loss may need to be recorded, which could affect operating results and financial position. The Company believes the goodwill appropriately reflects future earning capacity, but there is a risk that deterioration in the construction-related market environment or intensified competition could reduce that earning capacity.

The Group's core businesses—repair and inspection services for detached houses and multi-unit residences, and construction work for commercial facilities—are significantly affected by economic conditions, interest rates, land prices, taxation, and policy. If deteriorating economic sentiment, declining income, rising interest rates, rising land prices, and policy or tax changes occur together, housing demand could contract, affecting operating results and financial position. Because the Group's primary business area is construction-related services, its limited diversification heightens the risk from changes in the market environment.

Repair services, residential construction services, and commercial construction services have a seasonal skew, with sales expanding in March and September when deliveries of detached houses, multi-unit residences, and commercial facilities are concentrated. If sales decline during these periods due to some cause (such as natural disasters or construction delays), the impact on annual performance could be disproportionately large. Because quarterly performance fluctuations can be substantial, investors should be mindful of the risk of divergence from full-year earnings forecasts.

Stable recruitment and development of personnel is essential to the Group's business continuity; if this does not proceed as planned, or if employee turnover increases or morale declines, this could affect operating results and financial position. In addition, rising labor costs due to labor shortages and increased outsourcing costs could also pressure profitability. The construction services industry faces tight supply and demand for skilled workers, and intensifying competition for recruitment may constrain the execution of the Group's growth strategy.

The Group outsources part of its contracted services to partner companies, conducting prior screening (covering company size, legal compliance, insurance enrollment, quality, and anti-social forces checks). However, if trouble arises at individual work sites, or if the Group is unable to secure enough partner companies to match increased orders, operations could stall, affecting operating results and financial position. The risk that the partner company network cannot keep pace during business expansion is a key issue directly linked to the feasibility of the growth strategy.

The Group is subject to regulation under relevant laws such as the Construction Business Act, the Labor Standards Act, and the Worker Dispatching Act, and various Group companies hold licenses and permits such as construction business licenses, worker dispatching business licenses, and fee-charging employment placement business licenses. If laws are amended or Group employees commit legal violations, the resulting revocation of licenses or permits could disrupt business operations and affect social credibility, operating results, and financial position. As of the reporting date, no disruption to business operations due to legal violations has been reported.

The Group relies on information systems for operations such as order receipt, work scheduling, and billing. If a serious failure occurs due to a program defect, computer virus, or external cyberattack, this could affect business operations, operating results, and financial position. The Group also holds personal information of business partners and homeowners; its subsidiary Barn Repair Co., Ltd. has obtained Privacy Mark certification, but if an information leak incident occurs, there is a risk of damage to social credibility. As reliance on information systems grows, continuous strengthening of security measures is required.

The Group was formed through management integration via M&A and consists of multiple companies with their own corporate cultures and management approaches. If the establishment of internal management systems fails to keep pace with rapid business expansion or other developments, this could affect business operations, operating results, and financial position. While the Company intends to develop and strengthen the internal management systems of Group companies, it should be noted that continued M&A strategy accumulates integration risk.

Sakai Moving Service Co., Ltd. is the Company's largest shareholder and qualifies as another affiliated company based on the capital and business alliance agreement concluded in August 2022. If Sakai Moving Service's policy regarding its holding of the Company's shares changes, this could affect the liquidity of the Company's shares and share price formation, and if the contents of the business alliance change, this could also affect future business plans. The relationship with this major shareholder constitutes a structural risk affecting both business strategy and the shareholder structure.