YAHAGI CONSTRUCTION CO.,LTD.

Fluctuations in economic conditions such as financial crises, economic downturns, inflation, and interest rate changes may significantly impact profitability and financial condition. In addition, market contraction due to population decline, aging, reduced private capital investment, and decreased public investment poses a risk of deteriorating business performance. As countermeasures, the company is diversifying its business portfolio across the three segments of Building Construction, Civil Engineering, and Real Estate, maintaining a financial base with an equity ratio exceeding 40%, and securing a regionally focused order base in the Tokai region.

If construction material prices or labor unit costs surge significantly beyond expectations after the conclusion of a contract, and it becomes difficult to reflect this in the contract amount, profits may deteriorate due to increased construction costs. The company is promoting the use of inflation slide and single-item slide clauses, negotiating price pass-through with customers, securing early procurement of materials at the initial stage of construction, and optimizing costs from the design stage through front-loading. Since 2024, the company has also fully switched to cash payments to partner companies, thereby stabilizing the supply chain.

In addition to the risk of construction site operation suspensions due to more frequent and severe weather-related disasters, decarbonization regulations may reduce demand for new construction and the introduction of carbon pricing may increase costs, potentially affecting the company's finances. In March 2025, the company obtained SBT certification, and is promoting ZEB/ZEH design and CASBEE highly-rated design, while continuously formulating and reviewing its BCP and obtaining certification for "Business Continuity Capability of Construction Business in Times of Disaster" from the Chubu Regional Development Bureau of the Ministry of Land, Infrastructure, Transport and Tourism. The company has received a B score from CDP for two consecutive years, in fiscal 2024 and fiscal 2025.

There is a risk of financial deterioration due to difficulty in raising funds amid financial market turmoil, losses from real estate investment or M&A, and declines in the market value of held fixed assets or investment securities. In addition, delays in the collection of construction payments and the inability to collect accounts receivable for completed construction work due to bankruptcy of business partners, both specific to the construction industry, may affect cash flow. As countermeasures, the company conducts strict credit screening and continuous monitoring of business partners, secured stable funding through a ¥5 billion social loan in 2024—the first of its kind among domestic general contractors—and appropriately records allowances for doubtful accounts.

The aging of skilled workers in the construction industry and the decline in new entrants may make it difficult to maintain the construction workforce, potentially affecting business activities. The company is improving productivity through the use of AI to streamline construction management, automate rebar inspection, and develop proprietary safety support systems, as well as by actively adopting labor-saving construction technologies such as precast methods. To secure human resources, the company is promoting diverse workforce measures, including the introduction of a mandatory retirement age of 65, improved treatment of partner companies' skilled workers through the YAHAGI Meister certification system, and the active hiring of foreign engineers.

If defects occur due to deficiencies in design work or poor construction quality, this may damage the company's corporate image and incur repair costs, potentially affecting business results. The company has established design verification at each stage—basic planning, basic design, and detailed design—along with drawing verification by a design review committee, and a multi-layered inspection system consisting of pre-construction study sessions, interim inspections, and completion inspections. After completion, the company also conducts one-year and two-year inspections, and works to maintain the long-term asset value and safety of buildings through after-sales services provided by group companies.

Violations of the wide range of applicable legal regulations, including the Construction Business Act, the Building Standards Act, the Real Estate Brokerage Act, the Antimonopoly Act, and environmental protection laws, may lead to deteriorating business performance and damage to corporate reputation. The company has established a compliance check system through the CSR/ESG Committee and the Internal Control Subcommittee, ensures objective oversight through the appointment of outside directors who are lawyers and other experts, and conducts regular training and awareness activities under the slogan "Cultivating a Legal Mindset." As countermeasures against antimonopoly violations and bid rigging, the company provides specialized training for its sales departments, and also works to prevent illegal conditions caused by human error on-site through an AI-powered safety support system.

Inefficiencies and risks arising from insufficient collaboration among group companies, as well as the failure to realize synergies or achieve PMI targets after M&A, may affect business performance and financial condition. There is also a risk of recording impairment losses on goodwill and intangible fixed assets recorded in connection with acquisitions, due to declines in the profitability of acquired companies. As countermeasures, the company mandates regular reporting under its "Affiliated Company Regulations," manages group-wide standards under its "Risk Management Regulations," conducts financial, legal, and business due diligence at the time of M&A execution, and implements internal control development and regular monitoring after acquisition.

If information leaks occur due to internal human error, or if corporate or customer information is leaked or systems are shut down due to cyberattacks such as malware, ransomware, or account hacking, this may damage the company's corporate image, result in damage compensation liabilities, and affect business continuity. The company has established a system that limits access privileges, monitors operation logs, encrypts data, and continuously monitors the network, and conducts regular system diagnostics and vulnerability countermeasures with external security experts. The company is also improving human defense capabilities through simulated phishing email drills and information security training for all officers and employees.

If schedule or delivery delays occur due to natural disasters such as earthquakes, typhoons, and floods, or man-made disasters such as terrorism or accidents, this may delay the timing of revenue recognition and incur substantial costs, potentially affecting business performance. The company has concluded disaster recovery agreements with the Ministry of Land, Infrastructure, Transport and Tourism and local governments, stockpiles materials and equipment, continuously reviews its BCP, protects data using cloud services, and secures emergency credit lines. As additional countermeasures, the company prevents accidents through its proprietary safety support system, mitigates financial losses through construction work insurance, and negotiates with clients on construction period extensions and additional cost burdens based on slide clauses.