Business Risks, etc.
The following is a description of items regarding business and accounting conditions, etc., recorded in Annual Securities Reports that managers recognize as the principal risks with the potential to significantly impact the financial condition, business performance, and cash flows of consolidated companies. Based on recognition for the existence of such risk factors, the Group shall prevent them from occurring and shall strive to take appropriate measures if they do occur.
Note that items regarding the future were determined at the end of the current consolidated fiscal year, and that business risks, etc., are not limited to these items.
Construction Market Trends and Price Competition
The Tenox Group mainly conducts construction business specialized in foundation construction. A decline in construction investments or intensification of competition with rival companies due to market fluctuations may therefore affect our business performance. Worsened construction profits due to soaring prices for raw materials and rising labor costs may also adversely affect the Group’s business performance or financial condition.
The Tenox Group has received a Special Construction Business License and Ordinary Construction Business License from the Minister of Land, Infrastructure, Transport and Tourism based on the Construction Business Act and is committed to maintaining the necessary requirements for these licenses and observing all laws. There are no facts corresponding to reasons for recission of these licenses, but if unexpected circumstances such as recission of the licenses arose in an unlikely event such as a legal violation, there is the possibility of a significant impact on the Group’s business development, business performance, and financial condition. In addition to the Construction Business Act, we are also subject to various regulations under relevant legislation, including the Act against Delay in Payment of Subcontract Proceeds, etc. to Subcontractors; the Road Traffic Act; and the Waste Management and Public Cleansing Act.
The Tenox Group firmly recognizes the importance of compliance. We have established a Compliance Committee and built a structure to take appropriate measures not only for the regulations of existing legislation through our compliance manual, but also in case of regulatory revisions or repeals, or new legal regulations. However, if problems arise due to contravention of these regulations, etc., for any reason, or if unforeseen circumstances arise due to revision of these regulations, it may adversely affect the Group’s business development, business performance, or financial condition.
Cultivation and Securing of Human Resources
Outstanding holders of qualifications and excellent evaluation of construction results are the foundation for business continuity and expansion in the construction business. Depending on the construction work, it is also essential to deploy chief engineers, and we acknowledge that transmission of techniques as well as hiring and cultivation of superior human resources are important management challenges in order to expand business operations. At present, we are focusing efforts on recruitment of qualified people and education so that employees can obtain qualifications. However, there is the possibility that maintenance and expansion of the Group’s business activities, as well as the Group’s business performance or financial condition, may be adversely affected if we cannot continue securing the necessary human resources in the future.
Securing Partner Companies and Building Good Relationships
As Tenox manages construction work, it is essential to secure partner companies and build good relationships. Currently, we have sufficient construction capacity to handle construction orders centered on our subsidiaries and partner companies with whom we have conducted business for many years. However, inability to stably secure construction capacity due to unforeseen circumstances arising at partner companies in the future may adversely affect maintenance and expansion of the Group’s business activities, as well as our business performance or financial condition.
Work at construction sites consists mainly of outdoor activities surrounded by large heavy equipment. The Tenox Group recognizes that there is a higher risk for occurrence of serious work accidents compared to other industries. The Group thoroughly implements on-site safety and hygiene education that begins with organizing and tidying of the work site, and we put our utmost effort into preventing accidents.
Additionally, the Group is enrolled in various insurance policies to prepare for the unlikely event of financial loss. However, if a serious accident such as a death accident occurs, the human loss is accompanied by a loss of trust from society, the incurrence of disaster response expenses including compensation, etc., and a decline in earnings due to construction delays. Such cases may adversely affect the Group’s business performance and financial condition.
Noncompliance with Agreements in Construction Projects
The Tenox Group performs construction based on quality control standards that comply with various laws and regulations, including the Building Standards Act. For the pile construction and soil improvement work conducted by the Group, we conduct thorough preliminary surveys before executing work. However, ground is composed of various soil types, and there is always the possibility that construction defects will occur due to unforeseen events. If a claim for damage compensation due to noncompliance with an agreement is filed, it may adversely affect the Group’s business performance and financial condition.
In order to facilitate business development, the main offices of the Tenox Group are located in the suburbs of the Tokyo metropolitan area. There is the possibility that the Group’s business performance or financial condition may be adversely affected if these areas are struck by a major earthquake which greatly exceeds the envisioned scale, or by other major natural disasters, accidents, etc.
The Spread of Infectious Disease
The Tenox Group has business locations throughout Japan and conducts foundation construction work in all these places. However, there is the possibility that the Group’s business performance or financial condition may be adversely affected in situations such as suspension or postponement of construction, or closing of business locations due to the currently prevalent spread of COVID-19 and similar infectious diseases in Japan.
Technical Development Capability
In order to differentiate itself from other companies, the Tenox Group has worked for many years to accumulate technology and expertise related to foundation construction. Moreover, in addition to cultivating outstanding engineers based on our management philosophy of having a technological orientation, the Group has acquired numerous patents. Developing new construction methods requires a great deal of time and money, yet there is no guarantee that such investments will always be recovered. Furthermore, if various risks inherent in technological development become apparent (for example, if our technology is made obsolete by new technology relating to developments by other companies), it may adversely affect the Group’s business performance and financial condition.
Bad Debt Risk
If unexpected bad debt risk of our business partners becomes apparent, and if it becomes necessary to post additional losses or provisions related to said risk, it may adversely affect the Tenox Group’s business performance and financial condition.
The Tenox Group operates businesses overseas. There is the possibility that the Group’s business performance or financial condition may be adversely affected by unexpected changes to legal systems, political situations, or economic conditions in those overseas regions.
Also, there is the possibility that the Group’s business performance or financial condition may be adversely affected by exchange rate loss caused by sudden fluctuations in exchange rates.
Information Security Risk
The Tenox Group has adopted various methods to communicate within the Group and between the Group and outside parties. We have also introduced a variety of systems within the Group. As risk countermeasures, we have taken steps including constantly updating antivirus software and enhancing security measures for network connections to prevent external leakage of information. However, there is the possibility that the Group’s business performance or financial condition may be adversely affected by temporary suspension of business, suspension of transactions due to undermined trust from clients or business connections, or compensation for damages if there is a system failure or leakage of important information as a result of virus infection or unauthorized access.
Climate Change Risk
As a risk of transitioning to a decarbonized society in response to climate change, it is conceivable that business costs will increase and affect business performance due to the introduction of carbon pricing such as carbon taxes and emissions trading. Companies with insufficient decarbonization measures may also be excluded from supply chains. As a decarbonization measure, Tenox uses fuel that emits less CO2 than diesel and additives that reduce CO2 emissions for our construction machines, and we will expand their use. We are also working on developing electric-powered construction machines with zero emission of diesel exhaust fumes. In addition, we will implement trapping of CO2 in the ground, as well as construction methods using industrial byproducts, in our foundation construction.
The intensification of natural disasters has become conspicuous as a physical risk associated with climate change, and business performance may be impacted by injuries , damage at construction sites, or construction-period delays due to typhoons and floods. Tenox has created a Business Continuity Plan (BCP) for times of disaster, and we universally inform employees and partner companies as well as conduct training to strive to contribute to clients and society through quick recovery if a disaster occurs.