Shin Nippon Air Technologies Co., Ltd.

A domestic economic downturn or a decline in private capital investment and public investment could lead to fewer order opportunities, lower order prices, and deteriorating construction profitability. In addition, instability stemming from the situation in Ukraine and the Middle East, as well as changes in trade and tariff policies in various countries, could cause significant fluctuations in energy prices, materials and equipment prices, and logistics costs, creating risks of increased procurement costs and delays in the procurement of materials and equipment. While the Company currently assesses the likelihood of this risk materializing as relatively low, it recognizes that it could materialize over the short to medium/long term.

If unprofitable construction projects arise due to sharp increases in materials/equipment prices or labor costs, or unforeseen additional costs, this could have a material impact on business performance through the recording of provisions for construction losses and similar measures. In addition, the completion, inspection, and delivery of construction projects tend to be concentrated in the fourth quarter, and if schedule delays, inspection delays, or additional costs arise for large-scale projects during that quarter, there is a risk of a material impact on full-year consolidated business performance. The Company addresses this through profitability checks at the time of order receipt, management of construction costs, schedules, and planned inspection dates, and careful review of contract terms.

If a serious occupational accident, traffic accident, or quality/complaint incident occurs, in addition to a significant impact on construction progress, this could have a material impact on financial position and business performance through damage to corporate value, loss of social trust, and compensation to related parties. The Company thoroughly implements safety and quality management through safety education, site patrols, careful formulation of construction plans, and selection of technically capable specialist contractors, but it is difficult to eliminate this risk entirely.

A chronic shortage and outflow of young and specialized personnel could have a material impact on business activities. The Company strives to develop and secure personnel through the introduction of new personnel systems and raising the retirement age, among other measures, but the personnel shortage is a structural challenge across the construction industry as a whole. A shortage of engineers is also linked to schedule delay risk and could affect the maintenance of the construction production system.

As the aging of skilled workers in the construction industry progresses while the influx of younger workers stagnates and generational turnover fails to keep pace, it may become difficult to secure a construction production system, including among partner companies. If it becomes difficult to maintain the construction production system, this would have a material impact on financial position and business performance through reduced order-taking capacity and schedule delays. The Company strives to help partner companies secure skilled workers, but this is a structural issue across the industry as a whole, and there are limits to what can be addressed.

There are both transition risks—such as increased costs from the introduction of carbon pricing (carbon taxes, emissions trading systems, etc.)—and physical risks, such as delays in materials/equipment procurement, cost increases, and labor shortages caused by typhoons, floods, extreme heat, and other events. Furthermore, if a large-scale natural disaster such as an earthquake, typhoon, or heavy rainfall occurs, this could have a material impact on financial position, business performance, and cash flows through the interruption or delay of construction projects in progress, damage to offices, construction sites, and materials/equipment, and disruption of logistics networks and supply chains. The Company promotes initiatives toward realizing a decarbonized society, but its response to physical risks remains limited.

The Company holds confidential information such as management and technical information, as well as personal information of business partners and related parties, and if this information is leaked due to unauthorized external access or improper internal use, this could have a material impact on financial position and business performance through damage to corporate value, loss of social trust, and compensation to related parties. The Company has taken measures such as establishing internal regulations, thoroughly informing officers and employees, and strengthening security systems, but it is difficult to completely prevent unforeseen incidents.

The Company is subject to regulation under various laws such as the Construction Business Act, the Industrial Safety and Health Act, and the Antimonopoly Act, and the revision or abolition of laws or the enactment of new regulations could give rise to new obligations, increased cost burdens, or restrictions on rights. In addition, if a compliance violation occurs, this would have a material impact on financial position and business performance through damage to corporate value, loss of social trust, and suspension of business, among other effects. The Company strives to ensure thorough compliance among officers and employees, but it is difficult to completely eliminate the risk of legal violations.

Construction contracts tend to involve large contract amounts per transaction, with substantial payment for construction work made upon completion or delivery, so if a business partner falls into financial distress before payment is received, there is a risk that collection of construction payments becomes difficult. If amounts become uncollectible, this could have a material impact on the financial position and business performance of the Group. The Company addresses this through careful review of contract terms, but the deterioration of a business partner's financial condition depends significantly on external factors.

Advance investment is required for the development of new technologies aimed at realizing a decarbonized society and solving social issues, as well as for innovation including DX, which is essential to achieving the long-term management policy "SNK Vision 2030." If the targeted results are not achieved, this could have a material impact on financial position and business performance. There is a risk that the return on investment falls short of expectations due to the pace of technological innovation and changes in the market environment, requiring continuous monitoring.