Nippon Hume Corporation

If construction investment contracts due to the fiscal condition and policy trends of national and local governments, a slowdown in private-sector capital investment, or other factors, there is a possibility that order volumes will decline and price competition will intensify. In particular, in areas where differentiation through products and construction methods is insufficient—such as foundation work, sewerage-related construction, and the concrete products business—there is a risk that profit margins could decline due to price competition exceeding expectations. The Group is working to strengthen its ability to respond to demand fluctuations through a diverse business portfolio and proposals of high-value-added products and construction methods.

While demand for renewing aging infrastructure, particularly in the sewerage sector, is expected to expand, there is a possibility that renewal investment will not proceed as anticipated due to fiscal constraints, labor shortages, and changes in ordering methods among local governments. In addition, if the Group is unable to provide products, construction methods, and services that respond to market needs in a timely manner, there is a risk that it will fail to adequately capture growth opportunities. The Group is working to strengthen its responsiveness to the maintenance and renewal market through Hume Pipe 2.0, one-stop sewerage services, inspection and diagnostic technologies, and collaboration with digital technologies.

Costs for major raw materials and energy, including cement, steel, ready-mixed concrete, fuel, and electricity, fluctuate due to resource prices, exchange rates, international conditions, labor shortages in the logistics industry, and other factors, and there is a risk that profitability will deteriorate if price revisions and reflection in order terms are delayed. Differences in the supply-demand balance and procurement conditions among manufacturing and logistics sites deployed nationwide also affect the cost structure. The Group is working to mitigate the impact of cost increases through appropriate pricing, the introduction of 3D printers and automated equipment, diversification of procurement sources, and the establishment of production systems located close to delivery sites.

Shortages of skilled labor, difficulty securing construction management personnel, and rising labor costs, driven by the declining birthrate and aging population, are progressing across the construction industry as a whole. If securing and developing the personnel necessary to maintain manufacturing and construction systems and ensure quality does not proceed as expected, there is a possibility that business performance could be affected through lost order opportunities, construction delays, and rising subcontracting costs. On the other hand, labor shortages also have a positive aspect in that they lead to expanded demand for precast construction, labor-saving construction methods, and ICT construction management systems (Pile-ViMSys). The Group is responding through the introduction of digital technologies at factories and construction sites, process automation, development of labor-saving technologies, and improvement of the working environment.

There is a risk that repair costs, damage compensation, construction delays, and a decline in customer trust could arise due to defective product quality, defects in constructed properties, and responses to unforeseeable construction conditions such as underground obstructions. In particular, there is a risk that malfunctions or data entry errors in digital construction management tools such as Pile-ViMSys could affect the assessment of construction quality, and building a track record of long-term quality and durability for new construction methods and products, such as 3D-printed products, remains a challenge. The Group is working to prevent the occurrence of defects through visualization of construction data via Pile-ViMSys, strengthening of the manufacturing process inspection system, formulation of new product quality standards, and safety and quality patrols.

There is a risk that serious accidents or industrial accidents could occur due to the handling of heavy materials, use of heavy machinery, and outdoor work at factories and construction sites, and there is a possibility that business performance could be affected through personal and physical damage, compensation costs, production stoppages, administrative penalties, and a decline in social trust. The Group's unique construction environment, such as underground obstructions in foundation work and work inside pipes in sewerage construction, makes risk management more complex. The Group is working to prevent accidents through the use of digital tools such as Pile-ViMSys and HS Monitor, revitalization of the health and safety committee, and the systematization of group-wide safety patrols and safety education.

In M&A and capital alliances aimed at expanding business areas and strengthening competitiveness, there is a possibility that the synergies and earnings effects initially expected may not be fully realized due to changes in market conditions, delays in PMI, loss of personnel, and delays in system integration. In addition, if it becomes necessary to record an impairment loss on goodwill or other assets due to a deterioration in the performance of an investee, there is a risk that this could affect business performance and financial condition. The Group is working to reduce risk through due diligence that includes strategic fit, strengthening of group governance, and continuous monitoring of investment effects.

If the cost of capital rises due to fluctuations in financial markets, rising interest rates, or changes in investors' expected rates of return, there is a possibility that this could affect the profitability of growth investments such as capital expenditures and M&A, as well as corporate value assessments. In addition, if there is a significant decline in the stock price or a continued decline in market evaluation, there is a risk that this could affect fundraising, growth investment, and shareholder return policies. Under the medium-term management plan

If core systems or production and shipment management systems are shut down due to increasingly sophisticated and complex cyberattacks, this could lead to factory shutdowns and disruptions in logistics, potentially impeding business activities. If information leakage or loss occurs, there is a risk that business performance could be affected through damage compensation costs, a decline in social trust, and loss of competitive advantage. As the Group promotes digitalization and DX in production management, construction management, logistics management, and other areas, it is addressing information security measures as an important initiative to strengthen its management foundation.

If there are revisions to business-related laws and regulations, including the Construction Business Act, tightening of regulations, or changes in administrative operations, or if a violation of laws and regulations occurs, there is a possibility that business performance could be affected through administrative penalties, restrictions on business activities, additional costs, and a decline in social trust. At present, it is stated that there are no violations of laws and regulations or grounds for revocation of licenses and permits that would cause significant disruption to business operations. The Group is working to strengthen its compliance system through monitoring of trends in relevant laws and regulations, development of internal regulations, compliance education, and internal audits.