SANKYU INC.

The Group undertakes many hazardous operations, including work within steel and petrochemical plant premises, and if a serious industrial accident occurs, this could result in compensation to victims, damages claims from business partners, contract cancellations, or the loss of new orders. The Group positions safety assurance as the top priority in business operations, and promotes the establishment of the "Five Basic Safety Behavior Principles (+1)," safety patrols, and safety measures utilizing AI technology.

The Group positions its ability to mobilize personnel with technical skills and expertise as an important competitive strength; however, due to recent changes in the labor market environment, securing personnel continues to be difficult. If the recruitment and development of personnel is delayed, this may not only increase recruitment and training costs but also make it difficult to maintain the necessary work structure, potentially affecting business performance and financial condition. The Group strives to improve personnel retention rates through improved treatment, expanded career-track hiring, the establishment of reskilling frameworks, and the promotion of DE&I.

In businesses centered on logistics and engineering & construction, the Group is exposed to environmental changes such as economic fluctuations, surges in raw material and materials prices, and intensifying market competition. In addition, foreign currency-denominated transactions in overseas operations carry exchange rate fluctuation risk, and profitability may deteriorate due to intensified price competition, increased procurement costs, or currency fluctuations. The Group strives to secure sustainable profitability by monitoring market trends, strengthening the profitability of existing businesses, and expanding into new business areas.

The Group holds confidential information from business partners as well as important business and technical information, and utilizes information systems and networks in its business operations. Therefore, if a system failure occurs due to a cyberattack, natural disaster, or other cause, this could lead to a disruption of business activities and recovery costs. The Group implements information security measures such as access controls and backup protection, and works to raise information security awareness among officers and employees through ongoing training.

The Group operates under contractual relationships with numerous business partners, is subject to various relevant laws and regulations, and conducts business after obtaining permits and licenses from relevant government authorities. Therefore, if inappropriate transactions or legal violations occur, this could result in contract cancellations, loss of new orders, as well as sanctions, penalties, or revocation of licenses based on laws and regulations. The Group works to enhance corporate ethics and compliance awareness through the establishment of a license management framework, monitoring and dissemination of information on regulatory changes, and compliance education for officers and employees.

In light of past fraud-related incidents, the Group has strengthened its management of partner companies and suppliers and reviewed its procurement processes; however, if inappropriate accounting treatment, fraudulent financial reporting, or omissions in tax filings occur, this could result in sanctions based on laws and regulations, and affect business performance and financial condition. The Group continuously strengthens the establishment and operation of internal controls over financial reporting and conducts monitoring through internal audits, striving to enhance the reliability of financial reporting.

As the Group conducts business activities at numerous locations both domestically and overseas, if a large-scale natural disaster such as an earthquake, tsunami, typhoon, or flood occurs, this could result in damage to employees and facilities, suspension of logistics functions, and interruption of construction or operations, thereby constraining business activities. In addition, restoration may require significant costs, potentially affecting business performance and financial condition. The Group strives to strengthen its business continuity framework through the formulation of a Business Continuity Plan (BCP), establishment of emergency contact systems, securing of disaster stockpiles, and conducting disaster drills.

As the Group conducts business activities in Southeast Asia, East Asia, the Middle East, and the Americas, geopolitical risks such as changes in political and social conditions or deterioration of security due to terrorism or war may constrain business activities. Additional costs required to ensure employee safety and disruption of business activities may affect business performance and financial condition. The Group addresses this through a safety assurance framework based on its global governance policy and overseas crisis management manual, as well as the formulation of BCPs by each local subsidiary.

The Group positions the maintenance and improvement of work quality and construction quality as an important management issue; however, if defects in work, damage to a business partner's facilities, or poor quality of deliverables occur, this could result in damages claims from business partners, additional response costs, contract cancellations, or loss of new work orders. The Group continuously implements the establishment of a quality control framework, work standardization, education and training, quality patrols, and horizontal deployment of defect case studies, striving to maintain and improve quality and prevent recurrence.

As the Group procures part of its working capital and capital investment funds through borrowings and other means, if interest rates rise, financial markets become unstable, or the Group's creditworthiness declines, this could lead to a deterioration in the fund procurement environment or an increase in fund procurement costs, potentially affecting business performance and financial condition. The Group aims to reduce interest rate fluctuation risk by procuring long-term borrowings in principle at fixed interest rates, while striving to maintain a stable financial base through thorough and appropriate fund management.