SEMBA CORPORATION

Investment plans of the distribution and retail industry, the Company's major customers, tend to change on relatively short cycles depending on sales conditions, and if the Group is unable to fully respond to customers' short-term investment plan changes, this may affect business performance. Due to the establishment of e-commerce and the spread of cashless payments, physical store sales are on a declining trend, and the investment recovery environment for customers is becoming increasingly severe. The Group responds through space proposals and services leveraging its expertise and experience-based know-how, but the structural risk of market contraction continues.

The Group is subject to numerous laws and regulations, including the Construction Business Act, the Building Standards Act, the Architects Act, and the Antimonopoly Act, and if there are amendments or abolitions of such laws and regulations, or if a violation of laws occurs, business operations may be disrupted, potentially affecting business performance. The Group holds major licenses and permits, including a special construction business license (Minister of Land, Infrastructure, Transport and Tourism license (Special-7) No. 16488, valid until February 25, 2031) and first-class architect office registrations (Tokyo, Osaka Prefecture, Fukuoka Prefecture), and the risk to business continuity is high should grounds for revocation arise. The Group has established a compliance framework centered on the Safety Management Headquarters and the Internal Audit Office, and to date no grounds for revocation of licenses or permits have arisen.

If quality defects occur in produced works, this may lead to a decline in social credibility and the occurrence of liability for damages, potentially affecting business performance. The Group strives to ensure technical standards through chief engineers and supervising engineers and thorough quality and process management, but there is also a risk of accidents occurring at construction sites. The Group works on organizational development and employee education through safety conventions and safety and health cooperation meetings held jointly with partner companies (Semba-kai, etc.).

Since the creativity of officers and employees is the source of the Group's competitiveness, insufficient recruitment and development of talented personnel, or the occurrence of large-scale personnel outflows, may affect growth potential and competitiveness. Amid increasing demand for personnel to expand business scale, there are concerns about intensifying competition in the recruitment market. The Group responds through the development of personnel and education systems and the transmission of specialized knowledge and know-how through the execution of operations, but the structural risk of labor shortages continues.

In the current consolidated fiscal year, sales to the AEON Group accounted for approximately 12% of total net sales, and if the group restrains capital expenditure beyond expectations, this may affect business performance. Amid an increasingly severe investment environment across the distribution and retail industry as a whole, dependence on a specific major customer is a risk factor for the stability of earnings. The Group's clientele consists of numerous business partners, including major commercial facility operators, department stores, and mass merchandisers, but the trends of the AEON Group in particular require close monitoring.

If natural disasters such as earthquakes, tsunamis, and typhoons, the spread of serious epidemics or infectious diseases, or sudden fires or accidents occur, design and production operations may be interrupted or delayed, and this may have a material effect on business performance through a significant decrease in orders received, increased costs, and delivery delays. The Group has established manuals for ensuring the safety of officers and employees and business continuity measures based on its BCP, and conducts internal education, but there are risks that the Group itself cannot avoid. There are also concerns about the impact on the entire supply chain, including partner companies.

The Group obtains and stores personal information of officers, employees, customers, and customers' consumers, and if such information is leaked for any reason, this may affect business performance through liability for damages and a decline in social credibility. The Group has established regulations for the protection of personal information and pays close attention to operational management, but the risk of cyberattacks or internal misconduct cannot be eliminated. Should an information leak occur, the impact on customers and consumers could be extensive.

The Group bears a duty of confidentiality regarding confidential information obtained from customers, partner companies, and other business partners, and if important information is lost or leaked due to a natural disaster, accident, or other cause, this may affect business performance through liability for damages and a decline in social credibility. The Group has established information security management regulations and pays close attention to information management, but risks from external cyberattacks and internal factors continue to exist. In a business model founded on relationships of trust with business partners, failures in information management are a risk directly linked to business continuity.

The Group has offices in five Asian countries: Taiwan, Singapore, China, Vietnam, and Malaysia, and if there are major changes in business practices, laws and regulations, or the employment environment in each country, this may have a material effect on operations and adversely affect business performance. Geopolitical risks, regulatory changes in each country, and exchange rate fluctuations may affect business operations. The Group is pursuing localization through the accumulation of management know-how after market entry and the active recruitment of local staff, but responding to risks unique to each country remains an ongoing challenge.

The Group relies on outsourced waste disposal operators for the disposal of industrial waste, such as leftover materials generated from store renovations and exhibition dismantling, and if such contractors engage in illegal dumping, this may lower the Group's social credibility and affect business performance. The Group complies with laws and regulations such as the Industrial Waste Disposal Act and strives for thorough management of outsourced disposal operators, but it is difficult to fully control the actions of contractors. There is also a risk that waste disposal costs may increase due to the tightening of environmental regulations.