Cados Corporation

There is a risk that declining birthrate and aging population will shrink domestic consumption, reducing capital expenditure by tenant companies due to the downsizing or withdrawal of factories and business establishments. The Company addresses this by capturing recurring demand through management of past clients (building owners and landowners) and by expanding its trade area into Hiroshima and Fukuoka prefectures, but if the market contracts more than expected, this could affect business performance and financial condition. The likelihood of occurrence is high, and this is recognized as a long-term structural risk.

As the Company mainly engages in the construction and leasing of retail stores, tenants' decisions on opening or closing stores and their capital expenditure demand are highly sensitive to economic conditions. If tenant sentiment turns negative due to economic downturn or excessive competition, this may lead to a decrease in construction work revenue in the construction business and a decline in rental income and holding asset value in the real estate business. The Company addresses this by securing a broad range of revenue sources, but risk remains if concentration arises in specific regions or industries.

In the construction business, since orders are influenced by tenants' store-opening trends, there is a concern that orders may concentrate on certain industries with strong store-opening appetite or on continuing customers. If a sudden change in the economic environment leads to the bankruptcy of a customer or a contraction in store-opening demand, this could materially affect business performance and financial condition. The Company currently believes there is no concern of concentration due to the introduction of a wide range of land information to multiple tenant candidates, but the risk cannot be ruled out if persistent concentration occurs.

Most of the Company's sales require a Specific Construction Business License (Ministry of Land, Infrastructure, Transport and Tourism License (Special-7) No. 27884, valid from August 24, 2025 to August 23, 2030), and revocation of this license would cause a serious disruption to business activities. This also applies to the Real Estate Brokerage License and the registration of the first-class architectural design office, which may be revoked due to violations of disqualification clauses by officers or the absence of full-time technical engineers. As of the end of the fiscal year under review, no grounds for revocation have arisen, but the impact on business performance and financial condition would be severe if the licenses were to lapse for any reason.

In the event of natural disasters such as typhoons and earthquakes, or man-made disasters such as accidents, fires, or war, the real estate business could experience decreased rental income and repair costs due to damage or loss of managed or owned properties, while the construction business could face damage to properties under construction and incur compensation costs. The Company has established a BCP and implements measures and regular training through its Health and Safety Committee, but the impact of a large-scale disaster could extend to business performance and financial condition.

As the Company outsources all construction work, there is a risk that deterioration in subcontractors' financial condition, construction delays during busy periods, or rising subcontracting costs due to labor and materials shortages could worsen construction profitability. A similar impact may occur if the Company is unable to secure sufficient subcontractors meeting its selection criteria. The Company addresses this by continuously searching for new subcontractors, but it may be difficult to pass costs on to order prices during periods of tight supply and demand.

There is a risk that material prices, energy prices, and labor costs could rise sharply due to abnormal weather, exchange rate fluctuations, and geopolitical risks. If the Company is unable to pass on such cost increases to order prices, construction profitability may deteriorate, potentially affecting business performance and financial condition. The Company continuously searches for new subcontractors to maintain competitive pricing, but there are limits to this response during market-wide price increase phases.

Securing, developing, and retaining specialized engineers in architectural design and construction management is an important issue, and the supply-demand gap is widening due to a shrinking working population from the declining birthrate and aging society. If the Company fails to sufficiently secure and develop the human resources it seeks, or if there is a mass departure of officers and employees, this could lead to a decline in sales and profit margins. The Company is actively recruiting and developing both new graduates and mid-career hires, but this requires ongoing response as a long-term risk.

In the real estate business, tenants may in some cases terminate leases mid-term with advance notice, creating a risk of prolonged vacancy while seeking a successor tenant or a reduction in rent levels after a tenant vacates. An increase in lease cancellations could affect business performance and financial condition through a decline in rental income. The Company addresses this by including penalty clauses for early mid-term cancellation, but complete prevention of cancellations is difficult.

The Company raises funds through interest-bearing debt to meet funding needs mainly related to its real estate business, and there is a risk that funding costs could rise due to an unexpected increase in market interest rates or a decline in the Company's creditworthiness. In addition, rising interest rates could dampen the store-opening appetite of tenant companies that use financing to open stores, which could also affect orders in the construction business. The Company addresses this by choosing between fixed and variable interest rates as appropriate and by building good relationships with financial institutions, but an impact may still occur during a phase of rapid interest rate increases.