TOTETSU KOGYO CO., LTD.

In November 2025 and May 2026, the company was subject to an on-site inspection by the Japan Fair Trade Commission on suspicion of violating the Antitrust Act in connection with bidding for track maintenance work on the Tokyo Metropolitan Subway and other lines, and track laying work for the Hokkaido Shinkansen. If administrative sanctions or other measures are imposed as a result of the investigation, this could affect business performance. On June 5, 2026, the company established a committee of experts, including independent outside directors and independent outside auditors, to analyze the causes and formulate measures to prevent recurrence.

If an accident occurs during construction work, administrative sanctions or damage compensation claims could significantly damage the company's reputation and credibility, potentially affecting business performance and financial condition. In particular, major accidents such as train derailments in railway-related construction pose a risk of spreading to overall business activities. As countermeasures, the company conducts prior safety construction reviews, disseminates information through "Caution Cards," and performs inspections and guidance through safety patrols.

The company is subject to legal regulations such as the Construction Business Act, the Building Standards Act, the Industrial Safety and Health Act, and the Antitrust Act, and changes to, abolition of, or new establishment of these regulations, changes in operational standards, or legal sanctions could affect business performance and financial condition. The company seeks to establish a compliance framework by formulating a compliance manual and holding meetings of the Compliance Committee and Risk Management Committee, but continued response to changes in the regulatory environment is required.

The railway segment accounts for a large proportion of net sales, and the company may be significantly affected by factors beyond the control of the group, such as public transportation conditions. In the construction segment as well, there is a risk of client companies' business deterioration due to changes in housing demand, unexpected contract termination, or renegotiation of contract prices. Based on the medium-term management plan "Action Plan 2029," the company is working to expand its business from railway-related operations to a broader range of customer segments.

If market prices of raw materials such as steel rise sharply beyond expectations after conclusion of a construction contract, it may be difficult to reflect the increase in contract prices, potentially affecting business performance and financial condition. The company works to mitigate the impact by gathering and analyzing information on market price trends and introducing centralized purchasing, and also seeks to clarify matters related to cost fluctuations through discussions with ordering parties.

If recruitment and efforts to curb employee turnover at the company group and partner companies do not proceed as planned and sufficient human resources cannot be secured, this could affect business performance and financial condition. The company is stepping up recruitment activities for new graduates and mid-career hires, implementing practical training through the Totetsu General Training Center, and promoting a rewarding workplace environment, while also working to improve the labor environment and support human resource development at partner companies.

External threats such as cyberattacks including unauthorized access and virus infections, as well as internal threats such as loss, theft, or unauthorized use of information assets by officers and employees, could affect business performance and financial condition. In addition to implementing security measures for various internal systems, the company works to raise the security awareness of officers and employees through the establishment and dissemination of regulations such as the "10 Principles of Information Security," regular information system audits, and targeted phishing email drills.

Transition risks toward a decarbonized society, such as caps on greenhouse gas emissions or restrictions on construction volume due to the introduction of a carbon tax, and physical risks such as rising average temperatures and intensifying natural disasters, could affect business performance and financial condition. In February 2022, the company announced its support for the TCFD recommendations and established an Environmental Strategy Committee to analyze both risks and opportunities, while positioning ESG management as a key initiative in its medium-term management plan.

If business activities are temporarily suspended due to natural disasters such as earthquakes, floods, or typhoons, or if significant costs and time are required to restore properties under construction, this could affect business performance and financial condition. The company has implemented various measures, including formulating a business continuity plan (BCP), introducing a safety confirmation system for officers and employees, and conducting disaster prevention drills.

An economic downturn in the Eastern Japan region, which is the company's main business area, or a decline in private capital investment or public investment, could significantly affect orders for construction work. There are also concerns about intensifying competition for orders with competitors and reduced profitability due to rising labor costs. Under the medium-term management plan "Action Plan 2029," the company is implementing growth strategies such as responding to changes in the market environment and specifying priority business areas.