DAISUE CONSTRUCTION CO.,LTD.

The Group's core business is construction, particularly the construction of condominiums for sale, and a significant contraction in the construction business could lead to a deterioration in performance. Because of the high degree of dependence on a specific segment, the business structure is directly susceptible to the impact of market contraction. As countermeasures, the Group is promoting the strengthening of non-condominium fields and the construction of a balanced business portfolio through expansion into the real estate and civil engineering businesses.

Since construction projects extend over long periods, if labor wages and material prices rise significantly from the planning and estimation stage onward, passing on the cost increases may become difficult, raising construction costs and affecting performance. This risk is particularly likely to materialize under the recent environment of soaring prices. As countermeasures, in addition to internalizing costs to the extent foreseeable, the Group confirms with project owners at the contract stage arrangements for negotiating price pass-through in the event of price surges.

Profit plans may fail to be achieved, or impairment of goodwill or losses on valuation of shares may become unavoidable, due to risks or contingent liabilities discovered after the fact, rapid market changes, or inefficient utilization of the acquired company's management resources. The success or failure of the post-M&A integration process directly affects performance. As countermeasures, the Group carefully scrutinizes business plans, conducts financial and legal due diligence involving outside experts, and promptly implements PMI (post-merger integration) after M&A transactions.

If significant liability for non-conformance with contracts arises in design, construction, etc., resulting in damages, this could affect performance. The construction industry has a characteristic whereby non-conformance issues can be pursued even after handover, meaning latent risk can persist over a long period. As countermeasures, the Group conducts various quality inspections, including in-process inspections and completion inspections, and thoroughly educates employees.

If laws and regulations that must be observed are not complied with for any reason, this could affect performance through construction delays or suspension of business activities. In addition, the introduction of new laws and regulations or amendments/abolitions of existing laws could result in significant changes to business plans or construction delays. As countermeasures, the Group is strengthening its corporate governance framework, thoroughly educating employees on legal compliance, and utilizing outside experts.

If an unforeseen large-scale disaster occurs, in addition to damage to employees and held assets, general construction work in progress could be deprioritized as priority is given to restoring social infrastructure, leading to construction delays and increased construction costs that affect performance. The construction industry, which involves a great deal of outdoor work, has characteristics that make it directly susceptible to the effects of natural disasters. As countermeasures, the Group has established a crisis management manual in preparation for large-scale disasters and continuously reviews its BCP (business continuity plan) and conducts drills.

Due to business practices specific to the construction industry, accounts receivable increase along with sales growth; if a project owner falls into credit difficulty before payment for construction work is received, collection delays or bad debt losses may occur, affecting performance. An increase in accounts receivable balances is a factor that heightens financial risk. As a countermeasure, the Group thoroughly manages credit before commencing transactions.

If it becomes difficult to secure the necessary personnel due to workforce attrition from long working hours or a sudden tightening of supply and demand, this could lead to lost order opportunities, construction delays, or increased construction costs, affecting performance. As the labor shortage across the construction industry as a whole becomes structurally more severe, the likelihood of this risk materializing is recognized as moderate. As countermeasures, the Group is promoting labor savings through DX initiatives and adoption of new construction methods, planned hiring of construction engineers, and securing skilled workers through its network of partner companies.

Performance could be affected by the tightening of regulations related to new building construction accompanying the transition to a decarbonized society, the introduction of carbon taxes, or by deterioration of working conditions and increased frequency and severity of weather-related disasters due to rising temperatures. Both stricter regulation and physical risks are factors that push up business costs. As countermeasures, the Group has expressed its support for the TCFD recommendations and is promoting responses based on the identification and analysis of climate-related risks and opportunities.

If a cyberattack occurs, such as virus infection or unauthorized access via targeted emails or malware, or if a leak of personal information such as customer data occurs, this could affect performance through suspension of business activities, loss of social trust, damage to corporate image, or payment of damages. With the advance of digitalization, cyber risk remains an ongoing threat. As countermeasures, the Group is strengthening information security measures such as continuous virus monitoring, building a backup system for important data, and thoroughly educating employees, including through targeted-email training.