SANTO CO.,LTD.

For the Group, which has a high proportion of public works, intensifying competition and a decline in the comprehensive evaluation score of the management assessment review could lower its ranking classification, potentially adversely affecting business performance. As a countermeasure, the Group employs a flexible order-taking strategy, focusing on private-sector work when public works are scarce and on public works when private-sector work is scarce.

Because individual construction contract amounts are large, if a business partner enters legal reorganization proceedings before payment for construction work is received, this could have a material impact on business performance. As a countermeasure, the Group obtains credit information on business partners and confirms their financial condition in advance before concluding construction contracts, thereby seeking to reduce this risk.

In the construction industry, the occurrence of construction accidents or quality defects can have a major social impact, and liability for damages arising from warranty obligations, among others, could affect business performance. As a countermeasure, the Group participates in the comprehensive compensation program of the National Federation of Construction Business Cooperative Associations to hedge against risk in the event of damage.

The declining trend in the number of workers in the construction industry continues, and labor shortages could result in lost order-taking opportunities and rising labor costs, affecting business performance. As a countermeasure, the Group works to secure workers through the hiring of foreign nationals, ongoing recruitment of new graduates and mid-career hires, and cooperative associations with business partners.

If construction materials rise sharply in price after a contract has been concluded, the resulting cost increase could adversely affect business performance. As a countermeasure, the Group continuously monitors construction material prices and seeks to mitigate price fluctuation risk by, where necessary, bringing forward the timing of purchases.

Although every effort is made to ensure thorough safety management at construction sites, the occurrence of a serious occupational accident could affect business performance and other outcomes. As a countermeasure, the Group continuously carries out safety activities, including safety patrols led by its Safety Department.

With respect to real estate and securities held in the course of business operations, fluctuations in market value could result in valuation losses or impairment, affecting business performance. As a countermeasure, the Group regularly reviews the necessity of continuing to hold such assets and manages risk by disposing of unneeded assets.

The occurrence of natural disasters such as earthquakes, tsunamis, or wind and flood damage, or a global outbreak of infectious disease, could affect business activities through direct damage to held assets or employees. As a countermeasure, the Group continuously reviews its Business Continuity Plan (BCP) and follows up on the formulation and implementation of training plans.

In part of the environmental development business, a considerable period is required from order receipt to contract conclusion, meaning that associated costs are recorded ahead of revenue, which could affect business performance and other outcomes. Going forward, the Group intends to focus on securing orders more quickly, but the business inherently carries the risk that the time lag before monetization becomes a financial burden.