PENTA-OCEAN CONSTRUCTION CO.,LTD.

If construction investment declines significantly beyond expectations due to a decrease in public investment or a decline in private-sector capital expenditure caused by domestic and overseas economic downturns, the competitive and business environment may change substantially, potentially affecting business performance. The construction industry is highly susceptible to business cycle fluctuations, and a decline in demand directly leads to lower order volumes and revenue.

A surge in construction materials prices and labor costs leads to higher construction costs, affecting business performance through reduced profit margins. As countermeasures, the Company implements early procurement, centralized purchasing, and price trend surveys, while also promoting the application of price escalation clauses when concluding contracts with clients.

Since individual construction transactions involve large amounts and a substantial portion of contract payments is received upon delivery, if clients, subcontractors, or joint-venture partners face credit difficulties, this could result in failure to collect payments or construction delays, affecting business performance. The Company addresses this through the establishment of credit review standards and deliberation by the Board of Directors.

In overseas businesses centered on Southeast Asia, unexpected changes in local laws and regulations, or the occurrence of terrorism, war, or conflict, may affect business performance. The Company strives for early risk identification and prevention through regular information gathering from local experts and training programs.

Sharp fluctuations in foreign exchange rates or rising interest rates may affect business performance. For foreign exchange risk, the Company hedges through forward foreign exchange contracts for major currencies, and for rising interest rate risk, it seeks to reduce interest expenses through early procurement of medium- to long-term funds and minimization of working capital.

If substantial damages or repair costs arise from contract non-conformity or defects, this may affect business performance and corporate reputation. The Company conducts risk assessments before construction commencement and quality patrols at each domestic and overseas site, aiming to reduce risk through thorough quality control.

If an unexpected serious accident or industrial accident occurs during construction, this may lead to loss of order opportunities or construction delays, affecting business performance and corporate reputation. The Company conducts risk assessments before construction commencement and health, safety, and environmental patrols to thoroughly prevent accidents.

Increased capital expenditure and materials procurement costs due to stricter climate change-related policies and regulations (transition risk), as well as supply chain disruptions and construction delays caused by more severe and frequent natural disasters (physical risk), may affect business performance. In May 2022, the Company expressed its support for the TCFD recommendations and is promoting responses to a decarbonized society through CO2 reduction, strengthening its BCP framework, and constructing offshore wind power facilities, among other initiatives.

If cyber attacks (targeted emails, malware, unauthorized access, etc.) or system failures cause business delays or disruptions, or if personal information or confidential information is leaked, this could result in loss of social credibility and incur damages and response costs, affecting business performance and corporate reputation. The Company has implemented EDR on all terminals with a continuous monitoring system, established multiple backup methods, and conducts information security assessments and training.

If the Company is unable to secure and develop specialized personnel and leaders necessary to support the expansion of business volume, this may affect business performance. In addition to planned new graduate recruitment, active mid-career recruitment, and a job-return system, the Company promotes DE&I initiatives to retain diverse talent.