WAKACHIKU CONSTRUCTION CO.,LTD.

If significant defects occur in construction works or other products provided by the Group, this may affect operating results and corporate reputation. The Group has strengthened quality control through its head office Quality Control Office and branch quality advisors, and works to restore trust through sincere customer response and reliable corrective measures when such issues arise.

If a serious industrial accident occurs during construction, the resulting substantial compensation costs and decline in social credibility may affect operating results and corporate reputation. The Group strives to eliminate industrial accidents through risk assessment based on an annual safety management plan and the effective operation and continuous improvement of its labor safety management system.

Fluctuations in construction demand and surges in material prices, which are influenced by global economic trends, natural disasters, and severe weather, may have a material impact on the operating results and financial position of the Group, whose main revenue source is the construction business. A significant decline in private-sector capital investment poses a risk of fluctuation in order-taking activity, so the Group is focusing on public works and the renewable energy sector, which are relatively less affected.

If unexpected sudden changes in market conditions lead to changes in financial institutions' support systems, deterioration of the order environment, or declines in the market value of real estate held for sale and for lease, this may have a material impact on operating results and financial position. As a countermeasure, the Group has renewed existing syndicated loan agreements with financial institutions, securing a stable funding structure that can flexibly respond to seasonal fund fluctuations.

If a serious violation of laws and regulations, including individual misconduct, occurs, this may result in a loss of trust from customers and society and affect business performance. The Group conducts internal interviews by highly specialized members and works to thoroughly instill compliance awareness.

If confidential information or customer information is leaked or lost due to external attacks or employee negligence, this may affect business performance through loss of trust, suspension of business, and damages claims, and there is also a risk that increasingly sophisticated cyberattacks could cause system failures that halt operations. The Group works to reduce these risks by maintaining up-to-date system protection measures based on its information security regulations and conducting cybersecurity education for all employees.

The declining working population due to the falling birthrate and aging population, along with the aging of skilled workers in the construction industry, is progressing, and if the Group is unable to secure sufficient human resources, this may affect business performance and financial position from a long-term perspective. In addition to strengthening recruitment activities centered on the Human Resources Development Section of the Personnel Department, the Group is working to secure future talent through initiatives such as the "Human Resource Development Program for Ocean Development" carried out through industry-government-academia collaboration.

In addition to physical risks such as damage to and delays at construction sites due to the intensification of natural disasters, transition risks such as restrictions on construction volume due to greenhouse gas emission caps and cost increases from the introduction of carbon taxes may affect business activities and performance. The Group expressed its support for the TCFD recommendations in June 2021 and discloses its analysis of and response to climate change-related risks and opportunities on its corporate website.

In overseas operations, there are compound risks such as unforeseen changes in laws and regulations, unfavorable changes in tax systems, foreign exchange losses due to sudden fluctuations in exchange rates, and social unrest caused by terrorism or war, and if these risks materialize, they may affect operating results and financial position. However, the ratio of overseas sales to consolidated net sales remains at a low level.

The Group holds real estate for sale and other tangible fixed assets such as land in various locations across Japan, and if the domestic real estate market deteriorates, this may affect operating results and financial position through write-downs of real estate held for sale and impairment of fixed assets. The Group is also exposed to stock market price fluctuation risk with respect to shares of financial institutions and business partners that it holds, and as it holds these in principle for the long term, it does not employ any special hedging measures.