DAI-ICHI CUTTER KOGYO K.K.

The Group's cutting and drilling construction business consists mainly of subcontracts with general contractors, with the majority of construction work related to public works projects. Reductions in public works spending could directly and adversely affect performance, and there is also a risk of customer bankruptcies due to deteriorating conditions in the construction industry. As a countermeasure, the Group is promoting expansion into maintenance and cleaning fields for chemical plants, oil plants, power plants, etc. using the water jet method, aiming to reduce dependence on the construction industry, but there is no guarantee this will succeed.

Because much of the work is related to public works construction, sales and profits tend to concentrate in the third quarter (January to March), while in the fourth quarter (April to June), which includes April, the start of the public works fiscal year, construction volume decreases and the profit margin tends to worsen due to fixed cost burdens. This seasonal fluctuation poses a risk to the stability of earnings. The Group is actively marketing water jet method projects for chemical plants, oil plants, power plants, etc., which have heavy construction volume in the fourth quarter, to work toward leveling out performance.

The Group depends on a single company, Asahi Diamond Industrial Co., Ltd., for 46.4% of its raw material purchases (as of the end of the current consolidated fiscal year), representing a high degree of concentration. If for some reason the Group is unable to continue transactions with this company, although it believes it would be able to secure raw materials from other companies, temporary disruption could occur, potentially adversely affecting the efficient operation of the business. While the relationship with this company is currently good and stable continuation of transactions is expected, the risk of increased costs and quality variability when procuring from alternative sources cannot be eliminated.

The Group holds licenses for "scaffolding and earthwork construction business" and "civil engineering construction business" under the Construction Business Act, which are required to accept construction orders of ¥5 million or more. If the Group is unable to obtain or renew these licenses, it would be unable to accept orders of ¥5 million or more, causing significant disruption to business continuity. Licenses for each group company must be renewed every five years, and misconduct or violations of disqualification provisions relating to officers, etc. can constitute grounds for revocation.

Cutting and drilling construction work involves high-altitude work and the use of heavy machinery at building and civil engineering construction sites, presenting a high risk of accidents such as falls, tip-overs, and structural collapses. If a personal injury accident occurs due to machine misuse or malfunction, this could adversely affect performance through loss of customer trust and other factors. The Group addresses this through safety patrols, regular machine maintenance, worker training, and enrollment in liability insurance, but states that it is difficult to completely eliminate the possibility of accidents occurring.

The Group actively utilizes partner contractors to respond to seasonal fluctuations in busy and slow periods, resulting in a high degree of dependence on outsourcing for business operations. Amid concerns over chronic labor shortages in the construction industry, if the Group is unable to secure outsourced contractors when needed, this could result in lost business opportunities and adversely affect performance. In addition, construction errors or accidents caused by partner contractors could also have an undeniable adverse effect on performance; the Group works to maintain and improve construction quality through regular technical guidance.

Amid chronic labor shortages in the construction industry, securing, training, and transferring the skills of engineers are essential elements for the Group's continued growth. If the Group is unable to secure and develop personnel as planned, this could adversely affect its business performance and financial position. The Group addresses this through active recruitment activities and enhanced in-house training programs, but the structural labor shortage across the industry as a whole remains a challenge.