KUWAZAWA Holdings Corporation

The Group primarily engages in construction work-related businesses, and if private-sector capital investment or new housing starts decline due to fluctuations in the economy, tax system, interest rates, real estate market conditions, etc., or if public works spending is reduced, this could affect operating results and financial condition through a decrease in construction demand. In particular, due to the high degree of dependence on the Hokkaido region, the Group's structure is susceptible to deterioration in the economic environment of that region. To reduce regional concentration risk, the Group is promoting the strengthening of business development outside Hokkaido.

The Group's business is centered on the Hokkaido region and is highly dependent on the economic environment and construction demand trends in that region. If an economic downturn or slowdown in construction demand specific to Hokkaido occurs, it poses a risk of directly affecting the Group's overall operating results and financial condition. As a risk mitigation measure, the Group is promoting the strengthening of business development outside Hokkaido.

In cases where it is difficult to pass on increases in the purchase prices of construction materials to selling prices, this could adversely affect operating results and financial condition through a decline in profit margins. The Group sets selling prices that incorporate an appropriate margin on purchase prices, and also strives to maintain appropriate profits in construction works by taking raw material costs into account.

The Group utilizes subcontractors such as construction contractors and transport operators in construction works and materials transport, and if difficulties arise in securing such subcontractors, this could become a constraining factor on business activities. In addition, if subcontracting costs rise, this poses a risk of affecting operating results and financial condition. In the construction industry, where labor shortages persist, securing a stable supply of subcontractors has become an important management issue.

If a material non-conformity with contract terms arises due to defects in design or construction work, etc., costs associated with repair and compensation may be incurred, potentially affecting operating results and financial condition. In addition, if a claim for damages or litigation is filed in connection with trouble related to business activities, this poses a risk of not only financial impact but also a decline in social credibility. The Group strives to reduce this risk by strengthening its quality control system based on relevant laws and regulations.

If bad debts on trade receivables arise at major sales partners, such as building materials retailers, construction firms, and construction-related companies, due to sudden changes in the external environment or deterioration in their business performance, this could affect operating results and financial condition. The Group strives to control credit risk by setting credit limits according to the financial condition of business partners and continuously monitoring their business status.

The Group carries out M&A and business restructuring to strengthen its business foundation and develop new business areas; however, if synergy effects are not sufficiently realized due to unexpected delays in business plans, declines in profitability, or the emergence of unrecognized risks, this could affect operating results and financial condition. The Group strives to minimize this risk by conducting thorough prior due diligence, including detailed reviews of the target company's financial condition and contractual terms, as well as market research.

Securing and developing the human resources necessary to respond to business expansion and diversifying customer needs is essential; if the Group fails to secure the necessary personnel or if existing personnel leave the company, this could affect business development, operating results, and financial condition. As labor shortages become increasingly severe across the construction industry as a whole, securing human resources is recognized as a medium- to long-term management issue.

The Group is subject to various laws and regulations, including the Construction Business Act, the Building Lots and Buildings Transaction Business Act, and the Warehousing Business Act; if licenses or permits are suspended or revoked due to violations or other causes, or if regulations are tightened due to legal amendments, this could affect business development, operating results, and financial condition. The Group is working to strengthen its compliance system, and at present recognizes no facts that would constitute grounds for disqualification with respect to any of its licenses or permits.

If a natural disaster such as a large-scale earthquake or fire, or an infectious disease such as novel coronavirus or influenza, occurs on a scale far exceeding assumptions, business sites, etc. could suffer serious damage and delays in business operations could occur, potentially affecting operating results and financial condition. Since Hokkaido is the Group's main base of operations, consideration must also be given to the risk of natural disasters during winter, and the Group has implemented safety measures such as developing response manuals, conducting evacuation drills, and utilizing safety confirmation systems.