ASAHI KOGYOSHA CO., LTD.

In addition to reductions in public investment budgets and contraction of capital expenditures due to economic trends, soaring prices of materials and equipment, rising logistics costs, and increasing labor costs push up construction costs. In the precision environmental control equipment business, there is also a risk of cyclical market downturns due to deterioration in the supply-demand balance for products for semiconductors and FPDs. In response, the company is working to secure partner companies early, diversify procurement sources for materials and equipment, negotiate prices with ordering parties, and promote differentiation strategies.

Precision environmental control equipment, the main product of the equipment manufacturing and sales business, has a high degree of dependence on specific business partners, and fluctuations in the business performance of such partners or changes in their outsourcing policies could directly affect operating results. The company aims to reduce this dependence risk by closely monitoring market and customer trends and strengthening its proprietary technology and services based on its medium-term management plan.

Changes in on-site conditions or design changes during the construction stage may cause schedule delays and increased costs, and the occurrence of unprofitable construction projects could affect operating results. In the construction industry, the contract amount per project is large, and there is also the compounding risk of uncollected construction payments due to credit concerns at business partners. The company strives for early identification of issues through thorough risk screening before order acceptance and strengthened progress and cost management during the construction stage.

If the securing of highly specialized engineers and construction managers does not proceed as planned due to the declining working population from the falling birthrate and aging population, this could lead to difficulty maintaining the construction system and loss of order opportunities. The company positions human capital management as one of its most important management strategy issues and is promoting stronger recruitment, enhanced personnel systems, and the development of educational systems for technology transfer.

Leakage of or unauthorized access to confidential information such as technical information and personal information could result in loss of trust, damages, and recovery costs, affecting operating results. The company is strengthening technical and organizational measures, including the appointment of a Chief Information Security Officer, establishment of management regulations, and risk assessments conducted by third-party experts.

The tightening of environmental and energy-saving standards accompanying the transition to a decarbonized society may raise construction and manufacturing costs, the progress of a circular economy may reduce opportunities to receive orders for new construction, and insufficient disclosure of climate-related information could damage social reputation, potentially affecting operating results. The company is addressing these risks by endorsing the TCFD recommendations, promoting information disclosure, developing decarbonization technologies, and introducing renewable energy.

If the Group's response to the rapid advancement of construction DX and AI technology is delayed, business efficiency and market competitiveness could relatively decline. The company is promoting the use of BIM, digitizing internal operations, and providing IT literacy training, striving to improve productivity by combining digital technology with the expertise of skilled engineers.

In overseas businesses in Taiwan and Malaysia, unexpected events such as changes in laws and regulations or tax systems, political instability, sharp fluctuations in exchange rates, and soaring material prices could delay construction progress or worsen profitability, affecting operating results. The company thoroughly conducts continuous collection of political, economic, and legal information in the countries where it operates, maintains overseas crisis response manuals, and provides risk management education to local staff.

Discrepancies between actuarial assumptions such as the discount rate and actual results, as well as declines in pension assets due to falling stock prices, may increase retirement benefit expenses and affect the financial position. In addition, there is a risk that a deterioration in the financial condition of the multi-employer defined benefit corporate pension plan the company participates in could lead to a review of the plan, increasing the Group's retirement benefit expenses. The company addresses this through annual review of actuarial assumptions and continued pension fund management in highly safe assets.

In entering adjacent areas to existing businesses or new fields through M&A and business alliances, sudden changes in the market environment, the introduction of unexpected laws and regulations, or discrepancies between plans and actual results could make it difficult to recover invested capital, affecting business performance and financial condition. The company has built an investment management system through rigorous prior market research and feasibility studies, multifaceted risk assessment and careful deliberation by the Board of Directors, and regular monitoring after execution.