Kumagai Gumi Co.,Ltd.

If construction investment shifts toward contraction over the medium to long term due to the fiscal condition of government agencies or the economic environment of private companies, order-taking competition with competitors may intensify, potentially leading to a decline in order volume and a deterioration in construction profitability. Although construction investment in Japan is currently on an increasing trend, the Group is addressing changes in the market environment through the long-term vision "Management Policy Looking Toward 2030 and Beyond" and various measures under the medium-term management plan.

If construction material market prices or labor unit costs surge after a construction contract has been concluded, in private-sector construction work this becomes a matter of negotiation with the client, and there is a possibility that the increased costs cannot be passed on to the contract price. For public works, certain change requests are possible under contract provisions, but the risk of deteriorating profitability remains for private-sector work. As countermeasures, the Group factors in anticipated price increases in advance and procures materials at an early stage.

In the construction industry, the number of workers is on a declining trend due to the aging of skilled workers and low rates of new entry and retention among younger workers, and a future mass exodus of workers could shrink construction capacity and reduce order volume. A surge in labor costs is also a concern. The Group is promoting measures to improve working conditions, including cooperation with the "Kumaei Kyoryokukai" (cooperative association), operation of a certification system for excellent skilled workers, introduction of the Construction Career-Up System, and transition to a full five-day workweek.

The decline in construction engineers is an industry-wide issue, and when suitable personnel with construction experience in specific work types or specific qualifications are lacking, this has already led in some cases to the abandonment of bid participation, resulting in the loss of order opportunities. The Group is working to secure and develop personnel through expanded mid-career hiring (including a job-return program), active utilization of older workers, women, and foreign nationals, planned provision of construction experience, and support for obtaining qualifications.

In overseas construction business centered on Asian countries, there is a possibility that projects will be delayed or become unexecutable due to political, economic, or social turmoil in the host country or tightening of regulations. There is also an inherent risk that immature legal systems or differences in business customs could make it difficult to collect rightful construction payments, as well as a risk of unexpected costs arising. As a countermeasure, the Group limits its operations to regions it is thoroughly familiar with and, in principle, focuses on orders related to Japan's ODA or Japanese-affiliated company projects.

Given the diversity of specifications and construction conditions for structures and the influence of external factors, it is difficult to completely eliminate the possibility of construction defects, and if a serious defect occurs, repair costs and liability for damages exceeding the amount of provisions may arise. In addition, there is a risk of reduced order volume due to a decline in social credibility. The Group strives to provide high-quality products and services through the appropriate operation and continuous improvement of its quality management system.

Construction work is more prone to severe occupational accidents compared to other industries, and there is also a high possibility of accidents causing damage to third parties. If a serious occupational accident or incident occurs, in addition to a substantial burden of compensation costs, there is a risk of a significant decline in order volume due to suspension of eligibility to bid on projects from relevant government agencies. The Group has positioned the strict operation of its occupational health and safety management system as a top priority, implementing safety education, daily inspections, and strengthened cooperation between construction departments and safety departments.

There is a risk of impairment losses arising from real estate acquired for urban regeneration and redevelopment projects, or from securities of clients or partner companies, due to deterioration in the business environment or a decline in market prices. The Company has established investment and financing standards, and cases with significant financial impact are deliberated by the Management Committee and the Board of Directors; through post-acquisition monitoring, the Company also considers sale or other measures when a deterioration in profitability is anticipated, aiming to minimize losses.

Violations of various laws and regulations such as the Construction Business Act, the Antimonopoly Act, and the Financial Instruments and Exchange Act could result in criminal penalties, administrative sanctions, and liability for damages, as well as a loss of trust among stakeholders. The Group has built a framework through the establishment of regulations such as the "Code of Conduct" and "Compliance Conduct Rules," the establishment of an internal reporting hotline, the establishment of a "Legal Compliance Audit Committee" comprising external experts, and the implementation of compliance training.

If a system outage caused by a cyberattack occurs, or if design/construction information, personal information, or customer information is leaked, this could result in loss of customers due to damaged credibility and losses such as liability for damages, potentially affecting business performance and business continuity. The Group has formulated an information security policy for focused management, and has established the incident response organization "KUMA-CSIRT" to strengthen prevention of incidents and the response framework in the event they occur.