KYOWANISSEI CO., LTD.

Sales dependence on the Tokyo Gas Group, the company's major customer, accounts for approximately 50% of total sales. If the group changes its business strategy, or if intensified price competition arises from a decline in housing starts due to the declining birthrate and aging population, or if supply chain disruptions occur due to pandemics or geopolitical risks, this could lead to a decrease in order volume or a shortage of supplies/materials and a rise in raw material prices. As a countermeasure, the company is nurturing the building equipment business as a new core business, aiming to diversify its business portfolio and reduce sales concentration risk by establishing an integrated order-taking and construction system.

When conducting large-scale investments such as M&A, land and building acquisitions, or system investments for DX promotion, if the expected synergy effects or anticipated results are not achieved, this could impact the financial position and business results. The company makes investment decisions based on deliberation by the Management Committee and resolution by the Board of Directors in accordance with the authority regulations, and monitors progress of recovery plans and verifies cost-effectiveness after investment execution.

The company is subject to a wide range of laws and regulations, including the Construction Business Act, the Labor Standards Act, and the Financial Instruments and Exchange Act. If social conditions lead to sudden tightening of regulations, or if legal violations occur due to insufficient awareness, this could result in increased additional costs or loss of social credibility. The company conducts education and awareness activities for employees and partner companies when laws are revised, site inspections by managers, and annual business/compliance audits and internal control audits to confirm compliance status.

Unprofitable construction projects may arise due to intensified price competition from a deteriorating order environment, deviations from initial estimates, unexpected cost occurrences during the construction stage, or compensation payments due to construction delays. The company strives for early detection and control through progress and profit/loss checks using project management sheets, monthly surveys of unprofitable projects circulated to executives, periodic unit price revisions, and individual consultations with clients.

If a natural disaster such as an earthquake, heavy rain, or flood, or a pandemic occurs, business activities could be suspended due to damage to business continuity resources such as employees, buildings, and facilities, potentially impacting the financial position and business results. The company implements BCP formulation, disaster prevention drills, stockpiling of necessary supplies, introduction of a safety confirmation system, and earthquake resistance measures (including data backup), while also securing sufficient cash and deposits for lifeline restoration activities.

If the company is unable to continuously secure necessary human resources due to the declining birthrate or increased hiring by major companies, or if there are delays in responding to multi-skilling of personnel or work style reform, this could hinder business development. The company is promoting the strengthening of new graduate and mid-career hiring, advancement of women, enhancement of training programs and qualification acquisition support, engagement surveys, and improvement of the working environment through IT utilization such as improved attendance management systems.

Labor shortages and successor difficulties due to the declining birthrate and aging population are common challenges across the construction industry. If unforeseen circumstances occur at major partner companies, this could reduce construction capacity and affect business development. The company has established a CSR procurement policy and guidelines, conducts annual CSR procurement questionnaires and interviews, and provides management guidance and support for improving the working environment at partner companies through promotion of work style reform.

If quality defects or accidents occur due to construction issues or insufficient confirmation of laws and rules, the company could face suspension of construction qualifications or bidding eligibility, or cancellation of already-awarded projects, by clients or supervisory authorities. The company regularly conducts site audits based on its proprietary quality management system, the "QP Management System," establishes quality management meetings, conducts safety patrols, and performs business/compliance audits.

If acts contrary to laws, regulations, or corporate ethics occur, this could result in direct response costs as well as tangible and intangible damage such as the emergence of social responsibility issues. The company has established compliance regulations, distributes executive messages and conducts training every two months, has explicitly stipulated the severance of relationships with antisocial forces, appointed a person responsible for preventing unreasonable demands, and confirms deviations through business/compliance audits.

If information leakage or suspension of information system operations occurs, this could result in direct response costs as well as tangible and intangible damage such as the emergence of social responsibility issues, and there is also a risk of unexpected malfunctions in the new core system that began operation in April 2025. The company deploys security software, encrypts data, conducts information security education for all employees, appoints IT leaders, monitors servers, conducts IT control audits and checks on the status of personal information holdings, and has strengthened monitoring since the new system began operation.