There are risks associated with the businesses of the Daiwa House Group that may possibly have a material impact on the decisions of investors as indicated below. The future risks described herein are those that had been identified as of March 31, 2015.
- Risks associated with legal regulations
The Daiwa House Group pursues a wide range of business operations in the Japanese and overseas markets, principally in construction and the real estate business, and the Group’s 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 Law, 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.
We conduct thorough training to ensure compliance with respect to such laws and regulations on the part of our executives and other employees. However, in the event that these efforts prove insufficient, such that a violation of an applicable law occurs, 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.
Regarding cases in which it is mandatory to appoint and/or assign persons licensed to practice — in particular under the Construction Industry Act, and the Building Lots and Building Transaction Business Act — while the Group is directing its efforts toward the hiring and training of such persons to enable the conduct of business operations in full compliance with the law, in the event that it proves impossible to secure the employment of sufficient numbers of such personnel, the Group’s business performance may suffer a negative impact.
In addition, 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 Group’s business situation such that its business performance suffers a negative impact.
- Risks associated with the leakage of confidential personal information and other sensitive information
The Group is not only in possession of personal information relating to a large number of individuals who are our customers, it is also in possession of a large amount of confidential corporate information relating to the Group itself. Each member company in the Group has laid down its own policies and specific procedures for the management of such information, and the Group is constantly working to upgrade its information security level through training courses for executives and other employees, and by ensuring that all staff are fully aware of the importance of properly managing information.
Despite these efforts, there is a possibility that important 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, may suffer considerable financial losses in the form of the costs of remedial action and may suffer damage to its business performance as a result of the tarnishing of its brand image.
- 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 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 overseas business operations
The Daiwa House Group is engaged in overseas business operations, primarily in China, and its business is therefore subject to risks arising from a variety of possible events, including: a sudden upturn in inflation or a sharp change in the exchange rate of the yen; the occurrence of riots, civil insurrection, war, or litigation 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.
- Risks associated with dependence on subcontractors or outsourced service providers
In addition to those products manufactured, buildings constructed and services provided directly by the Group’s executives and other employees, the Group also places orders for the provision to its customers of such products and services with subcontractors or outsourced service providers that possess particular technological expertise.
Consequently, in the contingent event that such subcontractors or service providers should be unable to continue in operation owing to unforeseeable downturns in business performance or the occurrence of an accident or accidents, this may lead to delays in the Group’s ability to provide certain products or services, and it may be faced with claims from customers for compensation for loss or damage. Such an eventuality could adversely affect the Group’s business performance.
- Risks associated with workplace safety and environmental protection
The 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 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, tsunami, 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. Such an event would lead to expenses for the repair and reconstruction of damaged facilities 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.
- 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 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 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 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 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 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.
- 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 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 real estate development operations
The 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 changes in government policies and taxation systems relating to housing
There is a risk that demand for housing may decline due to termination of or changes in government programs designed to stimulate housing demand, such as preferential interest rates on mortgage loans. Such a decline would adversely impact the Group’s housing-related businesses. In addition, increases in the rates of various taxes, such as the consumption tax, leading to higher tax payment burdens for potential customers, would be likely to 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 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.