NAGAWA Co., Ltd.

The construction and civil engineering industry, which constitutes the Company's main customer base, is susceptible to public investment and private capital investment trends, and a marked decline in public investment or construction demand could affect the Company's business results and financial position. Demand from the public sector, which accounts for nearly 40% of the construction market, depends on the execution of annual budgets, resulting in high demand volatility risk.

The Company holds substantial rental assets in the Unit House Business and Construction Machinery Rental Business, and there is a risk that these rental assets could become obsolete due to rapid changes in the market environment, technological innovation, or the emergence of new products from competitors. If obsolescence occurs, impairment losses or disposal may become necessary, which could have a material impact on the Company's business results and financial position.

Increases in the prices of raw materials such as steel and lumber due to geopolitical risks and other factors lead to higher manufacturing costs for unit houses, and rising procurement prices for construction machinery increase depreciation expenses, raising costs. These cost increases could affect the Company's business results and financial position.

There is a risk that intensifying competition among industry peers could lead to declines in product and rental prices. In particular, in the Unit House Business, sales channels through agents (mainly construction machinery rental companies) account for approximately 75% of transactions (FY2026, ending March 2026), and there is a risk that discontinuation of handling by agents or intensified competition among agents leading to price declines could affect the Company's business results and financial position.

The Unit House Business and Module & System Construction Business are subject to regulations under the Building Standards Act, the City Planning Act, the National Land Use Planning Act, and other laws, and any abolition or amendment of regulations, or the introduction of new legal regulations, could affect the Company's business results and financial position. In addition, the Company holds licenses and permits such as a construction business license (valid through June 2026), registration as a first-class architectural firm, and a secondhand dealer's license, and any revocation or suspension of these licenses due to legal violations, or damage to the Company's social credibility, could have a material impact. The Company strives to ensure thorough compliance through training for officers and employees.

Demand from the public sector in the construction market tends to be low in budget execution at the beginning of the fiscal year and increase toward winter, resulting in a tendency for the number of rental units in operation and the utilization rate to decline in the first quarter, leading to lower operating income compared to other quarters. In the results for FY2026 (ending March 2026), operating income was ¥745 million in the first quarter, compared to ¥1,358 million in the third quarter, a difference of approximately 1.8 times, indicating pronounced seasonal fluctuations in business performance.

There is a risk that abnormal weather events such as typhoons and heavy snowfall, which are increasing due to climate change, could damage major facilities across a wide range of business sites in a single disaster, causing production and shipment to halt for an extended period. The Company seeks to minimize the risk of simultaneous shutdowns by dispersing its business sites from Hokkaido to Kyushu; however, in the event of a wide-area disaster, this could affect the Company's business results and financial position.