Business Risks

(1)Laws, regulations and policies

① Risks associated with legal regulations

Risk details

The enactment of new legislation or the amendment and/or abolition of existing laws or regulations, whether in Japan or in overseas markets, could change the Daiwa House Group’s business situation such that its business performance suffers a negative impact. The Company pursues construction and the real estate business in the Japanese and overseas markets, and its operations are consequently subject to numerous laws and regulations. In Japan they are subject to the application of the Companies Act, the Financial Instruments and Exchange Act, and various laws relating to the construction and real estate sectors as well as protection of the natural environment, and laws specifically regulating particular industries. Overseas, the Group is subject to the application of the laws and regulations of the countries and regions in which it operates. In addition, as the Group companies pursue a wide range of business operations including hotels, logistics, insurance, sports clubs and credit cards, they are subject to the application of laws and regulations specifically regulating respective industries. In this way, there are various laws and regulations that are applicable to the Group’s operations, and in not a few circumstances the amendment and/or abolition of existing laws or regulations or the enactment of new legislation could affect its operations.

In the event of a violation of legal regulations, there is a possibility that the Group may be subject to penalties, punishment or other sanctions or suffer damage to its social credibility or image, which negatively impacts its business performance.

Countermeasures

The Daiwa House Group constantly monitors trends in the amendment and/or abolition of legal regulations or the enactment of new legislation related to Group business, and has developed a system for taking measures in advance to minimize risk in the event that it obtains information about a risk that will impact its business activities or performance. Furthermore, the Group appoints the Head of the Management Administration Headquarters as the Chief Risk Officer (CRO), putting in place a system for establishing, operating and supervising groupwide risk management systems. Through the development of organizations for preventing the materialization of risk and promoting action to address materialized risks under the CRO's supervision, the Group establishes and operates a system for conducting risk management in each of its businesses. In addition, the Group takes such measures as active provision of information and training to employees with respect to knowledge of the laws and regulations, as well as preparation of various manuals and checklists.

However, in the event of materialization of a major risk, the Group responds by setting up an emergency task force and seeking to minimize the adverse impact on performance whilst also making sure to prevent a recurrence.

② Risks associated with overseas business operations

Risk details

In its overseas business operations, the Daiwa House Group is exposed to various risks arising from external factors unique to international transactions. These includes rapid inflation in countries where the Group operates; declines in business revenues due to fluctuations in foreign exchange rates; uncertainty in political and economic conditions and the resulting increases in various costs, including prices; delays in, or the inability to carry out business operations or collect payments due to foreign exchange controls (including restrictions on overseas remittances) implemented in connection with the occurrence of conflicts (civil unrest, riots, or war) or the deterioration of diplomatic relations with Japan; and declines in purchasing appetite resulting from policy changes or legal amendments aimed at tightening the real estate business. If any of these risks materialize, they may adversely affect the Group’s business performance.

Countermeasures

The Daiwa House Group has established investment management guidelines to make visible the standards for the examination of investment policy and specific investments and to carefully examine risks in investment projects according to the standards. The Group has also established an ad-hoc advisory committee focusing on overseas matters that acts as a filter. The Group refers to the committee matters related to risk assessment for each project and the adequacy of countermeasures, in order to ensure appropriate investment decisions.

To manage business conditions during the course of operations, the Group divides its overseas operations into five areas. To establish a governance structure, the Group has designated a regional headquarters company in each area to perform the Regional Corporate (RC) function, and dispatches responsible officers from both the head office administrative division and the overseas division to each region. The Group considers learning the characteristics of each area and each country is important to avoid risks. Under the system, the Group takes root in the local community and gathers information on culture, customs, tax, legal interpretations, and labor issues, etc. in each area and accumulates expertise, thereby enhancing its ability to prevent the materialization of risks and to deal with any risks that do arise. Each RC function staff member strives to strengthen the business foundation in each area, leveraging their expertise. They share information with overseas headquarters and the head office departments, particularly the Management Administration, and focuses on business execution and business management under the Group's management policy.

③ Risks associated with changes in government policies and taxation systems relating to housing

Risk details

There is a risk that demand for housing may decline due to changes in or termination of government programs designed to stimulate housing demand, such as preferential interest rates on mortgage loans or subsidy and benefit systems for housing acquisition and renovation. Such a decline would adversely impact the Daiwa House Group’s housing-related businesses.

In addition, increase in the consumption tax rate and changes or abolishment of the tax system, such as preferential interest rates on mortgage loans, leading to a heavier payment burden for potential customers, may cause a decrease in demand for single-family houses, condominiums and other forms of housing, thereby adversely impacting the Group’s business performance.

Countermeasures

The Daiwa House Group constantly monitors information about various subsidies and benefit systems including their amendment or abolition or the termination of benefits, and takes measures in response to system changes.

Furthermore, in the Single-Family Houses Business, the Company has adopted a policy of providing housing that combines strong cost performance and comfort to a broader range of customers by leveraging innovation tools, including AI-driven systems that instantly propose optimal plans. At the same time, the Company is focusing on expanding sales of built-for-sale houses. In this way, the Company is working to create demand and reduce the impact of decline in housing demand on performance.

(2)Business environment

④ Risks associated with dependence on specific suppliers, products and technologies

Risk details

The Daiwa House Group outsources part of its operations, including the provision of products and services and certain processes in the manufacture of raw materials used in its products, to business operators with specific technological capabilities. There are risks of sudden instability in the supply of goods, parts, and materials due to surges in materials prices, shortages of materials, and delivery delays stemming from geopolitical risks, pandemics, and natural disasters worldwide, as well as the risk of supply disruptions caused by the bankruptcy of suppliers. If any of these risks materialize, they may adversely affect the Company’s business performance.

Countermeasures

To prevent such risks from materializing, the Daiwa House Group is working to establish a stable supply system for items procured in a concentrated matter. For example, as a general rule, except for certain items with special specifications, performance, or functions, the Group adopts a multi-sourcing approach under which items of the same specifications are procured from two or more suppliers by allocating regions among them. Alternatively, for items with equivalent specifications, the Group endeavors to establish a system that enables the supply of substitute products by entering into basic agreements in advance with multiple suppliers, so that substitutes can be supplied even if a particular supplier is unable to supply products.

In particular, for 69 high-priority items (from 45 suppliers), such as structural components and items requiring ministerial certification, the Group requests its suppliers to prepare contingency response plans (disaster-time supply plans) and implements measures to prevent supply instability in emergency situations before it occurs.

In addition, with the exception of products that appeal to customers, the Group is working to reduce the difficulty of procurement by shifting from original products to catalog products. Furthermore, the Group is strengthening its credit management system for its suppliers by utilizing data from external research organizations.

⑤ Risks associated with rises in the prices of raw materials, construction materials, labor costs, etc.

Risk details

The Daiwa House Group relies on subcontractors to procure many of the raw and construction materials used in building construction and service delivery. Material prices have continued to rise sharply due to global climate change in recent years, as well as surging energy costs driven by the Russia-Ukraine conflict and increased import expenses due to the depreciation of the yen.

Additionally, there are concerns that the cost of imported construction materials will rise in response to the reciprocal tariffs recently announced by U.S. President Trump.

Moreover, an increase in labor costs is unavoidable due to the declining workforce caused by the falling birthrate and aging population, as well as the increase in minimum wages. These factors are not limited to the construction industry but are contributing to a shrinking domestic workforce and an increase in bankruptcies due to labor shortages.

Countermeasures

■In response to the risk of rising raw material and construction materials costs

1. Adopting alternative materials
2. Reducing costs by improving procurement efficiency through the consolidation of suppliers, on the premise of BCP measures
3. Reviewing logistics and transportation methods, including modal shifts and consolidated shipping, to reduce logistics-related costs
4. Securing delivery lead times through the review of procurement lead times
5. Securing a labor force for construction sites and placing orders based on appropriate labor costs by utilizing workload planning charts
6. Pursuing economies of scale by consolidating procurement volumes and making bulk purchases in cooperation with group companies
7. Obtaining information on construction schedules in advance, presenting the necessary quantities to suppliers in advance, and securing materials and other supplies before prices rise
8. Promoting stronger technical collaboration, material standardization, and cost reduction by centralizing within the procurement division the point of contact for new product proposals from suppliers

By implementing the multiple measures listed above, the Group is striving to curb rising costs.

In addition, the Group works to reduce production costs at its factories by improving employee retention and securing a stable workforce through better working environments, while also investing in equipment to enhance the efficiency of manufacturing lines.

■In response to the risk of rising labor costs (unit labor cost)

The Group is striving to control costs by promoting labor-saving and labor efficiency in on-site construction and improving productivity through initiatives such as the digitalization of drawings and the review of construction methods.

At its factories, the Group is working to promote employee retention and recruitment by creating comfortable workplaces where all employees, including older workers, can work with peace of mind. In addition to implementing measures to prevent heatstroke during the summer, the Group is improving working environments characterized by harsh, dirty, dangerous, dark, and odorous conditions, as well as high noise levels, to create more comfortable workplaces.

Furthermore, the Group is striving to control costs by promoting further labor-saving, reduced manpower optimization, and productivity improvements in on-site construction through additional automation and digital transformation (DX), supported by capital investment aimed at improving manufacturing line efficiency.

■ In response to the declining working-age population and labor shortages

Amid a decline in the number of young people entering the construction industry, the Group conducts a “Construction College” program as part of its social contribution activities aimed at high school and university students to raise interest in the construction industry and communicate its appeal. The program has been held twice to date, attracting approximately 150 participants and receiving positive feedback. A third session is planned for fiscal 2026.

As this initiative is not expected to produce immediate results, in some regions, member companies of partner associations are also undertaking activities to encourage employment by visiting local schools and explaining the specific work performed at the Group’s construction sites to promote interest in the construction industry.

⑥ Risks associated with competitive activities

Risk details

The Daiwa House Group engages in business operations in a variety of fields, notably construction and real estate, and is in competition with other companies in all these fields. If the Group is unable to gain an edge over these competitors in terms of product quality and price, service, and sales capabilities, its business performance may thereby be negatively affected.

Countermeasures

The Daiwa House Group, under its two-core headquarters structure consisting of the Housing Solutions Headquarters and Business Solutions Headquarters, as well as its business headquarters system, collects and analyzes information on trends of other companies in the industry and reflects such information in its business strategies as necessary.

The Group also harnesses its unique strengths such as its information collection and development capabilities with land as the starting point and its ability to solve problems from a customer perspective in an attempt to avoid becoming involved in excessive competition with competitors.

⑦ Risks associated with the decrease in skilled construction workers

Risk details

The construction business, which is the Daiwa House Group’s primary focus, requires many skilled construction workers, but in Japan the number of construction industry employees is gradually decreasing and is clearly expected to continue declining in the future. In addition, the number of young entrants into the construction industry is decreasing, accelerating the aging of the workforce.

This effect is making the trend of rising labor costs and extended construction schedules more apparent.

Countermeasures

Anticipating a shortage of skilled workers, the Company has implemented various initiatives to improve their working conditions, enhance efficiency and labor savings at construction sites, reduce the administrative burden on subcontractors, and improve payment practices. These efforts include the following measures:

1. Abolishing the use of promissory notes in construction payments
2. Providing allowances to highly skilled workers at construction sites
3. Offering subsidies to subcontractors for training skilled workers
4. Distributing retirement benefit stamps (Kentaikyo) in accordance with the Company’s own rules
5. Payment of allowances to members of the technician career advancement system and for compensation for their contribution to the Company
6. Promoting labor-saving and efficiency at construction sites through the adoption of Digital Transformation (DX) technologies
7. Advancing further prefabrication and standardization to reduce on-site workloads
8. Introducing and expanding the use of work-assist robots and so forth to save labor and ensure quality in construction sites
9. Installing cameras at construction sites to enable real-time remote monitoring of site conditions
10. Promoting efficiency and shortening of administrative work, such as computerization of construction subcontracts, by establishing an environment for Electronic Data Interchange systems
11. Promoting a “four-week, eight-site-closure” schedule to reduce the labor burden on skilled workers
12. Providing subsidies for heatstroke prevention items during periods of extreme heat and supplying them to contractors at reduced prices
13. Operating a “Merit Pension System” under which the Company, project owners, and skilled workers bear contributions and workers receive pension benefits after retirement
14. Operating a “Skilled Worker Development Subsidy Program” to support the training of skilled workers at partner contractors
15. Operating the “Construction Workers’ Retirement Allowance Mutual Aid System”, which supplements retirement benefits for skilled workers

(3)Real estate market

⑧ Risks associated with declines in the value of assets, including real estate

Risk details

The Daiwa House Group engages in the acquisition, development, and sale of real estate in Japan and overseas. If real estate market conditions deteriorate due to economic downturns or other factors, this could adversely affect the Group’s business performance. Moreover, under such circumstances, the Group may be required to reduce the book value of its real estate holdings due to declines in profitability or other factors.

In response to market trends, the Group may also be forced to write down the book value of assets other than its real estate holdings, such as inventories other than real estate, property, plant and equipment, goodwill and other forms of intangible assets, and investments and other assets such as investment securities. This could adversely affect the Group’s business performance.

Countermeasures

The Daiwa House Group is engaged in a wide range of business operations and, by selecting businesses suited to the real estate it acquired in the process, the Group seeks to enhance its asset value. In addition, the Group monitors its real estate holdings including through the regular acquisition of appraisals, and takes appropriate action when signs of a decline in value are identified. Further, the Group's policy is not to hold risk assets other than real estate, in principle, except where necessary for business and it monitors the price risk of assets held on a regular basis.

⑨ Risks associated with real estate development operations

Risk details

The Daiwa House Group's medium- to long-term strategy is to focus on real estate development for a variety of uses, including residential complexes, condominiums, rental housing, commercial facilities, logistics facilities, hotels, date centers and other types of real estate. These projects involve considerable expense and require long time-frames for completion of individual projects. There is, consequently, a risk that, for various reasons, expenses may arise during the course of a project that push total costs beyond the original estimates, resulting in delays to the project or forcing its abandonment. Such an eventuality may have an adverse effect on the Group’s business performance.

Countermeasures

When making important investments, including real estate investments, the Daiwa House Group assesses and deliberates business potential and risks at the Business Investment Committee. In the case of the real estate development business, the Group uses IRR as a key indicator but at the same time it determines whether the business in question is consistent with the Group's management philosophy, management strategies and brand image and carries out a multifaceted risk assessment (15 categories, 25 items) including ESG considerations such as legal risk, soil and groundwater contamination, geotechnical risk, disaster risk (flooding, etc.), environmental issues, and the appropriateness of construction expenses, and even if an investment project meets criteria from a financial perspective, in the event that making the investment is at odds with the Group's goals or vision or would have a serious impact on the environment, the Group does not make the investment. In addition, the risk assessment criteria are reviewed on a regular basis. The Group also assesses and deliberates the risk of business investments in the same way it does for real estate development.

(4)Finance

⑩ Risks associated with a rise in interest rates

Risk details

To meet demand for funds mainly for real estate development, the Daiwa House Group procures funds by utilizing interest-bearing debt together with shareholders' equity, whilst taking capital efficiency into consideration.

Therefore, rise in market interest rates or a downgrading of the Group’s credit rating, would lead to higher material procurement costs, which could have an adverse effect on the Group’s business performance.

Moreover, a rise in market interest rates would make it more expensive for prospective buyers to purchase land or buildings by taking out loans, which could lead to a decline in demand and thus have an adverse effect on the Group’s business performance.

Countermeasures

The Daiwa House Group procures operating funds mainly by methods with low borrowing costs such as short-term loans and commercial paper. However, in the case of investments which take time to recover such as real estate development, the Group reduces liquidity risk through long-term financing. Long-term financing consists mainly of financial instruments with maturities of approximately five years to coincide with the time taken to sell real estate. However, the Group also implements ultra-long-term financing with even longer maturities to reduce refinance risk as interest-bearing debt increases. Moreover, the Group maintains a balanced mix of fixed-rate and variable-rate borrowings depending on interest rate trends.

Meanwhile, the Group strives to build good relationships with financial institutions and raises funds in a stable manner through a combination of direct financing via the corporate bond market and indirect financing. To maintain credit ratings, the Group sets financial discipline goals and conducts management based on an awareness of financial discipline.

Furthermore, for customers using financing, the Group stays abreast of the latest financing products offered by each financial institution and makes financing proposals to meet customer needs. The Group also actively propose various support measures implemented by the national and local governments, and collaborate with external experts such as tax accountants and financial planners to provide total finance support to customers and propose the optimal land and building plans.

⑪ Risks associated with retirement allowance expenses

Risk details

The Daiwa House Group has established a corporate pension plan and one-off retirement payment plan as defined benefit plans and a defined contribution pension plan as a defined contribution plan. In the case of the defined benefit plans, volatility in financial markets such as stock markets and currency markets could lead to a large increase or decrease in retirement benefit obligations as a result of fluctuation in the discount rate or other base rate or a large gain or loss on the management of pension assets, and retirement benefit expense could fluctuate significantly. Since the Group fully amortizes actuarial gains and losses for employees' retirement benefits in the fiscal year of occurrence, volatility in the pension asset management environment or fluctuation in the base rate used to calculate retirement benefit obligations could have a significant impact on performance in the fiscal year in which such events occur.

Countermeasures

As a measure to address the risk of fluctuation in pension assets, Daiwa House Industry Pension Fund has established an Asset Management Committee, which is responsible for establishing and reviewing strategic asset composition ratios, and appointing and evaluating the asset management institution, and the basic policy for the management of pension assets is to make diversified investment in multiple investment targets with different risk-return characteristics within the scope of tolerable risk.

However, the balance of the Daiwa House Group's pension assets at the end of the fiscal year was 528.0 billion yen, and significantly bolstered by financial markets, in the fiscal year ended March 31, 2026, actuarial gains and losses related to retirement benefit accounting accounted to 115.6 billion yen (decrease in expenses), primarily due to changes in the discount rate used to calculate retirement benefit obligations.

The Accounting Standard for Retirement Benefits (Accounting Standards Board of Japan Statement No. 26) stipulates that actuarial gains or losses should be amortized at the pro rata amount computed by the straight-line method over a certain period not longer than the expected average remaining working lives of the employees and easing the impact on performance in the period the actuarial gains or losses occur through "delayed recognition" is permitted. However, since the fiscal year ended March 31, 2003, the Group has conducted the lump-sum disposal as expenses in the fiscal year of occurrence and a change in this disposal method would fall under a "change in accounting policy" but under the current accounting system a change is not permitted because an increase in the balance of pension assets or increased impact on performance does not constitute a valid reason for a change in accounting policy. As a result, operating income for the fiscal period under review was 614.8 billion yen, and operating income excluded actuarial differences was 499.2 billion yen.

⑫ Risks associated with vacancies in real estate properties for rent, and with declines in rent levels

Risk details

The Daiwa House Group owns and manages a large number of real estate for profit-earning. However, increased competition for the acquisition of tenants could make it impossible to acquire tenants or to set rent levels as planned. After a tenant moves in, the rent could be lowered through negotiations between the Group and the tenant. If a tenant vacates the property, the vacated space may remain vacant for a long time until a new tenant moves in. Vacancies could lead to a significant fall in the occupancy rate. Such a situation could oblige the Group to lower its rent levels in order to attract new tenants, and this could have an adverse effect on the Group’s business performance. If a tenant goes bankrupt, there could be a delay in rent payment and rent collection could become impossible.

Countermeasures

In every business that involves managing rental real estate, the Daiwa House Group endeavors to minimize the risk of vacancies and rent decreases by providing highly competitive facilities that accurately meet the needs of residents and tenants, taking factors such as area characteristics and social circumstances into consideration. The Group also works to increase the value of properties by developing them in an environmentally friendly manner and by constructing buildings that have social significance.

(5)Hazards and sudden accidents

⑬ Risks associated with information security

Risk details

For creating new value through DX, and smooth and efficient business operations, the Daiwa House Group promotes the utilization of IT systems. However, in the event of a cyberattack resulting in an inability to operate normally the IT systems for a prolonged period, the Group’s business operations may stagnate seriously, which could have an adverse effect on the Group’s business performance. In addition, there is a possibility that personal information or corporate confidential information may be leaked to persons outside the Group. In such an event, the Group would suffer damage to its reputation for trustworthiness among the general public, and may be faced with claims from counterparties for compensation for loss or damage. Such an eventuality could adversely affect the Group’s business performance.

Countermeasures

The Company has established and is continuously strengthening an information security management framework that combines technical, organizational, and human measures. From a technical perspective, the Company implements a range of measures, including perimeter defenses for both inbound and outbound traffic using firewalls to prevent unauthorized access and intrusion, the introduction of intrusion detection and response systems, the enhancement of endpoint security, and information protection measures that verify all access to protected information. In addition, the Company encrypts and backs up important data to prevent information leakage and data loss. In the event that an information security incident occurs, the Company has established dedicated security functions, including a CSIRT (Computer Security Incident Response Team) and an SOC (Security Operation Center), to enable prompt and appropriate responses. From an organizational perspective, the Company has established information security-related regulations, such as the “Personal Information Protection Regulations” and the “Information Management Regulations,” among others, and, from a human perspective, provides continuous education and training for officers and employees, including e-learning on information security and targeted phishing email exercises, to ensure thorough awareness and training.

Furthermore, for Group companies, including those overseas, the Company has established Group-wide common security policies and standards (the “Basic Group IT Regulations,” “Group IT Security Standard,” and “Group IT Business Continuity Management Standards”) and conducts assessments of actual security levels, promotes the implementation of security measures, provides guidance for issue resolution, and shares security-related information such as vulnerability information.

⑭ Risks associated with natural disasters and climate change

Risk details

The Daiwa House Group owns and operates offices, factories, research and development centers and other facilities, both in Japan and overseas. In the event of a large-scale natural disaster such as an earthquake, volcanic eruption, typhoon or water damage, employees and facilities and equipment may be directly affected and indirect damage may also be suffered as a result of the disruption or severing of information systems and telecommunications networks, as well as distribution lines and supply chains. In particular, in the event of an earthquake, typhoon, or water damage, buildings that were built by the Group may be damaged. In such cases, we may pay expenses for damage restoration, losses due to interruption of business activities, etc., expenses for inspecting and providing emergency treatment to buildings owned by our customers, and other social support activities. This could have a negative impact on our business performance and so forth. In addition, the recent increase in heat stroke caused by rising temperatures due to global warming, especially at production and construction sites, is a critical issue from the perspectives of health, safety, and labor productivity.

Countermeasures

The Daiwa House Group is engaged in climate change mitigation efforts and, at the same time, has established the “Regulations on Business Continuity in the Event of Natural Disaster” as part of its climate change adoption measures, and implements advance measures to ensure that responses to natural disasters can be carried out promptly and appropriately when they occur. To minimize the negative impact on business performance in the event of risk materialization, the Group has implemented various measures, including stockpiling food supplies, installing battery storage systems, establishing communication infrastructure through IP radio and satellite phones, deploying flood prevention equipment such as water barriers at company facilities and formulating business continuity plans across its supply chain. In addition, the Company is also implementing measures to prevent heatstroke, including the installation of indoor and outdoor rest areas and body cooling equipment at production and construction sites, as well as the installation and expansion of air-conditioning equipment, and providing subsidies for heatstroke prevention items to partner companies.

⑮ Risks associated with epidemics

Risk details

The Daiwa House Group owns and operates facilities where people gather, such as sales offices, factories, construction sites and commercial facilities. In the event of a large-scale epidemic of an infectious disease causing serious health problems, the Group may have to suspend its sales activities and operations of construction sites in order to prevent the spread of infections. A deterioration in the real estate market could also adversely affect the acquisition, development and other operations relating to real estate assets. Especially in the hotel business and the sports club operation business, performance could be adversely affected due to lower occupancy and lower average spend.

Countermeasures

All of these risks above are attributable to external factors and thus it is difficult to reasonably estimate the likelihood of their materialization or how far such an event would adversely affect the business performance. In the event of the materialization of any of these risks, our policy is to give top priority to minimizing the health problems of stakeholders of the Daiwa House Group. In order to prevent the spread of infections, the Group has implemented measures to prevent infection at each of its facilities, prohibited its employees from traveling to countries and regions with a high risk of infections, and implemented teleworking.

⑯ Risks associated with operational strategies and internal reorganizations

Risk details

In pursuit of its business strategies, the Daiwa House Group engages when deemed necessary in the acquisition of other companies or the purchase of specific business operations from other companies, carries out reorganizations of its own internal business structure and sells companies and businesses from a medium- to long-term perspective.

There is, however, the possibility that such acquisitions of companies or business operations, and such internal reorganizations and integration after their implementation may not proceed as projected, and that the synergy between Group companies may not lead to the hoped-for business results or assumptions about the business environment may change drastically. In such an event, the Group may fail to achieve the level of profits envisaged in its business strategy and its business performance may consequently be negatively impacted.

Countermeasures

Since the business environment is constantly changing, it is difficult to estimate the likelihood of materialization of the above risk or the extent of the adverse impact on performance. However, to address this risk, the Daiwa House Group has put in place a system for considering acquisitions which involves clarifying the purpose of the acquisition, properly assessing the corporate value of the target company and the feasibility of the business plan by carrying out due diligence and an evaluation of the share price with the help of various experts and judging the pros and cons of acquisition prior to acquisition. Furthermore, after implementation of the acquisition, the Group sets a defined PMI period during which a specialized department and the acquiring unit such as its business division or a group company, work together to jointly implement PMI initiatives to achieve strategic objectives and maximize synergy.

Moreover, after the end of the PMI period, control of the acquired company or business operation is transferred to the Group’s business division-based system. The relevant business division then takes the lead in pursing synergies and enhancing corporate value, aiming for the Group’s overall medium- to long-term growth of the Group as a whole.

In addition, the Group will continue to review its business portfolio in connection with the reorganization of its business portfolio associated with the selection and concentration of its operations. From a medium- to long-term perspective, for companies or businesses for which growth or improvements in capital efficiency are not expected, the Group will also consider measures including the sale to best owners. It should be noted that there is a possibility that such sales may not be realized under the anticipated conditions or that temporary losses may arise in connection with such sales.

⑰ Risks associated with product quality guarantees, etc

Risk details

In its residential businesses, the Daiwa House Group is committed to offering a long-term guarantee system to ensure a higher level of customer satisfaction, and to maintaining effective quality management. During a long period of support, however, an unforeseeable major issue relating to quality may arise, adversely impacting the business performance of the Group.

Countermeasures

In the design phase, the Daiwa House Group double-checks compliance with building-related laws and regulations to ensure legal conformity. During construction, self-inspections are conducted by both the contractors and construction supervisors, followed by quality inspections performed by a department that operates independently from the construction division. Further, the Group has established a system for carrying out inspection/diagnosis on a regular basis after handover and for continuously monitoring the condition and quality of buildings throughout a long support period including diagnosing deterioration and maintenance proposals, to ensure that no serious quality problems have occurred. If any issues are identified or anticipated, relevant departments within the Solutions and Corporate divisions share information and take coordinated actions to minimize the potential negative impact on business performance.

⑱ Risks associated with workplace safety and environmental protection

Risk details

The Daiwa House Group places a high priority on both safety and consideration for the natural in its manufacturing plants, as well as at construction sites, and therefore takes appropriate measures to realize workplace safety and environmental protection. In spite of these measures, however, there is a possibility that accidents at construction sites and/or incidents of pollution may occur. Such accidents or incidents could have an adverse effect on the business performance of the Group, as a result of harm to personnel and/or material damage, such as in the form of pollution of the environment.

Countermeasures

To mitigate safety risks, the Daiwa House Group carries out regular and special patrols of construction sites and provides guidance and education to its own employees and employees of construction companies through the Safety and Health Council.

Moreover, to mitigate environmental risks, the Group implements initiatives to substitute and reduce hazardous chemicals, provides education and training, and establishes a specialist department to deal with soil contamination, which is a major problem in the construction industry.