NIPPON DENSETSU KOGYO CO., LTD.

The proportion of completed construction revenue attributable to East Japan Railway Company (JR East) is high, creating a risk that a substantial decrease in orders could occur due to changes in the company's capital expenditure plans or order placement policies. The company is working to develop new customers and expand its business domains, but if these efforts do not succeed, there is a possibility of a material impact on operating results.

The business structure is affected by trends in construction demand, including railway-related investment, private capital expenditure, and public investment. If an economic downturn, changes in capital expenditure plans, or a decrease in public investment occur, there is a possibility that decreased orders and intensified competition for orders could affect operating results.

In addition to declines in contract amounts due to intensified competition for orders, there are cases in long-term construction projects where surges in material prices or labor costs occurring after contract execution cannot be sufficiently reflected in the contract price. The company is working on cost reduction measures such as centralized procurement and improved construction efficiency, but if cost increases exceed expectations, construction profitability could deteriorate and affect operating results.

Due to the labor-intensive nature of the business, securing and developing personnel with the necessary skills, qualifications, and experience, as well as employees of partner companies, forms the foundation of business execution. The company is working to support new hiring by partner companies and to level out construction workloads, but if efforts to secure personnel do not progress sufficiently, it may become difficult to maintain and strengthen the construction execution system, potentially affecting operating results.

There is a risk that a serious accident or industrial accident occurring during construction could result in liability for damages, loss of trust from clients, and a decrease in order opportunities. In addition, violations of relevant laws such as the Construction Business Act could also lead to a decline in social credibility, potentially affecting order-taking activities and operating results. The company addresses this through safety conferences, training, and compliance education utilizing ICT.

If a serious quality defect or contract non-conformity occurs in a completed structure, there is a risk of repair costs, liability for damages, and a decline in customer trust. The company strives for thorough quality control at each stage of design, construction, and inspection, but there is a possibility that these issues cannot be completely prevented.

There is a risk that the abolition, enactment, or revision of operational standards under the Construction Business Act and other related laws could result in additional compliance costs or constraints on business operations. If the company fails to meet licensing requirements, such as those concerning the responsible manager of business operations or full-time engineers, it could be subject to administrative sanctions such as suspension of business, revocation of licenses, or disqualification from bidding. The company addresses this through the development of internal management and internal control systems and strengthened compliance.

The company holds core business systems for construction management, accounting, human resources, etc., as well as customer information and personal data, creating a risk that cyberattacks, unauthorized access, computer virus infection, or human error could lead to information leaks, data tampering, or system failures. The company has established an information security framework and strives for appropriate management, but this could still lead to disruptions in business operations, liability for damages, or a decline in social credibility.

There is a risk that natural disasters such as earthquakes, typhoons, and heavy rain, or the spread of a large-scale infectious disease, could damage business locations, construction sites, or construction equipment, as well as cause disruptions in material procurement, construction interruptions, or delays due to reduced functioning of social infrastructure or damage suffered by partner companies. The company has established a business continuity plan (NDK BCP) to address this, but it is difficult to completely avoid such impacts, and the resulting recovery costs or extended construction periods could affect operating results.

The increasing frequency and severity of natural disasters due to climate change raises the risk of damage to construction sites and equipment and of construction interruptions. In addition, expanded environmental regulations accompanying the transition to a decarbonized society, such as stricter greenhouse gas regulations and the introduction of carbon taxes, may result in additional cost burdens and constraints on business operations. The company is implementing various measures to address this, but states that it is difficult to completely avoid the impact.