Sanyo Engineering & Construction Inc.

If order prices decline due to competition among contractors while material and labor costs rise amid domestic and international political and economic conditions, construction costs may increase, potentially worsening business performance. The impact would be further amplified by a relative decline in business competitiveness. The Group is working to strengthen its competitiveness, but fundamental solutions to fluctuations in the external environment are limited.

If business partners such as clients, subcontractors, or joint construction partners face credit concerns, there is a possibility that contract payments or advanced construction funds may become uncollectible, or that construction progress may be hindered. The Group conducts credit management and risk avoidance measures according to the financial condition of business partners, but in the event of an emergency, this would directly impact business performance.

In overseas business, which accounts for approximately 40% of sales, significant changes in the political and economic conditions or legal systems of the countries where the Group operates may affect construction execution plans, profitability, and payment collection. In addition, substantial fluctuations in interest rates and foreign exchange rates may also affect business performance. The Group is working to respond quickly through the development and expansion of overseas personnel and the diversification of employee skills, but the risk of sudden changes in the external environment remains.

Since overseas sales account for approximately 40% of total sales, significant fluctuations in foreign exchange rates may directly affect the yen-equivalent amounts of sales and profits. Sharp fluctuations in interest rate levels may also affect the profitability of overseas business. There is currently no specific mention of hedging measures, and the response to foreign exchange fluctuation risk appears to be limited.

Since work is mainly conducted at construction sites, the risk of human and physical accidents or disasters always exists, and their occurrence may affect business performance. The Group strives for systematic prevention through strengthening quality control and accident/disaster elimination activities, thorough education, and the introduction of international standards such as ISO. However, due to the nature of the construction business, it is difficult to completely eliminate such risks.

There is a risk of being subject to damages claims based on warranty liability or product liability, or lawsuits arising from human accidents at construction sites. The Group has established systems such as accumulating case studies of failures, creating quality standard checksheets, and establishing health and safety manuals, but it is not possible to completely prevent contingent events from occurring. If damages claims materialize, they may have a significant impact on business performance and social credibility.

The Group is subject to legal regulations such as the Construction Business Act, the Antimonopoly Act, and the Industrial Safety and Health Act, and abolition, enactment, or changes in application standards of these regulations, or administrative dispositions resulting from violations, may affect business performance. The Group strives to ensure thorough compliance through in-house seminars and audits by the audit department regarding awareness status, but the costs of responding to legal changes and the risk of administrative dispositions continue to exist.

If the fair value of held real estate and cross-shareholdings declines significantly, or if their profitability declines significantly, it may affect business performance through the recording of valuation losses, among other factors. The Group is reviewing its holding rules from an ROE perspective and examining individual stocks, but there is a risk that the response may lag in the event of a sudden change in market conditions.

Retirement benefit expenses and retirement benefit obligations are calculated based on actuarial assumptions such as the discount rate and the expected rate of return on pension assets, and discrepancies between these assumptions and actual results, or changes in the assumptions, may affect business performance. Since fluctuations in the interest rate environment affect the discount rate, a continued low interest rate environment or sharp interest rate fluctuations are factors that can cause changes in the amount of obligations.

If important information such as personal information is leaked externally, it may lead to a decline in social credibility and affect business performance. The Group is working on establishing in-house systems and information handling rules in accordance with laws and regulations, strengthening the security of information systems, and providing employee training, but risks such as cyberattacks and internal misconduct cannot be completely eliminated.