NIPPON KANZAI Holdings Co.,Ltd.

The Group is subject to a wide range of laws and regulations, including the Security Guard Services Act, the Fire Service Act, and the Building Standards Act (relevant to the Building Management & Operations Business); the Act on Advancement of Proper Management of Condominiums and the Worker Dispatching Act (relevant to the Housing Management & Operations Business); the Basic Environment Act (relevant to the Environmental Facility Management Business); the Financial Instruments and Exchange Act (relevant to the Real Estate Fund Management Business); and the Construction Business Act, among others. Failure to satisfy the requirements of these laws and regulations could constrain business activities and affect operating results. The Group's policy is to closely monitor the actions of relevant authorities and respond appropriately and in a timely manner to changes in laws and regulations.

The Group operates labor-intensive businesses, primarily the Building Management & Operations Business, and there is a risk that it may be unable to secure the necessary personnel due to a shrinking labor force resulting from the declining birthrate and aging population. In addition, significant increases in employee wages due to price fluctuations and other factors could affect operating results. As countermeasures, the Group is engaged in group-wide recruitment activities, appropriate staff allocation, and the development of training systems, as well as labor-saving initiatives utilizing IoT devices.

In the course of its business operations, the Group handles personal information and confidential information. Should information leakage occur due to employee misconduct or cyberattacks, it could affect operating results through a decline in social trust and damages compensation, among other factors. The Group continuously works to thoroughly educate employees and strengthen security measures.

The Group undertakes strategic investments, financing, and M&A activities, including in the Real Estate Fund Management Business, and there is a risk that fluctuations in the real estate market and other factors could impair the principal of investments, reduce investment returns, or fail to produce the synergies originally anticipated. The Group strives to reduce risk through prior risk assessment and post-investment monitoring.

In addition to conventional facility maintenance and management services, some contracts include the operation of the facilities themselves. If costs exceed expectations due to soaring prices or changes in the business environment, this could affect operating results. The Group has established an internal system to examine possible risks as thoroughly as possible before entering into contracts.

The Group holds investment securities, and since all securities with market prices are measured at fair value, fluctuations in fair value in financial markets could affect the Group's financial position and operating results. The Group seeks to minimize such impact by regularly monitoring market trends, identifying risks of declining fair value at an early stage, and disposing of securities as necessary.

The Group holds goodwill arising from corporate acquisitions and other transactions, as well as fixed assets such as buildings and land. If impairment accounting is applied due to declines in fair value or deterioration in future cash flows, this could affect the Group's financial position and operating results. The Group addresses this through regular monitoring of the utilization status of fixed assets and cash flows, and by sharing issues through performance reports from Group companies.

The Group conducts business activities overseas, and unexpected changes in laws, regulations, or policies, the occurrence of terrorism or conflict, or significant changes in economic conditions could affect the Group's financial position and operating results. The Group manages this risk through a dedicated Overseas Business Management Office and by strengthening cooperation with local operations.

Since the Group prepares its consolidated financial statements by converting the local-currency financial statements of overseas subsidiaries into yen, exchange rate fluctuations exceeding expectations could have a material impact on the Group's financial position and operating results. The finance department monitors the situation and works to identify exchange rate risk.

Natural disasters such as earthquakes and typhoons, infectious diseases, accidents, and industrial injuries could significantly affect business activities, and it is difficult to avoid all such risks. The Group is working to establish a crisis management system, including business continuity measures, conducting drills, and thoroughly implementing safety management and education.