FUJI CORPORATION LIMITED

The Group is subject to numerous legal regulations, including the Building Lots and Buildings Transaction Business Act, the Construction Business Act, the Building Standards Act, and the Architects Act, and the continuation of business operations depends on various licenses, registrations, and permits held by Fuji Jyutaku Co., Ltd., Fuji Amenity Service Co., Ltd., and Yuken Construction Co., Ltd. If future legislative amendments, tightened regulations, or revocation of licenses or permits for any reason should occur, this could significantly impede the continuation of business activities. As a countermeasure, the Legal Department conducts self-checks using checklists, and the Internal Audit Department conducts compliance audits.

Due to the nature of the real estate sales business, valuation of inventory real estate directly affects profit and loss, and valuation errors could have a material impact on the financial statements. Because the period from land acquisition to completion of sales is lengthy, there is a risk that deterioration in the real estate market or unexpected prolongation, delay, or interruption of construction work during that period could increase costs, making it impossible to achieve the originally expected profit. The Company addresses this by comparing net realizable value with book value at the end of each period to determine whether a write-down of book value is necessary.

The Group raises funds for land acquisition and development costs for each project through short-term and long-term borrowings, and the balance of interest-bearing debt has remained relatively high relative to total assets. If sharp fluctuations in market interest rates or monetary tightening lead financial institutions to demand repayment or suspend new lending, this could affect business performance and financial condition. There is also a risk that a breach of the collateral restriction clauses or financial covenants attached to commitment line agreements could trigger an obligation for immediate repayment of borrowings.

Construction costs are a major component of cost of sales, and if prices of raw materials, materials, logistics, etc. rise due to trends in domestic and overseas markets, the Company seeks to pass these costs on to selling prices; however, if cost increases exceed expectations, passing on such costs may become difficult, adversely affecting business performance. The continuation of recent surges in materials prices is an ever-present risk factor that squeezes profit margins.

The Group operates a community-based business model with its main operating base across the entirety of Osaka Prefecture, the southern part of Hyogo Prefecture, and the northern part of Wakayama Prefecture, and if a large-scale disaster such as a Nankai Trough earthquake were to occur, this could have a severe impact on the Group's owned real estate, business activities, and financial condition. The Company has implemented countermeasures such as conducting seismic diagnostics and reinforcement work, developing manuals for responding to major earthquakes, conducting BCP training and drills, and enrolling in fire and earthquake insurance, but the risk of regional concentration remains.

Against a backdrop of the declining birthrate, aging population, shrinking working population, and diversification of working styles, there is a risk that recruiting and developing excellent human resources will become difficult. In particular, if the Company is unable to properly deploy legally qualified personnel such as licensed real estate transaction specialists and first-class architects, this could lead to delays or interruptions in construction work, or revocation of licenses or permits. The Company addresses this through enhanced support for obtaining qualifications and the development of a comfortable working environment, but the risk that securing personnel will become difficult due to intensifying competition in the labor market continues.

The Group outsources the majority of the construction work aspects to external subcontractors, and if the Company is unable to sufficiently secure subcontractors that meet its selection criteria, or if subcontractors experience financial difficulties or labor shortages leading to construction delays or increased subcontracting costs, this could adversely affect business performance. The Company seeks to maintain and strengthen good relationships through regularly held on-site cooperative contractor conventions and health and safety council meetings, as well as commendation programs, but the risk is increasing as labor shortages become more severe across the construction industry as a whole.

The Company bears contractual non-conformity liability for 10 years after handover for the main structural load-bearing parts and water infiltration prevention parts of newly built houses, and for 2 years for other parts, and if non-conformities are discovered, unplanned expenses such as repair costs, damages, or contract cancellations could arise. The Company implements quality control through checklists at each process stage, but potential liability risk also accumulates as the number of properties sold and contracted increases.

The Group handles a large amount of customers' personal information through its business operations, and if important information is leaked externally due to sophisticated cyberattacks, unauthorized access, computer viruses, theft of computers, or operational negligence, this could result in a decline in credibility and substantial claims for damages. The Company has implemented information security measures such as formulating a privacy policy, developing internal regulations, and taking system countermeasures, but complete protection is difficult to achieve given the increasing sophistication of cyberattacks.

Large-scale climate change may cause a decline in real estate demand, falling land prices, and sluggish personal consumption, and there is also a risk that business costs will increase due to the tightening of environment-related laws and regulations. The Company has established a TCFD working group and is proceeding with responses to information disclosure based on SSBJ standards, while also conducting business activities with consideration for environmental conservation, but because the effects of climate change are long-term and wide-ranging, the impact on business performance and financial condition remains highly uncertain.