Nihon Dengi Co., Ltd.

In the course of performing instrumentation and control work at construction sites such as office buildings and commercial buildings, there is a possibility that personal or property accidents, industrial accidents, or claims after completion could give rise to substantial repair costs or compensation liabilities. In addition to the direct cost increase, there is a risk of a significant impact on customer evaluation of quality. The Company addresses this through thorough guidance on the "Construction Work Standards" by the Quality Control Department, implementation of safety patrols, and enrollment in liability insurance.

The Company performs maintenance of air-conditioning equipment and other facilities at a wide range of sites including factories, hospitals, shopping centers, and research institutes, and if an unforeseen accident occurs due to a defect in service, the Company may bear substantial repair costs or compensation liabilities. Because a broad range of maintenance and inspection technologies is required at each work site, the difficulty of quality control is high. The Company addresses this through thorough guidance based on the "Maintenance Work Standards" by the Quality Control Department and enrollment in liability insurance.

Purchases based on the special dealer agreement with Azbil Corporation have continued since the Company's founding in 1959, and in the fiscal year under review, purchases from Azbil Corporation amounted to ¥4,837 million, representing a high dependence ratio of 65.5% of total purchases of ¥7,384 million. If purchases from this company were to be disrupted, it could have a significant impact on business performance. The Company strives to maintain stable business relationships while working to reduce the degree of impact through expansion of its business domain.

In contract-based construction work, if difficult-to-predict additional costs arise due to design changes or rework during the course of the project, unprofitable construction projects may occur, potentially affecting business performance. The Company conducts profitability reviews prior to commencement in accordance with the "Construction Work Standards" by relevant departments and strives to prevent unprofitable projects in advance through verification of planning accuracy based on process control tables.

If the prices of electrical installation materials and other materials surge due to sudden changes in social conditions, this could affect business performance in cases where it is difficult to reflect such increases in contract amounts. The Company strives to mitigate this risk through inventory management tailored to the characteristics of various materials and by strengthening procurement capabilities, including alternative products.

If the creditworthiness of customers deteriorates, bad debts on trade receivables may arise, potentially affecting business performance and financial condition. The Company strives to prevent delays in collection through the establishment of credit limits by business partner based on the "Trade Receivables Management Regulations," thorough credit and receivables management, and advance receipt of contract payments.

Due to the business characteristic of construction completions and deliveries being concentrated in the fourth quarter of the consolidated fiscal year, there is a seasonal fluctuation in which net sales and profits are weighted toward the fourth quarter. Since net sales and profits from the first through third quarters remain at a lower level compared with the fourth quarter, attention is required in the evaluation of business performance and cash flow management during the interim periods.

Securing and developing engineers and partner companies capable of practically applying engineering and other technologies is extremely important, and if the Company is unable to secure or develop the necessary personnel, it could significantly impact business performance through, among other things, a decrease in order-taking opportunities. The Company addresses this through strengthening new graduate and mid-career hiring, the "Dengi Academy" launched in fiscal 2024 which provides company-wide, year-round group technical training at head office, and accepting secondees from partner companies.

If a large-scale natural disaster such as an earthquake occurs, it could cause the suspension or significant delay of various construction and other projects, or serious damage that hinders the continuation of business operations at business offices, potentially affecting business performance. The Company also recognizes the importance of the risks that climate change poses to corporate value and business performance. The Company addresses this through establishment of a crisis management team and response headquarters structure, development of a "Disaster Response Manual," introduction of a safety confirmation system, and regular drills.

If a failure occurs in information systems due to external cyberattacks, unauthorized access, or intrusion by computer viruses, or if corporate or personal information is leaked outside the Company, this could affect business performance through disruption of business activities or a decline in social credibility, among other effects. The Information Systems Department takes the lead in implementing technical countermeasures, while also working to raise employees' awareness of information security through regular education and training.