GECOSS CORPORATION

The Group's principal customers are construction companies, and trends in private and public construction investment directly affect its business results and financial condition. If construction investment stagnates, the impact on sales and earnings could be significant. Because the Group's operations are closely tied to the construction industry's business environment, vulnerability increases particularly during economic downturns or reductions in public investment.

The selling prices of products handled by the Group, such as H-beams, steel sheet piles, and road plates, are affected by market conditions and fluctuations in the price of steel, the raw material. While the Group responds to steel price surges or sluggish selling prices through cost reduction measures and price pass-through, if these measures do not proceed as planned, they could adversely affect the Group's business results and financial condition.

The Group sets credit limits according to the creditworthiness of business partners to prevent the occurrence of non-performing receivables; however, if a business partner becomes insolvent and a bad debt loss occurs, this could affect the Group's business results and financial condition. Given the characteristic concentration of transactions within the construction industry, there is also a risk that multiple defaults could occur simultaneously when creditworthiness deteriorates across the industry as a whole.

There exist both transition risks, such as increases in the cost of procured materials, fuel, and electricity due to the introduction of carbon pricing accompanying the shift to a decarbonized society, and physical risks arising from the intensification of weather-related disasters and rising average summer temperatures. The Group makes disclosures in line with the TCFD, with details provided in its section on sustainability philosophy and initiatives.

The Group has established information management regulations regarding confidential and personal information of customers, business partners, and the Group, and enforces thorough management across the entire Group; however, if an information leak occurs due to negligence, theft, or an external cyberattack, it could affect the Group's business results and financial condition. Given the increasing sophistication and diversification of cyberattacks, continuous strengthening of countermeasures is required.

The Group carries out acquisitions of companies and businesses, as well as organizational restructuring, aimed at complementing and strengthening its businesses; however, even with thorough investigation and analysis, unforeseen circumstances such as a decline in profitability after acquisition may arise, or expected synergies may not be realized as planned. As a result, impairment losses on goodwill may occur, which could adversely affect the Group's business results and financial condition.

In the heavy temporary construction business, holding a general or specific construction business license under the Construction Business Act is an essential requirement for conducting transactions. If grounds for revocation or suspension of such licenses arise, or if there are changes to or new enactments of relevant laws and regulations, this could seriously impede business continuity. Maintaining a legal compliance framework forms the foundation of business operations.

If a decline in profitability or a fall in market value occurs with respect to fixed assets held by the Group, impairment accounting may become necessary, which could affect the Group's business results and financial condition. Because deterioration in the business environment or market fluctuations directly affect the profitability of fixed assets, attention must be paid to their linkage with trends in construction investment.

The Group funds part of its investment capital for business activities through borrowings from financial institutions, and in a rising interest rate environment, increased fundraising costs could affect the Group's business results and financial condition. As the normalization of Japan's monetary policy progresses, close attention to interest rate trends is required.

If a large-scale natural disaster such as an earthquake or typhoon occurs, or if a global-scale economic upheaval such as a financial crisis or the spread of infectious disease occurs, a significant decline in construction investment demand or a halt in business activities could affect the Group's business results and financial condition. Although the frequency of such events is low, the impact when they occur can be broad and severe.