NOVAC CO.,LTD.

If the order-taking environment deteriorates due to a slowdown in private-sector economic activity or contraction of the construction market, the performance of the Group may be affected. The construction industry is highly susceptible to business cycle fluctuations, and a decrease in order volume directly leads to a decline in sales and profit. As a countermeasure, the Company addresses issues based on its management policy.

If labor unit costs or raw material prices surge and cannot be passed on to contract amounts, the Group's profitability may be squeezed. In the construction industry, the risk of cost increases after contract conclusion directly affects profit margins, making the impact significant. As countermeasures, the Company works to curb cost fluctuations through statistical monitoring of major regional unit prices, early ordering, and development of new business partners.

Since the contract amount per project is substantial in the construction industry, if credit concerns materialize among clients, subcontractors, joint construction partners, etc., there is a possibility of failure to collect construction payments or delays in construction periods, which may affect business performance. The Company regularly monitors the status of business partners based on its credit management regulations and receivables management regulations, striving for early detection and mitigation of collection concerns.

The construction industry is experiencing an aging workforce among engineers and skilled workers, and if a sudden tightening of supply and demand makes it difficult to secure personnel, there is a risk of lost order opportunities or delivery delays. Although the Company is working to strengthen recruitment, this is set against a backdrop of a structural labor shortage across the industry. The Company seeks to reduce this risk through promotion of work-style reforms, support for qualification acquisition, and enhancement of recruitment activities.

If a serious defect (non-conformity with contract) occurs in a constructed work, the burden of repair costs and disputes with customers may affect business performance. The Company has established a Quality and Safety Department and implements quality control based on ISO standards, but complete elimination of such risk is difficult. The Company strives to reduce this risk through enhanced employee training and improvement of construction techniques.

Exterior wall tile detachment in condominium construction is a type of issue frequently seen in recent construction-related litigation, and even when not attributable to the Company's own construction work, it may cause reputational damage and financial burden, affecting business performance. As of the date of submission of this report, there are no ongoing lawsuits, but because the causes of tile detachment are difficult to determine, there are limits to advance detection. The Company has established a system of self-inspections at 2 and 5 years after completion, as well as owner inspections at 3, 6, and 10 years, aiming to prevent risk through early detection and promotion of appropriate maintenance.

Due to the nature of the work environment and methods, the construction industry has a higher accident rate compared to other industries, and if a serious accident involving personal injury or the constructed work occurs, it may affect business performance. In addition to formulating construction plans and establishing safe working environments, the Company promotes accident elimination activities through safety education, hazard prediction activities, and safety patrols.

The Company is subject to numerous legal regulations, including the Construction Business Act, the Building Standards Act, the Architects Act, the Building Lots and Buildings Transaction Business Act, and the Antimonopoly Act, and violations of laws, revocation or non-renewal of licenses and permits, or the enactment, abolition, or introduction of new regulations may affect business performance. The Company holds a Specific Construction Business License (license granted by the Minister of Land, Infrastructure, Transport and Tourism, valid until September 1, 2025), registration as a first-class registered architect office, and a real estate transaction business license, and strives to reduce this risk by promptly gathering information from the Ministry of Land, Infrastructure, Transport and Tourism and others and considering appropriate responses.

If cyberattacks, unauthorized access, computer viruses, or similar incidents result in the leakage of client information or confidential sales and technical information, or in the destruction, alteration, or system outage of important data, business performance may be affected due to a decline in trust. The Company aims to reduce this risk through the development and enhancement of information management regulations, thorough communication to officers and employees, and appropriate strengthening of information security.

If interest rates rise sharply, an increase in funding costs may worsen business results and affect the performance of the Group. This risk arises directly from changes in Japan's interest rate environment leading to an increased financial burden, and no specific countermeasure is described in the securities report.