Nankai Tatsumura Construction Co., Ltd.

If the construction market contracts significantly due to a deterioration in the order-taking environment or other factors, it may have a material impact on the business performance of the Group. The Group is working to build a management foundation capable of withstanding a decline in order volume through measures such as revising the construction cost management system, but it may become difficult to respond to rapid changes in the market environment.

There is a risk of losses due to bad debts on accounts receivable, loans, and other receivables, and if credit concerns regarding business partners materialize, bad debt losses exceeding the allowance for doubtful accounts already recorded may occur. The Group seeks to minimize credit risk through recording an allowance for doubtful accounts based on historical bad debt rates and through an order review system, but it may not be able to fully respond to unforeseen deterioration in creditworthiness.

If the procurement prices of construction materials and outsourced labor rise sharply or procurement is delayed, it is difficult to reflect changes occurring after construction has begun in the contract amount, which may lead to a decline in profit margins due to rising construction costs. Amid a continuing upward trend in material prices and labor unit costs, the risk of profit pressure is particularly high for projects ordered at fixed contract amounts.

If a serious defect occurs in a constructed structure, in addition to the loss of customer trust, the Group may become liable for damages based on defect liability (liability for non-conformity with contract), which may affect business performance. Although the Group makes every effort to ensure thorough quality control, given the nature of construction work, it is not possible to completely eliminate the risk of latent defects becoming apparent after construction is completed.

If a personal injury accident or other serious accident related to a constructed structure occurs at a construction site, in addition to the direct impact on business performance, secondary effects such as damage to corporate credibility and administrative sanctions may also occur. Although the Group makes every effort to ensure thorough safety management, given the nature of the construction industry, which involves numerous work sites, it is difficult to reduce accident risk to zero.

Amid a declining working-age population and a pronounced labor shortage in the construction industry, if the Group faces difficulty securing human resources due to stagnation in new graduate and mid-career hiring or an increase in employee turnover, this may affect business performance through a decline in construction capacity and lost order opportunities. Competition for talent is intensifying across the construction industry as a whole, and this is recognized as a risk that may become more severe over the medium to long term.

Retirement benefit obligations and retirement benefit expenses are calculated based on actuarial assumptions such as the discount rate and the expected rate of return on pension plan assets, and changes in these assumptions or deviations from actual results may affect business performance. In addition, if the investment environment deteriorates or there are changes to the plan system at the multi-employer corporate pension fund in which the Group participates, there is a risk that additional expenses may be incurred.

The Group is subject to legal regulations such as the Construction Business Act, the Building Standards Act, the Building Lots and Buildings Transaction Business Act, the Antimonopoly Act, and the Industrial Safety and Health Act, and if these laws and regulations are amended, abolished, newly enacted, or if applicable standards are changed, this may affect business performance through increased response costs and constraints on business activities. Given the wide-ranging regulatory environment surrounding the construction industry, establishing a system for prompt response to legal changes is required.

If serious misconduct or illegal acts occur, or if the Group becomes subject to litigation or other legal proceedings, depending on the outcome, this may have a material impact on business performance and corporate credibility. The Group strives to maintain and promote compliance-oriented management through regular compliance awareness activities, but continuous efforts are required to ensure thorough compliance across the entire Group.

If a large-scale earthquake, tsunami, typhoon, or other natural disaster, an outbreak of infectious disease, or other social disruption occurs, it may impede the suspension or continuation of business activities of the Group or its major business partners, which may affect business performance. Since construction sites involve a great deal of outdoor work and are directly susceptible to the effects of natural disasters, developing a business continuity plan (BCP) is an important issue.