Takasago Thermal Engineering Co., Ltd.

Due to the chronic labor shortage in the construction industry, workload tends to concentrate on specific technical staff during busy periods, and continued excessive work may lead to reduced productivity and outflow of talent, potentially shrinking construction capacity and reducing net sales. The company is working to reduce overtime work through the transformation of "production management" via the T-Base® project and labor data monitoring conducted both at head office and on-site.

In overseas business development centered on China, Southeast Asia, and India, various risks exist including political instability, war, terrorism, changes in legal systems, differences in business customs, and intensifying competition, and failure to address these could have a material impact on the continuity of overseas operations and financial condition. The International Group Business Division manages and oversees overseas group companies, establishing a system for rapid risk response through constant information sharing and appropriate monitoring.

The combination of a decrease in the number of domestic employees due to an increase in retirees and difficulty in recruiting young and specialized talent may hinder future business activities and affect financial condition and business performance. The company is working to secure diverse talent through enhancing retirement age extension and re-employment systems, labor-saving and efficiency improvements through IoT utilization, and expanding year-round recruitment, regional recruitment, and mid-career recruitment.

If customers' investment plans are cancelled or postponed due to changes in the global economic environment, demand for construction and air conditioning equipment may decline beyond expectations, potentially affecting net sales and profit. In an environment where future forecasting is difficult, the Group's policy is to address this through company-wide initiatives such as fixed cost reductions.

If prices of materials and equipment such as ducts, piping, and refrigeration units rise sharply due to raw material market conditions, or if delivery times become prolonged, construction costs may increase beyond expectations in cases where pass-through to contract amounts is difficult, putting pressure on profitability. The Group works to minimize the impact through leveraging scale merits via centralized company-wide procurement and proposals for advance ordering and equipment model changes.

Due to the increasing sophistication of cyberattacks, it is difficult to completely eliminate information leakage and misuse resulting from unauthorized access, and if such an incident occurs, there is a risk of legal disputes and disciplinary action from regulatory authorities. The company is promoting multifaceted IT governance enhancement measures, including strengthened security monitoring through SOC establishment and SIEM tool implementation, building a CSIRT structure, and strengthening cooperation with external specialized organizations.

In addition to new or strengthened legal regulations under the Construction Business Act, Antimonopoly Act, Personal Information Protection Act, and other laws, as well as litigation, inadequate efforts regarding human rights including within the supply chain could result in business suspensions, stock price declines, fines, and other consequences affecting operations. The company addresses this through a reporting structure to the Company-wide Risk Management Committee and Internal Control Committee, audits by the Internal Audit Office, formulation and disclosure of a basic human rights policy, and human rights due diligence that takes the supply chain into account.

There are both transition risks, such as a decline in evaluation by investors and customers and loss of order opportunities due to delays in responding to the transition to a decarbonized society, and physical risks, such as soaring costs of materials and equipment, supply chain disruptions, and extended construction periods caused by extreme weather. The company has established a Sustainability Promotion Committee to continuously review environmental targets, conducts scenario analysis, and continues BCP training to build a medium- to long-term response framework.

Entry into new business areas carries the risk of expanding upfront investment and technology mismatches that may fail to produce initially expected results, while M&A activities may result in the discovery of contingent liabilities or the forced recognition of impairment losses on goodwill or shares. The company works to reduce these risks through market research and business plan scrutiny prior to entry, establishing exit criteria, and rigorous examination of the financial condition and contract terms of M&A target companies.

Instability in financial markets or a downgrade of credit ratings may make it difficult to raise funds on favorable terms in a timely manner, potentially disrupting stable cash flow management. Geopolitical risks and growing instability in the international financial system could be factors that heighten this risk. The company promotes stabilization and diversification of fundraising through constant dialogue with financial institutions, in addition to setting up new commercial paper issuance frameworks and considering commitment lines and additional corporate bond issuances.