SEIKITOKYU KOGYO CO., LTD.

The construction business and the paving materials manufacturing and sales business are heavily dependent on public works order trends, and excessive reductions in public works expenditures could directly and adversely affect earnings. There is also an inherent risk of bad debt arising from deterioration in the financial condition of business partners, raising concerns about impacts on operating results and financial position. Significant fluctuations in construction order volumes due to the spread of infectious diseases and similar factors constitute a similar risk factor.

The purchase price of straight asphalt, a key raw material for paving materials, is significantly affected by crude oil market trends, and if price increases cannot be passed on to product prices, earnings will be pressured. In addition, sharp tightening of supply and demand and exchange rate fluctuations that raise the prices of materials and equipment could also lower profit margins in the construction business. The structure is such that earnings are affected by a combination of fluctuations in crude oil market conditions, exchange rates, and supply and demand.

The company is subject to legal regulations such as the Construction Business Act, the Antimonopoly Act, and the Industrial Safety and Health Act, and the establishment, revision, or abolition of regulations or changes in applicable standards could lead to increased costs or operational constraints. Receiving administrative disposition could adversely affect operating results and financial position. The company strives for legal compliance through the formulation of various manuals, education and training, and internal audits.

If non-conformity with contract terms occurs in constructed properties, costs such as repairs and damages may arise, which could adversely affect operating results and financial position. The company treats quality control as an important issue, including obtaining certification under international quality assurance standards, but it is difficult to completely eliminate this risk.

Syndicated loan agreements with several financial institutions include financial covenants, and if conditions are breached, the company may lose the benefit of time and be required to repay the loans in a lump sum. Since all outstanding borrowings carry variable interest rates, future increases in interest rates would increase interest payment burdens and affect operating results. The agreements were entered into with the aim of establishing a stable financing arrangement, but continued attention to changes in the interest rate environment is necessary.

The company continuously conducts business such as receiving construction orders from Tokyu Group companies, including other affiliated companies Tokyu Corporation and Tokyu Construction Co., Ltd., and changes in the business trends or policies of Group companies could affect the company group's order intake and business performance. In cases of high dependence on intra-group transactions, the structure raises questions about the ability to secure orders outside the Group.

If the business environment changes significantly due to changes in the political and economic conditions of foreign countries, exchange rate fluctuations, changes in legal regulations, or other factors, this could affect business performance, including a decrease in net sales. It should be noted that as international business expands, country risk and exchange rate risk increase relative to domestic business.

If confidential information is leaked due to cyberattacks or unauthorized access, or if core systems fail, this could adversely affect operating results and financial position through loss of trust from customers and society and disruption of business activities. As countermeasures, the company has established security infrastructure, information management, and backup systems based on internal regulations, and conducts ongoing internal training.

Increased costs associated with the introduction of carbon pricing and reduced labor productivity due to rising temperatures could affect the business. Since the construction and paving businesses are centered on outdoor work, they have business characteristics that make them directly susceptible to the effects of rising temperatures. The status of response to climate change risk is described in the sustainability concepts and initiatives section.

If the spread of infectious diseases forces the suspension of construction work in the construction business or the halting of factory operations in the paving materials manufacturing and sales business, this could adversely affect operating results and financial position. Indirect effects through significant fluctuations in construction order volumes are also anticipated, and the risk may be amplified in a business structure with high dependence on public works.