Daiki Axis Co.,Ltd.

The markets in which the Environmental Equipment-Related Business operates are highly competitive, and it is difficult to accurately predict continuously changing industry demand and trends. If the Group is unable to develop appropriate products, this may affect its business, financial condition, and operating results. Continuous responses are also required to address rapid technological innovation, changes in customer needs, and intensifying price competition.

Competition is intensifying in the Environmental Equipment-Related industry, requiring continuous technological innovation and cost reductions to respond to diverse customer needs. If rapid technological innovation, changes in customer needs, or intensified price competition within the industry occur, this may affect the Group's financial condition and operating results. The Group is working on technological innovation and cost reduction based on relationships of trust with customers.

The Group conducts part of its purchasing and sales activities overseas, and if changes occur in laws, regulations, or tax systems, changes in political or socioeconomic conditions, infectious diseases, large-scale disasters, or political instability such as terrorism or war in countries where it operates, this may cause delays or interruptions in raw material procurement, production, and sales. In addition, foreign currency-denominated items of overseas subsidiaries are affected by fluctuations in exchange rates upon translation into yen, which may affect financial condition and operating results. These risks may materialize in combination, raising concerns about impacts on overall business activities.

The Group regards M&A aimed at expanding existing businesses and entering new businesses as one of its growth strategy options, and conducts due diligence and synergy assessments using external experts. However, if the initially expected synergy effects or business expansion effects are not achieved, or if impairment losses on goodwill arise due to poor performance of the acquired company, this may affect operating results and financial condition.

The Group is subject to a wide range of laws and regulations, including the Construction Business Act, the Act on Maintenance of Septic Tanks, the Water Pollution Prevention Act, the Waste Management and Public Cleansing Act, the Fire Service Act, and the Act on Special Measures Concerning Procurement of Renewable Energy Electricity by Electricity Utilities. While there are currently no violations of legal regulations, if new legal regulations are enacted or existing regulations are revised or strengthened in the future, this may affect financial condition and operating results. Care must be taken regarding the broad scope of impact from regulatory changes, as they span multiple regulatory areas both domestically and internationally.

The proportion of TOTO Ltd. in the total purchase amount of products and materials in the Housing Equipment-Related Business was at a high level of 23.1% in the fiscal year under review (26.8% in the previous fiscal year). Given the extensive product lineup and quality advantages of TOTO's products, the Group plans to continue handling them going forward; however, if stable supply becomes unavailable for any reason, this may affect financial condition and operating results.

The Environmental Equipment-Related Business has multiple manufacturing sites domestically and overseas, the Housing Equipment-Related Business generates most of its sales in the Chugoku and Shikoku regions, and the Renewable Energy-Related Business operates multiple power plants across a wide range of regions both domestically and internationally. In the event of a natural disaster such as an earthquake, this may result in production stoppages, damage to business sites, or suspension of electricity sales. In particular, the Renewable Energy-Related Business faces risks of extended operational stoppages or large-scale equipment repairs. In response, the Group has formulated a Business Continuity Plan (BCP) and continues to review and improve it.

The Company procures working capital and capital expenditure funds through borrowings from financial institutions, and if interest rates rise while the interest-bearing debt ratio remains high, this may affect business performance. In addition, some overdraft agreements and commitment line agreements contain financial covenants, and if performance deteriorates, there is a risk of breaching these covenants and losing the benefit of the term for borrowings. Regarding holdings of stocks and other securities, market value may fluctuate due to trends in the stock market, which may affect financial condition and operating results.

The Group operates core systems for order receipt, production, sales, and accounting, as well as HR information systems, and there is a possibility that confidential information could be lost or leaked externally, or that information systems could be shut down, due to cyberattacks, unauthorized access, or computer virus infections. The Group is working to appropriately review its basic information security policy, provide regular training to employees, and continuously invest in and strengthen its security measures and systems, but states that it cannot completely eliminate this risk.

The proportion of the DCM Group (DCM Holdings Co., Ltd., DCM Co., Ltd., Keiyo Co., Ltd., etc.) in the Group's total sales was 12.9% in the fiscal year under review (12.1% in the previous fiscal year), and the Group maintains important business relationships with the DCM Group in areas such as sales of housing materials, facility maintenance and management, and roof leasing for solar power generation. While the Group recognizes its transactions with the DCM Group as important to its sales strategy, if any disruption occurs in this business relationship for any reason, this may affect financial condition and operating results.