TOYO ENGINEERING CORPORATION

Because the Company's main business is global long-term plant construction work, there is a risk that a substantial decrease in orders received, or deterioration in earnings due to project cancellation, suspension, or postponement, or the inability to collect construction payments may occur due to internal factors (such as in-house resource conditions) and external factors (such as customer/counterparty conditions, political and economic conditions in each country, and natural disasters). As countermeasures, the Company thoroughly conducts information gathering, screening, and risk assessment prior to receiving orders, and takes appropriate measures through regular reporting and monitoring even after receiving orders.

In the consolidated fiscal year under review, financial condition deteriorated due to a decline in earnings from a gas-fired power generation project in Brazil, resulting in a breach of the financial covenants attached to loan agreements with financial institutions. Although an amendment agreement regarding the revision of the financial covenants was concluded with the relevant financial institution by the filing date of the Annual Securities Report, resolving the breach, this case is of high materiality as an instance in which losses from a specific project actually resulted in financial deterioration severe enough to breach financial covenants. A support framework from financial institutions has been secured, and it has been determined that there is no material doubt about the going concern assumption.

Because the Company conducts business globally across various countries and regions, if country risks such as emergencies including war, civil unrest, or terrorism, changes in trade or financial policy, or significant fluctuations in exchange rates materialize, there is a possibility of deterioration in earnings due to project cancellation, suspension, or postponement, or the inability to collect construction payments. As countermeasures, the Company gathers information on local conditions and policies, sets contract terms appropriate to the risk, uses forward exchange contracts, and diversifies procurement and construction subcontracting sources.

Various climate change-related policies are expected to reduce demand for conventional plants and increase costs, while delays in developing new technologies and responding to energy-saving needs may result in lost business opportunities, and the intensification of natural disasters may affect project execution. On the other hand, the Company also recognizes business opportunities in the form of increased order opportunities for non-conventional plants such as ammonia, hydrogen, synthesis gas technology, and CO2 utilization, as well as in the circular economy and high-performance materials fields. The Company is addressing these risks through initiatives based on the TCFD recommendations, through cooperation with stakeholders and the provision of technologies and solutions.

There is a risk that if a shortage of construction workers, rising wages, or increases in equipment and materials prices occur at plant construction sites or equipment/materials procurement locations, this could result in delays in construction work and increases in construction costs. As countermeasures, the Company continuously monitors market trends, optimizes construction through the adoption of modular construction methods, diversifies candidate procurement sources, passes on price increases to customers, and switches procurement sources as needed.

The Company is subject to a wide range of laws and regulations both in Japan and overseas, including labor laws, personal information protection laws, tax laws, import/export control regulations, and the Unfair Competition Prevention Act, and changes in laws or unforeseeable changes in their interpretation may increase the burden of compliance. If a violation of laws or an act that raises suspicion of violation occurs, additional burdens, business interruption, or loss of credibility may occur, adversely affecting business performance. The Company thoroughly disseminates its Code of Conduct for Officers and Employees and Compliance Manual, develops and operates an internal whistleblowing system, and conducts awareness and promotion activities through the Compliance Committee chaired by the CCO.

If system failures, information leakage, destruction, or falsification occur due to computer virus infection, unauthorized external access, or cyberattacks, confidential corporate information and personal information of the Company Group and its business partners may be compromised, adversely affecting business performance. As countermeasures, the Company formulates and maintains management plans based on its Information Asset Management Regulations and Basic Policy on HSE, Quality, and Information Security, promotes information security management activities through the department responsible for SQE oversight, conducts awareness education, and reports to audits and the ICT Committee.

The outbreak of various infectious diseases may affect the business execution of the Company Group. In the event of an outbreak of infectious disease, the Company has established a policy of prioritizing the safety of employees, including those of partner companies, their families, and local residents, promoting telework and staggered work hours, and implementing measures to prevent the spread of infection at business locations and construction sites.

In business investments such as establishing new companies or acquiring business companies, the Company may make large capital contributions or extend credit such as loans and guarantees to investee companies, and there is a risk that investment losses may occur due to business stagnation resulting from changes in the business environment. The Group Management Department strives to prevent the materialization of such risks by grasping the status of group companies in a timely manner.