TOA ROAD CORPORATION

The Group's sales are dependent on the construction market, and the majority of demand for the construction business (mainly road paving works) and the manufacture and sale of construction materials comes from public works-related projects. If public works spending is reduced beyond expectations, this could have a material impact on sales and business performance. This is a structural risk that requires continuous monitoring of trends in public investment.

The price of straight asphalt, a key material in the manufacturing and sale of construction materials, moves in tandem with crude oil prices and is susceptible to exchange rate fluctuations and global conditions. If price increases cannot be passed on to sales prices or contract amounts in the construction business, profitability may be squeezed, potentially affecting business performance. A notable feature of this risk is its exposure to both crude oil market conditions and foreign exchange movements.

Although the Group makes every effort to ensure thorough quality control in construction work and manufactured products, if a serious case of contractual nonconformity were to occur, repair costs or costs of delivering substitute goods could arise, along with a potential loss of order opportunities due to reputational damage. Given the nature of the business, which is directly linked to social infrastructure such as road paving, quality problems can affect not only business performance but also brand value.

While the Group systematically secures construction engineers and construction laborers, if the supply-demand balance tightens rapidly, there is a risk of lost order opportunities and construction delays. Additionally, if labor costs rise sharply, it may become difficult to pass this on to contract amounts, potentially reducing profitability. This risk is likely to become more apparent over the medium to long term as the labor shortage across the construction industry progresses structurally.

Because customers are mainly in construction-related industries, transaction amounts are large, and collection after delivery of construction work is often made via promissory notes and similar instruments. Although careful examination is conducted through prior credit checks and other means, if a customer's deterioration in business conditions results in uncollectible receivables, this could affect business performance. The wide diversity in the scale and nature of customers' operations increases the difficulty of credit management.

The Group holds numerous operating assets across the country, and there is a risk that asset values may fluctuate due to business performance or changes in real estate market prices. If impairment of held assets occurs due to a deterioration in the real estate market or changes in the business environment, this could affect business performance and financial condition. Managing a widely dispersed asset portfolio remains an ongoing challenge.

If natural disasters such as earthquakes cause suspension of construction work or catastrophic damage to production plants, offices, and other facilities, this could have a material impact on business performance through decreased sales and the incurrence of restoration costs. Since the Group has business locations across the country, the scope of impact in the event of a widespread disaster could be significant. As this is an unpredictable event, there are limits to the effectiveness of advance countermeasures.

The Group is subject to legal regulation under related laws such as the Construction Business Act, the Antimonopoly Act, and the Industrial Safety and Health Act. Although the Group strives to enhance its compliance framework, if administrative sanctions or other measures arise from legal regulation, this could affect business performance. Antimonopoly Act risk related to the bidding and competitive environment in the construction industry is recognized as a particularly important risk specific to the industry. Administrative sanctions could directly lead to a decline in sales through measures such as suspension of business operations.