Sanki Engineering Co., Ltd.

If the company is unable to secure the personnel necessary for construction work due to significant shortfalls in recruitment plans, rising turnover rates, or a decline in the number of technicians at partner companies, this could affect business performance. In particular, as projects grow larger amid an increase in semiconductor, data center, and large-city redevelopment projects, securing construction personnel and partner companies has become a critical issue for business execution. As countermeasures, the company is promoting increases in starting salaries and wage levels, strengthening trust with partner companies, automating and streamlining construction, and building a company-wide personnel coordination system.

Due to the working hour cap regulations applied to the construction industry from April 2024, the volume of work that can be handled may decrease as total working hours decline, potentially affecting business performance. Amid growing supply capacity constraints across the construction industry as a whole, the risk of lost order opportunities and construction delays is increasing. The company is addressing this by improving design and construction efficiency through the use of ICT tools such as BIM.

If prices of materials and equipment as well as labor costs rise sharply due to exchange rate fluctuations, rising energy prices, or other factors, and it becomes difficult to reflect these increases in contract amounts, business performance could be affected. There is also a risk that delayed delivery of materials and equipment could delay the overall construction schedule, leading to a loss of customer trust and confidence. The company addresses this through contract negotiations incorporating price escalation clauses prior to order acceptance, early ordering and cost reduction, and constant updating of delivery information.

Unprofitable construction projects may arise due to unexpected additional costs such as design changes during construction, increased workforce due to schedule delays, and rework. In particular, large-scale projects face an increasing risk of profitability deterioration due to cost overruns, delivery delays, and quality issues caused by more complex schedule management. The company addresses this through early risk identification via regular progress management, strengthening the project management system, and using construction simulations leveraging BIM/CIM.

Changes in tariff policy by the U.S. government could affect business performance if they lead to changes in customers' capital expenditure trends or increases in the price of materials and equipment. In the equipment construction business, which is highly dependent on global supply chains, there is a risk that increased procurement costs and a deteriorating order environment could occur simultaneously. The company addresses this by strengthening monitoring of customers' capital expenditure trends and material/equipment prices, securing diverse supply sources, and using foreign exchange hedging, among other measures.

Inadequate information management, cyberattacks, or system failures could result in business suspension or the leakage of personal information or confidential customer information (such as construction drawings), potentially causing damage to the company. Given the nature of the equipment construction business, which handles a large amount of confidential customer information, information leaks could seriously affect trust relationships with customers. The company addresses this through strengthened measures against unauthorized access, continuous monitoring by specialized firms, verification of security measures at partner companies, and BCP (business continuity plan) preparation.

Amid growing demand for the introduction of the latest decarbonization and energy-saving technologies, if the development and introduction of new technologies or the establishment of related organizational structures are delayed, existing technologies could become obsolete, leading to reduced competitiveness and affecting business performance. Delays in adopting digital technologies, including generative AI, could also hinder the optimization of business processes, risking a loss of competitiveness. The company addresses this through active investment in energy-saving related technology development, strengthening technology development personnel, obtaining DX certification, and establishing a Digital Transformation Promotion Department.

Declines in the market value of held shares could result in asset reductions and losses, and could also cause underfunding of retirement benefit pension assets and trust assets due to their reduced value. Regarding cross-shareholdings, the company has set a target of reducing the number of listed shares held and their monetary value by at least 50% from the end of March 2024, aiming to bring cross-shareholdings below 20% of consolidated net assets by the end of March 2028. The company addresses this through monitoring of the investment status of retirement benefit pension assets and trust assets, and by strengthening its management structure.

In addition to the risk of administrative guidance or fines due to insufficient awareness of local laws and regulations, business performance could be affected by war, terrorism, political instability, changes in economic conditions, or unexpected changes in laws. In particular, the risk of deteriorating business profitability due to the worsening Chinese economy is explicitly cited, reflecting multiple overlapping geopolitical risks. The company addresses this through promoting education for local staff, accurately collecting and analyzing local information, and verifying and updating its "Overseas Crisis Management Manual."

Since DBO projects involve long-term operation and maintenance, business performance could deteriorate if unexpected events such as significant price increases occur. This risk is compounded by intensifying price competition amid the deteriorating fiscal conditions of local governments, which could put pressure on the profitability of the environmental systems business. The company addresses this through contract negotiations incorporating price escalation clauses, thorough monitoring of business operations, and expansion of the LCE (Life Cycle Engineering) business.