TOMOE CORPORATION

If public sector projects and private-sector capital investment decline due to worsening domestic economic conditions, intensified competition among companies could deteriorate order volumes and order terms, affecting business performance. The construction industry is highly susceptible to business cycle fluctuations, and a significant decline in order volume poses a risk of directly impacting earnings. As countermeasures, the Company is working to review and strengthen sales strategies, enhance pre-order review processes, promote cost reductions, and improve profitability recovery capabilities.

If an ordering party falls into credit distress before payment for construction work is received, or if a subcontractor faces a similar situation, business performance could be materially affected given the large contract amounts typical of individual transactions. The large-transaction structure characteristic of the construction industry is a factor that amplifies this risk. The Company seeks to reduce this risk through stricter credit investigations at the time of order receipt and thorough credit management via periodic re-investigations.

If prices of raw materials essential to business activities and outsourced labor costs surge and it becomes difficult to pass these increases on through contract prices, business performance may deteriorate due to lower profit margins at the estimation stage and adverse effects on construction periods and costs. Given the recent upward trend in material prices, the likelihood of this risk materializing has increased. The Company strives to curb price increases through monitoring of material price trends and appropriate procurement management.

The Company holds assets such as real estate and securities, and business performance may be affected by a decline in real estate market value or profitability due to changes in economic conditions, or by impairment losses on securities due to deteriorating stock market conditions. The Board of Directors reviews the benefits and risks of holding each individual property and security from both qualitative and quantitative perspectives, and seeks to reduce risk by proceeding with sales where no rationale for continued holding is found.

Business performance may be affected if errors, delivery delays, or damages arising from warranty liability or product liability occur in various construction projects or products. The Company has established a quality management system centered on its quality control department and strives to maintain optimal quality suited to the characteristics of each product, but complete elimination of such risk is difficult. Depending on the scale of damages, the financial impact could be significant.

Business performance may be affected if commercialization of new technologies requires time to build a track record, or if problems emerge or unforeseen circumstances arise during the commercialization process, resulting in damages. The Company seeks to reduce this risk by continuing to strengthen technology development and business development, including promotion of AI, IoT, and other technology utilization; however, there is also an inherent risk of declining competitiveness if the Company fails to keep pace with the speed of technological innovation.

The Company conducts its operations in accordance with current laws, tax systems, regulations, policies, and business practices, but future changes to these could affect business operations and performance. The construction industry is subject to a wide range of regulations, including the Construction Business Act and the Industrial Safety and Health Act, and there is a risk that costs will arise in responding to regulatory changes. The Company strives to reduce this risk through early access to information on legal amendments and prompt implementation of countermeasures.

If a serious industrial accident occurs at a construction site or elsewhere, it could cause human casualties as well as affect business performance and damage the Company's social credibility. The Company works to prevent industrial accidents before they occur through hazard prediction checks and elimination of hazardous elements at pre-work meetings, as well as regular safety and health committee meetings; however, the high-risk environment inherent to construction sites is a constant factor.

Business performance may be affected if business continuity is disrupted by natural disasters such as earthquakes or by man-made disasters. Given the high earthquake risk in Japan, there is a risk that physical damage to construction sites and business locations could halt business activities. The Company seeks to reduce this risk by formulating a Business Continuity Plan (BCP) and preparing a safety confirmation system and appropriate initial response measures in the event of a large-scale disaster.