DAIWA HOUSE INDUSTRY CO., LTD.

Amendments, abolitions, or new enactments of broad legal regulations, including domestic and overseas construction and real estate-related laws and various industry-specific statutes, may adversely affect business performance. As the Group operates in a diverse range of businesses including hotels, logistics, insurance, sports clubs, and credit cards, there are numerous situations where such impacts could occur. As countermeasures, the Group continuously monitors legal and regulatory trends and promotes legal training and awareness programs for employees along with the development of various operational manuals.

Risks unique to international transactions, such as sharp inflation, exchange rate fluctuations, political and economic uncertainty in countries of operation, foreign exchange controls arising from conflicts or deteriorating diplomatic relations, and changes in real estate policy, may adversely affect business performance. The Group has established investment management guidelines and conducts project reviews through a specialized committee, and has built a governance structure through regional holding companies (RC functions) covering five overseas areas.

Materials prices are rising sharply against a backdrop of global climate change, energy price increases stemming from the situation in Russia and Ukraine, the continued depreciation of the yen, and U.S. reciprocal tariffs, while an increase in labor costs is also unavoidable due to a shrinking labor force from the declining birthrate and aging population as well as minimum wage increases. The Group is working to curb cost increases through a combination of measures, including building a multi-supplier procurement system, adopting alternative materials, pursuing scale benefits, and reducing labor requirements through DX and prefabrication.

The number of workers employed in Japan's construction industry has been on a downward trend, and there is a risk that rising labor costs and prolonged construction schedules will become more pronounced due to declining entry of young workers and accelerating workforce aging. The Group has implemented 15 measures, including abolishing promissory note payments for construction fees, providing allowances to skilled workers, using DX to reduce labor requirements and improve efficiency, promoting prefabrication and standardization, and introducing work robots.

In the event of a deterioration in the real estate market due to economic downturn or other factors, a decline in the profitability of held real estate may necessitate write-downs of book value, and inventories, property and equipment, intangible assets such as goodwill, and investment securities carry similar risks. The Group monitors this through periodic real estate appraisals and, in principle, does not hold assets subject to market value fluctuation risk unless there is a business necessity for doing so.

Various real estate development projects, such as housing estates, condominiums for sale, logistics facilities, and data centers, require significant expenditure and extended periods of time, and unexpected cost increases or project delays/cancellations may adversely affect business performance. The Investment Committee conducts multifaceted risk assessments across 15 departments and 25 items, including ESG factors such as legal risk, soil contamination, and disaster risk, while using IRR as a primary metric, in order to ensure appropriate investment decisions.

The Group raises funds through interest-bearing debt to meet funding needs centered on real estate development, and an increase in funding costs due to rising market interest rates or a credit rating downgrade may adversely affect business performance. There is also concern about reduced customer purchasing intent due to increased mortgage loan burdens. The Group has built a stable funding structure through a balanced combination of fixed and variable rate financing, reducing refinancing risk through ultra-long-term funding, and maintaining good relationships with financial institutions.

The retirement benefit obligation balance at the end of the current fiscal year reached ¥528,000 million, and there is a risk that changes in actuarial assumptions such as the discount rate due to fluctuations in financial markets could significantly change retirement benefit expenses. The Group recognizes actuarial differences in full in the year they arise, and in FY2026 (ending March 2026), actuarial differences and other amounts of ¥115,600 million (decrease in expenses) arose due to a change in the discount rate. Although the Pension Asset Management Committee conducts diversified investment management, since changes in accounting policy are not permitted, the structure is such that large fluctuations in financial markets have a direct impact on current period business performance.

As the use of IT systems expands with the promotion of DX, prolonged system outages caused by cyberattacks and external leakage of personal information or confidential information may adversely affect business performance. The Group combines technical measures (firewalls, intrusion detection, endpoint security, etc.), organizational measures (establishment of CSIRT and SOC), and human-based measures (e-learning, targeted phishing email training), and has rolled out a common Group-wide security policy to all Group companies, including those overseas.

In corporate and business acquisitions and organizational restructuring, if integration procedures do not proceed as planned and synergies fail to produce the expected results, or if expected profits cannot be achieved due to sudden changes in the business environment, business performance may be adversely affected. The Group has established a framework that includes conducting due diligence and share valuation prior to acquisitions, promoting integration through a specialized PMI department, and continuously reviewing its business portfolio (including considering sales to best owners).