YONDENKO CORPORATION

The trend of capital investment in transmission and distribution facilities by the Shikoku Electric Power Group, a major customer, may directly affect the Group's business performance. In addition, there is a risk that contract prices may decline due to a contraction in general construction investment and intensified competition for orders, leading to deterioration in construction profitability. As a countermeasure, the Group strives to identify at an early stage the investment trends of the Shikoku Electric Power Group as well as private-sector and government/public entities, and reflects these in its business strategy.

If material costs and subcontracting expenses rise significantly due to a deterioration in the procurement environment, this may affect construction profitability. In particular, there are concerns about the impact on the supply chain from a shortage of workers and the global surge in material prices. As a countermeasure, the Group continuously monitors labor unit costs and material price trends, and conducts timely cost reviews and advance procurement.

In contracted construction work and leasing business, the Group bears credit risk with respect to customers during the period between contract execution and receipt of payment, and there is a possibility that an unexpected deterioration in a customer's business or financial condition may make it difficult to collect receivables. Although the Group strives to enhance and strengthen credit management, it is difficult to completely eliminate this risk. As a countermeasure, the Group works to thoroughly manage credit control, long-term outstanding receivables, and checks on unbilled work-in-progress amounts.

The Group has adopted a retirement benefit system including a defined benefit corporate pension plan, and a deterioration in the investment yield on pension assets or a decline in the discount rate may affect business performance and financial position. There is a risk that pension obligations may increase due to changes in the financial market environment. As a countermeasure, the Group conducts appropriate risk management through passive management based on its policy asset allocation ratio, among other measures.

The Group holds securities for purposes such as fund management, and if the market value declines significantly due to fluctuations in interest rates or stock prices, this may affect business performance and financial position. There is a risk that valuation losses on held securities may occur in the event of a sudden change in market conditions. As a countermeasure, the Group strives to manage risk through its investment portfolio and to minimize the impact of stock price fluctuations and other factors as much as possible.

The Group is subject to legal regulations such as the Construction Business Act, the Antimonopoly Act, and the Industrial Safety and Health Act, and if these are abolished, revised, newly enacted, or if application standards are changed, or if the Group receives an administrative disposition, this may affect business performance. Responding to stricter regulations or new laws may involve additional costs or business constraints. As a countermeasure, the Group appropriately gathers information and analyzes the impact of trends in relevant laws and regulations as needed, and responds appropriately with relevant departments taking the lead.

In the event of a large-scale disaster such as an earthquake or a pandemic, business activities may be disrupted and it may become difficult to ensure the safety of employees, which may affect business performance and financial position. Given the nature of the business, which is centered on on-site construction work, the Group is particularly susceptible to the effects of natural disasters. As a countermeasure, the Group continues to conduct training and take measures in preparation for large-scale disasters, and responds appropriately and in a timely manner to ensure business continuity and employee health and safety in the event of a pandemic.

As an information security risk that has grown in importance in recent years, a cyberattack or information leak, if it occurs, may have a significant impact on business activities and the Group's reputation. With the advancement of digitalization, threats via networks are increasing. As a countermeasure, in accordance with its information security guidelines, the Group develops and strengthens its security infrastructure and information management system, continuously monitors its networks, and provides information security education to employees.