Risk Management

Basic Philosophy

Our Group anticipates various risks related to management and while being committed to preventing their occurrences we are prepared with a responsive framework for any such event. In the case of natural disasters, we conduct initial surveys for the disaster-stricken areas for restorative support based on the requests from administrative agencies. We analyze the various risks and implement measures / systems to prevent issues in advance while simultaneously constructing a risk management framework that enables swift recovery in the event of an emergency.

Risk Management Systems

Our company, with the President and Representative Director as the overall responsible party, positions the Administrative Headquarters as the leading department responsible for considering various risks surrounding our operations. Business risks for the entire Group are reviewed each year, reported to the Board of Directors, and every department creates and executes risk prevention plans including identification of their individual risks and its corresponding measures.

Business Risks and Key Responses

Main risks that affect the Group's business performance, share prices, financial position and the status of their countermeasures are as follows.

Risks related to the high composition of orders from the public sector

Public projects continue to be one of our major markets within our Group, with national and local government entities being significant customers. The financial deterioration of national and local government entities, a decrease in order volume due to reduced project levels, changes in procurement methods and unforeseen measures such as appointment suspensions may impact the business performance of the Group. We are working to reduce such risks by transitioning away from a conventional business model that is heavily reliant on public projects.

Risks related to exchange rate fluctuations

Our Group operates both domestically and internationally, and our overseas subsidiaries based in North America and Singapore transact in their local currencies. Due to this reason, exchange rate fluctuations can potentially affect our financial conditions and performance. We are actively considering measures such as foreign exchange contracts to mitigate such risks.

Risks related to climate change and natural disasters

Our Group's operations in various businesses are susceptible to natural disasters such as earthquakes, climate change-related events like typhoons, heavy rains, river flooding and unforeseen disasters like fires. These events can lead to damage or loss of production plants, data, loss of human resources and subsequent effects on business activities, including decreased production capacity. Furthermore, the introduction of carbon taxes and the implementation of environmentally friendly facilities may increase the operating costs. While we are committed to addressing climate change and pursuing carbon neutrality by 2050, we continuously evaluate and monitor the impact of climate change on our operations. We have also developed Business Continuity Plans (BCPs) to prepare for and respond to potential disasters.

Risks related to global pandemics

Global pandemics can lead to reduced demand for our Group's businesses, delivery delays and shortages in the supply chain and increased procurement costs which could potentially affect our business performance. We are taking measures to minimize the impact of such scenarios while considering various risk scenarios.

Risks Related to International Conflicts and Terrorism

While our overseas operations mainly focus on infrastructure development and projects in emerging and developing countries, these regions may experience international conflicts or acts of terrorism. Involvement in conflict activities or armed actions may result in the suspension or termination of our operations which would significantly affect our business. Prolonged tensions in Ukraine have also continued to affect the global economy, leading to fluctuations in energy and raw material prices. We strive to control these risks by collecting the latest information on the security and economy from abroad.

Risks related to intellectual property

Each business within our Group offers various products and services using specialized technologies and also conducts trademark registrations in the countries where we operate. Due to this reason, future scenarios such as injunctions on the use of intellectual property or suspension of trademark usage, as well as damage claims may impact our performance. We are working to reduce such risks by conducting the appropriate intellectual property management through a dedicated organization.

Risks related to resource price fluctuations

Some of our overseas subsidiaries within our Group sell equipment and systems for resource exploration; therefore, declines in resource prices or market shrinkages in resource development may impact their performance. To tackle such risks, we are reassessing our business portfolio, including new market development, to reduce our dependence on resources.

Risks of data falsification, tampering and misuse

Should there ever be any falsification, tampering, and misuse of various kinds of data in any of our business operations in violation of internal rules, it may lead to loss of trust and damage claims, potentially affecting our performance. We are actively working to mitigate the manifestation of these risks through rigorous compliance education, verification of business processes by the Business Audit Department and by making revisions to our business manuals.

Risks related to IT system security management

Each company within our Group utilizes IT systems for business processes and information management, and events such as computer viruses and unauthorized intrusions by malicious third parties can result in IT system downtime, ransomware attacks and information leaks, significantly impacting business operations. We are dedicated to enhancing the security of our IT system and information systems while establishing relevant rules and regulations to strengthen our defenses against ransomware attacks and conduct regular training on suspicious emails from external sources to reduce these risks.

Risks concerning human resources

It is essential to secure and develop exceptional personnel with advanced expertise to sustain the consistent growth of our Group. However, in an era where the labor force is declining due to an aging population, failure to secure and develop such talent may potentially impact business operations and performance. We address this risk by taking several initiatives, such as promoting health and productivity management within the organization to support employee health, creating a friendly and accommodating workplace, enhancing employee engagement, improving educational training systems, and actively recruiting new graduates and talented mid-career personnel.

Risks related to legal regulations

Our Group is subject to various domestic and international regulations, including but not limited to company laws, financial instruments and exchange laws, tax laws, labor laws, antitrust laws, and construction business laws, as well as standards related to quality, environment and accounting, in the countries where we operate. Future amendments to these laws or the introduction of new legal regulations that occur from the changes in societal conditions may potentially impact our financial condition and performance. Furthermore, if regulatory authorities determine that some of our transactions, directly or indirectly, are in violation of legal regulations, we may face administrative penalties such as fines and damage to our social credibility. We actively and continuously collect information on relevant legal regulations and the trends in amendments while ensuring strict compliance education within the organization to mitigate these risks.

Risks of asset impairment

Our Group holds securities such as shares and other financial instruments for the purpose of maintaining long-term business relationships, and if there is a significant drop in the market price for the securities held or if the financial condition of the relevant companies deteriorates, it may potentially affect the Group's financial condition and performance. Additionally, our Group owns real estate properties at domestic and international business locations, and if there is a decline in real estate prices, we will apply the "Accounting Standards for Impairment of Fixed Assets" which may also impact our Group's financial condition and performance.

Risks related to deferred tax assets

Deferred tax assets are recorded based on reasonable estimates of future taxable income and the assessment of recoverability. Significant fluctuations in these estimates of future taxable income or changes in the tax laws could lead to a reduction in deferred tax assets, potentially impacting our Group's financial condition and performance.

Initiatives