NIPPON RIETEC CO.,LTD.

Trends in public and private capital investment could lead to a significant contraction of the market, and a decline in order volume could affect business performance. In addition, intensifying competition for orders with competitors carries the risk of lower profitability and reduced earning power. As the Group is primarily engaged in the construction business, it is highly sensitive to changes in the macroeconomic environment.

East Japan Railway Company is the largest shareholder, holding 19.6% of the Company's issued shares, and the Company is an equity-method affiliate of East Japan Railway Company. Sales to East Japan Railway Company account for a large proportion of the Group's consolidated sales, so changes in its capital investment plans or a deterioration in the relationship could have a material impact on business performance. The Company has established a system whereby the Board of Directors, of which independent outside directors constitute at least one-third, regularly verifies the soundness and appropriateness of transactions.

The electrical equipment construction business, which accounts for approximately 90% of net sales, operates under a special construction business license (Minister of Land, Infrastructure, Transport and Tourism License (General/Special-4) No. 997, valid until May 20, Reiwa 9) pursuant to the Construction Business Act. If the license were revoked due to a violation of laws and regulations or other reasons, it could have a material impact on business performance and financial condition. Grounds for revocation include fraudulent acquisition of the license or violation of disqualification provisions concerning the business manager or full-time engineers. The Group strives to comply with license conditions and laws and regulations, and as of the end of the consolidated fiscal year under review, recognizes no facts constituting grounds for revocation.

Construction costs, including raw material prices and labor costs, have continued to rise, and the Company is working to reduce costs through price negotiations with clients and improvements in efficiency and productivity. However, if cost increases continue to outpace the results of these efforts, profit margins may decline, potentially affecting business performance. Amid the continued deterioration of the cost environment across the construction industry as a whole, the effectiveness of countermeasures is being tested.

Securing and developing engineers who hold public qualifications such as electrical construction management engineer and civil engineering construction management engineer, as well as client-specific qualifications, is essential for business expansion. The Company strives to prevent personnel attrition by promoting diversity in recruitment activities, enhancing internal and external training facilities, and expanding internal systems; however, if it is unable to secure and develop the necessary personnel, business performance could be affected. As the shortage of engineers becomes more severe across the construction industry as a whole, continuous investment in human capital is required to maintain competitiveness.

The occurrence of accidents or industrial injuries during the construction process could damage client trust and significantly affect the order environment. While the Company carries out various construction work with safety as the top priority, it is difficult to completely eliminate risks unique to construction sites. This risk entails not only deterioration in business performance through loss of orders but also long-term damage to the corporate brand.

If an act that violates or is suspected of violating laws and regulations occurs, it could affect the order intake status and business performance. The Company has established a compliance officer and a Compliance Committee to strengthen corporate ethics, but continuous efforts are needed to ensure thorough implementation across the Group as a whole. Ensuring transparency in the bidding and order acquisition process in the construction industry is a particularly important issue.

Core operations such as general affairs, human resources, accounting, and construction management are processed using in-house systems, and if a system failure occurs due to human error, natural disaster, computer viruses, or other causes, it could disrupt business operations. If an information leak occurs, it could damage the corporate image and result in liability for damages, potentially affecting business performance. While the Company takes thorough security measures, risks associated with increasingly sophisticated cyberattacks continue to exist.

If natural disasters such as earthquakes, floods, and typhoons, or an increase in the frequency and severity of natural disasters due to climate change occur, business activities may be temporarily suspended, and significant costs and time may be required to restore properties under construction. While the Company has established earthquake and other disaster response guidelines and a disaster prevention manual, it is difficult to completely avoid the impact of large-scale disasters. Since the Group's business is centered on highly public social infrastructure development, the Group judges that the medium- to long-term impact of climate change on order intake is limited.

Because the completion and delivery of construction work in the electrical equipment construction business tends to concentrate in the fourth quarter, sales in the fourth quarter tend to account for approximately 40% of total sales for the fiscal year. Since fixed costs such as selling, general and administrative expenses are incurred roughly evenly across quarters, profit also tends to be concentrated in the fourth quarter. Due to this seasonal fluctuation, it is difficult to assess full-year performance based solely on results for the first through third quarters, which could affect investors' evaluation of business performance.