There are risks associated with the businesses of the Daiwa House Group that may possibly have a material impact on the consolidated financial positions, operating results and cash flow as indicated below. The future risks described herein are those that had been identified as of March 31, 2021.
- Risks associated with legal regulations
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 facilities, 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. The Group, however, monitors in advance the trends in the amendment and/or abolition of laws or regulations or the enactment of new legislation in relation to the Group’s operations, and takes necessary measures and responses prior to their enforcement according to internal systems. Therefore, the possibility that the risk may exert a negative impact on the Group’s business performance has been mitigated.
The Group also projects a risk of violation of legal regulations. In order to prevent the materialization of this risk, the Group developed a group-wide risk management system as stated above, and 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 that the risk is materialized despite these efforts, there is a possibility that the Group may be subject to penalties or other sanctions and may suffer damage to its credibility or image among society at large, thereby exerting a negative impact on its business performance.
- Risks associated with information security
For smooth and efficient business operations, the Daiwa House Group promotes the utilization of IT systems. 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.
As a countermeasure for these risks, the Company monitors, analyzes and responds to the threats to cybersecurity by setting up a CSIRT*1 and an SOC*2. The Company has also laid down IT control regulations (Personal information protection regulations, Information security management regulations, etc.), and devised upstream and downstream countermeasures as well as measures for information protection. In addition to these efforts, through training courses for executives and other employees on how to counter targeted attack emails, the Group ensures that all staff are fully aware of the importance of properly managing information. For Group companies, we appointed persons responsible for IT systems at each company, and provide them with security awareness topics as well as guidance on checking the status of security levels and on resolving discovered issues.
*1.CSIRT（Computer Security Incident Response Team）： A dedicated team that responds to cybersecurity-related incidents. Based on its professional expertise, the team determines the scope and severity of the damage caused by a cyberattack, ensures early resolution of issues, and provides security awareness topics.
*2.SOC（Security Operation Center）： A dedicated team tasked with monitoring and analyzing the threats to information systems. The team monitors the log information of internal IT equipment 24 hours a day, determines the possibility of attacks based on the log analysis, and analyzes computer viruses.
- Risks associated with natural disasters
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, typhoon, water damage, or volcanic eruption, employees of the Group may suffer injury or loss of life, while material damage may be directly caused to the Group’s facilities and equipment. In addition, indirect financial damage may be suffered as a result of the disruption or severing of information systems and telecommunications networks, as well as distribution lines and supply chains.
Particularly, in the event of an earthquake, typhoon, or water damage, buildings that were built by the Company may be damaged. Such an event would lead to expenses for the repair and reconstruction of damaged buildings and the posting of losses due to the suspension of business activities, as well as expenses involved in inspecting the damage to customers’ properties and effecting emergency repairs, and expenditures on activities in support of the community. Such expenses could negatively impact the Group’s business performance. Given the difficulty in estimating the likelihood of a natural disaster or how far such an event would adversely affect the business performance, the Group laid down internal regulations and manuals on business continuity management, thereby taking precautions to enable swift and appropriate actions at the time of a natural disaster. The Group also stockpiles foodstuffs, adopts IP wireless and satellite telephone systems to improve its communication environment, and takes other measures to minimize the negative impact on its business performance that may be caused by the risk.
- Risks associated with epidemics
In the event of a large-scale epidemic of an infectious disease causing serious health problems, the Company 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. Likewise, our Group companies also may have to suspend their sales activities, especially those operating hotels and sports clubs may be faced with a significant decline in customer footfall.
All of these risks 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 Group. In order to prevent the spread of infections, we currently prohibit travels to countries and regions with a high risk of infections, close branch offices, and adopt telework and other programs as countermeasures.
- Risks associated with overseas business operations
In its overseas business operations, the Daiwa House Group is subject to risks arising from a variety of possible external causes, including: a sudden upturn in inflation or a sharp change in the exchange rate of the yen; the occurrence of riots, civil insurrection, or war risk resulting from uncertainty arising from political and economic circumstances; delay or suspension in the execution of business, the collection of proceeds, or restrictions on money transfers due to a deterioration in diplomatic relations between Japan and other countries or legal constraints; or the risk of a sharp decline in demand for the purchase of real estate as a result of changes in the legal framework, such as the passage of legislation to restrain transactions in the real estate market. In the event of the materialization of any of these risks, the business performance of the Group may be adversely affected.
In addition, in our overseas operations, there is a risk of violation of the law, or of the occurrence of fraudulent or illicit acts. Moreover, because of the geographical distance between the Group's Head Office and its overseas business sites, it may be unduly delayed discovering of risks. In such cases, the business performance of the Group may be adversely affected.
- Risks associated with dependence on specific subcontractors, products and technologies
The Daiwa House Group consigns part of its operations including the provision of products and services and manufacturing of raw materials used for products to business operators that possess particular technological expertise. In the contingent event that such subcontractors should halt operation, this may lead to delays in the Group’s ability to provide certain products or services, or even inability to provide such products or services. In order to prevent such contingencies, the Group is striving to increase choices for when to place orders or subcontract operations, so as to avoid relying heavily on specific business operators. If, in spite of these measures, the risk is materialized, the Group’s business performance may be negatively affected.
- Risks associated with operational strategies and internal reorganizations
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, and carries out reorganizations of its own internal business structure.
There is, however, the possibility that such acquisitions of companies or business operations, and such internal reorganizations, may not proceed as projected, and that the synergy between Group companies may not lead to the hoped-for business results. 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.
- Risks associated with declines in the value of assets, including real estate
The Daiwa House Group is engaged in the acquisition, development and sale of real estate assets in the Japanese and overseas markets, and consequently, a deterioration in the real estate market, leading to a fall in land prices and lower rent values, could adversely affect the Group’s business performance.
Moreover, in such an event, the Group may be forced to write down the value of its real estate holdings.
The Group may also be forced to write down the 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.
- Risks associated with rises in the prices of raw materials, construction materials, labor costs, etc.
Rises in the market prices of raw materials, construction materials, labor costs and so on would cause increases in the Daiwa House Group’s purchase prices and construction costs, and in the event that the Group is unable to pass on the said increases to its customers by raising its selling prices, this could exert a negative impact on the Group’s business performance.
- Risks associated with changes in government policies and taxation systems relating to housing
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 systems relating to the installation of photovoltaic power generation equipment. Such a decline would adversely impact the Daiwa House Group’s housing-related businesses. In addition, changes in the rates of various taxes―such as a higher rate of consumption tax―leading to a heavier tax payment burden for potential customers, may cause a decrease in demand for single-family houses and other forms of housing, thereby adversely impacting the Group’s business performance.
- Risks associated with retirement allowance expenses
In the event of a future downturn in the stock market or other financial markets, the value of the Daiwa House Group’s pension plan assets may decline, leading to actuarial differences resulting from a revision of the Group’s retirement benefit obligations, and thus causing a rise in pension-related expenses. This may also necessitate an additional accumulation of pension assets, which could have an adverse effect on the Group’s business performance.
- Risks associated with product quality guarantees
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.
- Risks associated with workplace safety and environmental protection
The Daiwa House Group places a high priority on both safety and consideration for the natural environment in the course of conduct of business operations 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.
- Risks associated with a rise in interest rates
A rise in interest rates, either as a result of an across-the-board rise in market interest rates or of the downgrading of the Daiwa House 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.
- Risks associated with competitive activities
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. Consequently, there is a possibility that the Group may fail to demonstrate an advantage over such competitors in respect of product or service quality, or the effectiveness of its marketing activities, and that its business performance may thereby be negatively impacted.
- Risks associated with real estate development operations
The Daiwa House Group engages in real estate development operations that 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.
- Risks associated with vacancies in real estate properties for rent, and with declines in rent levels
Increased competition for the acquisition of tenants could make it impossible to acquire tenants or to set rent levels as planned. Thus, in the event that existing tenants leave, the premises for rent could remain unoccupied for a considerable period of time before new tenants move in, causing a sharp deterioration in the utilization rate of the Daiwa House Group’s real estate assets. 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.