Sumitomo Forestry Co., Ltd.

Economic downturns at home and abroad, changes in interest rate policy, fluctuations in land prices, and rising construction costs may reduce customers' willingness to purchase housing and real estate, potentially deteriorating housing and real estate market conditions and cost structures. The Group's business results are highly dependent on domestic and overseas housing and real estate markets, and the impact could be wide-ranging. As countermeasures, the Group promotes differentiation through proprietary products and technological capabilities domestically, and market diversification and business diversification into the U.S., Australia, and Asia overseas.

Supplier bankruptcies or the materialization of geopolitical risks may make it difficult to procure raw materials, timber, and building materials, potentially delaying product delivery and housing construction. Additionally, if increased procurement costs cannot be passed on to sales prices, business results may be adversely affected. As countermeasures, the Group is strengthening supply chain resilience by procuring from multiple production regions, expanding procurement bases, and establishing a multi-supplier procurement system.

In the domestic construction industry, the aging of skilled workers and the trend away from the trade among young people are progressing, and the number of workers is on a long-term downward trend. If the necessary skilled workers cannot be secured, construction start delays, extended construction periods, and rising labor costs may adversely affect business results. As countermeasures, the Group is improving productivity through training at in-house training schools, hiring support for partner construction companies, and DX promotion via precut and preset processing.

In addition to domestic laws and regulations such as the Building Standards Act, the Building Lots and Buildings Transaction Business Act, and the Act on the Protection of Personal Information, the Group must comply with laws and regulations in each country overseas, and violations could lead to fines, administrative penalties, and loss of social credibility. Given the wide range of businesses conducted domestically and overseas, the scope of applicable regulations is extensive. As countermeasures, the Group conducts group-wide inspections, audits and on-site inspections by business divisions, and has established a governance structure through overseas regional holding companies.

In business activities conducted through overseas group companies and in foreign-currency-denominated import/export transactions of timber and building materials, exchange rate fluctuations may increase or decrease the yen-converted amount of foreign-currency-denominated revenues and expenses, and net assets may fluctuate through the foreign currency translation adjustment account. While it is difficult to fully hedge medium- to long-term exchange rate fluctuation risk, the Group utilizes foreign currency deposits and forward exchange contracts to minimize short-term fluctuation risk.

In fund procurement through bank borrowings, bond issuances, and other means, a rise in market interest rates, disruption in financial markets, or a downgrade of the Company's credit rating could constrain fund procurement and increase procurement costs, affecting operating results. As countermeasures, the Group maintains and improves its credit rating through a balanced combination of funding methods, appropriate diversification of maturities, and management that emphasizes financial discipline.

There is a risk of significant defects in housing, accidents involving elderly residents at paid nursing homes, high damages from class action lawsuits overseas, and penalties arising from procurement of timber of questionable legality. In particular, quality defect lawsuits overseas could result in substantial liability and response costs. As countermeasures, under the "ZERO DEFECTS" policy, the Group promotes a long-term warranty system, regular meetings of the timber procurement committee, and accident prevention through the use of IT equipment.

If the vast amounts of customer personal information held in domestic and overseas housing and real estate businesses, or confidential information such as that at the Tsukuba Research Institute, were leaked due to internal human error or external cyberattacks, this could result in serious impacts such as loss of social credibility, damages claims, and reduced competitiveness. As countermeasures, the Group has established a CSIRT/SOC structure, built a multi-layered defense system, strengthened supply chain security, and conducts regular cybersecurity drills.

In overseas business operations, changes in the political, economic, and social conditions of each country, differences in laws and regulations, and compliance violations such as bribery or fraud could result in significant financial outflows or penalties from local governments, affecting operating results. As countermeasures, the Group sets hurdle rates by country and business, establishes anti-bribery regulations for overseas group companies, shares internal audit results, and provides safety education and crisis management training for overseas expatriate staff.

The occurrence of crisis events such as large-scale earthquakes, wind and flood damage, infectious diseases, or terrorism could make business continuity difficult, and abnormal weather due to climate change and loss of biodiversity are difficult to avoid through the Group's efforts alone, affecting operating results. There is also a risk of loss of planted trees due to large-scale fires or pest damage in forests managed and owned domestically and overseas. As countermeasures, the Group promotes the establishment of BCM regulations and BCP formulation, development of alternative business locations, establishment of telework environments, and construction of forest fire prevention systems.