Business Risks, etc.
The following is a description of items regarding business and accounting conditions, etc., recorded in the Annual Securities Report that managers recognize as the principal risks with the potential to significantly impact the financial condition, business performance, and cash flows of the consolidated companies. Having recognized the existence of such risks and classified them into four categories, 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.
(1) Risks Related to the Business Environment
Construction Market Trends and Price Competition
The Tenox Group mainly conducts construction business specialized in foundation construction. A decline in public works and private capital investments due to changes in economic conditions, or intensification of price competition with rival companies, may adversely affect the Group’s business performance or financial condition.
Natural Disasters and the Spread of Infectious Diseases
The Tenox Group has formulated a Business Continuity Plan (BCP) to prepare for large-scale earthquakes and other natural disasters, as well as the spread of infectious diseases. The Group communicates the BCP to employees and subcontractors, conducts employee training, and strives to achieve prompt recovery in the event of a disaster. However, if any of these events occur, construction work in progress, assets, and employees of the Group may suffer damage, and suspension or postponement of construction work may adversely affect the Group’s business continuity, business performance, or financial condition.
Climate Change Risk
As the transition to a decarbonized society progresses in response to climate change, the introduction of carbon pricing such as carbon taxes and emissions trading may increase business costs and adversely affect the Group’s business performance and financial condition. Companies with insufficient decarbonization measures may also be excluded from supply chains. As a decarbonization measure, Tenox actively uses fuel that emits less CO2 than diesel, particularly carbon-neutral diesel alternative fuels produced from renewable resources, as well as additives that reduce CO2 emissions, for our construction machines, and we will expand their use. We are also promoting the practical application of electric-powered construction machines with zero emission of diesel exhaust fumes. In addition, we will advance the development of construction methods for underground sequestration of carbonates containing captured CO2 and construction methods utilizing industrial byproducts in our foundation construction.
Fluctuations in Construction Costs
The Tenox Group is working to improve profitability by enhancing the accuracy of cost calculations at the estimation stage, monitoring costs during construction, and operating equipment efficiently. However, if project profitability deteriorates due to surging prices of construction materials and fuel, rising labor costs, or differences between estimated and actual construction periods, the Group’s business performance or financial condition may be adversely affected.
Country Risk
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.
(2) Risks Related to Business Operations
Credit Risk of Business Partners
Nexpected deterioration in the creditworthiness of the Tenox Group’s business partners becomes apparent, and if it becomes necessary to post bad debt losses or provisions, or if there is a delay in collecting receivables from specific customers to whom our receivables are concentrated due to the receipt of large-scale construction orders, etc., it may adversely affect the Group’s business performance and financial condition.
Construction Quality Defects
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 that we undertake, we conduct thorough preliminary surveys before executing work. However, ground is composed of various soil types, and there is always the possibility that construction deficiencies will occur due to unforeseen events. If, due to construction quality defects, rework of construction becomes necessary or a claim for damage compensation is filed, it may adversely affect the Group’s business performance and financial condition.
Work Accidents
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 housekeeping 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 fatal accident occurs, resulting in human loss, a loss of trust from society, the incurrence of disaster response expenses including compensation, etc., and a decline in earnings due to construction delays, it may adversely affect the Group’s business performance and financial condition.
Securing Subcontractors and Building Good Relationships
As Tenox manages construction work, it is essential to secure subcontractors and build good relationships. Currently, we have the construction capacity to handle construction orders centered on our subsidiaries and subcontractors with whom we have conducted business for many years. However, if construction capacity can no longer be stably secured due to unforeseen circumstances arising at subcontractors in the future, it may adversely affect the maintenance and expansion of the Group’s business activities, as well as its business performance or financial condition.
(3) Risks Related to Organizational Structure
Securing and Developing 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 its business performance or financial condition, may be adversely affected if we cannot continue securing the necessary human resources going forward.
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 as returns. Furthermore, if various risks inherent in technological development become apparent (for example, if our technological advantage is made obsolete by new technology relating to developments by other companies), it may adversely affect the Group’s business performance and financial condition.
Information Security Risk
The Tenox Group has adopted various methods to communicate within the Group and with 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.
(4) Risks Related to Ethics and Compliance
Legal Restrictions
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 Act on Preventing Delay in Payment to Small and Medium-Sized Entrusted Business Operators in Relation to Manufacturing Consignment; the Road Traffic Act; and the Waste Management and Public Cleansing Act.
Tenox firmly recognizes the importance of compliance. It has established a Compliance Committee and built a structure to take appropriate measures not only for existing legal regulations, but also in case of revisions or repeals of these regulations, or new legal regulations. However, if circumstances that contravene these regulations arise for any reason, or if problems affecting business continuity arise due to revisions to these regulations, it may adversely affect the Group’s business development, business performance, or financial condition.
Workplace Environment Risk
The Tenox Group strives to maintain an appropriate labor environment and personnel allocation with the aim of protecting employees’ health and creating a safe and secure workplace. However, if human rights issues such as long working hours, deficiencies in labor management, or harassment arise, they may adversely affect the Group’s business operations due to factors such as deterioration in employees’ safety and health, reduced productivity, liability for violations of laws and regulations, or loss of social trust.
(5) Key Risk Management Items for FY2026
Among the “Business Risks, etc.” the likelihood and potential impact of each risk have been evaluated, and the following four items have been designated as the key risk management items for FY2026 as areas requiring strengthened risk management and response measures. Under a management framework based on periodic monitoring, we will continue our efforts to prevent the materialization of risks and mitigate risks.
• Fluctuations in construction costs
• Construction quality defects
• Securing and developing human resources
• Legal restrictions