SONEC CORPORATION

If order volume declines significantly due to domestic or overseas economic downturns, contraction of the construction market, substantial reductions in public works, or fluctuations in real estate market supply and demand, this may affect the Group's business results. A sharp deterioration in the environment surrounding the construction and real estate markets is assumed to be the main factor. The Group aims to minimize this risk by grasping external environmental changes and converting them into business opportunities on a company-wide basis.

Orders for the construction business are concentrated mainly in the southern Hyogo Prefecture area centered on the Higashi-Harima region, and if the economy in this area deteriorates significantly, a substantial decrease in private construction demand or public works could affect business results. A localized economic downturn that diverges from national economic trends is considered a particular risk. The Group aims to diversify this regional concentration risk by strengthening sales activities in the Keihanshin and Nagoya areas.

A rapid rise in construction material prices or procurement difficulties, higher labor unit costs, a shortage of skilled construction workers, and rising energy prices, among other factors, may increase construction costs, potentially leading to lower profit margins or delays in construction periods. Such cost increases carry the risk of directly worsening the profitability of contracted work already in progress. The Group strives to reduce this risk through coordination between sales and construction divisions on labor and procurement costs, as well as through improved construction efficiency.

If serious quality or technical defects occur during the design or construction stages and cause personal injury or damage to structures, this could result in substantial liability for non-conformity with contracts or product liability damages, affecting business results and corporate reputation. Deficiencies in quality control systems also carry the risk of undermining corporate trust. The Group aims to minimize this risk by enhancing construction quality control and internal inspection systems, and by improving construction techniques through employee training.

If credit concerns materialize among business partners such as clients, subcontractors, or joint construction partners due to economic downturns or contraction of the construction market, this could result in an inability to collect funds or delays in construction periods, affecting business results. In particular, deterioration in the financial condition of subcontractors carries the risk of directly hindering the continuation of construction work. The Group manages this risk by conducting credit checks on business partners and subcontractors as needed, and by sharing information between sales and construction divisions.

If the market value or profitability of held assets such as business-use real estate or securities declines significantly, this could result in the recognition of impairment losses, affecting business results. Fluctuations in real estate market conditions or the stock market carry the risk of directly impairing asset value. The Group aims to minimize this risk by improving the occupancy rate of business-use real estate and by regularly confirming and reviewing the rationale for holding securities each period.

If customers' personal information or business partners' confidential information is leaked or lost externally for any reason, this could have a significant impact on business results and corporate reputation. Information security incidents also directly risk undermining trust relationships with customers and business partners. The Group seeks to reduce this risk by outsourcing key information systems to external providers and storing data across multiple data centers.

In the event of unforeseen accidents or disasters in the construction business, the Group may become subject to administrative disciplinary action under the Construction Business Act or suspension of designation by local governments, as well as damages liability, which could affect business results. In the transportation business as well, serious vehicle accidents or cargo accidents could result in damages liability or administrative sanctions such as suspension of vehicle use. The Group aims to minimize this risk by establishing a dedicated safety management department and building and promoting a safety management system in cooperation with subcontractors.

Large-scale natural disasters such as earthquakes, tsunamis, typhoons, or storm and flood damage could directly damage the Group's assets or harm employees, or cause major changes in the business environment such as shifts in order trends, rising construction costs, or reduced electricity and energy supply, any of which could affect business results. Because the Group's main business locations are concentrated in southern Hyogo Prefecture, it is structurally vulnerable to the effects of region-specific natural disasters. The Group is promoting measures such as diversifying business locations based on its BCP (business continuity plan) for disasters.

The construction business is subject to a wide range of legal regulations, including the Construction Business Act, the Building Standards Act, the Building Lots and Buildings Transaction Business Act, the Antimonopoly Act, labor-related laws and regulations, and environmental laws and regulations, and any new enactment, revision, or abolition of related laws or changes in applicable standards could affect business results. The transportation business is also subject to regulations such as the Motor Truck Transportation Business Act and the Road Traffic Act, and tightening of environmental regulations, price competition with competitors, and rising fuel costs could also affect business results and corporate reputation. The Group aims to minimize this risk by managing the renewal of key licenses and permits (such as the specific construction business license, real estate brokerage license, and first-class architect office registration) and by building a compliance system.