TOENEC CORPORATION

Sales to the three companies Chubu Electric Power Co., Inc., Chubu Electric Power Grid Co., Inc., and Chubu Electric Power Miraiz Co., Inc. account for approximately one-third of total sales. If these three companies restrain electric power facility investment due to changes in their business environment, or if transaction prices decline due to falling market prices, there is a risk that sales and profit will decrease. The Company is addressing this by strengthening cost competitiveness through productivity improvements, but the impact could be significant if restraint exceeds expectations.

Sales to general customers account for approximately 60% of total sales and are affected by economic conditions such as the construction market and capital investment trends. If an economic downturn leads to a substantial reduction in capital investment or intensified low-price competition, there is a risk that sales and profit will decrease. The Company is responding by implementing measures to expand orders, such as developing new markets and new customers.

Construction costs consist of material costs, labor costs, subcontracting costs, and expenses. If cost fluctuations exceeding expectations occur, such as surging material prices or rising labor costs, there is a risk that profit will be squeezed. The Company strives to reduce costs through pre-order cost examination and low-cost material procurement, but it is difficult to completely eliminate the impact of market fluctuations.

If a serious quality defect or accident occurs during construction, there is a risk that repair costs, damages, and similar expenses could affect the Company's financial position and business results. The Company works to thoroughly implement quality control, including developing construction manuals and guidelines, providing technical training, and conducting site patrols, but it is difficult to reduce the risk to zero given the diversity of construction sites.

If it becomes difficult to build a construction workforce due to a decrease in new hires or an increase in employee turnover, or if technical succession becomes difficult due to the retirement of veteran engineers, there is a risk that sales and profit will decrease. Based on the "TOENEC Group Human Resources Strategy Policy," the Company is engaged in active recruitment activities, human resource development, engagement enhancement, promotion of diversity, and maintaining and strengthening the construction workforce, including partner companies.

If social credibility declines due to violations of relevant laws and regulations such as the Construction Business Act, the Antimonopoly Act, and the Industrial Safety and Health Act, penalties for delayed responses to legal amendments, or occurrences that go against social norms, there is a risk that this could affect the Company's financial position and business results. The Company has established basic policies and codes of conduct in its "Compliance Declaration" and is working on employee training and other measures.

There are risks including a significant decrease in orders from customers promoting environmental management due to delays in efforts toward a decarbonized society, a significant increase in material procurement costs due to the introduction of carbon pricing and similar measures, and reduced productivity due to abnormal weather. The Company announced its endorsement of the TCFD recommendations in April 2022 and is working to strengthen risk management and integrate it with business strategy under the "TOENEC Group Basic Environmental Policy."

If business investments and M&A conducted as part of the growth strategy fail to achieve the initially expected results due to significant changes in the business environment, intensified competition, unexpected liabilities or costs, or similar factors, there is a risk that this could affect the Company's financial position and business results through goodwill impairment and other means. In addition to multifaceted research and examination before investment, the Company also monitors business plans and results and provides ongoing support after investment.

If important information such as personal data is leaked externally, there is a risk that this could affect the Company's financial position and business results due to a decline in social credibility and the occurrence of legal liability. The Company is working on establishing internal systems and information handling rules in accordance with relevant laws and regulations, strengthening information system security, and providing employee training.

If large-scale natural disasters, war, terrorism, or other emergencies, or a global pandemic of infectious disease occur, there is a risk of human and physical damage, disruption to material procurement, suspension or delay of construction work, and a decline in orders and profit due to a global economic downturn. The Company has formulated a Business Continuity Plan (BCP) to reduce the risk of business interruption, but it is difficult to completely avoid the impact of large-scale events.