TEKKEN CORPORATION

If raw material prices or labor costs surge after conclusion of a contract, construction costs increase. Combined with energy price hikes stemming from fluctuations in international conditions such as the situation in the Middle East, this directly affects business performance when it is difficult to pass on the increase to the contract amount. Due to the structure of contracting arrangements in the construction industry, it is an ongoing challenge that cost increase risks are difficult to absorb after an order has been received.

The construction business, which accounts for a significant portion of the Group's net sales, is heavily dependent on public works investment, and a decline in public investment exceeding expectations directly affects business performance. As countermeasures, the Group is working to build a structure centered on technical capabilities and strengthen its sales and profit-generating capabilities, but the risk of a sharp reduction in investment due to policy changes and other factors remains.

If an industrial accident or construction accident occurs during construction, in addition to the occurrence of damages, there is a risk that order opportunities will decrease due to administrative sanctions such as suspension of nomination, and social credibility will decline. Due to the nature of the construction industry, safety risks associated with on-site work are constantly present, and even with thorough preventive measures, the possibility of unforeseen accidents cannot be ruled out.

If a significant defect occurs, costs such as damages and repair work arise, affecting business performance. Although the Group takes thorough care with quality control, it is difficult to completely eliminate the risk of quality-related troubles in large-scale and complex construction projects.

Natural disasters such as earthquakes, floods, and typhoons may cause business activities to halt and require significant costs and time to restore properties under construction. Indirect effects, such as quality deterioration risk from abnormal weather like heavy rain and extreme heat, and delays in material procurement due to reduced infrastructure functionality or disaster damage to suppliers, may also affect business performance.

The Group is subject to legal regulations such as the Construction Business Act, the Building Standards Act, the Real Estate Brokerage Act, and the Antimonopoly Act, and business operations are affected by amendments to or abolition of laws, or by the establishment of new regulations or changes to application standards. Should an event occur in violation of these laws and regulations, there is a possibility of a material impact on business performance due to administrative sanctions or a decline in social credibility.

If data destruction, tampering, or information leakage occurs due to cyberattacks such as malware, business performance is affected through business suspension or loss of credibility. Dependence on information systems is increasing even in the construction industry, and responding to cyber risks remains an ongoing challenge.

Since the transaction amount per construction project is large in the construction business, the impact is significant when the business performance of customers or partner companies deteriorates or credit concerns arise. Human rights issues in the supply chain, among other factors, can also contribute to credit concerns, making it important to manage the financial condition and business continuity of business partners.

Due to the nature of the contracting business, a certain level of interest-bearing debt is necessary because of advance payments incurred, and if interest rates rise significantly, financial costs increase, affecting business performance. Although the Group manages its operations with anticipated interest rate increases in mind, it may become difficult to respond in the event of a sharp and substantial rise in interest rates.

In overseas construction projects, there are risks such as the occurrence of war, terrorism, or conflict, fluctuations in local economic and political conditions, unforeseen changes in laws and regulations, and significant fluctuations in exchange rates. Should these risks materialize, the profitability of overseas operations could be significantly impaired, potentially affecting the performance of the entire Group.