Taikisha Ltd.

There is a risk that order intake for Environmental Systems and Painting Systems may decline due to reduced investment by overseas Japanese affiliates or production cutbacks by domestic automakers amid a global slowdown in automobile sales. In addition, delayed response to changes in production equipment aimed at carbon neutrality could lead to customer attrition. In response, the Company is strengthening sales activities toward locally owned companies and expanding its Automation business by entering other industries centered on automation technology.

There is a risk that rising procurement costs for construction materials due to fuel price increases, along with rising labor unit costs stemming from the declining birthrate, aging population, and worker shortages, could put pressure on earnings. If these cost increases cannot be passed on through contract prices, this would directly affect operating results. In response, the Company is identifying appropriate regional cost levels and hedging price-fluctuation risk within contracts.

In conducting business across various overseas regions, there is a risk of losses arising from unexpected changes in laws and regulations, political instability, or foreign exchange fluctuations. In addition to exchange rate fluctuations affecting foreign-currency-denominated contract and order amounts, translation differences in the financial statements of overseas group companies may also affect operating results. In response, the Company implements hedges such as forward foreign exchange contracts, strengthens credit management prior to order acceptance, and enhances the governance structure of overseas group companies.

The construction and equipment installation business is highly dependent on human resources. In Japan, in addition to an aging workforce and delays in technical personnel development, the application of overtime work limit regulations from April 2024 has reduced the total working hours of technical staff, creating a risk that it will become difficult to build design and construction systems. Overseas as well, delays in developing local employees and turnover leading to shortages of core personnel may affect long-term overseas business development. In response, the Company is promoting labor-saving through modularization, Front-Loading & BIM Solutions, and the use of digital technologies, as well as introducing global human resource portfolio management.

If system development fails to keep pace with customer needs related to carbon neutrality, energy conservation, and automation, there is a risk of losing technological differentiation from competitors, resulting in lost order opportunities and diminished customer trust. In response, the Company is promoting innovative technology development through collaboration with academic institutions and startups, leveraging its technology development center "TAIKISHA INNOVATION SITE AIkawa" and the R&D satellite facility at its Shinjuku headquarters.

If accidents, quality defects, or contract nonconformities occur during the construction process, there is a risk that operating results could be affected due to loss of social credibility, significant additional costs, or damage claims. Although the Company records a provision for completed construction warranties in preparation for contract nonconformity liability for a certain period after completion, actual costs may exceed the provision balance. In response, the Company is reducing on-site work through the use of digital technologies, digitalizing construction management, and strengthening safety and quality assurance systems across the group.

There is a risk that confidential information, including personal and customer data, could be leaked due to increasingly sophisticated cyberattacks or intentional data removal by employees, potentially resulting in loss of credibility and damage claims. In response, the Company formulates and implements a risk-reduction roadmap based on IT security assessments, has established an IT Governance and Information Security Subcommittee within the Digital Strategy Committee, has built a Taikisha-version CSIRT, and conducts company-wide e-learning and targeted phishing email drills.

M&A is positioned as a key measure in the Company's medium- to long-term growth strategy; however, there is a risk that if a divergence arises between post-acquisition earnings projections and actual results, impairment losses could be recorded, affecting operating results. In response, the Business Investment Committee reviews the feasibility of proposed transactions prior to Board of Directors resolutions, ensuring clarity of process and transparency of decision-making, while post-acquisition PMI management is continued to reduce impairment risk.

Policy, legal, technological, and market changes accompanying the transition to a decarbonized society may affect operating results through transition and physical risks, including customer attrition due to delayed adaptation to climate change measures, reduced competitiveness from delays in developing carbon-neutral technologies, cost increases from the introduction of carbon taxes, declines in labor productivity due to rising average temperatures, and construction suspensions caused by increased extremely hot days. In response, the Company is expanding the installation of energy-saving equipment such as ZEB-compliant factories, developing low-carbon construction technologies and systems, and promoting mechanization and automation of construction work.

The Company is subject to numerous legal regulations, including the Construction Business Act, the Antimonopoly Act, and the Labor Standards Act, and there is a risk that violations of laws and regulations by officers or employees could restrict business activities and affect operating results. In response, the Company continues to implement compliance education programs through e-learning and conducts compliance awareness surveys, reflecting the results in improvement processes to foster a culture and system that prevents rule violations.